By: Amina Abdu, Antitrust Advocacy Associate, Consumer Federation of America
Last week, the CEOs of Amazon, Apple, Facebook, and Google testified before the House Judiciary Committee’s Antitrust Subcommittee as a part of the committee’s ongoing investigation into competition in the digital marketplace. The biggest takeaway from this hearing was a turning of the tides away from unchecked power for the tech titans. Committee members on both sides of the aisle took aim at the tech industry and a number of representatives demonstrated a strong grasp of the issues at hand, a far cry from some of the CEOs’ previous appearances before Congress.
We also got some of idea of the committee’s findings from the past 13 months. Rep. David Cicilline (D-RI), the chairman for the panel, opened by outlining the major patterns the committee observed among the four companies present: first, these companies exploit their status as gatekeepers — of information, and of markets — to punish rivals and hurt consumers; second, they abuse their control over critical online infrastructure to surveil their competitors; and finally, they leverage their power in key markets to extend their power in other verticals through self-preferencing, predatory pricing, and other anticompetitive tactics.
With the CEOs answering a combined 217 questions and the committee revealing previously unseen documents, we have a clearer picture today than we did a month ago about the future of competition and policy in digital markets. Several questions, however, remain unanswered — let’s take a look at a few.
What’s the market?
Market definition is a central question in any antitrust investigation. The big tech companies continue to expand into many facets of the economy, blurring the lines of what the relevant market might be. This is to the companies’ benefit: it’s in their best interest to define the market as broadly as possible, so that they occupy a relatively smaller market share. We saw this play out at the hearing, with both Facebook and Amazon in particular claiming they compete in enormous and nebulous markets. Facebook CEO Mark Zuckerberg referred to Facebook’s market as “the space of people connecting with other people,” a market that includes talking to a friend in person, sending a letter, direct messaging, and any other form of communication under the sun. Amazon CEO Jeff Bezos, meanwhile, argued that Amazon made up only 1% of global retail, a market which includes gas stations and restaurants.
To think about whether these claims are reasonable, we should think about substitutability. A market should be made up of only close substitutes. It seems intuitive that face-to-face communication, direct messaging, and social media are not the same thing. If I want to send a photo to a family member, I might be deciding between sending a message on WhatsApp, which is owned by Facebook, and sending a text message. If, on the other hand, I want to check in to see what an old friend with whom I’ve lost touch is up to or make an announcement to everyone in my network, text messages and face-to-face communication are pretty poor substitutes for a social media platform like Facebook. It’s an even poorer substitute for advertisers, where Facebook makes the bulk of its profit. Even if we consider Facebook’s core market to be social media, there are questions about substitutability: almost all Twitter users also use Facebook, but the converse is not true. Does that mean that Twitter is not a competitor to Facebook? Is anyone? These are big questions that antitrust authorities will need to consider.
In the case of Amazon things get even trickier. Amazon’s claim that it competes in the “global retail” market is true to a certain extent. When buying a water bottle, consumers have the option of going to a brick-and-mortar store like Walmart instead of ordering off of Amazon. But geography factors in, too. If you live in India, where there are no Walmarts, Walmart is no longer a great substitute. Even constraining to U.S. retail, Amazon has only a 4% market share. A global pandemic, however, has shown that online commerce is not always substitutable for its brick-and-mortar counterpart. Many argue that Amazon’s market is e-commerce, where the company commands closer to 40% of the market, more than double the share of its closest nine competitors combined. But to lump Amazon’s business into one broad market that encompasses all of its activities misses the point. “Retail” is not a market in itself. Although you can buy both a laptop and a bicycle on Amazon, these goods are not substitutes and should not be lumped in to the same market. So what is Amazon’s market? A better question might be “what are Amazon’s markets?” In addition to e-commerce and cloud computing, Amazon operates in many smaller markets, from diapers to books, and its gradual elimination of competitors in these markets is a threat to small businesses and consumers alike that should not be forgotten in an overly simplistic attempt to define Amazon’s market. It’s not that Amazon’s market is everything, it’s that everything has become Amazon’s market.
Even when the answer seems obvious, defining the relevant market can be a difficult question. Apple CEO Tim Cook claimed that Apple doesn’t have “a dominant share in any market or in any product category where we do business.” Indeed Apple’s iOS, whose app store was the primary focus of representatives’ questions for Cook, has a smaller market share than Google’s Android operating system both in the U.S. (47.4% for iOS versus 51.8% for Android) and globally. However, Apple’s decision to prevent iOS users from using an alternative app store artificially restricts the market for the 47.4% of US smartphone users, effectively creating a one-player market.
Antitrust has long taken into account geography when defining a relevant market, but it faces a new challenge in understanding the geography of the digital landscape. Authorities will have their work cut out for them in determining what choices consumers have available to them and where the tech giants have become all but unavoidable.
Is there something special about digital platforms?
Although Amazon, Apple, Facebook, and Google serve different functions and have been criticized for different behaviors, several themes emerged during the hearing. Over the course of nearly six hours, the committee charted out a repeated pattern of coercion, intimidation, and abuses of power.
Rep. Lucy McBath (D-GA) said Apple’s decision to remove third-party parental control and screen time apps, many of which had been on the market for years, from the app store coincided with the introduction of Apple’s own app Screen Time. Apple claimed these apps were removed for privacy reasons, but they were allowed back into the market with no significant privacy changes only six months later. Similarly, McBath noted, Apple intimidated Random House into participating in their iBooks app by excluding Random House’s competing app for dubious reasons.
Again and again these accusations appeared of the dominant tech companies using their gatekeeper power as platform owners to threaten or harm their competitors. Rep. Ken Buck (R-CO) asked Google about content theft from song lyric website Genius, while Rep. Cicilline accused Google of stealing reviews from Yelp. When Yelp complained, Google reportedly threatened to delist Yelp from Google search. Later, Rep. Val Demings (D-FL) referenced internal email from Zuckerberg in which he said he would enforce Facebook’s policies about data access more forcefully against competitors than other companies. While Zuckerberg claimed these policies were in the past, he admitted Facebook had restricted Pinterest’s access to Facebook’s APIs because it saw Pinterest as a competitor. Amazon, too, was accused of this behavior with Rep. Hank Johnson (D-GA) bringing up the case of Popsockets where Amazon threatened to divert sales to counterfeit Popsockets products until the company agreed to spend two million dollars on Amazon advertising. All four companies were also accused of using their respective positions in the digital marketplace to spy on competitors who used their platforms — a particularly hot button issue for Amazon who, according to a Wall Street Journal investigation, uses third-party seller data to develop Amazon label products.
In all of these cases, the platform in question controls a crucial artery of communication, information, and/or trade. This artery is so crucial, in fact, that any potential competitor is all but forced to use the platform in question, enabling the dominant player to cut off nascent competition at the knees and self-preference in response (for example, Google promoting its own products ahead of competitors’ in search, or Amazon’s buy box favoring products shipped with Amazon’s fulfillment services).
On top of this, Amazon, Apple, and Google all run an important market in which they are players: Amazon sells Amazon label products on its own e-commerce platform; Apple has its own apps while running the iOS app store; Google is both a major buyer and seller in the ad exchange.
The combination of these conflicts of interest along with the gatekeeper power that these tech giants have to put their thumb on the scale appeared to be a major concern for lawmakers. Time will tell if these challenges will result in changes to the existing antitrust framework, or if Congress thinks they can be handled under existing law.
What’s the harm?
Lawmakers were criticized for straying off topic. Indeed, topics that came up included everything from privacy and misinformation to work with law enforcement, slave labor, and political bias, issues that are not tied to traditional antitrust. While the lack of focus was apparent, these questions can still inform our understanding of the power that these companies wield and the consequences of that power.
For decades, antitrust in the U.S. has operated based around the consumer welfare standard. Monopoly power is not considered anticompetitive in itself. Rather, the goal of antitrust is to prevent dominant players from using their market power to harm consumers. Most often, harming consumers has been taken to mean “raising prices,” something that is difficult to show for the often free and/or inexpensive products that fall under the purview of big tech. If big tech isn’t using their market power to charge customers exorbitant rents, then why should we care whether they do in fact have such power? The answer may come from the consumer welfare standard, which goes beyond prices to include diminished quality, and from those off-topic questions, which outline the myriad ways in which limited competitive pressure have left consumers without a path to seek better quality alternatives.
The hearing’s hot topic of political bias on Facebook and Google matters primarily because those companies have such a chokehold on public conversation and the dissemination of information. That power is, rightfully, a source of concern. In a world with many viable social networks, or search engines, or e-commerce platforms, one company’s policy would not have such an outsized impact. Platforms could compete on the basis of their privacy policies, their content moderation policies, their labor practices, and their stances on political advertising, among other things. Consumers, advertisers, and small businesses could choose based on their particular preferences.
”Open markets are predicated on the idea that if a company harms people, consumers, workers, and business partners will choose another option. We are here today because that choice is no longer possible,” said Rep. Cicilline in his opening remarks. As it stands, users have little control over their data, little recourse for challenging big tech companies’ practices, and little way to meaningfully make choices or opt out. The committee members demonstrated that they are well aware of these harms. Exactly how such harms will ultimately be accounted for and addressed remains to be seen.
There is a sense of change in the air. After over a year-long investigation that yielded 1.3 million documents, multiple hearings, and hundreds of hours of interviews, the committee is expected to issue a report sometime in the next month outlining their findings and recommendations for updating federal competition rules. Meanwhile, the Justice Department’s antitrust investigation of Google is expected to end later this summer in a lawsuit.
Rep. Cicilline concluded the hearing by saying that some of the companies present would need to be broken up and all would need to be “properly regulated and held accountable.” What that will entail is still up in the air. While there appeared to be bipartisan agreement about the existence of a problem in the industry, Rep. Jim Sensenbrenner (R-WI), the top-ranking Republican on the committee, stated that he did not believe our existing antitrust framework should change. Rather, he believes there should be scrutiny toward the Justice Department and Federal Trade Commission’s enforcement history.
Even in the absence of updates to the antitrust laws, new regulations in other areas, such as comprehensive privacy legislation, could still prove useful in curbing big tech’s bad behavior. Competition policy is ultimately only one of many avenues toward a more equitable and consumer-friendly digital future.