Breaking Up Facebook Won’t Solve the Problem
(Bloomberg Opinion) -- A long overdue antitrust push is gaining steam. But it's focusing on large technology companies like Facebook Inc. and Google-parent Alphabet Inc., which present complex problems that classic antitrust approaches won’t always solve.
The cases are based on very standard stuff. The U.S. Justice Department is accusing Google of illegally preserving its dominant market share in search and search advertising by paying and pressuring phone makers to install Google as their default search engine. Meanwhile, the Federal Trade Commission and a coalition of states are suing Facebook for anti-competitive behavior because of its ownership of Instagram and WhatsApp.
One aggressive, much-discussed solution is to break up the companies to dilute their influence. The government is pressuring Facebook to part with Instagram and WhatsApp, and could demand that Google spin off its Android mobile operating system.
But it’s not clear that the substantive issues that people care about with regards to technology companies would be improved by that kind of move. The best outcome might be for Big Tech to remain big, but to submit to a new framework of antitrust regulation that restricts the companies' behavior in all the areas of concern. The European Union is already working on a regulation-based approach to address privacy and content moderation for the tech giants.
There are actually some theoretical economic reasons to break up major technology companies. Forced breakups might be good news for startups, some research indicates. They also might boost competition for ad dollars, driving down the prices of ads for other companies.
But it’s unlikely those are the main reasons authorities are trying to slap down Google and Facebook. That's because both search and social networking are probably natural monopolies, meaning that one company tends to crowd out rivals. Forcing Google to spin off Android probably wouldn’t break its search monopoly; this was Europe’s experience when it won an antitrust suit against the company. Facebook and Instagram would probably be able to survive as separate social networks for a while, but eventually everyone would want to connect with everyone else on one platform.
A simpler explanation is that forced breakups are a raw power play. Some political leaders feel that companies like Facebook and Google have managed to place themselves above the rest of society, including government. They’re paranoid that Google is monkeying with search results for political purposes, and that Facebook is suppressing news to help the opposition.
These seem like expressions of a deeper fear -- the fear that companies, rather than government, are now the top dog.
Governments don’t like someone else being top dog. Fundamentally, they're organizations created for the express purpose of maintaining a monopoly on the use of force, and that DNA tends to make them very anxious when some other entity seems like it might be out-powering them.
The citizenry, too, is anxious about that possibility -- if Facebook and Google are above the government, it also means they’re above the collective will of the people. So forcing social-media companies to break up might send a message that the government is still in charge.
Even economists are suspicious of big-company power without always quite knowing why. When asked, many of them support taking action against major technology companies, but the reasons they give are varied. This suggests that there’s just something inherently suspicious about the presence of such powerful, dominant corporations.
But while it would certainly be cathartic, it’s questionable whether breakups would actually resolve many of the complaints people have about the biggest tech firms. With its search monopoly intact, Google could still promote its own products above competitors. Issues of privacy and data property rights would remain. Both companies might still sometimes be accused of censorship, or of working with nefarious foreign governments. And media organizations would still complain that social media companies are taking too much of their revenue.
The problem is that antitrust laws were conceived in a different age, before information technology and its strong network effects were commonplace. Ultimately, the existence of platform businesses means that new antitrust policies should probably be devised that allow tech platforms to be regulated like utilities.
In the meantime, technology companies might try to cut a deal. In exchange for being allowed to keep their corporate structure intact, they could submit to regulation that would lower ad prices, restrict acquisitions, prevent in-house promotion of products, protect privacy, ensure political neutrality in news and search results and bar them from working for the Chinese government, for starters.
A chastened, compliant tech industry might avoid the need for a fragmented one. The ultimate question is whether such regulation can be written and enforced without first sending the kind of message that the breakups would send.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Noah Smith is a Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.
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