US Government vs. Big Tech

Hey Google, Are You Too Big? by Planet Money (2020)

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The concerning amount of power that technology companies are amassing is one of the few issues today that has brows raised from both sides of the aisle.

How to actually regulate ‘Big Tech’, however, is controversial; these companies are very different from each other, and each requires a targeted approach.

Still, governments around the world are mobilizing, albeit in a patchwork manner: despite the industry’s increasing lobbying efforts in the continent, the European Union recently unveiled new, stricter measures aimed at these technology companies; China just sanctioned Alibaba with a hefty $2.8 billion fine; Australia recently imposed a (well-intentioned but flawed) law that requires companies like Google and Facebook to pay news agencies directly for publishing their content.

In the United States, it is increasingly clear that Silicon Valley’s long period of calm with Washington is coming to an end. As exemplified by the recent appointments of Tim Wu and Lina Khan—two influential critics of the industry—the Biden administration is sending a strong signal of its willingness to crackdown on technology companies.

In a characteristic American fashion, this is done via lawsuits (and these are piling up). Before making a judgment as to whether this is a positive change, we need to have a basic idea of what these lawsuits actually consist of, and what regulations would follow if they are to be successful.

I will focus on the Department of Justice’s (DoJ) lawsuit against Google last fall, since it was the first major suit against a technology company in recent memory. This review will explain the government’s complaint and Google’s response, drawing most of the information from Planet Money’s excellent October 2020 episode ‘Hey Google, Are You Too Big?’ and Google’s public rebuke of the lawsuit.

What is Antitrust?

The DoJ’s complaint is brought forth under the Sherman Act of 1890, the first of many antitrust legislations. Antitrust law, according to a recent interpretation by the Supreme Court, aims to “protect the public from the failure of the market.” What does this mean?

One of the tenets of a capitalistic economy is that competition between firms is beneficial to society. This is for a variety of reasons — a major one being that it promotes innovation. But sometimes, this so-called free market ceases to be competitive, often harming consumers, who have less choice and face higher prices. This is would be an example of market failure.

The function of antitrust regulators, then, is to act as referees to the capitalistic game, intervening when it gets out of hand in the same way that a football referee blows their whistle when there is a foul. If consumer welfare suffers because of a lack of competition, then regulators will step in — they want to regulate those players who ‘cheated’ in the capitalistic game (for example, by price fixing or buying out potential competitors).

On What Grounds is the Government Suing Google?

As New York University Law professor Eleanor Fox explains, the DoJ has to convince the court of the three following statements:

  1. Google has a monopoly;
  2. Google has squashed its competition by virtue of its monopoly power;
  3. This is harmful to consumers.

Google will challenge each of these claims, so let’s look at them one by one.

Does Google have monopoly power? While there is no single definition of monopoly, the Federal Trade Commission defines it as “a firm with significant and durable market power.”

Whether the court finds Google to be a monopoly will depend on which market we are referring to. This might seem trivial, but it is not obvious: while the government is arguing that Google has monopoly in general search and in two digital advertisement markets, the company’s reply (which is standard in these suits) is that the DoJ is defining the market in the wrong way. The market is not just general search, but rather all kinds of online searches. If we take this definition of the market, then Google doesn’t seem to be a monopoly—for example, if people want to buy something, they usually search for it on Amazon.

Let’s assume that the DoJ does convince the judge that Google is, in fact, a monopoly. This is only the first hurdle, since being a monopoly is not by itself illegal. If a company is big simply because it is better than other companies, that is fine with regulators. What they now have to do is to argue that Google used its monopoly power to squash competition.

The lawsuit claims that “the Google of today is a monopoly gatekeeper for the internet” because of its exclusionary deals with other companies. Basically, the government is arguing, Google makes huge profits because it has monopoly in selling online advertisements; it then takes part of those profits to pay other companies to be the default search engine on their devices. For example, they pay Apple the exorbitant sum of $12 billion a year to be the default search engine on their devices, such as the iPhone.

In their public response to the lawsuit, Google has focused on the simplicity of changing one’s default settings, even accusing regulators of thinking that “Americans aren’t sophisticated enough to do this.” The government, in turn, argues that no one actually changes their default settings, and that it is clearly important for Google to maintain these exclusionary deals if they’re paying so much money for them.

Exclusionary deals of this sort are not uncommon. Paying to be the default search engine is, as Google’s public response claims, “just like a cereal brand might pay a supermarket to stock its products at the end of a row or on a shelf at eye level.” And regulators are okay with that practice. Also, Google is not alone in making these deals — Yahoo and Bing do as well.

But the government’s response is that this analogy does not hold: if an ice-cream brand pays a grocery store for the best shelf space, this does not make the ice-cream taste any better. The ice-cream isn’t better by virtue of more people eating it. However, having more users (and therefore more data) actually makes the search engine better, making it harder for other competitors to enter the market.

Even if the court agrees so far with the complaint that Google is a monopoly and that it uses it to box out competitors, the DoJ still needs to argue that this is bad for consumers. This is because the aim of antitrust law is to promote consumer welfare, not competition for its own sake.

This is where Google’s defense will most likely focus on, since they claim that, if successful, the lawsuit “would artificially prop up lower-quality search alternatives, raise phone prices, and make it harder for people to get the search services they want to use.” In other words, if the court were to rule against Google, consumers will be harmed. It will be the DoJ’s burden to show otherwise.

What would happen if the DoJ wins?

As we have seen, the case is rather narrowly focused on the exclusionary deals Google makes with other companies. If the government’s lawsuit succeeds, the concrete change that American consumers will most likely see is a minor one: when you buy a new phone, there might be a pop-up in which you will have a choice of which search engine you can use (in the same way that we actively choose the language when starting a phone). The dominance of Google is not likely to change with this tweak, but it may promote competition, even if only slightly.

A natural reaction, I think, is that people would choose Google anyways if given the choice. Google’s competitors disagree. But even if it is the case, the point that the regulators want to make is that it does not necessarily have to be like this, and that inhibiting competition here is bad for the consumer.

There is, however, the possibility for this lawsuit to be amended and include other provisions, such as breaking up Chrome from the rest of Google, and look into their purchases of small start ups.

Another lawsuit to keep an eye on is the one against Facebook, which in many ways is more ambitious: if it succeeds, then we could see it split up from Whatsapp, a platform that Facebook acquired under the Federal Trade Commission’s watch.

These lawsuits really focus on the economic power of these technology companies. Their political ramifications is another dimension to be—perhaps even more—concerned about, as recently highlighted by Netflix’s documentary The Social Dilemma and James William’s Stand Out of Our Light. What devices do to our attention and the psychological tricks used to keep us hooked on them is concerning, and certainly worth thinking about harder.