Is Trust-Busting the Answer?

Our friend Glenn Reynolds has an op-ed in USA Today in which he urges antitrust enforcement actions against the dominant tech firms: “Donald Trump must bust Facebook, Amazon, Netflix, Google monopolies like Teddy Roosevelt.”

Roosevelt built a strong reputation by going after the trusts, huge combinations that placed control of entire industries in the hands of one or a few men. He broke up John D. Rockefeller’s Standard Oil, the Google of its day. He shut down J.P. Morgan’s Northern Securities Co., which would have monopolized rail transportation in much of the United States. And he pursued numerous other cases (45 in all) that broke up monopolies and returned competition to markets.
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Big monopolies aren’t just an economic threat: They’re a political threat. Because they’re largely free of market constraints, they don’t have to put all their energy into making a better product for less money. Instead, they put a lot of their energy into political manipulation to protect their monopoly.

An industry made up of 500 companies might want government protection, but it’s harder to get them to agree on a lobbying campaign. One made up of three companies, or one, can do so, and be sure that it will reap all the rewards of its effort.

Thus, as [Columbia Law professor Tim] Wu notes, “the more concentrated the industry, the more corrupt we can expect the political process to be.” And as he points out, these fears (and the realities) of huge companies wielding unchecked political power motivated the antitrust crusaders of a century ago every bit as much as concern about prices.

Perhaps so. But conventional antitrust theory assumes that the point of being a monopolist is to make more money by raising prices. Nothing in antitrust law, that I know of, contemplates the situation we have today, where companies like Facebook, Google, Twitter and YouTube are willing to make less money if it means they can suppress political views with which they disagree.

Today, things look a lot like Teddy Roosevelt’s era. A few monopolies occupy much of the tech world: Facebook, Amazon, Netflix and Google — FANG, as they’re often abbreviated. They gobble up potential competitors, as Facebook did with WhatsApp and Instagram.
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And these new tech monsters have a one-two punch that Standard Oil lacked: Not only do they control immense wealth and important industries, but their fields of operation — which give them enormous control over communications, including communications about politics — also give them direct political power that in many ways exceeds that of previous monopolies.

I think that is true. The harder question is what to do about it. In his USA Today column Glenn implies what he has stated more directly at InstaPundit, that the Department of Justice should sue to break up the tech monopolies. I have two problems with that approach (apart from the question whether Netflix, for example, would qualify as possessing market power, which seems highly doubtful). The first, as noted earlier, is that there isn’t, to my knowledge, a body of antitrust law that addresses the propensity of companies possessing market power to use it to suppress political speech, as opposed to raising prices. I suppose the Supreme Court could create such doctrine if so disposed, but its contours, at this point, are unknown.

The second problem, network effects, is more intractable. The network effect applies when the value of a service derives in part from the fact that other people use it, too. Network effects can tend to create natural monopolies. Facebook is a good example, I think. Hypothetically, a trust-busting Attorney General could try to break up Facebook so that there are four or five competing companies in that market–sort of like there used to be at least two, Facebook and MySpace.

But Facebook derives its value in large part from the fact that pretty much everyone who wants to participate in this form of social media is on it. You don’t have to go to five or six different platforms to find your high school classmates; you only have to go to Facebook. And if you want to get a message out to a targeted social media audience, you don’t have to replicate the effort five or six times. Facebook is, perhaps, a natural monopoly on account of the network effect, so that if a trust-buster broke the company up into four or five competing social media firms, they would tend to re-coalesce into one.

Twitter is similar. It is convenient to have one platform where anyone who wants to issue or absorb snark in 240 characters or fewer can go. If there were five Twitters, they likely, I think, would collapse into one before long.

Search is different. There is no discernible advantage to having a single dominant search engine, and in fact Google has several competitors. If the competitors aren’t very successful, it presumably is because users generally prefer Google’s search services. Is there any reason to think Google has done anything wrongful (even slightly) to preserve its search monopoly? Not that I know of.

Where tech giants do not enjoy a natural monopoly, trust-busting may be an effective approach, if it is justified by existing or reasonably extended antitrust law. Where a tech giant does occupy a natural monopoly space–like, I suspect, Facebook and Twitter, and possibly YouTube–a better solution might be to regulate the company as a public utility, much like your local water company or electricity provider.

On that scenario, the company would be required to provide its service to all on an equal basis. No one imagines that the water company can cut off service to conservative households, and if the electric utility cut off power to households that support President Trump, it would be a scandal. Further, on the regulation model, the executives of companies like Facebook and Twitter would be paid publicly-determined salaries, comparable to those of school teachers, with no stock options or other opportunities to become wealthy.

One thing the trust-busting and regulatory models have in common is that threatening to pursue them may send a tremor of fear through the executives and shareholders of the tech giants. That fear might be enough to cause them to scale back on using their companies to pursue a left-wing political agenda. If so, the threat is a good thing. If the threat isn’t enough, we may need to revisit the question of antitrust enforcement.

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