ProMarket: Congress Is Leaning Towards a Big Tech Breakup

March 9, 2021 Media

Last month, I had the distinct pleasure of testifying before the House Subcommittee on Antitrust in a hearing titled “Proposals to Address Gatekeeper Power and Lower Barriers to Entry Online.” Although the digital platforms engage in myriad exclusionary conduct, a key anticompetitive strategy that seems to defy antitrust scrutiny is appropriating edge content (or “cloning”) and then steering users to the clone (or “self-preferencing”). For example, Amazon uses a third-party seller’s proprietary data to spot a top-selling product on its Marketplace, reverse-engineers it, and then promotes the clone in its coveted Buy Box. Apple and Google employ similar tactics in the App Store and general search results, respectively. The question now is how to stop it.

Just a handful of proposals dominated the hearing. Front and center was structural separation, which would require dominant platforms to spin off or shutter content divisions. If platforms were barred from having a toe in the content space, they couldn’t clone content or steer users to their affiliates (as none would exist). Structural separation would have to be supplemented with other rules that bar platforms from exercising control over content providers via contract.

Break-up legislation is coming. But who will do the carving? And when will the carving take place?

Near the end of the hearing of February’s hearing, Chairman David Cicilline (D-RI) asked Morgan Harper of the American Economic Liberties Project (at 2:56) how structural separation would be operationalized. Harper answered that Congress should write a bill that was market-specific. She also noted that behavioral remedies in Europe have largely failed.

There are two basic options: Harper’s vision (“Option A”) and my alternative (“Option B”).

Option A is that Congress does the carving, a la Glass-Steagall legislation of 1933, and specifies the firm boundaries for each platform on the front end. For example, Amazon could be compelled to shutter its private-label division (an Amazon tripod wouldn’t have much value as a standalone company) and spin-off its logistics and web hosting divisions. That Amazon provides web-hosting services to Netflix and competes against Netflix with its own film division is a slow-moving train wreck. And if its logistics division were separate, Amazon couldn’t force merchants to buy fulfillment services from Amazon at inflated prices.

Option B is that Congress empowers a tribunal to impose structural relief on the back end, as a remedy to a particular case or set of cases. For example, in cases involving a recidivist discriminator who shows no respect for the nondiscrimination regime, or where injunctive relief proves unworkable, the tribunal could require the platform to sell off its content arm or cease operations in the content space. Amazon could be sliced up the same way, but the slicing would have to address the competitive harms presented in a particular case or set of cases.