How to repair Big Tech without breaking it

Hal Singer earns his living as an expert witness in antitrust cases and teaches at McDonough School of Business at Georgetown University. In recent years, he has also become one of the few economists to try to upset the old world of antitrust theory. He testified before the Congress, participated in a symposium organized by the Federal Trade Commission and delivered speeches in which he proposed his own solution to boost competition against the power of Big Tech. Whether you agree with him or not, his ideas are taken seriously in the congress halls and helped spark a debate that could have enormous consequences. What follows is a slightly revised and condensed version of a recent conversation about our ideas.

Joe Nocera: I wanted to do this interview because you talked a lot about ideas to prevent big tech companies – Amazon, Apple, Facebook and Google – from abusing their immense power. Before we get there, let's talk about the current antitrust standard: the so-called consumer protection standard. Can you start by explaining what it is?

Hal Singer: The standard of consumer protection is essentially based on the fact that competition law must be motivated by the consumer. So if we see behavior that does not hurt consumers in the short term, then why bother stopping it? If the norm occupies an army of economists in antitrust cases, it is because it calls for something that can be measured empirically – namely the effects of price or production – usually via statistical badysis or econometric badysis. But as it has become the holy grail, the standard of consumer welfare has narrowed the scope of antitrust enforcement to deal only with damage that is manifested by a short-term effect of price or production. .

JN: I know you think that the consumer protection standard does not make sense when you're evaluating a technology company, but what about other types of businesses? For example, the AT & T-Time Warner contract?

HS: It's a difficult question. See how it affected the Justice Department in trying to block this deal. He forced the DOJ to put all his eggs in the price effects basket. The government felt that if it could show that the merged entity would significantly increase prices to competitors, it would cross the finish line. Some observers, such as David Dayen, have noted that the Department of Justice does not pursue many potential harms resulting from discrimination. I think the reason is that the agency felt that it was their best chance of winning. The standard of consumer welfare is ubiquitous. It influences the types of cases that the government introduces; and that influences their contribution.

JN: So why does not the consumer protection standard work for technology companies?

HS: Potential damage does not occur in the form of short-term price or production effects. Here is a way to think about it. Imagine a truck delivering goods to a grocery store. A group of people standing around the truck decides to tilt it, so that all the content runs out. Consumers who roam pick up the content for free. There is no doubt that, according to a very narrow interpretation of the consumer welfare standard, if we simply measure short-term gain or loss for consumers, everyone who receives the loot for free is technically Better off than he'd been in the store and had to pay for it. But obviously, that should not be the end of the story. Suppliers must be compensated, the grocery store must put products on its shelves, etc. Their needs can not be ignored.

When Amazon clones a merchandise sold by a cosmetics company on the site or when Google clones critics of a local search engine – when they engage in these acts of appropriation – it's not that different. In the case of local search results, Google actually gives something to consumers. Amazon could lower the price of its cosmetic clone. An economist attached to the standard of consumer protection would say, "How can you oppose that?" And of course, in the short term, there is an advantage for consumers. I can not deny that. But if the entrepreneurs who monitor this appropriation decide that it is not worth it to compete with the platform and abandon the towel, then how long is the consumer in the long run?

JN: One of the things you told me in the past is that venture capitalists do not want to finance companies that can not answer the question: how are you going to manage Facebook?

HS: What Facebook is doing, is stealing the features of the application. They realize what you do outside Facebook and, if you spend too much time outside, they ask their engineers to copy the features of an independent application and integrate them into the mothership. Snapchat is the clbadic example. Again, defenders of the consumer protection standard would say, "You are using a feature that has been seen by millions of people and that is now by the billions. Is not it good? But a study by Elizabeth Dwoskin for the Washington Post a few years ago on Silicon Valley venture capital firms showed that the main reason for not funding a company was their concern about the potential for ownership of Facebook. . So yes, there is a short-term gain. But in the long run, consumers may be worse off because of less choice and the potential monopolisation of the ancillary market by the platform. I should note that there are also social impacts. For example, entrepreneurs and small businesses bring benefits to the economy that would not otherwise be provided by large companies.

JN: So let's go now. How would you solve the problem?

HS: I want to steal a page from the way Congress dealt with an almost identical appropriation of the dominant platform of another era, the cable companies of the 80s. Congress found that there was a series of independent networks whose ideas were appropriate by the platform, including the Home Shopping Network. A vertically integrated cable company decided to create its own commercial network (QVC), then to give favorable treatment to QVC and unfavorable treatment to Home Shopping Network. In the Cable Television Act 1992, the Congress created a space within the Federal Communications Commission where independent networks believing that their content was appropriate could lodge complaints of discrimination. And a neutral arbitrator determined whether there had been a violation of the non-discrimination requirement. If this is the case, the cable operator is obliged to cease discriminating and to reimburse the independent network any loss of profits attributable to the discrimination.

Antitrust laws existed in 1992; In fact, they had more teeth than now. But Congress still decided to create a regime that would manage discrimination through vertically integrated platforms that were trying to take advantage of their power in the content space. Sounds familiar? And they decided to do it outside the antitrust legislation. The antitrust law has not been amended. You can still sue a cable operator under the antitrust law. This in no way weakens the antitrust laws. With regard to this type of behavior, which consists in stealing, self-dealing, favoritism, it has become the place. Moreover, these protections were not based on econometric proof of night innovation, but on a political preference. It is a legitimate policy response to say that we will create room for content creators because we believe that independent content creators are among the best sources of creativity in our economy. So we are just going to create a space for them.

JN: Now let's apply that to Amazon, Google, Apple, and Facebook.

HS: There is a very easy application of this non-discrimination regime that you can apply to Amazon, Google and Apple. (We will be accessing Facebook in a minute.) Yelp is complaining that Google has inserted itself as the only possible answer in the main field of local search. Previously, Google ran nearly 10 blue links with Yelp near the top. Now you only get one box. Google fills it exclusively with its own content. Under a non-discrimination regime, you create a place, probably within the Federal Trade Commission, where Yelp can file a discrimination complaint in front of an independent investigator. Yelp would bear the burden of proof. And if we literally import the standard of proof from the world of cable, this evidence would consist of three parts. First, you must prove that your content is located in the same way as the content that is preferred by the platform. Second, the reason you receive unfavorable treatment is your lack of affiliation to the platform. And thirdly, as a result of one and two, your ability to compete effectively is seriously compromised. The decision would be likely to appeal, of course. But for me that's how it would work. You would use the same process if a third-party seller believed that it had been discriminated against by Amazon or by an application company as discriminated against by Apple.

JN: What about Facebook?

HS: Facebook's problem is a little different. When it appropriates the functionality of someone else, it's not someone who wants to use the Facebook platform. It's just a poor jerk who operates somewhere on the web and Facebook has decided to steal its features. So, the fact pattern does not align for Facebook as for Google, Amazon and Apple.

JN: So what is your solution? Should we break Facebook?

HS: I think so. I think doing nothing is more embarrbading than being too intrusive in this case. If you have investors who are reluctant to entrepreneurs because of the threat of Facebook appropriation, it seems to me that it is serious enough that we have to move now. I do not like the idea of ​​going straight to a structural remedy, because I think it's pretty invasive. But for me, unfortunately, I think that's the only viable option with regard to Facebook.

JN: You've been discussing these ideas for a while, including talking to congressional staff and testifying at FTC events. Do you think these new ideas that go beyond the standard of consumer welfare are gaining ground?

HS: I do. There is certainly an entrenched opposition of the platforms and their think tanks. But it is very encouraging that Senator Mark Warner and Congressman David Cicilline, among others, have accepted the idea that there is a problem and that the current prism of anti-trust legislation is inadequate. I hope enough that something will happen. The fact that this is the same solution that was implemented before on a very similar problem should give people confidence. In fact, the number of independent cable networks has exploded after protections were put in place. It really worked. And that can work again.

To contact the author of this story: Joe Nocera at [email protected]

To contact the editor responsible for this story: Stacey Shick at [email protected]

This column does not necessarily reflect the opinion of the Editorial Board or Bloomberg LP and its owners.

Joe Nocera is a Bloomberg Opinion business columnist. He has written professional columns for Esquire, GQ, and The New York Times, and is the former Managing Editor of Fortune. He is co-author of "Under Contract: The Story of the Rebellion Against the NCAA".

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