Why Were Facebook and Google Allowed to Get So Big?: QuickTake

(Bloomberg) -- The rise of global technology superstars like Amazon, Apple, Facebook and Google created new challenges for the competition watchdogs who enforce the nation’s antitrust laws. Those companies dominate markets in e-books and smartphones, search advertising and social-media traffic, spurring a global debate over whether it’s time to rein in such winner-take-all companies. The U.S. has largely been hands off, but that may be changing.

1. Are the tech giants monopolies?

They’re powerful, for sure. Google and Facebook Inc. together control almost 60 percent of digital ad revenue in the U.S. and 64 percent of mobile ad revenue, according to eMarketer. Apple Inc. has about 45 percent of the U.S. smartphone market. About 47 percent of all U.S. e-commerce sales go through Amazon.com Inc. But under modern antitrust enforcement, those percentages alone aren’t enough to alarm regulators in the U.S., which long ago stopped equating big with bad. (For comparison’s sake, Standard Oil’s market share got as high as 88 percent late in the 19th century.) What’s illegal is for a monopoly to abuse its market power to prevent rivals from threatening its dominance. Federal courts ruled Microsoft Corp. did so in the 1990s.

2. How often does the U.S. go after monopolies?

The Microsoft lawsuit was the last major monopolization case brought by the U.S. The ensuing 20-year dry spell is often cited by those who argue enforcement has been too timid. President Barack Obama’s administration vowed to get tough on dominant companies in 2009, but it didn’t follow through. The number of monopoly cases brought by the U.S. dropped sharply from an average of 15.7 cases per year from 1970 to 1999 to less than three between 2000 and 2014.

3. Is antitrust thinking outdated?

Some lawyers and economists think it’s time to move past conventional antitrust enforcement to consider harmful effects from increased concentration such as lower private investment, weak productivity growth, rising inequality and declining business dynamism, or the rate at which firms enter and exit markets. They’ve gained a high-profile backer in Senator Elizabeth Warren, a Massachusetts Democrat who is seeking her party’s 2020 presidential nomination and who has proposed dismantling tech giants like Facebook and Google.

4. Have the tech giants abused their power?

As the middlemen for today’s essential products and services, platforms like Amazon and Facebook have leverage over both producers and consumers. Amazon used its power over the book market in 2014 to block pre-orders for some Hachette Book titles during a dispute with the publisher over pricing. The tech giants are also growing by snapping up potential rivals that might threaten market share. Data compiled by Bloomberg show the big five -- Alphabet, Amazon, Apple, Facebook and Microsoft -- have made 431 acquisitions worth $155.7 billion over the last decade, according to data compiled by Bloomberg. The companies also have control over vast amounts of data about their customers, raising concerns about threats to privacy.

5. What would actually worry regulators?

In the U.S., they’re primarily focused on the harm to consumers from reduced competition. When two companies want to merge, for example, could the deal result in higher prices? That’s usually not an issue in high-tech tie-ups, because big firms are often gobbling up much smaller rivals or buying companies for the purpose of entering new markets. The European Union has been more aggressive, as evidenced by the $2.7 billion fine against Alphabet Inc.’s Google in 2017 for favoring its shopping-comparison service over those of its rivals. Google was hit with an additional $5 billion fine by the EU last year.

6. Why is the EU tougher on tech companies?

EU law sets a lower bar for finding dominance by a company, so it’s easier to run afoul of anti-monopoly law. (The U.S. chose not to bring charges against Google for the same conduct the EU found illegal.) EU enforcers also have been more wary of big companies collecting consumers’ personal data. Strict new privacy rules that took effect in the EU last May under the General Data Protection Regulation gave regulators unprecedented powers to protect people from having their data misused by companies doing business there. Already, Google has been fined 50 million euros ($56.8 million) for privacy violations -- the highest such penalty ever in the EU. (Google has appealed.)

7. What do the companies say?

They argue that their dominance is hardly durable because barriers to entry are low for new competitors. As Google is fond of saying, competition is just "one click away." Due to the nature of competition in the digital marketplace, tech platforms benefit from network effects: As more people use them, the more useful -- and dominant -- the platforms become. Network effects can give a company scale quickly and create what investor Warren Buffett calls competitive moats.

The Reference Shelf

• QuickTake explainers on how the EU is holding tech giants to account over privacy and copyrights and the U.K.’s plan for a digital tax.
• By contrast, it’s been more talk than action on regulating big tech in the U.S.
• Elizabeth Warren says breaking up tech giants would "keep the marketplace competitive."
• Economists are getting serious about the harm caused by monopolies, Bloomberg Opinion columnist Noah Smith writes.
• Bloomberg Opinion’s Michael R. Strain on "the worst idea" for reining in big tech.
• A 2017 New York Times op-ed asked, "Is it time to break up Google?"

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