Is It Time To Break Up Amazon, Apple, Facebook, or Google?

 
 
SUMMING UP Would breaking up tech giants like Facebook and Google be good antitrust policy or bad for capitalism? James Heskett's readers join the conversation.
 
 
by James Heskett

Can a Platform-Based Tech Giant Be Broken Up?

The answer to this month’s question of whether platform-based tech giants Amazon, Apple, Facebook, or Google should be broken up was a resounding “no.”

“TD in FL” put it succinctly with one of the age-old defenses of capitalism: “No breakups! Why punish a company for doing the best job they can and succeed?”

Others argued that market definition is changing in ways that render United States anti-trust policy outdated in an increasingly global economy. As Craig Parietti & Partners put it, “We are now a global economy… China is already grabbing from the US the ‘largest home market’ advantage, allowing them to subsidize pricing globally. I guarantee that Tencent, Alibaba and others will fill the gap left by a misguided break up.” David de Weese added, “It is not at all clear that they do not face competitors in Asia, India and other countries who will effectively threaten their apparent dominance, including in the US.”

Alternatives to a marketwide breakup were suggested. Sacha offered that government power could be used to build competition by giving “chances to newcomers.” SC123 commented, “As you see more local and regional areas in our country as ‘zombie’ towns, each state may have a larger part in how Amazon operates.”

Guy Higgins pointed out distinctions between practices used to gain market power in the past and present. “Standard Oil … was an abusive monopoly, defined as one that used its market position to opaquely strong-arm suppliers and competitors… As long as Amazon, Facebook, Google and Apple operate transparently and legally, I don’t think we need to worry. The speed with which innovation occurs and expands will almost certainly see competitors explode from nowhere.” BLR said, “Eric Schmidt was once asked if Google was a monopoly and if so, should it be regulated or broken up. His answer: ‘Our product is free to the consumer. We welcome any competitors.’”

Questions were raised about how a platform-based high-tech company could be broken up. Nick C commented, “If you did (break it up), would the residual entity be able to thrive if denuded to some extent from the parent platform economies and technologies?” LockedOnLeaders asked how Google or FB could actually be broken up. “They own the virtual real estate, and I don’t see how you take that away from them,” he wrote. “Your only choice would be to shut them down, and that is fascism, not capitalism.”

Can a platform-based tech giant be broken up? What do you think?

ORIGINAL COLUMN

With the United States Justice Department’s objection to the AT&T-Time Warner merger, we are being reminded that antitrust activity is not dead. It makes one wonder if some of the biggest names in tech might now be vulnerable.

It is the latest episode in a long history of government actions to curb the effects of excess market power, however that is defined, that began in earnest with passage of the Sherman Antitrust Act in 1890. It includes successful efforts to break up illustrious companies like Standard Oil and AT&T to reduce their market power and thereby encourage competition. While not successful in similar efforts to prosecute IBM and Microsoft, the Government’s action may well have encouraged IBM’s decision to unbundle services and software in 1969, a move generally credited as enabling creation of a software industry in the US.

More recently, the Sherman Act has been invoked most frequently to deny mergers, especially those of the “horizontal” variety, that unduly increase supplier concentration.

Over many decades, those who have objected to invoking the Sherman Act argue that such actions hurt competition and restrict free markets. Ironically, those advocating the use of the Sherman Act, even though they are sometimes labeled “socialists” by their opponents, often argue that invoking the Act helps competition and encourages free markets. Both groups generally consider themselves advocates of capitalism.

In recent years the European Union has perhaps been more aggressive in enforcing restrictions on market power than the US., assessing large fines on domestic and foreign-based companies accused of stifling competition.

“Can you name Google’s closest competitor in search and search-related advertising? That’s market power”

Now comes the “New Tech Big Four,” often characterized as Apple, Amazon, Facebook, and Google. Like their older cousin Microsoft, all are dominant in one or more industries. Their major source of power is a “platform” that can be used to control markets and discourage competition.

Apple’s design capability may be remarkable, but its platform—iOS, Mac OS, iPhone, iPad, Macbooks, even Apple TV—is the force behind its control of certain markets for hardware and software. When Amazon announces that it has acquired Whole Foods, the market value of US big name retailers selling foods immediately drops 10 to 20 percent. The exchange of information and news, fake or fact, among large segments of the world’s population is controlled by Facebook. We naturally “Google” our information, subjecting ourselves not only to revenue-producing advertising but also a stream of advertising reminders based on information that follows us for a lifetime. Can you name Google’s closest competitor in search and search-related advertising? That’s market power.

Scott Galloway, a successful tech entrepreneur and author of one of the blogs that regularly reach my email inbox, maintains that one or more of the Big Four tech firms should and will be broken up. In his opinion, Europe will lead the way in prosecuting them, levying “the mother of all fines against one or more of them.” His argument is not based on a belief voiced by some that they are evil, destroy jobs, avoid taxes, lie to regulators, or provide a weapon for Russia. Rather, he is concerned about the way they have benefitted from (and perhaps caused) market failure.

He asks, “Why should we break them up? Because key to our capitalist way of life is to maintain competition to prevent market failure, as we did by breaking up the railroads and Ma Bell. This type of intervention is not an attack on capitalism, but full-throated capitalism. It’s time.”

Should any of the Tech Big Four firms be broken up? What do you think?

References:

Scott Galloway, No Mercy/No Malice: Full-Throated Capitalist, November 17, 2017, and No Mercy/No Malice: The Worm Has Turned, September 22, 2017, accessed at news@l2inc.com

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