Should Big Tech be Broken Up?
Investigations into several leading big tech companies – including Facebook, Google, Apple, and Amazon – began on Tuesday as the House Judiciary Committee held a hearing on the role of such companies in the decline of the news industry. Prior to the hearings, host Jeffrey Rosen sat down with anti-trust law experts Mark Jamison of the American Enterprise Institute and Barry Lynn of the Open Markets Institute to ask: if these investigations lead to increased government regulation—what might the consequences be–for big tech, antitrust law, and for the Constitution?
Mark Jamison is a visiting scholar at the American Enterprise Institute, where he studies telecommunications, the FCC, and how technology affects the economy. He is also the director and Gunter Professor of the Public Utility Research Center at the University of Florida’s Warrington College of Business. Dr. Jamison served on the FCC transition team for President-elect Trump, and as a special adviser to the chair of the governor of Florida’s internet task force.
Barry Lynn is the executive director of the Open Markets Institute. He previously spent 15 years at the New America Foundation researching and writing about monopoly power. He is author of the books Cornered: The New Monopoly Capitalism and the Economics of Destruction and End of the Line: The Rise and Coming Fall of the Global Corporation . Prior to joining New America, Lynn was executive editor of Global Business Magazine.
Jeffrey Rosen is the President and Chief Executive Officer of the National Constitution Center, the only institution in America chartered by Congress “to disseminate information about the United States Constitution on a nonpartisan basis.”
- The Sherman Antitrust Act
- The Clayton Act
- The Federal Trade Commission Act
- Apple Inc. v. Pepper (2019)
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This episode was engineered by Dave Stotz, and produced by Jackie McDermott. Research was provided by Lana Ulrich and Michael Boyd.
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Jeffrey Rosen: [00:00:00] I'm Jeffrey Rosen, President and CEO of the National Constitution Center. Welcome to We The People, a weekly show of constitutional debate. The National Constitution Center is a non-partisan non-profit chartered by Congress to increase awareness and understanding of the Constitution among the American people. Lawmakers in Congress and in the executive branch have recently launched antitrust investigations into several of the leading big tech companies including Facebook, Google, Apple, and Amazon. What are the legal theories underlying these antitrust investigation? What could they mean for the future of American competition and American freedom?
Joining us to explore these crucial questions and more are two of America's leading experts on antitrust. Mark Jamison is Visiting Scholar at the American Enterprise Institute, where he studies telecommunications, the Federal Communications Commission, and how technology affects the economy. He's also the director and Gunter Professor of the Public Utility Research Center at the University of Florida's Warrington College of Business. Dr. Jamison served on the FCC transition team for President-elect Trump, and as special advisor to the chair of the Governor of Florida's Internet task force. Mark, it is wonderful to have you with us.
Mark Jamison: [00:01:23] Well, thank you. Glad for the opportunity.
Rosen: [00:01:26] And Barry Lynn is Executive Director of the Open Markets Institute. He previously worked at the New American Foundation, researching and writing about monopoly power. He is the author of the ... I think I'm allowed to say superb because I learned so much from it, a superb book, Cornered: The New Monopoly Capitalism and the Economics of Destruction and End of the Line: The Rise and Coming Fall of the Global Corporation. Barry, it's wonderful to have you with us.
Barry Lynn: [00:01:53] Hey, and it's great to be here.
Rosen: [00:01:55] Let us jump into the New York Times report at the beginning of June that, “The Federal Government is stepping up its scrutiny of the world's biggest tech companies including Apple, Google, Facebook, and Amazon.” Barry, what are the legal theories underlying this increased scrutiny? Given the fact that antitrust law has traditionally in recent years focused on consume welfare rather than competition, to what degree do these new investigations represent a shift in focus?
Lynn: [00:02:27] Well, we actually don't know. We really don't know whether they're going to follow through with any sort of case here. This doesn't mean that they're going to be bringing Google to court, or bringing Amazon to court, or bringing anybody to court. Thus far we're dealing with some pretty vague information. What theory they might use, if they bring a case to court, is to be determined. In some ways, the more interesting thing that we're observing right now is the decision by the Antitrust Subcommittee in Congress, the Judiciary Committee in Congress, to investigate the big tech corporations over the course of the next 18 months.
They're actually starting tomorrow with a hearing that's looking at the effect of the power that Google and Facebook have over the distribution of information, over advertising markets. The power that these two corporations have over the news that we hear, and the stability and well, sort of the viability, the economic viability of our news corporations. So there's a lot to be determined. It's an exciting moment. We haven't seen this kind of action, this kind of interest in a really long time. But we don't know what's going to happen.
Rosen: [00:03:59] Thank you very much for that introduction. Mark, can you give us a sense of what legal theories, if any, the Federal Government might be invoking to step up its scrutiny of the world's biggest tech companies? Do you agree with Barry or not that the most significant development is the decision by the Antitrust Subcommittee in Congress to look at the power over information in advertising that the platforms have?
Jamison: [00:04:23] Sure. I guess in some sense I have a lot in common with Barry in there's a search for a theory here. I wish that it was clear that somebody had a coherent theory of what's the challenge. I'm not sure in the political arena we really have that. As I listen to people talk, read what people write, what I hear more is a kind of a gut reaction to how large some of the companies are, and a concern that if they become successful then they turn that success into kind of political power, if you will. We hear concerns about how they might bias content against one type of person or another. And we have a lot of complaints from rivals, people who would really love to be competitors in this space but find that for one reason or another they're just not gaining traction against some of those that are doing much better.
One of the things I'd really like for people to keep in mind here is that we're in a situation where all of these companies have become successful not because someone in government did them a favor, or because they were able to leverage something in a corrupt way to gain an advantage. But what they really did is just made a lot of people very happy. Every one of all the two billion or whatever the number is, of people using Facebook, that's their choice. They all chose that. You and I, when we use Google for search, we're choosing that. When we buy from Amazon versus Walmart versus anyone else, we're choosing that. So the size isn't about power as much as it is about a lot of people being satisfied. I think we want to be cautious in how we interpret that as being something to be afraid of.
That Congress is taking a look at it is indeed a significant event because in this case we actually have some bipartisan agreement. I don't think it's massive agreement, but at least some. Where both sides of the aisle have felt that things haven't gone the way that they would like for them to. They would like to do something about it. But that very idea there, that things haven't gone the way a politician might like them to, is not a cause for an antitrust case. All of us have our preferences violated at some point. As long as we're able to make choices then we can pursue whatever's feasible in the business space. That's how I think about it. I'm concerned that there really isn't a coherent theory. I agree that we're in a moment that's really very interesting and maybe unique.
Rosen: [00:07:13] Thank you very much for those introductory thoughts. Well, let's focus the discussion by beginning with Facebook. Senator Elizabeth Warren, not long ago in March, proposed breaking up companies including Facebook as well as Amazon and Google. Chris Hughes, a former Facebook founder, wrote an op-ed in the New York Times recently called It's Time to Break Up Facebook. Then finally, there's a great summary article, Is Big Tech Headed For A Big Breakup? AP News recently published it, which sketches out a potential antitrust case against Facebook which might include spinning off WhatsApp and Instagram on the grounds that Facebook can squash competitors by buying them or using its resources to mimic services they offer. Barry, what is the case for breaking up Facebook? What would it look like? Why do you think it might be a good idea?
Lynn: [00:08:10] Yeah. We were the first ones here at Open Markets to propose that particular breakup of Facebook, which is spinning off Instagram, which is spinning off WhatsApp, which is make the case that those, the enforcers should never have allowed Facebook to buy those two corporations in the first place. One idea is that it's just providing more platforms for people to communicate with each other, more different alternatives, more experimentation in terms of privacy settings, in terms of the types of services these organizations provide. Mark said, “It's like, oh, there's a lot of choice.” Well, the thing is is that when you have the dominant corporation, in this case Facebook, buying up the upstart corporations, its rivals, before they can actually really get going, you actually don't have choice. It's like right there in those two mergers is proof that we really don't have choice when it comes to this kind of service, what people call social media.
The issue is not just that Facebook is big. It's that Facebook is not neutral on the services that it provides. Facebook discriminates. This is actually part of its business model. It gives different people different information. It gives different people information that might lead them away from the direction that they want to go. The reason that Facebook provides different information to different people is because they make a lot of money by selling advertising to different people. In fact, all of their revenue comes from advertising. So their entire business model is essentially built around the idea of sort of hoovering up all this information about people, studying what people do, and then using that information to manipulate people into certain actions. Then sort of selling the service of manipulating people to advertiser that want to get you to do something or, in some cases, to foreign powers that might want to get you to vote in a different way.
It's like if Procter & Gamble comes a-calling and says, “Hey, we want to advertise Tide and get you to buy this new kind of Tide,” Facebook is there to help you. If Vladimir Putin is coming along and says, “I want to get you to vote for this person rather than that person.” Well, Facebook's there to help you with that too, as long as you'll pay the bills. If you're going to put money into it then they're going to help you out. So the issue here is not that it's simply just breaking Facebook. That's pretty easy in terms of understanding what to do because we saw what they bought. The issue's also providing, imposing the same type of neutrality protections, the same type of anti-discrimination protections that we have imposed on every previous network monopoly in American history. Railroads, and telegraph, and telephones, and electrical companies, and the broadcast networks. There's nothing new about these regulations. No powerful intermediary should ever deliver different information, different services, different prices to different people. We've never done it before and we're not going to continue to do it going forward.
Rosen: [00:11:46] Mark, you've just heard Barry's strong case not only for breaking up Facebook by spinning off WhatsApp and Instagram, but also by imposing anti-discrimination rules that would prohibit it from favoring some competitors over others and imposing different prices rather than others. Do you agree or disagree with his case, and why?
Jamison: [00:12:06] Well, I disagree. Let me just address the bias issue, the neutrality issue. Never in our history has, and by our history I'm not including just the United States, you could go back centuries, has marketing, has the marketing of political ideas, marketing of products, marketing of political ideas ever been neutral. The platforms for them have never been neutral. Neutrality is just not an interesting thing. People aren't attracted to it. And it's not necessarily a viable business model. This is one of the challenges of thinking, “What if we broke up Facebook? Would that actually be a viable business model?” Chances are no, because what people are finding viable, what they're paying Facebook for, is that bias, is its being able to gather and use intelligence in ways that people find valuable. If we took the company and said, “You can't do that anymore,” we might not have a company anymore. Since the two billion or so, whatever, people around the world that have said, “I want to be part of this.” If we take that away from them by putting it into a model that just isn't financial viable, have we really made them better off?
That's one of the studies that we have done over the years. We, it's not me personally but studies done by economists and others, looking at innovation, we've found that ideas go to market only through viable business models. Lots of ideas are introduced. Lots of them are toyed with. But not all of them actually succeed because they can't get the business model right. That's one of the things that when we think about WhatsApp, we think about Instagram, we imagine them as having successful business model, but they have a business model now given to them by Facebook. If we take that away are they still then viable businesses? We don't know for sure, but my guess is probably not. We would not necessarily have competition if we simple tried to break up the companies in that particular way.
Rosen: [00:14:24] Barry, how would the goals that you've advocated, both breaking up parts of Facebook and also imposing anti-discrimination laws, be achieved? Could it be done under existing antitrust laws, which include the Sherman Act, the Clayton Antitrust Act of 1914, and the Robinson–Patman Act of '36? Or would you have to pass new federal statutes or have it done judicially? In the course of answering if you could give our listeners a sense of what the basic framework of antitrust law is, that would be great.
Lynn: [00:14:58] Yes. This is the great question, is like, “Do we need to pass new laws?” One of the things that Google and Facebook and Amazon keep saying is, “Oh, maybe there are some problems here. Maybe we have to fix this or fix that a little bit. But you're going to need a new law in order to do that.” The fact is is actually we don't need any new law. We have a fantastically rich set of laws that we developed in the United States going back to the very beginning of our country. In fact, going back to 1773. Going back to the fight against the British East India Company at the Boston Tea Party. What was that fight about? That fight was, “Hey, you know what, in between the citizen as a seller of things and in between the citizen as a buyer of things, we do not need an intermediary. We don't need a giant crown corporation telling us how to do our business. We can make markets all by ourselves and exchange with each other all by ourselves.”
What we're dealing with here is that same thing. We have this intermediary that is in between the person who wants to say something, the person who is writing something, the reporter, the book author, on one side. Then the citizen who is trying to learn something, who's trying to understand something, who's trying to figure out how the world works on the other side. You got this intermediary that is not neutral, that is manipulation that information, and is manipulating that information in order to make money off of it because their business model is selling advertising. Over the course of 240 years we have developed a huge variety of ways to deal with intermediaries. Be they railroads or other types of transportation companies, or be they telegraph companies or telephone companies, or cable companies, or all kinds of other kinds of communications firms. We've developed this wide set of tools and we have used them repeatedly.
Most recently in 2015 with the net neutrality order, in which we imposed precisely this thing of neutrality on the cable corporations, on Verizon, on AT&T, on Comcast. We just did this. In fact, Google and Facebook supported that because they said, “Oh, if we don't have non-discrimination laws applying to the telecommunications firm, they're going to discriminate against us.” But now, once that happened, as soon as we look at their power they're totally against it. Of course they are, because they make money off discrimination. They make money off manipulation. Their ability to manipulate is a license to extort. That's what they do. They extort money from people who are trying to get from one side of the market to the other. It's a wonderful business model if you happen to be Google or Facebook, but it's not a business model that we are going to continue to abide in this country. In our antitrust toolkit we have every single tool that we can use. They can be applied by a wide variety of different authorities, including Congress if need be.
Rosen: [00:18:22] Mark, Facebook has emphasized, as you did initially, that it has competitors in messaging and digital communications including Apple and Google. Also, that antitrust law focuses on companies that raise prices too much and since Facebook is free it might be tough to argue that it harms consumers. Do you agree with that defense or disagree with Barry that Facebook could be regulated under existing laws?
Jamison: [00:18:50] Well, I agree with Facebook in the sense that it does compete aggressively for people's time and attention. That's one of the main things that it needs to make its business model work, is people to pay attention to what's on that screen. And they do. They compete with a lot of different other types of tech companies but a whole lot of other people as well, because not only do you compete in a sense of there's time and attention on the screen, but you also attract people to the screen and compete with other things that they do in their lives. So I agree with Facebook in that regard. I also agree with Barry that I don't think we need necessarily new laws. If you look at, for example, the breakup with AT&T that was a negotiated deal. If there's going to be a breakup in any of these instances I'm guessing that that's going to be a negotiated deal as well.
But a couple of things that Barry said I think are important to kind of surface just a little bit more. One is like the net neutrality debate. That was an excellent example of Facebook, Google, and some other people on what you call edge providers, people that provide content on the internet, trying to make sure that they did not face competition from people who are in the network space. It was somewhat asking the government, “Divide up the market. Don't allow these other types of people to compete with us.” Something else that was shown in the economic research on that is that enforcing net neutrality, and by enforcing I mean having rules that say it has to happen. A lot of people do it voluntarily, and that's fine. But having rules that say you have to treat everyone exactly the same, actually makes it harder for startups to compete with Facebook or to compete with Google.
Both of those companies have extensive telecommunication networks of their own, custom-designed for their services. If you want to start up and compete with a Facebook, you have to hope that the internet that's out there serves your needs. But it doesn't if it's designed to be neutral across everyone. Facebook has a network designed for Facebook. The net neutrality rules actually would be protecting Facebook and Google and others from the types of competition we would actually like them to see.
Rosen: [00:21:13] Barry, let's delve in on the free speech implication of this debate. In his op-ed, Chris Hughes, the Facebook co-founder said, “The most problematic aspect of Facebook's power is Mark Zuckerberg's unilateral control over speech.” The most extreme example of Facebook manipulating speech happened in Myanmar in 2017. He describes an example of Facebook favoring one side over another. I'm delighted that one of our great We The People listeners, Jean-Paul (Rotelade) wrote in just recently and asked, “Would it be constitutional for Congress to regulate corporations to adhere to the principles of free speech on their platforms such as Facebook, YouTube, Twitter, insofar as they've become now, as some have argued, a public town square?” What do you think?
Lynn: [00:22:06] Yeah. Besides the case that Chris Hughes mentioned in Myanmar, I'll give a case that's from right here in the United States. My friend, Nicholas Thompson, is the editor of Wired Magazine. Last, I think it was last February, February 2018, he published a cover story in Wired about Mark Zuckerberg and Facebook and sort of all of the problems that they sort of got themselves into over the previous year or so. The cover photograph or it was actually sort of a painting of Mark Zuckerberg, it made him kind of look like a victim. His face was bruised. Then the article was basically a pretty positive piece about their struggles, their efforts to sort of figure out how to run their organization more effectively.
In the middle of this piece, right in the middle of this piece, which was a pretty positive piece about Facebook, Nick Thompson inserted this one paragraph in which he said, “Every journalist knows,” and I'm just paraphrasing here, but, “Every journalist knows that they are just sharecroppers on Facebook's industrial farm.” In this case the farmer, I mean the sheriff or the master, can turn any number of different switches to manipulate the number of views they have, the amount of money they get, the amount of traffic they get, in ways that can entirely harm that particular business, that particular publisher, that particular editor, that particular reporter. On one side you got a company, a corporation with all power. On the other side you got someone who's just trying to talk to their fellow Americans.
Nick Thompson just updated that article recently, within the last month, in Wired. It's been 15 months in Facebook's history since that happened. Most of the article is about what happened to Facebook, but in the middle of the new article there's a little report from Nick about what happened to Wired last year after they published that first article. What happened is that within a week of that article coming out, Facebook shut them down. They shut off all traffic to Wired. They shut them down for a month. One month. One month, in retribution for an article that was relatively positive coverage of Mark Zuckerberg and the rest of the Facebook team. So that's the kind of power that this corporation has. That's how they use their power to promote free speech in the United States. They use it to terrify the editors and publishers of our news magazines and our newspapers. “Don't talk about us. Don't come after us because we will shut you down.”
So in terms of what we're going to do, when we need to do it, well, we need to move pretty fast because when a corporation shows that this is what it's willing to do in today's world, the American people have no choice but to deal with that kind of grotesque abuse of their license immediately and overwhelmingly.
Rosen: [00:25:56] Mark, do you agree or disagree that Facebook is openly discriminating against its critics by shutting them down, as well as engaging in lesser forms of speech discrimination? Could Facebook be regulated under the First Amendment? Some have argued that the social media sites could be treated like state actors who have to follow the First Amendment constrained by the Constitution, or viewed like common carriers and therefore subject to regulation like news editors and so forth. Whereas other say that Facebook and Google themselves have free speech rights that might be violated by attempts to regulate them. What's your sense?
Mark Jamison: [00:26:37] Well, I don't know why Facebook turns anyone on or off. Investigations could be done to determine what was Facebook's motivation for cutting off Wired, if they did. I really don't know. That could be studied. Now, but what's important there is not so much that Facebook has the ability to do that, but whether Facebook is upfront with people that that is what it would indeed did. If it says to its customers and clients, Wired and such included that, “We will turn you off under these conditions,” then that's a free contract that people can enter into or not. If it's hiding that, if it's doing it arbitrarily, then I think we have issues under our current laws, under whether or not that Facebook is dealing honestly or fraudulently with the customers. If it's violating those kinds of laws then that should be pursued.
Getting to the other part of your question, though, that is like regulated under the First Amendment and such. I'm not enough of a legal scholar, or actually no kind of a legal scholar, to tell you whether the First Amendment can be applied to a private company. I'm skeptical of that but people can disagree with me on that with great validity. One of the problems that Facebook has in particular, which I've pointed out in a couple of things I've written before, is it's taken things that people have typically used separately in the past and tried to combine them all together. So it has this function that we would normally have thought of as common carriage, which is a message is simply transmitted. That is all that's done. It's not changed. It's not altered. There's nothing that's changed about it.
Facebook has that kind of a quality to it, but then it will turn people off. Or it will say, “We just don't like this message,” and cut it out for whatever reason that might be. That violates how people think about common carriage. It feels like the post office says, “I'm not going to deliver mail to you anymore.” Those two things don't go well together. It also has this aura, this work, that's very much like a media company. Where it actually prioritizes content and says who's going to see what, which is, by its nature it has to do that. Anyone that's involved in distributing information that there's a limited space that it's going to be displayed is going to prioritize in some way. That's part of the business, but that's what we've seen typically in the mass media, where we expect editors to play a particular kind of role with roles that are well-understood. That isn't something that Facebook has come up to and said, “Yeah, we're going to separate this out.”
I really think that one of Facebook's major challenges is that it's taken things that people are used to seeing as separate and tried to put them under on umbrella. I'm not sure that's going to be sustainable as a business model. That's part of why it's running into the political problems it has. So I think, indeed, the government could say there is some aspect of what Facebook does that looks like common carriage, but it couldn't do that with all of it. For displaying news and such, that's not something we have under common carrier.
Rosen: [00:30:03] Barry, just because Jean-Paul Rotelade asked it, I'll take one more beat on this question of how specifically you suggest that Congress, the states, or the courts could require corporations to adhere to free speech principles. Would it be constitutional, as he asked, for Congress to require that YouTube, Twitter, Facebook, and Google respect free speech principles?
Lynn: [00:30:30] In the case of Twitter, Twitter's somewhat of a more complicated question. Actually, Mark, I wasn't sure Mark and I were going to agree on much of anything. But this last little period, Mark, sort of took us to the crux of the problem, which is that Facebook is two things that we don't normally see together. That actually was what I had said earlier, which is that traditionally you're either a common carrier or you're something else. You're a publisher or you're a seller of something, and you depend on common carriers to get to market. So what we see here is this fundamental conflict between this corporation that sees itself both as a content provider and manipulator, and they have become such an essential facility in connecting people that you can't get around them. You depend on them. When you get shut down, and that's the thing is like when they shut you down there just ain't no way to get to market. You're just going to lose half your readership overnight, all of a sudden. You can't survive. That's a death sentence for almost any seller, any publisher, when you lose half your audience instantly.
How do we actually deal with this? How do we ensure that we actually have a system that promotes free expression and also promotes the sort of robust journalism that we need for our democracy? Well, it's that we clarify the difference between the common carrier, the connector in the system, and the provider of information. The fact is is that, as Mark is getting at, Facebook can't be both. It cannot be both. It's going to provide connection and that's what its job is, but it's not going to be the manipulator, the publisher of information. It can't do that.
What we need is to ensure that the people who are publishing ... There's all these rules about publishing. It's like if you're publishing libelous material we can bring cases against you. There's a whole system to regulate speech based on the traditionally differentiation between the common carrier and the publisher. All we have to do is go back to that system, which has been in place since the founding of the nation. Voila, the problem of Facebook goes away. People can say whatever they want to say. If they break the law, there's ways to deal with it without seeming to shut down systems of communication that we all rely on.
Rosen: [00:33:18] Mark, you referred earlier to a bipartisan consensus around some of these issues. Can you imagine a bipartisan consensus about requiring the platforms to respect free speech, especially in light of the net neutrality debate, which was initially cast as a First Amendment issue. The claim was that Comcast was discriminating against its competitors and thwarting free speech in the process, but pretty quickly it became polarized where it was Rs against Ds.
Jamison: [00:33:46] I think, yeah. I think it'd be very hard for us to have some legislation that comes out of even whatever consensus we might have. Not so much for substantive reasons but for political reasons. The politics we see going on in Congress, Washington, to a lesser extent around the country, is kind of sucking all the oxygen out of any kind of substantive legislation. It's really hard to do things because of the animosities that we see. Even if there's consensus that at least some Republicans believe that Facebook, Twitter, et al. are biased against conservatives, on the other side of the aisle there's a belief that they're just too big. So maybe that brings us together on some substantive issue. It still takes political energy to actually do something. I'm not sure that we really have that.
One thing I probably should clarify though in what Barry and I had just been talking about. I agree completely that Facebook has combined some things that we've not had combined before. I would add into it not just the two things we talked about but also this kind of convener of meeting rooms, if you will. We've always had our clubs that said, “Here's who can speak. Here's what you can talk about.” Facebook has kind of taken on that kind of a role as well, which isn't going real well for it. Where I think he and I might disagree is what to do about that.
I'm very happy to let Facebook try. Maybe it creates something none of us has ever seen before and people do adapt to it well. But maybe that really is too much for people to get their heads around, and Facebook suffers as a business, and someone else starts playing those roles quite well. What I would hesitate is having the government come in and say, “Here are the business models people are allowed to have.” Because we might have the situation where we haven't seen this before but it could really be valuable. It's just it's totally new to us.
Rosen: [00:35:52] Well, we've talked about Facebook. Let's now turn to Apple and the case for regulating it and the role that the courts might play. Barry, the Supreme Court recently decided an antitrust case involving Apple by a 5-4 majority with Justice Kavanaugh joining the liberals in allowing an investigation to proceed. Tell us about that case and what it says about the court's views about antitrust law.
Lynn: [00:36:21] Yeah. That was a very interesting case that had to do with the ways in which Apple sort of manages the App Store. In that case, there was a question about whether sort of the exercise of power over the developers of apps, if that affected the quality of the service to the users of the apps. But who gets to sue? It had to do with like the chain ... In antitrust there was a case some while back that sort of limited the ability to bring a suit to the person who is most directly affected, and that people further down the chain are not allowed to bring suit. It was a somewhat technical question about who gets to bring suit and basically, is this really a market? The App Store, is it really a market or is it a system that Apple is manipulating in ways that sort of make it the owner of these actions? So it was a somewhat technical case. We were really happy to see Judge Kavanaugh sort of, or Justice Kavanaugh come out with the decision that he did.
In general, just to be clear, from our point of view at Open Markets there's five super giant corporations in the United States. You've got Google, Facebook, Amazon, Apple, and Microsoft. Of those five, there's three that sort of routinely ... it's actually part of their business model to engage in the manipulation of interactions between buyers and sellers, between speakers and listeners. That's Google, Facebook, and Amazon. Apple has a number of choke points that it controls. It has the ability to manipulate sort of interactions in certain areas. It has done so in a couple of cases in the past in the music industry. Similarly, Microsoft, they control certain choke points. They have the ability to manipulate certain interactions.
Apple and Microsoft do not use that power in the same way that Google, Facebook, and Amazon do. So from our point of view there's like three corporations that pose imminent direct threats to American democracy. That's Google, Facebook, and Amazon. Apple and Microsoft, there's a lot of antitrust problems with both of those corporations. There's a lot of power they shouldn't have. There's a lot of competition that should be engineered to make them function better and to serve people better. But neither of them poses an immediate, direct threat to the American republic.
Rosen: [00:39:21] Thank you for that distinction between Google, Facebook, and Amazon, and Apple and Microsoft. Mark, I know you're not a lawyer, but any thoughts you have on the Apple suit would be interesting just to summarize a bit more from the case. This was Apple versus Pepper. It turned on an interpretation of a 1977 case Illinois Brick, which the Supreme Court said triple damages for violations of federal antitrust law are not available to an indirect purchaser. The question according to Justice Kavanaugh was whether the bright-line rule in the case, which authorized suits by direct purchasers but barred suits by indirect purchases, covered Apple. Justice Kavanaugh said that iPhone users were direct purchasers from Apple and could bring the antitrust suits because they bought the apps directly from Apple. The dissenters, led by Justice Gorsuch, said this was overly simplistic and a misreading of the Illinois Brick case. It is indeed technical, but do you have thoughts either about the case or about the divisions of views about antitrust on the US Supreme Court today?
Jamison: [00:40:24] Sure. I think you actually described the case pretty well there. It was indeed a technical issue of who gets to bring the suit. The Supreme Court decided that even if you did not pay a fee directly to the App Store, you're affected by it, and therefore it's just a matter of who's paying the bill because, who's paying the bill technically versus who's paying the bill ultimately. Really, I have no particular concern with that. What I do what us to always think about well is the substantive issue that is going on, at least with the App Store. That is, is there indeed market power there?
Because one of the things that we struggle with, not as openly as we admit, is what does it even mean to have market power in this case. A lot of people will talk about Apple's ability to manipulate things. But that's the essence of doing business, is to take some basic inputs, manipulate them into something that people value, and then hand it off to them. Sometimes free, sometimes in exchange for money. All of us are in that business. I manipulate information. That's what scholars do. Barry manipulates information. That's what a think tank like his does. We all do that. That's how we add value to customers. So the question isn't whether or not we manipulate things, but do we damage the customers that we're supposed to be serving.
I think that is where it really gets complicated because if you take the App Store of Apple, for example, that is part of what made the iPhone and Apple very successful. It was indeed that exact manipulation because we had people in the smartphone business who tried to have stores that did not do that, app stores that did not involve that kind of manipulation. They were not successfully. Customers voted, they voted very clearly, that they actually like that and value it. If they're saying, “That's what we want,” then I think we're very hard-pressed to say, “You should not have that, as a matter of antitrust.”
Rosen: [00:42:30] Well, let us return to the companies that Barry said ... you, Barry, at Open Markets are most concerned about, Amazon and Google. The European Union has been conducting a probe into whether Amazon is using its data to get an edge on third-party merchants. The question is whether Amazon is identifying its best-selling products elsewhere and steering companies to its own products over those of its rivals. Jeff Bezos counters that Walmart is much larger than Amazon, as Amazon tweeted in response to Elizabeth Warren's proposal that Amazon should be broken up. Jeff Bezos has also said that Amazon's a small player in global retail because 90% of retail remains offline. Barry, what is the case in your view against Amazon, the antitrust case? Should it be broken up?
Lynn: [00:43:25] Well, jump ahead to the answer, yes. It should be broken up. And as we were talking about with Facebook, the platform where people come together to buy and sell, which has become so dominant, like more than half of people who go online to buy things go straight to Amazon. That also has to be made neutral. We have an example of what a neutral platform looks like. eBay is a neutral platform. What that means is that the people who are selling things, they determine their own pricing and they determine, within certain pretty rough parameters, they determine how their products are marketed. Their actions are pretty much directly between the buyer and the seller.
In the case of Amazon, they sort of gather all this information about every buyer, about where you've been, what you do, what your sins are, your quirks are, what books you read. It's not just what they gather from their own website. They're also buying up all kinds of data from other folks. I mean this is what they routinely just buy data from other folks, from your bank, from your car company. Then they use this to create a profile of you so that they can sort of determine who to sell you things that you might not want, or more things than you really want, or at a different price than what you expected. They're doing the same thing to everyone who's on there who's selling things. They're studying every single thing that they do. Increasingly, Amazon ... Yeah, in terms of physical sales they're not anywhere near the dominant in the physical world, say for the sale of Tide, as Walmart is. But when it comes to the sale of things online, electronics, and toys, and music, and film, and books.
They've become in some cases entirely dominant. It's like the main place where certain things are sold. The idea that you would sort treat Amazon as like some kind of whole, just take all the different categories of what it sells and put them into a big blob and say, “Well, this is the amount of money that they made,” that's ridiculous. What you do in antitrust is you break things up, the markets up, and you say, “Well, how much activity do these people actually control? What percentage of the sale of books do they control? What percentage of the sale of film do they control? What percentage of the sale of music do they control? What percentage of the sale of online electronics do they control?” What you'll see, in case after case after case after case, is that when it comes to online commerce and sometimes in general commerce, they've become the dominant player.
What we have is a situation in which the basic fixes are the same here, is that you want to do two things. You want to separate out the sale, the platform itself where people come together, and what's sold on it, the product, the content. You want to have no vertical integration just to get rid of any kind of conflicts of interest. Then the second thing you want to do is when you have these platforms where people like to come, if this is the dominant place where business is done, you neutralize it. You make sure that they're charging a reasonable fee for connecting the buyer and seller. This is really, really simple stuff. This is what we do with our credit cards, right? It's like, “Can the credit cards provide the ability to connect the buyer and the seller?” They charge a really outrageous amount of money. They charge maybe three percent of the deal. They shouldn't charge that much. But when Amazon does that kind of connecting, they're charging 30, 40, 50%, sometimes more. Again, it's like the solutions are the same. No vertical integration and neutralization, no discrimination. No price discrimination. No terms discrimination. Common carriage.
Rosen: [00:47:49] Mark, strong statement by Barry. He says when it comes to online sales, Amazon does dominate. Amazon is supposed to account for 52% of all online sales in the US this year up from 58% last year. He says the solution is not vertical integration and no price discrimination. Do you agree or disagree, and why?
Jamison: [00:48:09] Well, I disagree. I think the example he gave really illustrates that, because he developed a contract between eBay and Amazon. A lot of people know the difference and we choose. We choose Amazon often time over eBay. Why? Well, I don't know why other people do but for myself, I find it hard to search for things on eBay. I have to be very active in digging through the details. Whereas Amazon's using its artificial intelligence, its knowledge of what's going on, to serve me better. It saves me what we call in economics kind of the search costs or the transaction costs. So it actually benefits me and I like that, and so I'm choosing it.
People do keep Amazon honest. People will use Google or some other type of buying services to check, to check availability, and keep coming back to Amazon because it's doing better. So to think about Amazon as controlling anything isn't quite true. The fact that I choose to buy from Amazon or I choose to buy from anyone else doesn't mean they control me. It's mean that I'm making a choice that I think they're doing better. I do, and most people do, occasionally inspect and see if that kind of rule of thumb we have, “Buy from Amazon,” is still the right thing. If we try to step in and fix this situation by making Amazon more like eBay, we make a whole lot of people worse off. I don't know what the point of that would be.
Rosen: [00:49:43] One last round before closing arguments. It's a large company but we just have a little bit of time, and that's Google. Barry, Google is the third company that you said poses the greatest threat to American democracy. Among the criticisms of Google are that it's dominance in search allows it to destroy its rivals because it can show its own products above its competitors. It's also faced scrutiny in Europe over its search practices and its use on smartphones, including favoring the Android operating system. What is the antitrust case against Google, and what are the solutions?
Lynn: [00:50:23] Oh my gosh, I mean with Google you have so many potential antitrust cases against them. One thing we should understand, people say, “Oh, Google's a search company.” It's like no, Google's an advertising company. They own 300 plus different company. Alphabet, they created this Alphabet holding company, this conglomerate. But it's like almost all their money, almost every dollar that they actually earn comes from advertising. What are they doing? What's the business model? Their business model is to gather, it's similar to Facebook, just like on a bigger and more sophisticated scale. They just use all these different platforms that they control to gather all this information on you so that they can manipulate your choices and then sell their ability to manipulate you to advertisers.
Last year they made more than $110 billion by selling out their manipulation machine to other folks. So they gather information about you. They gather your secrets. They learn all the bad things about you. They learn the good things. They put it all into a pot. Then they sort of use the fact that they have this license to engage in discrimination to give you different information than your neighbor, to give you different prices than your neighbor, to send you on a different route down the street than your neighbor. They use this ability to manipulate you to manipulate you into buying certain things or making certain choices. Then they sell that to people willing to pay for it. Again, it might be a Proctor & Gamble or it might Vladimir Putin. We don't know. They'll take anybody's money. It's just long green, right?
In terms of, what would we do with Google? I mean Google is, it's really phenomenal. They have a whole bunch of different platforms that they've latched together. They're the dominant search company but they also have Chrome. They also have Android. They also have YouTube. They also are the dominant mapping company. They're the dominant advertising technology company online because of their control of DoubleClick and AdMob. You just add these up, they got at least 10 different sort of platform monopolies that they've all latched together in a way that reinforces each other. So they become more and more powerful every day. They got more information over you. They have more ability to squeeze out their rivals. They have more ability to squeeze the people that rely on them to get to market. Squeeze them day after day, extort more and more money just to get to market. It's the greatest money-making machine that's ever been put together.
And what the problem with this is it is also an information manipulation machine. It's a news manipulation machine. It is a terror delivery machine. It makes people ... like what Facebook did with Wired. They have that ability to shut people down, to shift people away. What we're facing in this giant manipulation machine is a direct threat to our democracy. It's not just that they're favoring their own goods. It's that they have the ability to exercise direct control over people, to scare people to get people to do what they want to do. This is an old problem in America. It goes back to the British East India Company. It goes back to the beginning of rule of law, which was established against the use of patents and monopolies by Queen Elizabeth and King James in the early 17th century to manipulate and corrupt the society around them. Rule of law means that everyone is treated the same. Anti-discrimination laws are one of the fundamental ways that we established rule of law in our society. Google, Facebook, Amazon are destructive of fundamental rule of law. We will take them down.
Rosen: [00:54:35] Thank you for those strong words. Mark, you heard Barry's case against Google. He compared it to the East India Company, whose threats to liberty helped spark the American Revolution. Do you agree or disagree with his diagnosis of Google's threat to democracy and his claim that it violates antitrust laws as a walking antitrust violation?
Jamison: [00:54:59] Well, I agree with how he's described how the market works. I'll come back to that. I disagree that Google is anything like the East India Company. All of those relied upon the coercive of power of the Crown, the coercive power of government to put them in place, and to give them market power. Sometimes governments do that. It's happened in our own country. It's happened in other countries as well. That has never happened in the case of Google. It's never happened in the case of any other tech companies, at least to my knowledge, that the government has used its power to say, “You must do business here or you do not business at all.” That's coercion. That's extorsion. That's manipulation. All of the words you could use that gen up a lot of negative emotions. You need that kind of power behind it. A business where you engage voluntarily, that has none of that.
In the case of Google, all of us use it or don't use it voluntarily. I choose whether or not to use YouTube. I choose whether or not to use Google's search engine. I choose all those things based upon how valuable are they to me. I test other services on a regular basis. So do a lot of other people, if you look at how the market research is done. So the way that it works is essentially, but with a little bit of an additional step, to how Barry described it. That Google competes for your time and attention by providing you things that you find valuable. You're willing to spend time online with their service because it's doing something for you. That then allows them to learn about you. That they then go to people who want to send you information and Google charges them for it. That's exactly what broadcasters do. It's exactly what newspapers do, magazines, et cetera. But theirs isn't anywhere near as information-rich because of the technology limits of yesteryear, if you will.
What we want to understand though, this is the additional step, is in Google in doing that and all of the types of platforms try to do this as well. They are setting up a system where when they learn about you, they try to improve your experience to get you to spend more time with them. For example, some of the competitors to Google have complained that if you are searching for a hotel, Google might put its hotel service up first. That's the competitors say, “Gee, that's awful.” Well, but understand that if Google in doing that brings in additional money, what Google then does is say, “Ah, it's even more profitable to get people onto my platform than it was before.” So they start improving the customer experience. They can't extort the customers because the customers would readily go someplace else or click past what Google is presenting in this case of hotel room searches.
That essence of the platform, that the company has to make it a very impressive service for the customers, a very impressive experience, is what's really important. The vertical integration actually makes that valuable. We've just seen too many examples of neutral platforms that customers simply chose to not use.
Rosen: [00:58:29] Well, and it's time for closing arguments in this extremely rich and wide-ranging debate. Barry, the first word is to you. In just a few sentences, do Google, Amazon, and Facebook threaten constitutional values or not?
Lynn: [00:58:46] Mark said that we have choice. That's what all the Libertarians always say, “There's choice.” But I'll just give you one quick example. It's like this is on mapping. Uber. Uber wants to escape from the power of Google. They want to be able to control their own cars. They want to be able to control the destiny of their own company. They want to be able to choose their own pathways through the streets. They said before their IPO, “You know what, we tried. We tried to figure out a way to escape from Google's control over maps or Google's control over the streets, and we couldn't do it. So going forward, it's like they can shut us down any day of the week. They can charge us whatever they want, and they can change what they charge us any day of the week, any moment of the day.” That's a very large company, Uber. You know what, this company, this corporation, Uber, they just said, “We live and we die at the whim of Google because they control the maps.” As I said before, Google controls so many other things as well.
One of the things that Mark said is like, “You can only have government power if government bestows charter on you, if you're a monopoly like the British East India Company.” That is ridiculous. I mean that time and again what we have seen in the United States and other countries is when a monopoly rises up to the point where it has complete control or nearly complete control over the marketplace, that is the power to govern. That is the power to determine whether you live or die if you're a corporation, a business trying to get to market. If they can block you from market, that is the power of life and death. That is the power of thriving or being bankrupt. So it's like what we see here today is the greatest concentration of power in private government, in private government that is entirely outside our control. We have no hold over Google. We have no hold over Amazon. We have no hold on a day-to-day basis over what Facebook does. But those corporations have absolute control over us.
The only thing that we can wield against them is the public government that we erected in 1776 to protect us, to protect ourselves again private, autocratic government. The thing is we're going to hear all kinds of libertarian nonsense in the coming years because these guys pay for all these libertarian shops out there, to print and to broadcast this libertarian nonsense about choice. But we do have a choice. Our choice is we can sit back and say goodbye to democracy, and say goodbye to our fundamental liberties, or we can fight. That's our choice. I know that the American people are going to fight. One of the things that is going to fall besides the power of Google, and Facebook, and Amazon is this whole libertarian apparatus for the production, and distribution, and broadcast of nonsense.
Rosen: [01:02:10] Mark, the last word is to you. Do Google, Facebook, and Amazon threaten constitutional values or not?
Jamison: [01:02:17] I don't think so. I've tried to look at monopolies over the couple of centuries we've had this country, and actually back farther in history as well. I failed to find an instance where an actual monopoly arose that could endure without the government sanctioning it, without the government playing a role in it. That's just always been true. You need that coercive power. Jim Collins wrote the book How the Mighty Fall. One of the things that is simply true in a market economy like ours is companies rise up and are very, very successful, but then they have trouble sustaining that because it's just hard for them to continue to adapt. AT&T became a monopoly because the government said, “You'll be a monopoly.” That happened around the time of the first World War. Standard Oil gained, what, a 98% or so market share at one time but that was because of its relationship with the railroads, which the government had a role in setting up how all of that was going to work. That's just been the case over time.
I think George Gilder in his book, Life After Google, got it right that the way the technology companies are working today, that they're probably going to falter sometime fairly soon because of the limits in their business models, that they're not using the richness of a customer's experience and engagement the way that they should. That's a huge open opportunity for the next set of companies, that in a few years we'll all be worried about again. It just seems to be true that every generation has the giants that it worries about, and then the giants fail in the next generation. It wasn't too long ago we thought about Walmart being this giant we all had to worry about. Before that it was someone else. Before that it was someone else. But customers do indeed make their choices, and when someone offers them a better deal, they tend to take it as long as the business model's viable.
Rosen: [01:04:24] Thank you so much Mark Jamison and Barry Lynn for truly illuminating, wide-raging, and powerful debate about the question, “Should big tech be broken up?” Dear We The People listeners, by the time you hear this the House Judiciary Committee will have held a hearing on Online Platforms and Market Powers. Part One is The Free and Diverse Press. Check out the transcript and then write to me and tell me what you think. In the meantime, Mark, Barry, thank you so much for joining.
Lynn: [01:04:54] Thank you for the opportunity.
Jamison: [01:04:55] Yeah, thank you.
Rosen: [01:05:00] Today's show is engineered by Dave Stotz and produced by Jackie McDermott. Research was provided by Lana Ulrich and the Constitutional Content Team. Please rate, review, and subscribe to We The People on Apple Podcasts, and recommend the show to friends, colleagues, or anyone who might enjoy a weekly dose of constitutional debate. I think I better add that you can also subscribe on other platforms as well. Do not favor one platform over another.
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