What's in the Competition Debate on Technology

In recent years, the market positions of technology firms have grown. With the accelerating digital transformation comes greater scrutiny on the roles of these companies in the digital economy. Big Tech’s influence — indicated in just one measure by their increasing weight in the stock market – has expanded dramatically, and developments in areas like 5G and A.I. create further opportunities for digital platforms to enhance their position in the digital economy. Their importance is not simply reflected by increasing market share but also how much of their business governs core parts of our lives, including online communication, commerce, and teleworking.

This rising prominence highlights questions about Big Tech becoming digital gatekeepers. As digital platforms expand their market presence riding on network effects – the additional value gained by having more people use a product – concerns rise around anti-competitive behaviors, consumer welfare issues, and impediments to innovation. Collecting massive amounts of data, the core asset of the digital economy, has only further raised awareness on the antitrust debate, specifically targeting technology firms.

Given the view among some that Big Tech poses antitrust issues as gatekeepers, ensuring fair competition has emerged as a critical point of debate. The contention lies in the challenge of applying general antitrust laws to digital platforms. Some view the existing three general antitrust acts – the Sherman Antitrust Act of 1890, the Clayton Antitrust Act of 1914, and the Federal Trade Commission Act of 1914 – as effective remedies to correct digital gatekeepers’ behaviors.  

Others view existing antitrust laws as insufficient to manage competition concerns for digital platforms, provided their unique characteristics, and suggest introducing legislation that specifically regulate the sector. The Ending Platform Monopolies Act and the Platform Competition and Opportunity Act are two bills, among several being debated, that regulate new players of the modern economy. The European Commission, for example, introduced the Digital Markets Act for ex-ante regulatory measure against Big Tech, which reflects another paradigm shift for antitrust intervention in Europe, with potential ramifications in other jurisdictions. 

We did hear from experts who study innovation in the tech sector and believe regulation or antitrust actions could hurt industry growth. They believe that technology and innovation are constantly changing, and products offered by today’s dominant firms could be disrupted with new technologies and replaced by new products. Advocates of this perspective see regulation in the tech sector as an obstacle to innovation and growth. While their perspectives highlight the belief that market forces would address many concerns in the tech sector, they also described the need for some government action to create regulatory standards and frameworks. 

Consumer Welfare Standard is a legal standard that directs courts to evaluate business conduct or mergers’ effects on consumers, rather than the harm to competitors or other factors. In 1979, the Supreme Court declared the Sherman Act was intended to promote consumer welfare, an idea introduced by Robert Bork from the University of Chicago in his The Antitrust Paradox. Opposingly, populists, or the “neo-brandeisians” school of thought named after the intellectual leader Louis Brandeis, wonder if the Consumer Welfare Standard is capable of addressing harmful concentrations of power seen in the modern economy.

FTC commissioner Christine S. Wilson argues an agreed-upon standard for assessing antitrust behavior is important to “generate confidence in antitrust enforcement outcomes.” However, there is broad disagreement about the Consumer Welfare Standard as it stands today. Supporters view the standard as the metric for antitrust enforcement and argue it uses economic analysis to identify consumer harm accurately. Opponents believe antitrust authorities need to address new concerns presented by the digital economy that affect consumer harm, including network effects (explained below), predatory pricing, and monopsony power which they see as unchecked by the courts.

Congress enacted Section 230 of the Communications Decency Act of 1996 to ease the liability for platforms to host third-party content and make the internet safer from obscene or unlawful content with implications for free speech online. As the Justice Department points out in their 2020 review and recommendations on Section 230, “The internet has changed dramatically in the 25 years since Section 230’s enactment in ways that no one, including the drafters of Section 230, could have predicted.” These include the dominance of tech platforms and A.I. algorithms used to promote content to targeted users. In the case of platforms hiding behind Section 230 immunity to censor lawful speech, the Justice Department called for remedies to the rules for 230 immunities.

Both political parties want to take on Section 230 reform, but for different reasons. Democrats see use of Section 230 by large technology companies as a cloak of liability protection against punishment for hosting dangerous actors and harm-inciting content on their platforms. Republicans argue that large tech companies have blocked conservative speakers and call for limited 230 liability protections to defend free speech. House Commerce Committee Democrats introduced legislation to limit liability protection for harmful behavior. Republicans in the House Commerce Committee wrote a memo outlining legislative priorities to enhance free speech online and correct content moderation that discriminates based on political affiliation.

Reforming Section 230 may address some anti-competitive behaviors, but policymakers must consider how this may have unintended consequences to the digital ecosystem. Some experts argue that small companies would be disadvantaged by the removal of Section 230 immunities. Monitoring for and removing illicit or harmful content by third-party users requires great technical abilities and resources that small businesses lack. Others also believe that some proposed reforms to Section 230 will hurt content moderation efforts rather than help.

Data portability generally refers to the ability of users of a digital service to download and take their data to another service. Interoperability allows data to transfer from one platform to another. For instance, in the U.K. and Australian banking sector, consumers can switch banks by giving their consent for their existing bank to transfer their personal data to the new bank. This is made possible by ensuring that banks adopt technologies and standards that are aligned so the data transfer can take place in a secure manner. There is scope for data portability and interoperability to be adopted more widely, which could address some of the rising competition concerns with digital platforms. 

Advocates for data portability and interoperability requirements argue these tools will reduce the network effects of online platforms, lower any switching costs for customers, and reduce barriers to entry. For example, the implementation of telecom portability mandates allowed people to transfer their phone number from one carrier to another. This is an example portability lowering the switching costs for customers. The ownership of that data, or telephone number, gave users more mobility and improved competition. Some experts suggest data portability requirements would not encourage entry and may even disincentivize investment and innovation for new entrants, thus negatively affecting competition.  

Many experts encourage the development of portability and interoperability frameworks. However, experts we spoke with shared concerns about the ease of implementing mandates, especially interoperability requirements, on social media platforms. Some argued requirements in the tech sector would make it difficult for new entrants in a designated market to create something unique that is compatible with interoperability specifications. Some recommended voluntary standards, rather than mandates, as a path forward to not hinder innovation for firms that cannot comply with strict interoperability requirements. However, others voiced the opinion that antitrust regulation should not be the vehicle to impose standards across all industries.  

Proposed legislation differs in how these standards would be implemented and mandated. The Access Act of 2021 and the American Choice and Innovation Online Act both standardize portability and interoperability for designated “covered platforms“. The Access Act of 2021 mandates designated firms to maintain third-party-accessible tools that enable data portability and interoperability. The American Choice and Innovation Online Act prohibits designated firms from restricting third parties’ access to interoperate with the platform. Since its inception in 2018, businesses continue to collaborate through the Data Transfer Project to create a framework for an open-source, data portability platform. 

The large tech companies that collect consumer data are facing scrutiny from antitrust enforcers in the U.S. and abroad. Data assets obtained through mergers and acquisitions can expand the market power of these firms. Many services do not have a monetary cost, but the collection of data allows for high-quality services and offerings, subsidized costs, and innovation.

Most experts called for some management of consumer privacy issues, however the vehicle to address them differs between schools of thought. Like the Consumer Welfare Standard debate, traditionalists believe that antitrust law is not intended to address periphery issues such as consumer privacy issues and already sufficiently protected consumers in digital markets. Conversely, neo-brandeisians believe that access to large amounts of consumer data is a constraint on competition at the expense of consumers’ welfare and that stronger data privacy protections are needed.

Killer acquisitions and kill zones are two areas of interest to competition authorities. According to a paper by Colleen Cunningham, Florian Ederer, and Song Ma, “Killer Acquisitions” are acquisitions made by incumbent firms designed to takeout potential competitors and discontinue innovations that are a threat to their business. “Kill Zones” are reviewed in a paper by Sai Krishna Kamepalli, Raghuram Rajan, and Luigi Zingales. These are areas where venture capital firms don’t want to finance startups that compete against incumbent digital platforms that can make large acquisitions. Some experts are skeptical about the competitive threats of kill zones and killer acquisitions and argue acquisitions benefit the startup ecosystem. For example, Joe Kennedy at the Information Technology and Innovation Foundation (ITIF) writes, “Concerns that large Internet companies are impeding competition by engaging in ‘killer acquisitions’ or creating ‘kill zones’ through market dominance are vastly exaggerated” and that “acquisitions serve useful purposes such as motivating investments in new companies, obtaining workers with key skills, and putting technology in the hands of those that can develop and scale it the fastest.” 

In 2020, Democrats on the House Subcommittee on Antitrust published a report on their investigation into four dominant tech platforms through which the subcommittee “found evidence of monopolization and monopoly power.” The firms investigated by the subcommittee acquired hundreds of companies over the last decade. It alleged larger firms undermining competition through acquisitions and mergers with smaller companies. The report focused on four major tech companies, Amazon, Apple, Facebook, and Google and the concentration of power. In an example of the claims outlined in this report said that Facebook used its dominant position to identify nascent competitive threats and then acquire, copy, or kill these firms.” House Republican Ken Buck penned The Third Way report, offering another viewpoint on these merger and acquisition cases. This report also finds large technology companies used their dominant positions to make acquisitions and mergers, increasing their market power. However, the two parties disagree about how to reform antitrust law to address these concerns, and experts continue to debate if these concerns should be dealt with through antitrust channels. 

Critics of the House Democrats’ report critique its restrictions on dominant firms acquiring potential rivals or nascent competitors. “Tightening merger policy often reduces startup firms’ innovation incentives,” wrote Tracy Miller and Trace Mitchell with the Mercatus Center. They identified new entrants in a market as significant competitors to dominant firms, cautioning policymakers to weigh antitrust law’s benefits and costs on the startup ecosystem before coming to a conclusion. 

Digital platform markets exhibit strong network effects. Direct network effects occur when the benefits to a user increase as the number of users increases. For example, an online search can be improved by having more users that increase the quality of the search. Indirect network effects occur when the benefits to users on one side of a platform market increase with the number of users on the other side of the market.

Many academics have highlighted that network effects can help platform businesses provide better products and services and a good customer experience. However, when network effects are large, they can lead to a winner-takes-all approach and reinforce dominant positions, creating barriers to new entrants.

There is a debate about the legal and regulatory issues around trading and investing in digital assets. Financial digital assets refer to the way money can be stored, transmitted, and owned online. In particular, there are issues around what digital assets are and how they might be used, where regulation is required, and who should enforce those regulations. These issues are critical, not only for banks and traditional financial institutions, but also for Fintech. Key challenges have been determining if a financial instrument is a security or commodity, the lack of consistent regulation and agency oversight (e.g. consumer protection), and uncoordinated action by federal agencies creating challenges for tax enforcement and privacy.

Some countries have a centralized agency that regulates (or potentially could regulate) all different types of digital assets; however, in the U.S., different agencies have different jurisdictions. The Securities Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), the Financial Crimes Enforcement Network (FinCEN), the federal banking regulators, and the Federal Trade Commission all have potential jurisdiction and roles to play in regulating the digital asset markets. However, a fragmented approach could raise the risks. At the federal level, some are urging Congress to define federal agency jurisdiction based on the specific technology and functionality of decentralized financial digital assets. It remains unclear whether federal regulation will supersede state regulation in respect of digital assets and fintech more generally, as the courts have not made any rulings on regulating cryptocurrency.