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The best way to tame Big Tech isn’t necessarily to break it up

Reuters
How big is too big?
By Allison Schrager
Published Last updated This article is more than 2 years old.

There are many reasons to worry about the size and power of big technology firms. The biggest firms like Amazon, Apple, Facebook, and Google dominate their markets, collect our data, and in many cases sell it to advertisers. They lobby politicians for favorable treatment and muscle out their competition or buy them out. As a result, they get even bigger.

Presidential candidate Elizabeth Warren and other prominent figures think this a problem, and want to break up the big tech firms. This could involve unwinding mergers or spinning off various subsidiaries. But breaking up Big Tech is not the right solution to the problem, and may make things worse. There are better ways to tame the tech giants.

Is Big Tech a monopoly?

Traditionally, before regulators break up a firm it requires some evidence of consumer harm; a firm with monopoly power often charges very high price mark-ups. Some legal scholars now argue this is not a sufficient way to measure harm, and we should adopt a new standard that involves harder things to gauge, like anti-competitive business practices.

Objective harm metrics have many advantages. First of all, high price mark-ups are relatively easy to measure. Regulating the private sector should not be taken lightly, and more vague measures of abuse can be interpreted in varied ways by lawmakers. Second, consumer harm poses clear harm and is unambiguously bad for the economy. The case against Big Tech is more ambiguous. For example, consumers pay nothing for many tech services or, in the case of Amazon and Uber, pay lower prices than they used to. What’s extraordinary about today’s antitrust fervor is the implicit hope that consumers pay higher prices. It could be argued the Ubers and Amazons of the world will one day jack up prices once they have all the market power, but antitrust is based on actual harm, not harm that could theoretically happen one day in the future.

Financial Times columnist Rana Foroohar’s new book, Don’t be Evil, argues that we don’t consume tech services for free, because we pay with our personal data, which she estimates is worth $76 billion. But the value of big data comes from the fact it is big. Individual data, like what you give to Google when you use Google Maps, is nearly worthless until it is combined with data from millions of other users. Your share of billions in value transferred to Google is probably less than the value you get from using Google Maps. What’s more, data is not scarce and can be used by multiple people. It also takes skill and experience to turn large datasets into meaningful, valuable insights.

What’s the problem?

There are undoubtedly big problems with Big Tech. Data can be shared with advertisers, and other platforms, without users’ overt permission. Social media platforms distribute false information that is sometimes authored by actors with nefarious intentions. The tech giants get away with this because they are to some extent natural monopolies. They exist because so many people use them, harnessing network effects.

Even with these advantages, Big Tech can be ruthless. Foroohar describes several examples of the biggest players crushing the competition before it can become a serious threat. She tells the story of  Shivaun and Adam Raff, who developed a search site called Foundem that could find the cheapest price for various shopping queries. They were initially successful, but stopped getting traffic when the big search engines buried their results. They launched a case against the search giant, which was hit with a multibillion-dollar fine in 2017 by the European Commission for anticompetitive practices (it has appealed the decision).

It is not clear breaking up tech firms is the right way to handle anti-competitive behavior. Big platforms can be good for small businesses, like those that sell on Amazon to reach a larger customer base. These kinds of firms benefit from the network effects that big firms have—the same effects that allow large firms to become natural monopolies.

Also, the market often shrinks big firms down to size. Even large, perhaps monopoly-like firms are vulnerable to disruption. Microsoft crushed firms like Netscape, but it isn’t as feared today, despite its size, as rivals like Apple and Google came up with better products. Even Facebook, which abused its users’ trust by sharing their personal data, may be paying a price and losing its network advantage. I look at Facebook less often than I used to for one main reason: it got boring. My “friends” either got freaked out about privacy and stopped sharing interesting information about themselves or the algorithm changed and no longer serves up anything that makes me want to visit the site. Young people today aren’t even on Facebook. Its place among the giants is not assured.

Can Big Tech be tamed?

Although scholars argue we need a new standard of consumer harm, we then tend to revert to traditional forms of punishment against monopolies, like breaking them up or regulating them like a utility. But if the way we measure economic damage has changed, the remedies to address it should change too.

In the modern economy, there are benefits to size. Economist Jay Ritter of the University of Florida has argued that the nature of the global tech marketplace rewards size, because it is the only way you can get scope to compete (pdf). He thinks this is why firms often get acquired instead of going public. In theory, there is nothing wrong with a model where small firms innovate, are acquired for lots of money by a big firm, and then implement their products on a much larger scale. It is not necessarily better or worse than a startup growing into a large firm that is one day sold to investors in an IPO.

The best structure and business size changes as the economy evolves. Smaller firms won’t have the same networks, which means a different product with fewer users and less precision due to less data. Smaller firms are also less equipped to deal with privacy and security rules, as we see in the GDPR experience in Europe.

As Nobel Prize winner Jean Tirole points out, we need to be cautious. Access to different business lines means more data, which can improve tech products. At the same time, a well-defended monopoly isn’t generally conducive to innovation.

Tirole, who has advised governments on antitrust, suggests we regulate Big Tech carefully, understanding this is a new and still poorly understood market where regulation risks many adverse unintended consequences. Size is not necessarily a problem, but anti-competitive behavior, poor data privacy, and spreading false information are. Tirole suggests creating a level playing field between traditional and social media when it comes to editorial responsibility, and how personal data, and intellectual property is used.

Ensuring fair competition is harder. Tirole suggests getting the tech companies involved in what he calls “participative antitrust,” where the industry or other parties propose possible regulations and antitrust authorities issue opinions. He envisions an iterative process where we see what works, what doesn’t, and hold firms accountable for bad behavior. It may not be as satisfying as seeing Big Tech cut down to size, but we are in a new economy and that takes novel, better, and perhaps yet-to-be-discovered approaches to regulation.