Observations from the Tech Antitrust Hearing

This post collects some observations from yesterday’s lengthy House Judiciary Committee Subcommittee on Antitrust, Commercial, and Administrative Law hearing with the chief executives of Amazon, Apple, Facebook, and Google.

  • The parties had different conversations, as they often do. The Republicans mostly talked about political bias. Democrats mostly talked about concentrated power. Despite the different charges, their verdict was the same: guilty.
  • On net, the hearing likely hurt any future antitrust case. For example, as Mike Masnick pointed out, Rep. David Cicilline (D-RI) demanded that Facebook take down certain content—minutes after Rep. Matt Gaetz (R-FL) demanded that the same content be kept up. Judges tend not to look kindly on such incoherence.
  • The hearing had limited fact-finding value. The CEOs’ answers to questions were often interrupted after just a few seconds. The committee members appeared more interested in getting tough questions on camera than in building a case. Alternatively, since many antitrust cases tend not to survive careful scrutiny, perhaps the members knew a proper dialogue would not be in their interest, and avoided one intentionally. Neither possibility reflects well on the legislators.
  • Republicans have forgotten a basic rule of politics: Never give yourself powers you don’t want the other side to have. Reps. Jim Jordan (R-OH), Matt Gaetz (R-FL), and Greg Steube (R-FL) all argued for the federal government to regulate political speech in their party’s favor. If they succeed, Democrats will almost inevitably use that same power in their party’s favor when they are in power. The GOP’s Trump wing’s shortsightedness is quietly making some of their opponents very happy. As the saying goes, never interrupt your opponent when he is making a mistake.
  • There were no gaffes on the level of an 83-year old Sen. Ted Stevens’ (R-AK) 2006 description of the Internet as “a series of tubes” or Mark Zuckerberg’s “Senator, we run ads” response in 2018 to former Sen. Orrin Hatch (R-UT), then 84, on how Facebook makes money despite not charging its users.
  • In fact, yesterday’s oldest member, 77-year old Rep. Jim Sensenbrenner (R-WI), who is retiring after this term, came off comparatively well. He briefly defended the consumer welfare standard in his opening remarks, stated his belief that current antitrust laws do not need to be changed, then mostly stayed out of the fray.
  • The lack of meme-worthy gaffes does not mean the committee members are well versed in technology. The Committee’s average Democrat is age 57, the average Republican is 52, and frankly, it shows. For example, Rep. Lucy McBath (D-MD), 60, seemed to not know how cookies work. On at least one occasion, an angry Republican confused Twitter and Facebook, requiring Zuckerberg to point out the difference.
  • Members, who typically spend most of their careers in government, apparently know little about how retail works. Amazon came under fire for selling self-branded products at cheaper prices than name-brand equivalents, and placing them prominently in searches. Nearly every grocery store and retail chain in the country does the same thing. House brands with low prices and guaranteed shelf space have been standard practice in groceries and retail since the pre-World War II heyday of A&P—which was itself the target of dubious antitrust cases.
  • There was little, if any, discussion of regulatory capture or rent-seeking. This is an important unintended consequence of antitrust enforcement. Many established companies would be happy to comply with adverse antitrust judgments if it meant putting up barriers to entry against competitors. In the long run, cartels can only survive with government help.
  • My colleague Jessica Melugin writes, “Surely, politicians can find a better use of their time than harassing the companies that have helped so many Americans make 2020 a little more bearable.” Antitrust enforcement requires proof of consumer harm, yet this was rarely discussed at the hearing. Search engines make it easier to keep up with the latest news about the virus. Social networks help people stay in touch. Online retail and delivery services help keep people fed and supplied while social distancing. Other tech companies provide entertainment, access to medical care, and make it easier to work or learn from home. We will likely never know how many lives have been saved by these services, many of which are free of charge.
  • A running theme of the hearing was that the current big tech companies have enough market power to squash competitors—and then presumably raise their prices. But Zoom, which was not represented at the hearing, shows that the tech industry is still engaging in creative destruction. Six months ago, almost nobody had heard of it. Now, giants such as Microsoft-owned Skype are already essentially legacy services. The Committee’s own technical troubles with its older video conferencing software, which required the Committee to take a recess, underlined the point. Other tech companies are well aware of creative destruction. Facebook’s once-hip user base now has an average age of 46. More than two thirds of TikTok users, by contrast, are between ages 13 and 25.
  • Language matters. And some congressmen are slippery with it. For example, Rep. Cicilline stated that Amazon controls 70 percent of “online marketplaces.” This is a non-standard term that Rep. Cicilline did not define. It almost certainly has a much narrower definition than most people would assume when thinking of a company’s market share. Cicilline’s 70 percent of “online marketplaces” is equivalent to about 4 or 5 percent of retail sales. If people were not listening carefully to Rep. Cicilline’s boutique phrasing, they would get the impression that Amazon has a larger share of its relevant market than it actually holds—by more than an order of magnitude. Does Rep. Cicilline’s terminology include Amazon’s major competitors, such as Walmart, Target, grocery stores, electronics stores, book stores, and more? For more on this type of error, see Patrick Hedger’s recent post and my earlier one on the relevant market fallacy.
  • Rep. Cicilline argued that Google controls 85 percent of Internet searches. This is also misleading. Google does not power many common Internet searches people perform daily. Netflix famously hosted an open competition for developers to design a new search algorithm for its searches that would deliver results tailored to each viewer’s likes and dislikes. Other streaming services also use their own search technology, not Google’s. Amazon product searches use an in-house algorithm. Internet dating sites use proprietary search algorithms as selling points. Internal searches in Word documents or PDF files do not use Google. Were these included in Rep. Cicilline’s statistic? Or is this another example of the relevant market fallacy?
  • Though the hearing lasted for six hours, members missed some opportunities to score valid points. For example, Rep. Mary Scanlon (D-PA) briefly discussed price gouging. She did not bring up, as I recently did, that Amazon’s support of federal price gouging legislation has a potential anti-competitive rent-seeking component. The extensive tax breaks Amazon is receiving for its new second headquarters are another example of anti-competitive corporate welfare. Of course, the blame for these is on politicians as well as companies. This may be why they were downplayed.
  • Facebook CEO Mark Zuckerberg’s public support for heavier regulations for his company has a similar rent-seeking dynamic. Regulations often favor incumbents and lock out potential competitors. Facebook can afford expensive content moderation and privacy regulations; its startup competitors often cannot, or would be discouraged from even trying. Regulations, which Facebook would likely help to write, would likely lock in its leading position in a way that consumers would never allow.
  • Google’s sometimes-accommodating behavior to the Chinese government’s censorship and human rights policies is questionable. At the very least, the company should do more to stand up against illiberal governments. This, however, is not an antitrust issue.

In short, committee members addressed a lot of things they shouldn’t have, and did not address some things they perhaps should have. If this hearing has a part seven (yesterday was actually part six), it should have fewer threats to regulate political speech and fewer common analytical mistakes. And it should focus on how tech companies affect consumers, for both good and bad, and on likely consequences of antitrust enforcement, such as regulatory capture.

For a broader view of antitrust regulation, see Wayne Crews’s and my paper. A new #NeverNeeded paper on tech regulation during COVID-19 by my colleagues Jessica Melugin, Patrick Hedger, Michelle Minton, and John Berlau is here. Jessica’s thoughts on the hearing are here. More resources are at antitrust.cei.org.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s