Antitrust and Platform Monopoly
abstract. Contrary to common belief, large digital platforms that deal directly with consumers, such as Amazon, Apple, Facebook, and Google, are not “winner-take-all” firms. They must compete on the merits or otherwise rely on exclusionary practices to attain or maintain dominance, and this gives antitrust policy a role. While regulation may be appropriate in a few areas such as for consumer privacy, antitrust’s firm-specific approach is more adept at addressing most threats to platform competition.
When platforms exert their market power over other firms, liability may be apt, but remedies present another puzzle. For the several pending antitrust complaints against Google and Facebook, for instance, what should be the remedy if there is a violation? Breaking up large firms that benefit from extensive economies of scale and scope will injure consumers and most input suppliers, including the employees who supply labor. In many situations, a better approach would be to restructure management rather than assets, which would leave the platform intact as a production entity but make decisionmaking more competitive. A second option to breaking up firms would be to require interoperability—and in the information context, mandate the pooling of valuable information. These measures could promote competition and simultaneously increase the value of positive network effects.
Finally, this Article examines another aspect of platforms—their acquisitions. For the most salient category of platform acquisitions of nascent firms, the greatest threat to competition comes from platforms’ acquisitions of complements or differentiated technologies. Current merger-enforcement tools are ill suited to analyze this new variation on competitive harm. New approaches are required.
author. James G. Dinan University Professor, University of Pennsylvania Carey Law School and The Wharton School. Thanks to Erik Gordon, Erik Hovenkamp, Fiona Scott Morton, Elizabeth Pollman, Steve Salop, Richard Schmalensee, and D. Daniel Sokol for commenting on a draft, and to Nicholas Whetstone for valuable research assistance.
Should antitrust policy do more to promote competition in digital-platform markets? And is it the best tool for the job? The claim that antitrust is falling short comes from both the left and the right, but it provokes strong disagreement. How much of the call for action is a response to real competitive harm, and how much is it simply a reaction to large firm size, personal animus, myopia, or perceived political power? The source of hostility is unclear.
This is evident in the forty responses to the House Judiciary Committee’s request for recommendations concerning digital-platform monopoly.1 Some believe that everything is fine, and we should make few substantive changes.2 They worry that misplaced government intervention could derail the greatest engines of economic growth in recent history. Others would drive over the industry with a power mower, breaking up the platforms with little thought about the impact on output or consumers.3 Meanwhile, the enforcers have not been idle. The Antitrust Division of the U.S. Department of Justice (DOJ), the Federal Trade Commission (FTC), and numerous state attorneys general have filed antitrust complaints against both Google and Facebook. The European Commission has filed a statement of objections against Amazon,4 and Apple is embroiled in several private antitrust actions.5
One question underlying all of this activity is whether antitrust law’s focused and litigation-driven approach is sufficient to address competition problems in digital platforms. Are the platforms so resistant to ordinary market mechanisms that they call for more pervasive public control?
If action is needed, the alternative to antitrust is some form of regulation. But broad regulation is ill-suited for digital platforms because they are so disparate. By contrast, regulation in industries such as air travel, electric power, and telecommunications targets firms with common technologies and similar market relationships. This is not the case, however, with the four major digital platforms that have drawn so much media and political attention—namely, Amazon, Apple, Facebook, and Google. These platforms have different inputs. They sell different products, albeit with some overlap, and only some of these products are digital. They deal with customers and diverse sets of third parties in different ways. What they have in common is that they are very large and that a sizeable portion of their operating technology is digital. To be sure, increased regulatory oversight of individual aspects of their business—such as advertising, acquisitions, or control of information—is possible and likely even desirable. But the core of their business models should be governed by the antitrust laws.
This Article argues that sustainable competition in platform markets is possible for most aspects of their business. As a result, the less intrusive and more individualized approach of the antitrust laws is better for consumers, input suppliers, and most other affected interest groups than broad-brush regulation. It will be less likely to reduce product or service quality, limit innovation, or reduce output. Where antitrust law applies, federal judges should be given a chance to apply the law.
The biggest roadblock to an antitrust-focused approach is not intrinsic but ideological—an antienforcement bias has haunted antitrust since the late twentieth century.
Antitrust law and scholarship speak to competition problems on large digital platforms with various levels of engagement. The Chicago School in particular pushed a mindset that saw markets as all alike.6 This leaves judges toothless when confronted with an industry that behaves in unexpected ways.
More moderate students of antitrust are more circumspect, appreciating that both markets and firms are institutions that can be quite different from one another. As a result, their approaches require more specific fact finding rather than overly broad policy generalizations. Digital platforms, in this view, are merely one of the variations. For example, in Ohio v. American Express Co. (Amex), Justice Breyer in dissent was much more comfortable with factual examination of the particular digital market than the Court’s majority.7 The majority spoke mainly in generalities, largely ignored the record, and drew legal conclusions that are inconsistent with fundamental economic principles.8 Antitrust law needs to treat digital-platform markets for what they are: markets that have some unique characteristics, but markets nonetheless susceptible to fact-specific antitrust analysis.
To begin that analysis, a digital platform is a website, app, or other digital venue that interacts commercially9 with one or more groups of users. A “two-sided” digital platform is one that facilitates activities involving at least two interdependent groups of users.10 In some cases (Amazon, eBay, Uber, and Amex), transactions between these groups are negotiated directly on the website. In other cases (Google Search, Facebook, Match.com, and most periodicals and electronic video games), users do not make commercial transactions directly with one another, but their commercial transactions support the platform as a profit center.
This Article first considers the nature of platform power and the extent to which competition is possible or desirable in markets dominated by digital platforms, including those that are two-sided. It then discusses remedies for anticompetitive abuses and proposes two new approaches. From there, it contemplates reform; one area that may require new legislation or at least a change in judicial thinking is mergers involving very large platforms.11
On remedies, courts could tailor novel forms of relief without new legislation. One new proposal is that intrafirm decisionmaking could be restructured in ways that facilitate competition inside a platform, rather than between the platform and other entities. This could be accomplished without breaking up the platforms themselves. Another promising proposal is forced interoperability or pooling, which can make markets more efficient by broadening the range of positive network effects. Both of these alternatives could enable greater competition without jeopardizing productivity and consumer value, which would be at risk if productive assets were to be broken up. Existing law provides ample precedent to support these remedies.12