Monopoly is not a gameSource: Guy Rolnik at the University of ChicagoMentions of “antitrust” in Democratic and Republican platforms0246810121900 10 20 30 40 50 60 70 80 90 2000 10 16Democratic
Republicantion”. They may not be going too far when they trace the rise of your
generation of tech firms to those antitrust cases.Pre-emptive action might sometimes be an option. Some see your
search for a second headquarters, Jeff, as a portent of such a strategy:
a step towards spinning off Amazon Web Services. (This would not
allay concerns about Amazon being both a retailer and marketplace,
but it could subdue and distract regulators.) The creation of Alphabet
as a holding company in 2015 means that splitting, say, Google from
YouTube would be less hard than in years gone by.Self-severance might be preferable to waiting for regulators to arbi-
trarily decide which limb to sever. But it is still a big step. An alterna-
tive is just lying low. Do not provoke regulators, as Mr Gates did (he
called one FTC commissioner a communist). Do spend some of your
money on influence. In 2017 the internet sector spent $50m on lob-
bying in America, which is three times what it spent in 2009—but still
only a quarter of what pharma firms spend. Your K-street battalions
should remind regulators that attacking deals which have already
been done chills the market. And the antitrust hipsters need to know
that break-ups are not stable solutions. The network effects that make
bigger networks more attractive to new joiners give these markets a
winner-takes-all quality. One of the Googlettes, or the Facebabies,
will do better than all the rest, and a new giant will rise.Utility regulation
That said, taking this winner-takes-all argument too far could back-
fire. Mark, you and your peers may all come to rue the day you de-
scribed Facebook as a “utility”. You were trying to argue that Face-
book’s market-dominating social network could be as ubiquitous as
electricity. In doing so you armed your critics. Utilities so big that
everyone depends on them get regulated.That could be really disastrous. Have a look at “Railroaded” by Richard
White, a historian at Stanford. The Interstate Commerce Commission
(ICC) was created in 1886 to stop train companies discriminating
against particular farmers by establishing set and transparent pric-
ing. It quickly overreached and ended up regulating trucking and the
telegraph. It also proved chronically prone to regulatory capture—
which, I admit, might be an upside for you, but which in the case of the
ICC was a disaster.Price regulation is hard for services that are basically free to the user.
It is possible, though, that a regulator could force prices up—for
example by insisting that you offer customers the chance to pay for an
ad-free service. A more likely approach, though, would be to cap
profits. On the basis of your third-quarter figures, a mandated 20%
rate of return would represent a fall in profitability rates of 11% for
Google and 56% for Facebook. Your share prices would plunge.Prevent new acquisitions
In 1968 America’s merger guidelines suggested that any acquisition of20 BriefingCoping with techlash The Economist January 20 th 2018
a company with a market share of more than 3% by one with a share
higher than 15% should be challenged by the DOJ. There are no limits
like that any more. For the past four decades American antitrust
thinking has been in thrall to the argument which Robert Bork, a
legal scholar, made in “The Antitrust Paradox”: consumer welfare is
the thing antitrust should worry about most. In practice, this has
boiled down to thinking that if prices don’t go up no harm is done.
Around the same time economists of the Chicago School, devoted to
the idea that markets are self-correcting, started to have a big influ-
ence on antitrust enforcement under President Ronald Reagan—or,
rather, lack of enforcement.It is a sign of the times that the University of Chicago is today home to
several professors, such as Luigi Zingales and Guy Rolnik, calling
loudly for more scrutiny of tech firms. Many believe that looking
simply at prices and market shares is too simplistic—especially when
technology is often free to the user and constantly changing the
shape of the market. One reason that Britain’s Office of Fair Trading
was relaxed about Facebook’s Instagram purchase was that it saw
Instagram as a “camera and photo-editing app”, not a social net-
work, and thus unlikely to ever be “attractive to advertisers on a
stand-alone basis”. Clearly they lacked imagination.Europe has always used a range of metrics, taking on board market
concentration and consumer welfare—which includes price, quality
and the diversity of products in the market—to evaluate fair competi-
tion. And countries there clearly now want to police more deals. Last
year Germany and Austria changed their merger-review policies to
assess deals based on the values, not revenues, of the acquired firms.
This will enable them to scrutinise the acquisition of startups that do
not yet make money. Ms Vestager has suggested this could apply
across Europe. Some would like to see it applied in America.Amy Klobuchar, a Democratic senator, has proposed two bills to
change the standard for big deals, requiring firms to prove that their
deal would be helpful to competition and to report data about a
merger’s impact for five years. Those bills won’t pass, but a “potential
competition doctrine” which looks at what the small fry might be-
come, not at what they are today, could emerge through new prece-
dents. It is also possible that bodies of user data, as well as market
shares, might get considered.My advice? Don’t pursue any big deals in this current climate. Micro-
soft misjudged the mood by trying to buy Intuit, a maker of financial
software, for $1.5bn in 1994; the episode drew attention to other
aspects of its market power. And, frankly, small deals may be out, too.
Facebook’s acquisition of tbh is for a paltry $80m, but it has still
sparked cries of foul from tech watchers such as Ben Thompson at
Stratechery, a newsletter, who think that network effects mean no
social networks should be allowed to merge. For the time being, your
shopping trolleys should be kept empty.Data portability and interoperability
There are two overlapping issues about customer data. One is that
data bind users to you; the other is that data give you an anti-com-
petitive edge. Remedies to the first problem seek to let customers
move their data elsewhere; remedies to the second seek to force you
to share their data with others.Google already voluntarily offers a “takeout service” which lets users
export a copy of their data. Europe’s General Data Protection Regu-
lation, which comes into effect this May, will extend the principle of
data portability to other platforms. Observers compare it to how
mobile-phone users can switch networks without losing their phone
number. This should not worry you too much. Most customers won’t
care; very few people are up for the hassle of actually using Google’s
takeout service. And your dominance means there is very little fund-
ing for new search engines and social networks, and thus few alterna-
tive services to which consumers can port their data.2