Competition and its discontents: the handling of digital platforms antitrust in the US and in the EU
As the 2020 US presidential election looms, the question of competition has grown to become a major political issue. Some conservatives have strayed from their usual sympathy for business, such as Trump who keeps alleging that Google is biased against him[1], months after its CEO was convoked by Congress to testify about this claim. Although Republicans do not frame the issue in this way, what makes a potential bias problematic is the market share of Google in internet searches. On the other side of the political spectrum, the democratic candidate Elizabeth Warren has vocally argued in favor of the breakup of Google, Facebook and Amazon[2]. She charges the Silicon Valley giants with having actively thwarted competition, thereby hurting small businesses and also denounces the use of customer data for profit these firms have allegedly done. They also draw the attention of politicians in Europe. In France for instance, the government has recently adopted a tax on the so-called “GAFAs”, at the cost of diplomatic tensions with Washington. Likewise, in the opposition, the 2017 socialist candidate Benoit Hamon believes in the breakup of the digital platforms but, unlike Warren, his hopes rely on the current antitrust authorities. Overall, the salience of this issue in politics raises the question of how the institutions whose primary function is to maintain a competitive environment have been enforcing the relevant laws. One may see that the issue is not as unambiguous as some politicians present it.
One of the first concern when looking at competition law in the EU and the US is the legal means the agencies have at their disposal to ensure that the economy remains competitive. In the US, the basis of federal antitrust laws are the 1890 Sherman Act, prohibiting price fixing and regulating monopolies, and the 1914 Clayton Act whose goal was to prevent anti-competitive mergers and other behaviors such as predatory pricing. The evolution of the common law is also to be taken into account in the US system. These laws are enforced by the Department Of Justice (DOJ), the Federal Trade Commission (FTC), created in 1914 and the courts. The latter are an important part of the equation since in 2001 Microsoft was only saved from breakup in the appeal court[3]. Although the DOJ and the FTC usually agree on which company each of them is going to investigate, tensions sometimes arise when these agencies differ on their approaches. This has recently happened with the declarations of DOJ officials about the theories of harm they would consider for their Facebook probe[4], which is broader than the approach of the FTC.
In Europe, the situation is bit more complex since every member state has its own system of competition law in addition to the European level rules. However, as pointed out by Wish and Bailey, national laws are “in large part modelled upon”[5] two key articles of the 2007 Treaty on the Functioning of the European Union (TFEU), namely articles 101 and 102. The problem of overlapping jurisdiction has been partly solved by the fact that many member States have provision requiring that national laws be interpreted in a manner which is consistent with EU rules[6]. The 1998 Competition Act in the UK has such a clause and while it may streamline the rules applied in the EU, similar cases may still lead to different outcomes. However, should a clear contradiction be pointed out, the jurisprudence of the European Court of Justice has given precedence to community law over member states law[7]. The enforcement at the European level is ensured by the Directorate General for Competition (DG -Comp) which is part of the European Commission and cases are then adjudicated by the European Court of Justice. The office of Director General is highly publicized and is currently held by Margrethe Vestager.
As pointed out by competition law professor Richard Wish, the fundamental question these enforcement authorities should ask is whether or not there is an actual harm arising from the situation. In this regard, these major digital platforms are disruptive because they do not only raise the age-old problem of price fixing through monopoly power, as was the case with the Northern Securities railroad trust[8] or the Standard Oil Company[9] in the early 20th century.
For sure, they still raise some of these concerns. Regulators are worried of the market power these firms may have acquired through successive acquisitions and the FTC has recently launched a probe on Amazon to decide if it is using its market power to undermine competition[10]. Google has also been fined by the EU commission for abuse of its market power in the digital advertisement sector[11]. However, along with these issues, new worries are arising.
Facebook for instance, although free to its users, raises the question of the protection of the integrity of western democracies in light of the use of bots by Russia to try to influence the 2016 US election[12]. This is in a way similar to Trump’s allegation that Google is biased against him and tries to favor Democrats. Moreover, according to Srinivasan, using Facebook amounts “to accept[ing] a product linked to broad-scale commercial surveillance”[13], thereby adding privacy concerns to the debate. Such theories of harms used to be confined to a movement called “hipster antitrust”[14] but they are attracting an increasing amount of scholarly and mediatic attention, especially with Warren’s proposal. Whether or not this should lead to action by the antitrust agencies is still a subject being discussed. Interestingly, the Trump-appointee Deputy Attorney General Jeffrey Rosen has announced in November that the DOJ would not limit its review of digital platforms to antitrust but also consider “privacy, consumer protection and public safety”[15]. The $5bn civil penalty Facebook[16] had to pay for the FTC finding of violation of user’s privacy may also pave the way to a paradigm shift.
One of the most potent forces in U.S. antitrust theory since the 1970s has been the doctrine of the Chicago school which believes in the efficiency of markets populated by rational actors. In this perspective, the main concern of antitrust law is “consumer welfare” defined as the effect on price and output rather than on the structure of the market per se[17]. In other words, the fact that a corporation is large is not a problem provided that it does not fix prices. A firm may grow because it provides good services to its customers and benefits from a natural monopoly due to economics of scale but as long as the market is contestable, the firm will not benefit from its market power to get monopoly or oligopoly profits. One may indeed argue that it is worth asking whether the breakup of Amazon would not just end up decreasing the efficiency of online retail and hurting consumers. However, in the Yale Law Journal, Lina Kahn argued that focusing on the short-term impact on price is too narrow as it does not take into account potential predatory pricing and the power of the platform as the necessary intermediary for competitors to sell their products[18]. Kahn’s accusation of predatory pricing has however no yet been proven and is subject to push back from other scholars[19]. Nonetheless, this article exemplifies the fact that the Chicago principles are increasingly being questioned in current debates.
On the European side, a careful analysis of the case law of the European Court of Justice by Blair and Sokol[20] does not allow to identify a clear purpose to articles 101 and 102 (TFEU). Multiple goals are stated such as "prevent[ing] competition being distorted to the detriment of the public interest, individual undertakings and consumers"[21] which is too vague to assert that it either seeks to protect consumer welfare or total welfare[22]. On December 9th 2019, Margrethe Vestager announced that EU regulators are considering updating the definition of market power to better take into account the rise of globalization and digitization which could usher in a new attitude towards these platforms.
Some may think that these new theories of harm go beyond the reach of competition law and should be left in the hand of the legislator to regulate. Privacy regulations for instance allow the platforms and their consumers to keep benefiting from their network effects while answering to legitimate concerns for democratic government. The EU adopted in 2016 a General Data Protection Regulation which imposes data protection and privacy requirements for digital platforms, such as the portability of data for instance. Nevertheless, this bill was also expected to raise the IT cost of small and medium enterprise by up to 40%.[23] On the other hand, compliance cost for large platforms may represent a much less significant share of their budget, thereby comforting the position of incumbent firms[24].
Antitrust authorities face other difficulties besides trying to manage new theories of harm. It is indeed noteworthy that assessing the potential impact of mergers on competition in the digital domain is problematic. A recent study has shown that Google, Facebook and Amazon have almost acquired 300 companies between 2008 and 2018 and that more than 60% of the targets were 4 years old or younger[25]. In these conditions, it is hard to establish the counterfactuals, that is, whether the target could credibly grow into a competitor to the acquirer. For instance, at the time Facebook acquired Instagram, the latter was considered as a mere photo application and not a social network. The fact that Instagram was then not monetized for advertiser made it also more complex to grasp the extent of its importance.
Eventually, the US authorities approved most digital mergers such as Facebook with WhatsApp and Instagram but also Google and Waze. The probes recently opened by the DOJ and the FTC targeting major online platforms may however herald a new era of antitrust enforcement in the US[26]. The Directorate-General on competition of the EU stood out by fining Google and Facebook for their competition practices but it is unclear whether they were trying to remedy the harm done or fundamentally change the behaviors of these firms. In this context of political salience of antitrust enforcement, one should keep in mind that these digital platforms may have risen to prominence because of the quality and convenience of the services they propose. The quality of these services is often due to the network effect they benefit from. Breakup would undermine these benefits and that is one of the reasons why antitrust enforcement should be cautious when this solution is proposed. Regulations are no panacea, but they would allow to keep the overall quality of the service intact. The recent declarations from DOJ officials about their consideration of new theories of harm and Vestager’s call for an update of EU rules may come as an answer to the growing political worries and one can expect further interesting
developments.
[1] Molla, Rani “Trump says Google is biased against conservatives. Here’s how search actually works.” Vox (Aug. 7th, 2019)
[2] Lee MJ, Lydia DePillis and Gregory Krieg “Elizabeth Warren's new plan: Break up Amazon, Google and Facebook” CNN. (March 8th , 2019)
[3] United States v. Microsoft Corporation, 253 F.3d 34 (D.C. Cir. 2001)
[4] Tracy, Ryan “FTC Says Several Tech Antitrust Probes Are Under Way” Wall Street Journal (Nov. 19th. 2019)
[5] Whish, Richard, and David Bailey. Competition law. Oxford University Press, USA, 2015:75
[6] Whish, Richard and David Bailey, Op. Cit. p.75
[7] See van Gend en Loos, affaire 26/62 (1963) and Costa c/ Enel, affaire 6/64 (1964)
[8] Northern Securities Co. v. United States, 193 U.S. 197 (1904)
[9] Standard Oil Co. of New Jersey v. United States, 221 U.S. 1 (1911)
[10] Soper, Spencer and Spencer Soper and Ben Brody “Amazon Probed by U.S. Antitrust Officials Over Marketplace” Bloomberg. (September 11th. 2019)
[11] Hern Alex and Asper Jolly “Google fined €1.49bn by EU for advertising violations” The Guardian. (March 20th 2019)
[12] Vaidhyanathan, Siva. "Facebook wins, democracy loses." New York Times 8 (2017).
[13] Srinivasan, Dina. "The Antitrust Case Against Facebook: A Monopolist's Journey Towards Pervasive Surveillance in Spite of Consumers' Preference for Privacy." Berkeley Business Law Journal 16.1 (2019): 40.
[14] While it is unclear who exactly coined the term, its popularization is attributed to Joshua D. Wright
[15] Tracy, Ryan “FTC Says Several Tech Antitrust Probes Are Under Way” Wall Street Journal (Nov. 19th. 2019)
[16] Kang, Cecilia “F.T.C. Approves Facebook Fine of About $5 Billion” New York Times (July 12th, 2019)
[17] See Khan, Lina M. "Amazon's antitrust paradox." Yale LJ 126 (2016): 710.
[18] Ibid. Op. Cit.
[19] See Kristian Stout’s and Alec Stapp’s blog https://truthonthemarket.com/2019/05/07/is-amazon-guilty-of-predatory-pricing/
[20] Blair, Roger D., and D. Daniel Sokol. "Welfare standards in US and EU Antitrust Enforcement." Fordham L. Rev. 81 (2012): 2512
[21] Case C-52/09, 2011 E.C.R. 1-00527, cited in Blair, Roger and D. Daniel Sokol Op. Cit.
[22] Blair, Roger and D. Daniel Sokol, Op. Cit.
[23] Christensen, Laurits, et al. "The impact of the data protection regulation in the EU." Intertic Policy Paper, Intertic (2013). Cited in Diker Vanberg, Aysem, and Mehmet B. Ünver. "The right to data portability in the GDPR and EU competition law: odd couple or dynamic duo?." European Journal of Law and Technology 8.1 (2017).
[24] Diker Vanberg, Aysem, and Mehmet B. Ünver. "The right to data portability in the GDPR and EU competition law: odd couple or dynamic duo?." European Journal of Law and Technology 8.1 (2017).
[25] Argentesi, Elena, et al. "Merger Policy in Digital Markets: An Ex-Post Assessment." (2019).
[26] Tracy, Ryan “FTC Says Several Tech Antitrust Probes Are Under Way” Wall Street Journal (Nov. 19th. 2019)
