The Platform Problem and Khan’s ‘Amazon Antitrust’: How we let Big Tech write its own rules

The Platform Problem and Khan’s ‘Amazon Antitrust’: How we let Big Tech write its own rules

By Thomas Heron, SS Law

Introduction

Lawrence Lessig, a Harvard University academic and attorney, was one of the first internet scholars to suggest that commerce could become the salient force that would come to characterise the internet. In his seminal work, ‘Code and Other Laws of Cyberspace’ (1999), Lessig’s ‘Pathetic Dot’ theory of internet regulation proposed that the law, social norms, the market, and ‘architecture’ were the four forces that would regulate the internet. While all of these would have a part to play, in Lessig’s view it would be commerce, with the help of governments, which would make the internet a place that enabled “an extraordinary kind of control.”

The Problem with ‘Big Tech’

Even considering this ominous warning, Lessig probably could not have quite predicted the extreme extent to which history would vindicate him in respect of the third named force: the market. The private sector has dominated cyberspace in much the manner that Lessig thought it might. Nonetheless, it would still take two decades of dizzying levels of internet commercial growth for this to become widely apparent, beginning with the ‘dot.com boom’ in the United States and unto us still in ever more rapidly-changing forms with all the eery possibilities that the nascent ‘Metaverse’ portends. Now, having awoken to the near-intractable dominance of a handful of the ‘Big Tech’ platforms, regulators have begun to understand how difficult it will be to dismantle this “extraordinary control” that has been concentrated among these platforms. This is evidenced by the multitude of regulatory reports and legislative proposals on digital competition problems (EU Crémer Report, US House Antitrust Sub-Committee Report, and UK Furman Report, to name a few) coupled with the Federal Trade Commission’s lawsuit to break up Meta, Facebook’s parent company.

The Root of the Digital Markets Problem

In the view of this author, there are two predominant reasons that this has happened. The first is that regulators have been unable to apply traditional competition law tools to digital markets, owing mainly to the uniquely challenging characteristics of such markets; traditional competition law devices have been evaded by the platform business model. The second, possibly connected, reason is that government regulators have taken too lax and permissive an approach to the unchecked growth of these companies which operate globally to the strategic benefit of their domicile jurisdiction. A consistent theme across the global regulator reports on this issue is that the largest ‘Big Tech’ companies (Meta [previously ‘Facebook’], Google, Amazon, Apple) can be associated with many of the anti-competitive harms (as well as privacy and personal data protection issues) that are central to the problem of digital markets. But these Big Tech companies have grown in significance across the globe, with globally-operating US firms having the ability to reinforce the US economy’s dominance abroad. This role becomes increasingly important when facing competition from emerging markets. Dobbs, Koller, and Ramaswamy note that deregulation in China has incubated tech and e-commerce firms such as JD.com and Tencent, which rival the size of America’s original Big Tech firms. In the context of intensifying political and economic rivalry, the US has an interest in maintaining its global tech dominance over China, and firms like Google, Amazon, and Facebook contribute greatly to this effort. As some speculators predict the Chinese economy to overtake the US in size as early as 2028, the US’ position becomes even more threatened in this aspect. This is one possible reason for hitherto inactive antitrust regulation in this sector. To the degree that ‘Big Tech’ companies spread globally and assert the technological prowess of their home economy, the US

government had no apparent incentive for a long time to curtail their growth. In this vein, it is not difficult to see how the question of digital market regulation in the United States occupies a complicated seat between the competing interests of effective digital antitrust enforcement and wider global economic dominance.

The Unsuitability of Traditional Market Regulatory Tools

Returning to the difficulties with digital markets’ characteristics, owing to years of regulator blindness to these “unique digital features,” traditional competition law tools have been almost entirely outpaced by the data-focused and user-driven business models of internet platforms. Digital markets are ‘dynamic’ in that they often have a ‘winner-takes-all’ nature. This can be caused by ‘network effects,’ which can be either direct, where the more users a platform has, the more users it attracts and the platform becomes more valuable to all sides of the platform. This can create market dominance rapidly, making it impossible for other competitors to catch up and compete with the preference users have for the popular incumbent platform. This means that often the platform actually “becomes the market,” rather than competing on it in a healthily competitive manner.

Whereas typically the first enquiry of regulators has been to identify a “relevant product market” in which a business under competition scrutiny operates, the pecuniary and price-focused econometric tests have been confounded by the ‘zero-price’ nature of the markets internet platforms operate in. In both the EU and US for example, antitrust orthodoxy relies heavily on price theory. This focuses on whether consumers are so dependent on a particular business in the market that that business can raise prices more or less free of any fear of competitive constraint from other businesses (this can be calculated by the SSNIP test) is practically inapplicable to ‘free’ services such as search engines and social networks. Of course, the value earned back by these platforms is through the algorithmic processing of user data into highly valuable insights into behaviour which can then be sold on to advertisers to compensate for the lack of user subscription revenue. As yet, traditional competition law tools have not managed to close this loophole. This theme extends even further to the aggressive “killer acquisition” strategies enabled by this data-driven model. US regulation in this area is largely also still articulated in terms of money and price. For example, the Hart-Scott Rodino Antitrust Improvement Act 1976 sets out certain cash and asset value thresholds beyond which merger control notification becomes more stringent, which were increased in 2020. These value thresholds are less satisfactory in digital markets where companies targeted for acquisitions may be rich in data, and other illiquid assets, but poor in cash. Similarly in an EU context, the Apple/Shazam decision by the European Commission is illuminating for the purposes of showing that regulators are limited in their ability to materially consider the long-term effects on privacy and competition in the market of the combination of data troves under the ownership of dominant incumbents who are likely better placed to commercialise it than the target company.

The Route to Restoring Competition in Digital Markets

Internet companies utilising this business model are far ahead of the regulations meant to harness competitive markets for the good of consumers.

The question of how to regulate this market has been seen as a recent frenzy of mass regulator attention and investigation attempting to answer it.

Thematic to most of the mentioned regulator reports is the idea of isolating specific ‘big tech companies’ who have acquired a high level of dominance and imposing mandatory codes of conduct on them to allow them to ‘co-regulate’ their market behaviour. This can be seen in both the EU Crémer and UK Furman reports. This probably denotes a conscious capitulation of these regulators to the most realistic view of these large internet platforms as the real regulators of the ‘markets’ they have internally fostered. In contrast, there is more momentum on the other side of the Atlantic for the government lawsuits seeking to break up Meta into its constituent brands (Facebook, Instagram, WhatsApp, etc), which was given a green light to proceed in Federal

Court earlier this year.

While this attention to the issue is welcome, whichever, if any, of these regulatory ventures will be successful in their attempts is not something that can be predicted at this point in time. But before proceeding too deeply down any of these avenues, all regulators must first understand that the control these few companies have acquired over the flow of information, our social interactions, and the level of access they have to our data mean that what is at stake here is more than just well-functioning markets. The potential for misuse of all of these valuable intangible assets has been well-demonstrated over the last number of years, in particular, by the dissemination of political misinformation via social media, with serious and formative impacts on elections worldwide. In the view of this author, the successful attempts at regulation of digital markets will be those that treat this question with a level of gravity commensurate to these dangers.

Conclusion

Before any governmental enquiries into digital markets, Lina Khan, the current chairperson of the Federal Trade Commission, was one of the first to raise the alarm regarding this issue in 2017 in her article ‘The Amazon Antitrust Paradox,’ which she wrote when she was a law student at Columbia University. Khan articulated the digital market’s questions as one concerning our wider values as democracies in the digital age. Regardless of what direction regulators take in trying to tackle the question of the digital market, this value-inclusive consideration will be key to avoid becoming and remaining ‘pathetic dots’ in the matrix of digital control. As we cede more and more control over our personal data, time and ultimately our lives to these increasingly-powerful private entities, the regulatory playing field must be rebalanced in favour of the values of accountability, fair competition, and user rights, whatever the regulatory option chosen may be.