With new limits on platforms taking effect in the EU and U.S. politicians showing greater willingness to defy tech titans, companies would do better to cooperate with regulators.
This piece originally appeared on The Information.
Sen. Amy Klobuchar recently invoked David and Goliath when discussing her fight to pass antitrust legislation to rein in dominant tech firms. “I have two lawyers. They have 2,800 lawyers and lobbyists,” she said at this year’s Code Conference in September. But executives at those dominant tech firms would do well to remember that Goliath ultimately lost to David.
Whether or not Klobuchar’s legislation makes it to a vote this term, we’ve crossed a Rubicon. Whatever legitimate (or illegitimate) concerns may be raised about the precise wording of the bill, the fact is that Europe has already prohibited dominant tech platforms from thwarting competitors in search services, operating systems, app stores, online retail and numerous other digital markets.
It would be irresponsible for U.S. policymakers to sit on the sidelines and let others set the rules—a fact perhaps recognized by the 242 members of the House of Representatives who voted in favor of the Merger Filing Fee Modernization Act, designed to strengthen antitrust enforcement. While that bill did not single out big tech companies, it passed in spite of significant opposition from the likes of Google and Amazon, a sign that lawmakers are no longer afraid to move against the industry’s wishes.
European lawmakers have levied ever-increasing fines on tech platforms over the years, but not before bad behavior became entrenched, and little has changed in terms of market outcomes. Each time the EU issues a decision against a platform, the platform must design a remedy and present it to the regulator, which usually deems the proposal inadequate and orders the whole process to restart, according to Cristina Caffarra, who leads European economic analysis at Keystone Strategy. “There’s no end to this game, which is played in a situation of significant asymmetry of information,” she said. “So you end up in a situation in which the remedies are completely failing to do anything.”
Not content to let the status quo persist, the European Commission this year passed sweeping new legislation to oversee digital gatekeepers in the form of the Digital Markets Act. The DMA requires digital platforms doing business in the EU to comply with nearly two dozen rules, which prohibit practices such as pre-installing certain apps on devices, obligating standards such as interoperability and constraining the ability of users to move their data between apps.
Meanwhile, there is strong evidence that the major technology platform markets cannot self-correct. The costs associated with distributing goods and services often limit how big firms in other industries can get, but for digital platforms, the marginal cost of another search, like or tweet is almost zero. Low marginal costs, network effects and strong economies of scale bias the market for digital platforms toward winner takes all.
From their actions, it seems tech executives believe they can stifle any antitrust action at all in the U.S. Big tech companies and their trade groups have spent at least $95 million since 2021 lobbying against U.S. antitrust bills, plus another $120 million on misleading political advertisements, according to Bloomberg. Tech has surpassed even the spending of pharmaceutical companies in its attempts to block U.S. antitrust legislation.
In a recent ProMarket essay, researchers Luigi Zingales and Filippo Lancieri proposed a “screaming test” for regulation. “If a pro-consumer regulation is effective, it must hurt the industry a bit,” the authors wrote. Therefore the more the industry screams, the more clearly it demonstrates the need for regulatory limits. “Fortunately, this screaming is easily measurable: it is the number of comments against a piece of regulation the industry produces, the amount of money spent in lobbying against a law, and the number of donations given to candidates who advocate for a repeal.”
Such screaming will be largely futile in this case, as well as very expensive. Even if Democrats lose their majority in the Senate in the midterm elections, the bills introduced this session have bipartisan support and may still be brought to a vote under Republican leadership. And if the industry succeeds in undermining the current slate of antitrust tech bills, undoubtedly more will come. A rising share of Americans—57% in 2021—believe politicians should do more to regulate tech firms, according to research by Gallup.
“I think the American people sense that something is wrong,” said Republican Rep. Ken Buck, a co-sponsor of antitrust legislation in the House. “Policy is downstream of public opinion, and both Republicans and Democrats are getting the same message from our constituents: Something needs to be done.”
U.S. global influence in this realm is hanging by a thread. Antitrust enforcement has been tentative for decades, largely thanks to the influence of big business in the political realm and an increasingly conservative judiciary. For at least the past three decades, the inaction of U.S. policymakers has sent a message to monopolistic companies that their quests for market power will go unchallenged. Scholars and politicians have woken up to the phenomenon, and the tide has begun to turn at the Federal Trade Commission and the Department of Justice.
There is another path that would be more strategically advantageous for big tech: Cooperate with European regulators and U.S. lawmakers alike. That would create a smoother path to efficient, sensible policymaking, and it would be cheaper than running two different businesses—one compliant with EU law and one designed for the uncertain antitrust and regulatory environment in the U.S.
Eight top competition economists—including one of our co-authors, Fiona Scott Morton—recently endorsed a similar message with regard to the DMA, writing that the choice posed “may imply a change of corporate culture for some Big Tech companies, from a libertarian ‘independent cyberspace’ culture promoted by John Perry Barlow to regulatory compliance. Conversely, platforms should expect losses and even sanctions if they do not engage and instead employ delaying or gaming tactics.”
Perhaps tech executives think U.S. politicians are more susceptible to capture than Europeans, or maybe they think they can capitalize on the more libertarian culture in the U.S. Whatever the reasoning behind their efforts, their posture of resistance is a barrier to benefiting from the clarity and efficiency that comes from being a partner rather than an opponent in crafting regulation. Cooperating will reduce mistakes and minimize the cost of compliance.
Regardless of how tech companies approach the matter, the only remaining question is when—not if—the U.S. will stand up to the rent-seeking behavior of some of the most powerful businesses our country has ever seen. Congress is already a decade late in introducing legislation to regulate digital platforms. The consequences of such inaction can be seen not only in the market and political power they’ve amassed, but also in how they’ve hindered innovation, endangered private data, spread misinformation, weakened the news media business model, harmed young people’s mental health, and on and on.
There is no reason to expect that continuing to cede leadership on regulatory oversight will remedy any of these ills. By leaving other nations to set digital market rules, the U.S. is doing nothing less than degrading the competitive spirit that has defined our history of progress.
Fiona Scott Morton engages in antitrust consulting for a variety of corporations and governments; current and recent corporate clients include Amazon, Apple, Sanofi, Pfizer.
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