In the recent years, big tech companies have come under increased scrutiny for their monopolistic tendencies. Companies such as Facebook, Amazon, Apple, and Google have drawn the ire of presidential candidates like Elizabeth Warren, and in July they faced questioning from a Congressional Panel on antitrust. Now, there is nothing inherently illegal with monopolies or big companies. However, politicians and others have recently accused big tech companies of using their control over the marketplace to advantage themselves.
For some context on the size of these companies, here are some facts. Amazon has a market value of 1.4 trillion dollars, while the next 9 largest American retailers are worth 1.07 trillion combined. In terms of GDP, that would rank 13th in the world. Amazon also accounts for 39% of e-commerce in the United States, and according to a House of Representatives report, uses its size to help itself and crush smaller competition. When Amazon CEO Jeff Bezos appeared before Congress, he was asked if Amazon used seller data to make its own products. He said he “can’t guarantee that they don’t.” If they do, that violates Amazon’s policy against using seller-specific data to aid our business.
Critics and third-party sellers on Amazon have long accused the company of stealing their data to make cheaper products and undermine competition. Amazon can do this because of size, critics argue. Amazon is not only a marketing platform. The company makes 50.4% of its $11.6 in income from sales, but other parts of its company such as Amazon Web Services (AWS) and subscriptions sales from Amazon Prime make plenty of revenue on their own. For example, 19.2% of Amazon’s revenue is from third party seller services, such as commission on sales. AWS also helps Amazon stay afloat and makes up a large percentage of Amazon’s operating income. So the company’s goal on every sale isn’t necessarily to turn a profit, but to become the go-to purchasing platform for every American. And part of that entails putting other companies out of business.
Also at the July hearing was Apple CEO Tim Cook. Apple, the world’s most valuable company, runs its own App Store that acts as a marketplace for third-party sellers. Similar to Amazon and Google, lawmakers and others accused Apple of using the App Store to make a profit and pick and choose winners. For instance, Apple charges a 30% commission off of the profits different apps make through their store. And since there isn’t a strong alternative for developers to turn to, they are stuck paying the price. This means they either decide the price is not worth it, or up the price of the app on the consumer side. Apple has also removed apps that compete with the apps it has developed on its own in many instances.
All of these violations are possible for a few reasons. First is the power each of these companies have. They are all financial giants and have large lobbying teams in Washington. And they are all, with the exception of Facebook, widely liked. They are job creators, innovators, and for a long time the appeal of Silicon Valley helped the more sinister parts of it hide. No politician wants to be seen as going after and punishing an industry of innovation. However, an even larger part is how asleep at the wheel the government has been. These companies did not explode out of nowhere and become giant corporations with no warning. They each slowly built up since their beginnings, and the government did not stop Google from getting into selling users data, the government did not stop Facebook from buying Instagram, and it did not stop a number of other acquisitions that could have slowed the spread of monopolies.
There are potential solutions. One was laid out by Senator Elizabeth Warren when she ran for president and seems to be the favorite among many House Democrats. Her idea was simply to break up the companies. For example, breaking Whole Foods off from Amazon, Youtube from Google, WhatsApp from Facebook. They would all still be massive companies, but Youtube being in charge of itself could lead to more innovation, and it could also lead to more wealth opportunities for the whole country. Suddenly there would be a new company to invest in, and other potential start-ups might not be as intimidated to get started against Youtube compared to how they might be intimidated facing off against Google.
Another potential solution would be to classify large tech companies as Platform Utilities and be broken from any participants on the platform. So companies would be prohibited from owning both an online marketplace and anything that might be on it. Thus, companies would not have incentives to favor their own investments over other competitors on marketing platforms they own, removing a conflict of interest and giving other companies a fair shot at succeeding. This means Google would be able to own their App Store still, but they would not be allowed to own any of the apps on it.
There is precedent for all of this. In the 1990s, Microsoft was sued by the United States Department of Justice. Microsoft was accused by the Department of Justice of using its monopoly status in the operating-systems market as a way of crushing competitors. Microsoft lost the lawsuit and was split into two divisions, one focusing on operating systems and the other on software. The Justice Department has reportedly looked into filing an antitrust lawsuit against Google. Having either the Department of Justice or the Attorney General’s of states bringing the case against big tech companies is probably the best bet for antitrust advocates, as those are the only legal teams large enough to handle such a complicated, lengthy and expensive lawsuit.
Further precedent for this can be found when President Theodore Roosevelt went after Standard Oil and their monopoly on the market. In the late 19th century, many companies had swallowed up their competition, making them trusts that were managed by one board of directors. By 1902, the 100 largest corporations held control of 40 percent of industrial capital in the United States. To break up what Roosevelt perceived as “bad trusts,” he used the Justice Department to sue a number of trusts. He also favored a number of laws which curbed the powers of trusts, but the Supreme Court had weakened some of them already. During the lead up to the 1902 elections, Roosevelt campaigned on the issue of breaking up big trusts, casting the issue as important to everyday Americans as it stifled competition and harmed innovation.
After the 1902 elections, Roosevelt won congressional approval of the creation of the Department of Commerce and Labor, his long-called for Cabinet position which could specifically monitor trusts. The newly formed Department of Commerce included the Bureau of Corporations which was designed to monitor and report on anti-competitive practices. Congress also authorized the creation of the Antitrust Division of the Department of Justice. In 1905, the Supreme Court ruled in favor of the government in Northern Securities Co. v United States, the first victory for the U.S. government against a large corporation. In 1906, the Supreme Court ruled in the government’s favor again in Swift and Co. v United States, effectively breaking up the Beef Trust which was unfairly raising the price of beef and engaged in other anti-competitive behaviors such as blacklisting.
There are a few lessons to be learned from President Roosevelt’s successes regulating big business. First, he took the issue straight to the American voters and made the case why this was important. Today, companies like Amazon and Google might be viewed by the public as necessary or innovative, making them hard to go after. Politicians who wish to break up Big Tech should look to Roosevelt’s example and learn to make the case as to why they deserve to be broken up and why they are harmful. Roosevelt also realized the importance of institutions. He smartly created a new department of government which could go after big trusts, recognizing he couldn't always count on Congress to pass laws or for those laws to stay intact. Also recognized by Roosevelt was the amount of resources he would need to effectively take on such big corporations. A small legal team would not suffice, nor would a group of congresspeople, he would need a whole new Department of Commerce to take on the powerful trusts of the day. If politicians today hope to follow the lead of President Roosevelt, they have a blueprint to study.
Comments