Elizabeth Warren is putting Big Tech on watch, but is breaking up Amazon smart policy?

Elizabeth Warren is putting Big Tech on watch, but is breaking up Amazon smart policy?
Image: Reuters/Erin Scott
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Elizabeth Warren, the Massachusetts senator and Democratic presidential candidate, is coming for Big Tech.

Yesterday (March 8) she announced her plan to break up and curb tech monopolies, namely Amazon, Google, and Facebook. Warren argues the US has a long history of enforcing the antitrust laws that ensured a competitive and fair market that protected consumers. The giants of tech, she argues, are damaging the economy by destroying competition in the market. But before we get the knives out, it’s important to consider what harm big tech actually poses and what the best solutions may be.

Is big bad?

Bigness makes policymakers nervous because large, unchecked power poses many risks. In the past, monopolies left unchecked were able to get away with treating their workers poorly, overcharging customers, producing low-quality goods, and keeping new competitors from entering the market.

Not all of these charges apply to tech firms today. Skilled workers at technology firms are treated and paid well. Less-skilled tech workers, face a very different situation but it’s not clear antitrust is the best way to address their plight. In the past, when low-skill workers had few employment options, breaking up big monopolies made sense because it gave them more market power (forming unions helped, too). Unskilled tech workers would benefit more from protections that apply to all employers, not just Big Tech.

A remarkable thing about tech companies today, compared to past monopolies, is they charge so little—often nothing at all—for their services. The purpose of antitrust enforcement in the past was to protect consumers, often through lower prices. Today the goal is to increase prices. Big tech firms can get away with charging so little in part because they monetize their data across multiple lines of business. If you use one Google product, Google can use your personal information to enhance your web searches and make them more accurate. Data is most valuable in large quantities, and if tech giants are broken up into smaller firms they will probably need to increase prices to be profitable.

Data protection is also a major new concern. Our most private thoughts and questions are now owned by Google and its ilk. We need better standards on how to regulate data and smaller firms aren’t necessarily the answer. Smaller firms may actually increase cyber risk since they have fewer resources to pay for privacy protection. The introduction of regulations like GDPR, the new European guidelines, favored Big Tech because compliance is expensive.

Breaking up big companies could even create more cyber risk by giving hackers more targets. Hackers constantly come up with new ways to steal data, money, and practice fraud. One of the best lines of defense is sharing data across platforms, and that’s easier when the platforms have a shared owner. Firms tend to be reluctant to share data with competitors on how breaches occur and more firms can mean less reliable data sharing.

A threat to competition

Another issue is that social media monopolies like Facebook facilitate echo chambers where users only consume information that reinforces their prior beliefs and can be manipulated by foreign adversaries to influence elections. Antitrust enforcement wouldn’t address this issue and could even make the problem worse. Imagine separate Facebooks for Republicans and Democrats, run by smaller firms with fewer resources to police nefarious users.

But perhaps the primary reason to worry—and Warren’s biggest concern—about Big Tech companies is their tendency to use size, market power, and uncompetitive practices to destroy competition. Warren cites data that the economy has become less dynamic since 2000, with fewer new, fast-growing companies being started. But that may not be Big Tech’s fault. Small businesses are also disappearing because of globalization and other economic forces, a trend that started before the rise of Big Tech. Few people look at Silicon Valley and think it’s a dead zone for innovation and startups. There are examples of tech firms destroying upstarts but it’s not only because they are aggressive monopolies out to kill small up-starts, but because their size means they have a natural market power. Jean Tirole, who won a Nobel Prize for his work on market structure, points out markets change with technology. Bigger firms may be better poised to compete globally and need size to scale their technology. Tirole is also concerned about a lack of competition, but he’s not convinced the old solutions of breaking up the biggest companies, is the best way to solve a new problem.

What’s the best approach?

Large concentrations of market power do pose grave economic risks, and especially when the large firms are unaware, or have no motivation to address the unattended consequences of their product. More regulation is needed. But it needs to be the right regulation.

Warren’s plan consists of treating large tech firms—those with revenues exceeding $25 billion—like public utilities, which she calls platform utilities. “Platform utilities would be required to meet a standard of fair, reasonable, and nondiscriminatory dealing with users,” she says. “Platform utilities would not be allowed to transfer or share data with third parties.”

Under the new platform utility standards, Amazon’s platform for selling merchandise, Marketplace, would be split apart from Basics, its in-house product line.  Similarly, Google’s ad exchange and Google search would be broken up. This may help a lack of competition, which is Warren’s primary concern. If the goal is fairness and more competition, it may work, but consumers will need to get used to higher prices.

The benefits of her other plan—breaking up all different lines of business in big tech, purely to make companies smaller—are less apparent. It is concerning that the standards of what makes a merger acceptable, or even worth reversing, are not clear and appear to be left to the judgment of regulators. That could increase their business risk and make tech firms less competitive in global markets.

Even if Warren’s plans are never implemented, they can have consequences. Big Tech has been put on watch; a presidential candidate has made regulating them a centerpiece of her platform. This may improve how they treat their workers and make them more responsible and accountable with how they use data. Big Tech does need more regulation; what that should look like, however, is still far from clear.