Hunter GoffRevisiting Antitrust Laws in the Age of Technology An intellectual once said, “If a corporation was a person it would be a sociopath.” Some corporations practice ethical standards, like Patagonia’s crusade for public land, but other corporations, like people, participate in shady, under-the-table agreements that do more harm to the consumer than good. When Mylan acquired the rights to sell EpiPens they increased the prices 461%, from $56 to $318. But, Mylan’s CEO Heather Bresch pay increased 671%, from $2.5 million to $19 million (Popken). This is just one example of a corporation using its power in a market to benefit individuals instead of the common good. Corporations have always wielded varying degrees of power. Standard Oil, for example, accounted for 87% of U.S. refined oil sales, and AT&T, when it was a phone company, handled 93% of U.S. phone calls (Ip, Zetlin). Both corporations were ruled illegal monopolies and subsequently broken up. Corporations today, specifically Facebook, Google (a subsidiary of Alphabet), Microsoft, Amazon, and Apple, have amassed unprecedented power and market value. Without any intervention from the government we are looking at the new age of monopolies. To solve this problem the U.S. government must regulate the companies like utilities. The big five, also known by various publications as the the frightful five or the four horsemen (disregarding Microsoft), are Facebook, Amazon, Apple, Microsoft, and Google. These five tech companies occupy the top five spots in the ranking of the largest US companies by market capitalization. Furthermore, the five are up 34% this year adding $800 billion in value. The value added to the economy is one-dimensional, though. In one sector, in this case technology, can you do extremely well, but overall the economy is still growing at less than 3% a year. John Dearie, the founder of the Center for American Entrepreneurship said, “We are in a growth emergency” (Solon). Without growth distributed across the board, the economy will continue to shrink in all sectors except technology, which is propping up the economy. According to Goldman Sachs research, the five are growing about five times faster than the average S&P 500 company and are twice as profitable. Amazon, the only anomaly by having low profits, has reported double digit sales gains for more than 20 years. Together they are worth more than $3.2 trillion (King and Wang). With the explosive growth and access to capital that these companies have, innovation has stalled. Startups drive job creation and innovation, but creation of new new startups is at a 30 year low. Startups struggle to get funded. Traditionally, when it was startup verses startup the most innovative and scrappy company would come out on top. Now, when startups are competing with Amazon and Facebook it is not a fair fight. Additionally, Google handles 89% of US internet searches and Amazon sold 75% of ebooks. 95% of millennials use Facebook’s products daily. Facebook’s 2 billion monthly users gives it more reach than Islam (Zetlin, Ip). The big five are drifting dangerously close to regulatory scrutiny. With their large market share comes rules that are not yet in place but need to be. Clearly, these companies are behemoths and are on par with the oligopolies of the last century. However, just because these companies are behemoths, it is not indicative of monopoly status. Saying Apple, for instance, is a monopoly just because of its gargantuan market value of $900 billion is like saying that McDonalds is a monopoly simply because its daily traffic is 62 million people (“Apple Inc. Common Stock,” Lubin and Badkar). These companies are not like monopolies of the past. They are a different breed. From 1970 to to 1999, U.S. antitrust enforcers brought an average of 15.3 monopoly cases a year. Today, that number has fallen significantly. From 2000 to 2014, there were fewer than three cases a year (Dwyer). But, what exactly is a monopoly? In a monopoly, one or more companies totally dominates an economic market. Monopolies suppress competition and are allowed to raise the price of a product or service substantially above the price that would be established by a free market (“Natural Monopoly”). In the U.S. it is a general rule of thumb that regulators do not take notice until the companies market share is above 50%. This is concerning as Google’s share of U.S. internet search advertising spending is about 78%. Google and Facebook together control about 56% of the U.S. mobile ad market. Also, Apple takes more than 60% of high-end smartphone sales globally (McLaughlin). The big five are close, and Jonathan Taplin, author of Move Fast and Break Things: How Facebook, Google, and Amazon Cornered Culture and Undermined Democracy, says that Google is as close to a monopoly as Bell Telephone System was in 1956. In fact, Google has already been sued for anti-competitive practices. The European Union fined Google $2.7 billion for favoring its comparison shopper sites over its competitors. In 2013, the U.S. dismissed this same case (Dwyer). In the new world of alleged tech monopolies, the question is not whether the companies drive prices up, as most of their services are free, it’s how these colossal companies affect the economy. Sixty years ago there was a fact as constant as taxes; the share of the national income taken by labor was constant. Nicholas Kaldor, a Cambridge economist, laid down that labourers would take home two-thirds of the economic pie, and the owners of capital (investors) would take home the rest. However, in America that share is now around 60%. This decline has been coupled with a slowdown in economic growth, declining pay, and a decrease in job opportunities. In layman’s terms, workers are getting a shrinking piece of a pie barely expanding. The middle class in America is taking home less money year after year. Who is to blame? Thank Google, Facebook, Amazon, and Apple, the superstar firms of today. These firms have created a “winner take all economy” where larger and larger market shares are awarded to them, leaving less to their competitors (Van Reenen and Patterson). Due to the fact that these corporations are creating more wealth, they are the greatest influencers. In fact, they were responsible for almost all of the S’s gains in 2017 (Domm). This new economy leaves less room for competition and less room for social mobility. As the middle class shrinks the divide between the 1% and everyone else grows larger. Beyond the winner-take-all economy is the enormous power of these firms. If a company is seen as using its power to undermine other business then the case for monopolization is not far away. So far, the big five have steered clear of any noticable predatory advancements, but Bloomberg data has shown that the five have made 436 acquisitions over the last decade worth $131 billion (McLaughlin). In practice, this happened when Instagram and Whatsapp began nibbling away at Facebook’s market share. Facebook’s response was textbook: Buy them for $1 billion and $19 billion, respectively (Page). Buying these companies also allowed Facebook to obtain vast amounts of data about their customers. Signing up for these services gives consent to use your data to market towards you. Everything you have typed into Google is another data point, along with every like, click, share, and comment. Essentially, instead of paying for theses services in physical fiat currency, every user consents to strip mined for data and marketed to across the web. As the saying by author Roger R. Hancock goes, “Nothing is ever free.” Traditionally, privacy and data has not been equated to antitrust litigation, but antitrust regulators are moving the two closer together. Germany’s Federal Cartel is investigating Facebook because they allegedly bully users to agreeing to its terms and conditions. The terms and conditions allow the company to gather their customers data in often obscure ways that the customers don’t understand (McLaughlin). This highlights the “network effect.” Once everyone you know gets on the network, you need to be on the network, and the more users that these companies sign up the more powerful they become. Google makes the argument that “competition is only one click away.” But, for the consumer, why would you use Bing when everyone you know uses Google. Google is perceived to have the best search engine because it attracts the most users. Therefore, this creates a stronger product with more functionality. For the advertiser, why would you advertise on any other platform when Google gets 3.5 billion searches a day, whereas Bing only gets 57 million (Nicholson). Marketers goal is to put their product in front of as many eyes as possible, so why would they choose a to advertise on a search engine that gets significantly less traffic. Competition, in essence, is not one click away. Even if Google, and the other firms, are monopolies, why is that a bad thing? Looking at it through some lenses it’s not. The way we view monopolies is outdated and marred by contradiction. As an entrepreneur, everyone wants to become a monopoly. Peter Thiel, Paypal co founder and billionaire investor even said: if you’re building a company, build a monopoly. But, as a business owner, no one wants to be a monopoly. Monopolies have a bad connotation. The Bell Telephone System and Standard Oil still leave a bad taste in our mouth. The monopolies of past left a took advantage of consumers and stifled competition. However, today’s monopolies are different. The companies of today are platform-based, and rarely own any physical commodities or products. Instead of producing goods to sell to a consumer, technology companies connect people in ways that that have never been done (Moazed). Driven by the network effect, these companies are capable of scaling to previously unimaginable heights and eating up large shares of their respective market. While these companies have significant power, they are still competitive in way that older monopolies were not. If a better platform is created, Facebook and its cohorts can only do so much to survive the coming irrelevance. For consumers, this competition creates value like never seen before. The platforms that these companies have created are the new age of business. Instead of regulation, we should embrace and reap the economic reward. However, regulation may be the only option.Traditionally, Monopolies are regulated in three ways. First, monopolies are broken up. This is demonstrated with the breakup of Standard Oil in the early 20th century into many smaller companies as well as the Bell Telephone System in 1984. The Bell Telephone System was forced into splitting up into “Baby Bells” (Pagliery). This strategy would work for Amazon as it has many different divisions which are vastly different than others. For example, Amazon has a cloud computing division, as well as its e-commerce storefront and grocery stores. All these different parts would be spun off as different companies. Second, the U.S. could regulate the companies like utilities. It is not a far stretch to liken Google to any other basic utility, like water and electricity. Search has become a basic function of our everyday life. Google has laid the groundwork and created a foundation strong enough to not be bothered by competitors. Google provides us a flow of information, just like Xcel Energy provides us with electricity and the cities provide us with water. Third, the U.S. could protect and reward the consumers using the regulated asset base method described in detail below. The regulated asset base (RAB) is a method of regulation borrowed from Great Britain. Today, Latin America and Europe use this tactic to regulate over $400 billion worth of power, airport, water, and telecom assets. This idea would be put into practice by estimating the amount of profit that a monopolist can occur in a competitive market. This would entail creating an imaginary new entrant to a market and estimating the cost of this new entrant to replicate the assets of the incumbent. This number is the regulated asset base. Also, regulators would need to calculate the profits the newcomer would make if its returns matched its capital. The real monopoly would not be allowed to profit past this amount. Safeguards would be put in place to make sure that the company is running efficiently and the frameworks would be reviewed every few years (Ryder). An example of RAB in practice is this: Facebook’s 2.07 billion monthly active users pay nothing to use the service, but Facebook is allowed to sell their data to companies (Noyes). Facebook earned $27 billion in revenue in 2016 using this tactic. Imagine, instead, that users had control. The consumer would pay $15 a year to use the Facebook social service, but they would pull in $23 for allowing Facebook to use their data. A Google user, for another example, would pay $37 a year to use Google but would pocket $45 in return. These sums are calculated by assuming that Facebook and Google are regulated using RAB (Ryder). Investors complain that this might not work, but a guaranteed 12% return for consumers is exceptional, and not all of the companies assets would be regulated under RAB. This would allow innovation to still continue. Even though this tactic is what many experts are calling for, it still has its shortcomings. Tech moves at the speed of light, whereas utilities barely innovate. Only five years ago, investors worried if Facebook could pivot to mobile. Furthermore, the iPhone was first released in 2009 without copy and paste, now you communicate with friends around the world without paying a cent. Also, this strategy relies on the corporations being transparent as possible and unbundling all their services for the US regulators. Amazon is the king in this defense strategy. It is still unclear how much Amazon has invested in e-commerce, videos, or food (Ryder). Also, these companies have unprecedented political power and have the ability to lobby the government to get what they want. These tech firms are taking lessons from veteran industries: airline, telecoms and health-care companies, to fight any regulation that comes their way. The top five tech firms, Amazon, Apple, Google, and Microsoft need to be regulated because they are monopolies. The sheer power of these corporations is unprecedented. They are dangerous in many ways because tech is inherently disruptive, messy, and creates false economic security. The growing power of the top five tech firms creates the need to regulate them like utilities. Regulators must use the regulated asset base method, borrowed from Europe, which successfully works when regulating power, airport, water, and telecom assets. A world without these dominant monopolies is still possible if Washington D.C. can take control of the situation.