The Great War, Part 2: The Internet vs the Free Market
In January of 2016, Farhad Manjoo wrote in the New York Times of the companies he called the “Frightful Five”: Amazon, Apple, Facebook, Google and Microsoft. Manjoo’s writing was at the early stages of what has become a breaking wave of public and policymaker agita. Companies universally beloved only a few years ago have witnessed a dramatic turn, with conservatives and liberals alike criticizing the companies for their technical decisions, employment practices, business models and, well, pretty much everything else. As a result, we’ve seen bipartisan antitrust suits against Google and Facebook and a substantial interest in new legislation. Trust has broken down, and in its wake we are likely to see new law; to what extent that law produces constructive and pro-competitive outcomes remains an open question.
As the honeymoon era for big tech crumbles, the antitrust world is in its own civil war. On one side of the battlefield are the advocates of “Hipster Antitrust,” who call for a re-examination of fundamental tenets of antitrust law and economic theory, including replacing the well-established “consumer welfare” standard with measures that take into account broader factors such as labor practices. On the other side, champions of the status quo emphasize the flexibility of antitrust law to resolve disputes, despite (or perhaps because of) decades of precedent raising the bar for plaintiffs to succeed in litigation that typically takes years to resolve in court.
The big tech and antitrust fights are inextricably intertwined in 2021 in large part because the internet is such a substantial driver of the economy. From metrics like market capitalization to employment growth, the tech and internet sector reigns. So while pharmaceutical companies, financial institutions and agricultural conglomerates all see some attention from consumer advocates for their ongoing practices, it is a few tech companies with different products and business models that continue to dominate the headlines.
This may well feel like a war between the internet and the free market. But ironically, both sides would claim to be the champions of both the internet and the free market! Reformers see the internet we have today as a problem for realizing an effective free market, and thus advocate for regulatory changes that limit the internet and technology’s anticompetitive combinations and practices. For status quo advocates, the free market is the very reason we have the amazing internet we have today, and changing the rules now would be harmful and antithetical to the internet’s continued flourishing.
There are elements of truth to both perspectives, but every story is more compelling with a villain. So here, four of Manjoo’s Frightful Five have been cast in the role of monopolies abusing their market power. The Department of Justice (DOJ) and 12 states (California joined after the initial filing) filed a civil antitrust suit against Google in October 2020; 38 states, led by Colorado, filed a separate suit against Google in December. The Federal Trade Commission (FTC) filed an illegal monopolization suit against Facebook. In turn, Mark Zuckerberg, Facebook’s CEO, has said Apple holds a monopoly through its iOS App Store. Further, Lina Khan’s article, “Amazon’s Antitrust Paradox,” is widely credited with helping to catalyze concern over tech competition before it was cool. And the House Judiciary Committee’s sweeping report in October 2020 painted all four companies with a scarlet letter “M”.
The legal theories used to challenge these companies are complex, and success in the courts will require detailed factual showings, market definitions, and extensive economic and technical argument. The lawsuits can’t be lightly dismissed—prosecution of companies for unilateral conduct violations under antitrust law are incredibly rare, and substantial resources have been put into bringing these suits, which doesn’t happen on a whim. We have years of complex litigation ahead. But for the American public, the battle lines of the war were drawn much more simply and much earlier, in March of 2019, when then-presidential candidate Sen. Elizabeth Warren announced that the time had come to “break up big tech.”
Increasingly, we appear headed to the kind of dangerous false binary narrative that brings myopia and frustrates constructive dialogue. Here, the question is often posed as “are you for, or against, breaking up big tech?” Those are inherently fighting words, and a war is not the right way to reach good policy outcomes. We need to look deeper to understand the complexities of the internet’s free market in more detail. Bringing a technical perspective to core economic concepts of market entry and user switching will be helpful.
Wearing my computer science hat, what makes the internet most compelling is its openness to change. Jonathan Zittrain captured a great deal of this energy with his seminal 2006 article, “The Generative Internet.” The internet was built to accommodate decentralized creation, including both content and code; this is a far cry from, for example, television content production which naturally centralizes into production studios. Translating to economics lingo, the internet is at its best when market entry costs are near-zero—anyone can build new tools and reach users with them, without substantial startup costs. And when users have near-zero switching costs, the most interesting content and code can reach them on the merits.
The modern internet is a strange construction against that backdrop. The emergence of powerful platforms created an incredible opportunity for new ideas to launch and reach big audiences at ever-lower cost. Yet, new kinds of technology silos and content-walled gardens can also create new obstacles to precisely the open creation and distribution that platforms have unlocked.
We need to bring a centrist perspective, grounded in an understanding of what makes the internet unique and valuable, back to the fight over competition. Fortunately, even at a time of incredible polarization and political division, there is a real opportunity for bipartisan collaboration in Congress on competition reform. And, in some form or fashion, a bipartisan path forward is likely to include measures to promote interoperability and data portability, both of which may help to reduce the costs of market entry and switching.
But in all likelihood we have far more messy fighting ahead of us. The House Judiciary Committee hasn’t yet introduced legislation; tech industry leaders and trade groups, like their challenger brethren, are all waiting to see what direction the Biden administration signals with its tech policy picks including the chief technology officer (CTO) and the head of the National Telecommunications and Information Administration (NTIA). Further, the DOJ may take a different tack than under the previous administration. As these pieces on the chess board move, the aggressive campaigns and op-eds will grow.
When they do, remember that the debate doesn’t have to be this way. We can have the internet and the free market, and that goal should unite us and help us define a way forward.
INTRODUCTION – The Great War for the future of internet governance has begun.
PART 1 – The Great War, Part 1: The Internet vs Democracy
PART 2 – The Great War: The Internet vs the Free Market
PART 3 – The Great War: The Internet vs Journalism
PART 4 – The Great War: The Internet vs Truth
PART 5 – The Great War, Part 5: The Internet vs Happiness
PART 6 – The Great War, Part 6: The Internet vs Itself
Image credit: Koshiro K