Antitrust Remedies for Big Tech

Font Size:

Courts should impose antitrust remedies consistent with underlying principles of market competition.

Font Size:

The U.S. Department of Justice, Federal Trade Commission, and several states attorneys general have brought major antitrust cases against Facebook and Google. The complaints allege several anticompetitive agreements, and a judicial finding of liability against the tech companies is a realistic possibility.

Yet too often the government has proven antitrust violations against large firms only to have the case fall apart at the remedy stage. The antitrust laws themselves are not very helpful: They empower the government to “prevent and restrain” antitrust violations but say nothing about how to do that.

We cannot identify proper antitrust remedies without some clarity about antitrust policy’s goals. The antitrust laws speak in unmistakably economic terms about “monopoly,” “restraint of trade,” and “competition.” The laws cannot be interpreted as limitations on political power, large size, or some common law or criminal offense, such as theft, invasion of privacy, or fraud, unless those bad acts serve to injure competition. Other statutes exist for pursuing those harms, and they are important components of legal policy.

If we wanted antitrust laws to police these practices, however, antitrust laws would have to be amended. But antitrust should not be some general fix for issues that the U.S. Congress has not seen fit to address more directly.

Under antitrust’s consumer welfare principle, the goal of antitrust law is competitive markets, which produce the highest output of goods and services consistent with sustainable competition. High economic output delivers low prices to consumers. It will also protect labor and other suppliers, who almost always benefit when markets produce more goods and services.

More competitive markets, however, does not necessarily mean the absence of large firms. This is particularly true if economies of scale make production by large firms cheaper, or if network effects make a firm more valuable as the number of users increases. The goal of an antitrust remedy should be driven by this same rule—to make markets more competitive. Courts have the power to break firms into little pieces or even to dissolve them. The hard part is for courts to fix the problem in a way that is consistent with maximum competitive output.

Often the least disruptive and most effective antitrust remedy is an injunction against competitively harmful conduct. The antitrust lawsuits against Facebook and Google charge the firms with agreements forbidding their contracting partners from competing with them or from dealing with other competitors. The Google complaint, for example, asserts that Google paid billions of dollars to make the Google search engine the default on iPhones, and Google does the same thing with manufacturers’ Android devices.

Requiring Google to break off its search engine would not necessarily address this issue—it would just give the monopoly to a different owner. By contrast, an injunction—a legal tool that would forbid Google from paying other companies to make Google search the default search engine—can go straight to the problem by giving control to the user. The European Union has taken that approach: New devices come with a startup screen for the user to select from several search engines as a default.

Many antitrust breakups for monopolistic practices have done more harm than good, making firms less efficient, ruining consumer benefits, and sometimes even bankrupting firms. One exception to this practice is when courts impose breaking off assets that have been acquired by merger. Requiring divestiture to undo mergers is nearly always less disruptive than trying to break up integrated firms. Here, good candidates are Facebook’s acquisitions of Instagram and WhatsApp, neither of which has been completely integrated into Facebook. Another possibility is Android, which Google acquired when Android was still a fledgling firm.

But there are better ways to make platform markets more competitive.

One remedy that could work well for a platform such as Amazon is a court order governing its commercial decision processes. Antitrust law treats agreements between entities much more aggressively than it does unilateral conduct. As a unitary firm, Amazon’s decisions about product selection, pricing, dealing with competitors, and other aspects of its business can be treated only as unilateral monopolistic practices.

Some corporate boards, however, have members with independent business interests who make many important economic decisions. Among these entities are real estate boards (which are typically corporations whose decisions are carried out by their individual licensed brokers), hospitals (which have admitting privileges granted by a board of physicians with independent practices), and sports leagues such as the National Football League (whose individual teams collaborate through corporations to conduct business such as trademark licensing).

Amazon’s commercial decision-making could be entrusted to a board whose members include Amazon as well as representatives of the various merchants and others with whom it does business. This board would have control over product selection and exclusion, pricing, and distribution practices. This change might not make Amazon smaller. Indeed, greater internal competition might make Amazon even larger. But it would behave more competitively.

Another remedy, which could apply to platforms such as Facebook or Google that deal in large amounts of information, would be for a court to impose interoperability requirements. Platform firms are valuable to consumers because they take advantage of network effects, becoming more valuable to users as the number of participants on all sides increases. This principle also applies to the phone system, credit card platforms, ride-hailing services, dating sites, and many other things.

Rather than breaking platforms apart, courts should make them interoperable by requiring these platforms to share the data they collect with competitors, subject to user rights to withhold data. Sharing in this way would increase value to consumers, but it would also remove the size advantage that accrues to the largest players. They would have to find other ways to compete.

The phone network is a successful example of this remedy. An antitrust decree issued by a federal court in 1984 changed it from a single firm into a network operated by hundreds of competitors that share interoperability protocols and information. Interoperability works so well that a caller cannot even identify the equipment or carrier used by another caller.

These approaches to antitrust remedies reflect an important principle: The remedy should be consistent with the underlying goal of antitrust, which is to make markets work better by expanding rather than contracting their offerings—and in a more competitive environment. This approach will benefit a broader range of constituents, including consumers, labor, and other suppliers.

Herbert Hovenkamp

Herbert Hovenkamp is the James G. Dinan University Professor at the University of Pennsylvania Law School and the Wharton School of the University of Pennsylvania.