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Antitrust Magazine

Volume 35, Issue 3 | Summer 2021

A U.S. Antitrust Agenda for the Dominant Information Platforms

Donald I. Baker and William Comanor

Summary

  • Discusses the dramatic growth and substantial profitability of Google, Facebook, and a few other major information platforms, which has generated strong political demands for governments to use their antitrust weapons to "do something" to curb the power of these platforms.
  • Discusses whether antitrust can be effectively used as part of a broader legal effort to mitigate the negative dimensions of these modern informational powerhouses.
  • Proposes a series of statutory amendments to reinforce and amplify existing anti-monopoly rules to provide a more certain basis for early enforcement.
  • Realizes that, because antitrust is likely to be only part of broader "digital reform" efforts, competition oversight could be dovetailed with whatever information oversight may be entrusted to other agencies given concurrent or complementary jurisdiction over the Platforms.
A U.S. Antitrust Agenda for the  Dominant Information Platforms
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Google, Facebook, and the other prominent information platforms have served consumers well. They provide valuable services that millions of us now regularly use, without having to pay anything directly for doing so. We can easily connect with distant friends and family members, consider various versions of current news, find detailed answers to our factual questions, or do many other useful things—merely by locating and opening a website on our phone or computer. In the process, we have provided the platform with significant information about our personal identities and interests—information that the platform can then manipulate and sell to advertisers, political campaigns, and others.

But over time, the consuming public has become increasingly uncomfortable with the sheer power that the dominant information platforms have over us. As consumers, we have granted them their information-based power by using their services, but as citizens we are increasingly uneasy about the resulting risks to our privacy and political systems. This concern seems to be widely present elsewhere in the world, where it can be intensified by the global reality that today’s most visibly dominant platforms are all American creations.

The Political and Economic Landscape

The dramatic growth and substantial profitability of Google, Facebook, and a few other major information platforms (“the Platforms”). have generated strong political demands for governments to use their antitrust weapons to “do something” to curb the power of these platforms. We have not seen such antitrust momentum in the United States since the 1970s—when Congress converted minimal Sherman Act misdemeanors into $1 million felonies with a three-year jail sentence and established the then-novel system of premerger antitrust review which has become an important enforcement tool in the United States and overseas.

Nearly simultaneously, the U.S. Department of Justice and Federal Trade Commission brought their biggest monopolization cases in decades against Google and Facebook. While these cases were filed during the closing months of the Trump administration, the Biden Administration continues to actively prosecute these cases. In early 2021, the Chairwoman of the Senate Antitrust Subcommittee, Senator Amy Klobuchar, released her proposed Anticompetitive Exclusionary Conduct Prevention Act of 2020 targeting the dominant information platforms. Not to be outdone, the Democrat-controlled House Judiciary Committee has released a 400-page antitrust broadside against the practices of these companies and other leading digital platforms—and promised legislation to implement these recommendations

Both this rapid-fire enforcement activity and the underlying pro-antitrust ferment are intertwined with much broader public concerns about individual privacy and the unrivalled ability of the digital leaders to distribute vast amounts of misinformation and even outright lies created by others at virtually no cost to the creators. Thus, for example, Facebook is being targeted as both a censor for exercising some minimal control over false content by a few of its users, while also being charged as an enabler of anti-­democratic conspiracies among some users (such as those who organized the January 6, 2021 attack on the U.S. Capitol). Obviously, these actions and the public’s concerns go well beyond the traditional antitrust objectives of lower prices, more choices, faster innovations, and better products.

The Platforms’ major influence on modern societies has a clear economic basis. The Platforms have utilized network effects to a massive extent and created companies that dominate large portions of the information sector. These capabilities have enabled the Platforms to become the leading sources of online advertising and consumer-specific information, which can then be sold to advertisers and other marketers. Critically, the Platforms’ core economic incentive is to expand their audiences—and misinformation-caused controversies appear to generate larger audiences.

While the Platforms’ economic dominance may be inherent in their business operations, that reality enhances public fears that these private companies will serve as “gatekeepers” for the information voters and consumers receive, while also gradually limiting the advertising revenues of the “old media” (newspapers, etc.) as sources of valued commentary, criticism, and news. The resulting question is “what should antitrust do about it?” or, even worse, “why have our tame antitrust enforcers allowed this to happen?”

While antitrust cannot solve the broader problems created by the Platforms, it has a role to play. Indeed, we see the relevant question as whether antitrust be effectively used as part of a broader legal effort to mitigate the negative dimensions of these modern informational powerhouses?

We believe that some traditional antitrust tools are available to deal with pieces of the “digital monopoly” puzzle, even though these tools have been weakened considerably by U.S. judicial decisions during the last 40 years. Therefore, we are proposing a series of statutory amendments to reinforce and amplify existing anti-monopoly rules, thereby providing a more certain basis for early enforcement. Achieving effective enforcement of any antitrust rules against the Platforms will be an ongoing challenge for the FTC, DOJ, and their antitrust counterparts elsewhere. Because antitrust is likely to be only part of broader “digital reform” efforts, “competition” oversight could be dovetailed with whatever “information” oversight may be entrusted to other agencies given concurrent or complementary jurisdiction over the Platforms.

Today’s Powerful Information Platforms Are Generating New Antitrust Challenges

There are two types of successful digital platforms that have attracted global antitrust attention. The first of these are the information platforms, which generally offer “free” information content and/or messaging capability to attract widespread consumer use, thereby generating valuable audience information that can be monetized primarily through the sale of advertising space. Google, Facebook, and Twitter are the most familiar examples. The second basic type are the major transaction platforms, where participating buyers and sellers can complete transactions for which they pay the platform; Amazon, the Apple App Store, Airbnb, Uber, and Visa are all prominent examples.

A basic economic difference between information and transaction platforms may help explain why the antitrust focus can be quite different between the different types of platforms: (1) a market-making transaction platform (e.g., one dealing with securities or local real estate listings) is most effective when all “buy” and “sell” bids can be combined on the single platform, while (2) having alternative sources of information is a generally desirable goal in a market served by information platforms. While transaction platforms like American Express and the Chicago Board of Trade have generated important antitrust landmarks involving disputes over access, pricing, and other issues, the antitrust issues in these important precedents involve such different categories of challenged conduct that the decisions tend not to be of much help in responding to the novel antitrust questions being generated by the Platforms.

Although the Platforms are often considered to be unique organizational forms, they are conceptual successors to familiar types of media organizations such as newspapers, broadcasters, and broadcast networks. These sometimes-powerful earlier media companies took the form of information and entertainment designed to attract readers’ and viewers’ attention, which could then be monetized. These services had the common economic structure of low or minimal incremental costs. It was only a little more costly for a newspaper or broadcast network to expand its readership or audience.

Even though the basic audience-based business model pursued by the Platforms did not originate with them, they extended the model because the Platforms could offer advertisers something superior—a more tailored, data-sorted audience than newspapers or TV channels could create. In addition, the Platforms shed the geographic and regulatory limits that had constrained their media predecessors—the need to transport printed newspapers to readers and the limited reach of radio signals, as well as detailed public regulation of their use. As a result, no newspaper chain or broadcast network ever enjoyed anything approaching a monopoly over any market that could correctly treated as “national.”

The Platforms became national (and even global) in scope at little incremental cost. To the extent that a Platform offered a distinctive service in what tended toward a winner-take-all market, it attained a degree of national market dominance that no successful newspaper chain broadcast network had ever achieved in America.

The unique difference today is that antitrust enforcers do not have any experience from any other geographic markets to use in evaluating a Platform’s conduct or its market consequences, as was usually possible with the “old media.” Moreover, legal precedents and traditional economic learning are harder for enforcers and judges to apply in the new, dynamic digital services markets where market power depends on controlling data, and where technical changes can outpace the timeline for trial of a major Government anti-monopoly case.

Existing Legal Prohibitions

Sherman Act Section 2 is specifically directed at exclusionary conduct. Thus, it is illegal for a firm (1) to become a monopolist by acquiring existing competitors or (2) to create or maintain a monopoly by exclusionary agreements or practices. It may also be illegal to use legitimate monopoly power in one market to create or protect power in a dependent market.

In the United States (unlike the EU or many other jurisdictions), it is not generally illegal for a firm to engage in exploitive conduct, such as monopolistic pricing. From the beginning, the United States seems to have made an implicit political assumption that monopolistic pricing, unreasonable discrimination, and certain other practices would be supervised, if at all, by a sectoral regulator. The Interstate Commerce Commission had been in existence for three years when the Sherman Act was passed in 1890, and numerous other specialized regulators would be established in the 20th century (FCC, SEC, FDIC, etc.). Sometimes these regulators were given concurrent antitrust jurisdiction over certain mergers and other practices in their sectors.

A Few Useful Antitrust Precedents

Some helpful antitrust decisions from the past could be mobilized to help U.S. enforcers charged with responding to today’s digital giants. The 81-year-old Supreme Court decision in the DOJ’s Associated Press case is particularly useful because the Court recognized that AP news feeds were clearly superior, based on considerations of information quality rather than price, and that their superiority created market power both for AP itself in a “national wire services” market and as a source of competitive advantage for a favored newspaper in its “local newspaper” market. The Court therefore struck down, under Section 1 of the Sherman Act, the AP rule that allowed a newspaper member of the non-profit AP joint venture to veto the membership application of any competing local newspaper. The Court also ordered the AP to admit any newspaper to membership on non-discriminatory terms. This precedent is helpful because it recognizes that denial of a unique information service to a local competitor can create anticompetitive effects in a dependent market and be the basis for a Sherman Act violation.

A second helpful precedent is the 1973 Supreme Court’s decision in the DOJ’s Otter Tail Power case. Here the Supreme Court held that the defendant could not use its legitimate monopoly power in the regional electric transmission market to prevent creation of municipal retail electric utilities in several local communities where the defendant held a monopoly franchise that was up for renewal. This exclusionary refusal to wheel power was found to be a Section 2 violation, and the defendant was ordered to provide transmission services to local government retail systems on equal and non-discriminatory terms overseen by the Court and the Federal Power Commission.

The “Consumer Welfare” Issue

In the late 1970s, two influential books appeared, written by two prominent then-law professors who would be appointed as appellate judges by President Reagan: Richard Posner and Robert Bork. Posner and Bork argued that the sole purpose of the antitrust laws is to protect consumers from clear adverse effects—­usually measured in higher consumer prices secured through anticompetitive actions. And these professors asserted that the antitrust laws were intended solely to foster competition and prevent consumer harm, but not to protect competitors from bigger, and maybe more efficient, rivals.

Since the 1980s, the consumer welfare standard has generally been used by judges to narrow the focus of federal antitrust enforcement—to deny private plaintiffs standing to bring antitrust claims against their competitors and thus to have those claims tried on their merits in a jury trial. Judge Bork’s “consumer welfare” standard has always assumed that traceable price effects or reduced consumer choices can be identified and should be required—and this is something that a private plaintiff alleging economic injury to its business (e.g., based on lost sales) may find it difficult to do.

Meanwhile, the “consumer welfare” standard seems to be a less important factor for government antitrust enforcement. Since the 1980s, the FTC and DOJ have continued to weigh potential consumer effects in making their prosecutorial choices (which helps explain why government monopsony-related prosecutions have been so rare). However, in litigating cases, the government agency recognizes that it has to prove adverse effects in a relevant market but then seems to assume it does not have to show how these anticompetitive effects were traceable through to consumers when the challenged merger, conspiracy, or restraint is somewhat distant from any ultimate consumers.

Today the Platforms are creating clear market and political concerns regarding their dominance, even when there are no traceable negative price effects for consumers. Thus, the pending DOJ and FTC cases are likely to squarely raise the question whether the consumer welfare standard can (or should) be used to limit the scope of government antitrust enforcement in the digital age. The DOJ’s Google case, the FTC’s Facebook case, and Senator Klobuchar’s reform bill all focus on exclusionary practices vis-à-vis potential competitors rather than traceable harm to consumers. The same is true elsewhere in the world, where the “consumer welfare” idea has never been used.

Were the “consumer welfare” standard to be explicitly dropped as a legal test for DOJ and FTC enforcement actions, that development should bring the United States somewhat closer to the “abuse of dominance” standard that the European Commission and other national agencies are using (or proposing to use) vis-à-vis the Platforms. This step should reduce the risk of inconsistent remedies being sought or obtained against the Platforms in Europe and America.

Protecting the Competitive Process

A striking feature of the Bork “consumer welfare” standard is that it rests on presumed outcomes rather than the process through which the results were reached and maintained. Thus, the Bork approach has the advantage of concreteness in that one could either demonstrate or not the presence of specific positive outcomes and make antitrust judgments accordingly. In contrast, determining potential injury to an ongoing competitive process involves a more extended inquiry once one moves beyond simple presumptions related to the size distribution of rival firms. Showing injury to the competitive process may rest on showing that (1) sufficient potential rivals to the services offered by a dominant platform are not being foreclosed by the platform, and (2) the Platform is not unreasonably penalizing or excluding its competitors in dependent markets where everyone depends on the Platform for information or access. Thus, protecting the relevant competitive process is surely enhanced by effective antitrust enforcement against exclusionary conduct by the dominant firm.

Note that consumer choice is ideally achieved by having enough competing alternatives selling similar but somewhat differentiated products, each at different price-quality points. In these circumstances, the presumed dichotomy between promoting competition and protecting competitors can sometimes seem overly simplistic. Indeed, if competition means promoting consumer welfare, then protecting efficient smaller competitors from being foreclosed by dominant firm restrictions (or restrictive regulatory mandates) may be the most effective means to assure that consumers continue to face more price-quality choices than the dominant enterprise wants to offer them.

Even when digital services are offered without explicit charge, quality competition remains relevant and generates different digital services (or different variations on the same basic service). Competition across alternate digital services may clearly benefit consumers by promoting more choice among platforms.

Potential Rules for Dominant Information Platforms

The rapid dominance that Facebook, Google, and a few others have achieved and are now successfully maintaining does not rest on any clearly felt economic injury being imposed on the consuming public. The Platforms’ ability to generate unique and commercially valuable information is the source of their market power—and this largely goes on in everyday sight. In these circumstances, the growing political demands that the antitrust decision makers and legislators “do something” often appear to be based more on political concerns than economic ones. This being so, we believe that prompt changes would be more likely to come from Congress, rather than hoping eventually for some innovative antitrust decisions from what has gradually become an ever more conservative federal judiciary.

Accordingly, we propose some amendments that would expand or clarify existing rules under the Sherman and Clayton Acts. These amendments are intended to limit the clear economic power of these dominant enterprises, which would have the effect of bringing the United States somewhat closer to jurisprudence being developed under the “abuse of dominance” standard used in the EU, Germany, the UK, and several other major jurisdictions. Our proposals would not limit the application of the criminal prohibitions in the Sherman Act or narrow any existing Clayton Act rules. Because the antimonopoly area is where our U.S. antitrust jurisprudence is thinnest and has been least utilized by DOJ and FTC, most of our proposed changes deal with single-firm abuses or contractual restrictions imposed by a dominant platform. These are our proposals:

  1. A dominant information platform (“Dominant Platform”) may not acquire a potential competitor or a competitor in a closely related field, unless a court or the FTC finds that the Dominant Platform has reasonably established that the public interest would be served by approval of the transaction. The purpose of this proposal is to prevent the Dominant Platform from making an early-­stage acquisition of an incipient competitor that might be able to become an effective competitor for some of the traffic on the Dominant Platform. Once the Government has established a realistic possibility that the target plausibly could become an effective competitor, then the burden of proof would be placed on the Dominant Platform to prove that the proposed acquisition would be likely to provide clearly identified public benefits (which might include efficiency or superior security benefits). This approach seeks to avoid the situation in the FTC Facebook case—where, even if successful on the merits, the Commission will face the difficulty of trying to unwind long-consummated acquisitions of incipient rivals. Restricting acquisitions by the Dominant Platforms in this way is consistent with a traditional media policy goal of preserving alternative voices in the public space for their own sake.
  2. The Dominant Platform may not penalize any user for utilizing a competing platform or alternative information source. This rule would prohibit (1) any explicit contractual provision or articulated threat against using alternatives, and (2) any discrimination in the Dominant Platform’s pricing or service terms tied to whether the user ever utilized an alternative source of some service on the platform.
  3. The Dominant Platform may not agree to pay the supplier of access devices for any preferential placement for its service on the supplier’s devices. This is precisely what the DOJ is seeking to prohibit in United States v. Google, because Google has been making substantial payments to Apple to make itself the default source of search services on the popular iPhones, iPads, and other Apple products. The current Sherman Act Section 2 jurisprudence should be sufficient for this purpose, but we see every reason to spell it out more explicitly in a new antitrust bill.
  4. In displaying search results, the Dominant Platform must clearly identify any search result (1) which is created by an entity affiliated with the Dominant Platform or (2) from which the Platform receives advertising or other revenues as being a “SPONSORED SOURCE.” This notice would warn users to be somewhat skeptical of such search results and therefore to explore non-favored alternatives more carefully than they might otherwise have done. If successful, this approach would be preferable to establishing some form of utility-regulation of search results (as the EU is attempting to do vis-à-vis Google).
  5. The Dominant Platform may not deny equal access to its platform to any competitor in another market where the Dominant Platform or any affiliate competes. (Any enterprise in which the Dominant Platform has at least a 10 percent equity or ownership interest, directly or indirectly, shall be an “affiliate” for these purposes.) This rule is more extensive and explicit than the Supreme Court’s decisions in United States v. Otter Tail Power and United States v. Associated Press—and builds on the so-called essential facilities doctrine.
  6. An agreement or understanding between the Dominant Platform and any other competitor or likely competitor restricting any service being offered by either party (including advertising) shall be presumptively illegal, with a burden on the parties to justify the restriction on efficiency or other public interest grounds. Nevertheless, any such service-restricting agreement could still be subject to the normal criminal penalties in Section 1 of the Sherman Act, where the burden of proof would clearly be on the DOJ.
  7. A court may impose liability on a Dominant Platform when the only anticompetitive effects are just on one side of its platform. However, in a restrictive practices or merger case, the Dominant Platform can prevail if it proves that economic benefits to users on the other side outweigh the anticompetitive effects to users on the first side. The purpose here is to overrule the Supreme Court’s 2018 decision in Ohio v. American Express, holding that both sides of a platform had to be treated together as a single market. This proposal is important because the American Express decision (which was issued by a 5-4 majority) is likely to be to a source of regrettable legal uncertainty and potential confusion as the U.S. agencies try to develop effective antitrust remedies vis-à-vis the Dominant Platforms.

Conclusion: Enhanced Coordination Among Agencies Will Be Needed

Effective antitrust enforcement, even with the amplified powers that we recommend, will represent a major new challenge for the DOJ and the FTC. As noted earlier, the Platforms have generated public policy issues that are broad, global, and becoming more political in many places. Antitrust can provide only a partial solution to these public concerns. Therefore, the enforcement agencies will have to work hard to coordinate their efforts with others responsible for enforcing digital rules in the United States and abroad. Fortunately, coordinating with other agencies having complementary responsibilities is something that the DOJ and FTC have a lot of positive experience with.

Federal Coordination

We anticipate that Congress may well enact “digital information platform” rules covering such matters as privacy, security, and gatekeeping—and then entrust some new or existing federal agency (or agencies) with responsibility to enforce the new rules. Almost certainly, any new digital enforcement agency (“DEA”) will necessarily have some overlapping functions with the DOJ and the FTC or could be given concurrent authority to enforce the antitrust rules (as the FCC and some others have been granted). Overlapping authority would probably require the antitrust agencies to expand their coordination arrangements to include the DEA in order to avoid duplicative enforcement efforts—and even to allow the DOJ or FTC to participate in a DEA investigation or proceeding, or vice-versa.

State Coordination

Some U.S. states will develop their own digital regulation responses and may want to engage in some politically attractive enforcement efforts, as they have done in the antitrust area. The DOJ and the FTC already have extensive experience cooperating with the state attorneys general in antitrust cases (while occasionally the states have pursued national cases which federal agencies had declined to bring). In the recent DOJ Google and FTC Facebook cases, many states chose to join as co-plaintiffs; while some other states filed their own modestly different Google case in the same court and then asked to have it consolidated with the DOJ case.

International Coordination

This is such an important issue because of the obvious risk that a Dominant Platform may be subject to inconsistent commands from various sovereigns over activities not easily confined by national frontiers. The EU, UK, and other countries are expanding antitrust enforcement and enacting digital laws, while creating new government “information” units to deal with the governments’ broader concerns. As in the United States, these efforts are driven by serious domestic political momentum, which probably means that less diplomatic consultation may have been taking place at the enactment stage than might otherwise have occurred.

Expanded international coordination at the enforcement stage seems promising. To start with, the international competition agencies have gradually created an effective system of close cooperation and coordination. They already work closely together on cartel prosecutions and merger investigations with multimarket effects—with investigating staffs exchanging information to the extent legally permitted or consented to. In addition, the competition agencies use the International Competition Network and the OECD Competition Committee to hold regular discussions of broader policy and procedural issues.

While cooperative arrangements should continue, there may be some complexities as antitrust enforcement against the Platforms grows everywhere. First, there is more diversity between the United States and other major countries on monopoly misconduct rules than in the cartel or merger rules. Second, different countries’ newly enacted statutes may increase the existing antitrust diversity across jurisdictions. Third, diplomatic conflicts with the United States could occur if foreign antitrust enforcement against the U.S. Platforms were to become much more aggressive than what the United States chooses to do.

In sum, the FTC and the DOJ, facing exciting new challenges, will need to expand their past coordination efforts in order to respond to the public demand that there be more active enforcement against the Platforms. It would also be highly desirable for the Biden administration and Congress to seriously increase the agency appropriations and staffing levels for these hard-pressed enforcers.

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