The unintended consequences of antitrust regulation
A look at two of the bills and their unintended consequences
Hi All,
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As I wrote last week, Congress is quite determined to go after big tech with five bipartisan bills to cover various aspects of competition that have thus far given them an advantage.
From House takes aim at Amazon, Apple, Facebook, and Google with five antitrust bills
The first bill is :
The Ending Platform Monopolies Act
This bill would make it illegal for a “dominant online platform” to own another line of business that is a conflict of interest. It would do this by “removing the ability and incentives of a dominant platform to use its control over multiple business lines to preference itself and disadvantage competitors.”
Introduced by Rep. Pramila Jayapal (D-WA), a frequent critic of Amazon, the legislation could potentially break up the business of the e-commerce giant. It would do this by striking down how Amazon sells its own Amazon-created products on its website. But more broadly, it could impact all the tech giants.
The bill is co-sponsored by Rep. Lance Gooden (R-TX).
The second bill is :
The Platform Competition and Opportunity Act
This bill is aimed at making sure that major companies can’t stifle competition by acquiring the upstarts in their industry. It would prohibit “dominant firms from acquiring competitors, potential competitors, and firms or assets that would reinforce their monopoly power.”
Facebook seems like one obvious target of this legislation. The subcommittee’s investigation unveiled how the company has employed a “copy, kill, acquire” strategy toward competitors like Instagram. The bill could also impact the other major tech giants like Google that are well known for acquiring their competition.
The bill is sponsored by Rep. Hakeem Jeffries (D-NY) and co-sponsored by ranking member Buck, the Colorado Republican.
In today’s post I cover the unintended consequences of the above two bills. First I am in favor of regulation; in fact I am in favor of regulation on these specific bills but I do think these two bills have unintended consequences:
Let's start with the first bill: The Ending Platform Monopolies Act
Let's take Amazon as the example here
At face value this makes sense right? Don’t allow Amazon to sell products or services that they’ve created which are in competition with another seller. This does include Amazon Prime Video since Amazon sells Prime Video Channels?
Firstly, are we to believe that Amazon will keep a competitor product on their platform if they have a choice? What happens if some other company wants to sell a smart speaker - say Facebook does Amazon remove Facebook’s listing since they also sell a similar product?
Secondly, would this reduce the number of users using Amazon Prime? Sure if I am really interested in a product that Amazon doesn’t sell I can buy it elsewhere but this would in effect actually kill more small businesses/marketplace sellers for that product. In essence can Amazon boot a MarketPlace seller off their platform? For a variety of reasonsA CA court has ruled that Amazon can be held liable for products that they sell so they can use that as an excuse to boot the seller off? Or increase the FBA costs to disincentivize such sellers from selling in the first place?
Thirdly, couldn’t Amazon just spin off Amazon Brands into a 3rd party company (which they won’t want to do) or just create their own Amazon Rollup with FBA. Rollup companies basically buy a bunch of brands on Amazon, keep those brands separate but provide centralized Finance, Operations, Analytics, Insights in order to eke out additional profit from the brand. Rollup brands also have more “power” compared to just a Marketplace seller that might not have such power by virtue of total GMV that they bring to the table.
The key question here is how does Amazon “disadvantage” brands that it competes with? This is purely in the product listing pages/buy boxes and ad placements that companies have to buy. Is Amazon supposed to hurt their own ad’s business, which is now 10%+ of the digital ad’s market or is the ad’s business a separate business that needs to be spun off?
Onto the second bill : The Platform Competition and Opportunity Act
This bill essentially prohibits Big Tech from acquiring “rising competitors”. The recent House investigation showed emails that Facebook wanted to acquire “its competitive threats to maintain and expand its dominance”
Lets take Facebook as the example here:
Facebook has in fact just today released Live Audio Rooms which is their competitor product to Clubhouse. Now of course, Clubhouse is well funded but stopping them from acquiring didnt really stop them from building. In fact Twitter wanted to acquire Clubhouse for $4B and that fell through. Point is, that would have been a brilliant exit for Clubhouse, which is definitely one of the reasons that they started it. Twitter basically just decided that $4B is not worth it for the buzz and network that Clubhouse had and decided to just build out their own product - Spaces. They have the network, the interest graphs and all the good stuff to kick this off. Clubhouse lost an opportunity to sell. The larger point here is that every company that starts doesn’t have a lofty goal of an IPO, some entrepreneurs are quite happy with an acquisition and this effectively could kill the acquisition path.
The second key point is “rising competition”. How does one define “rising competition” or does it mean anyone? From the bill :
SEC. 2. UNLAWFUL ACQUISITIONS.
(a) VIOLATION.—It shall be unlawful for a covered platform operator to acquire directly or indirectly—
(1) the whole or any part of the stock or other share capital of another person engaged in commerce or in any activity or affecting commerce; or
(2) the whole or any part of the assets of an- other person engaged in commerce or in any activity affecting commerce.
……
(c) USER ATTENTION.—For purposes of this Act, competition, nascent competition, or potential competition for ‘‘the sale or provision of any product or service’’ includes competition for a user’s attention.
The bill clearly calls out “USER ATTENTION”, which essentially means that Big Tech is blocked from buying any company since everything has our attention?
Big Tech already have user attention -- or can build products that can garner user attention (of course all of them might not be successful) but the fact is that a lot of big tech is about the network graph which The Augmenting Compatibility and Competition by Enabling Service Switching Act (third of the five bills) tries to address this but just having access to that data does not give you access to your network; which is the key for most social media. Think about Clubhouse for example; there is no data (they don’t record the sessions for you, they do for the purposes of incidents). The only “data” they have is whom you are connected to -- and if you get access to that information, irrespective of anything else each of your “friends” should also be on the “new” platform for you to connect to. The switching costs are well baked in.
In essence as Casey Newton has covered in Is Facebook cornering the VR market?:
Alex Heath, a reporter at The Verge who has closely covered the rise of AR and VR technologies, observed on Twitter recently that Facebook’s acquisitions in the space resembled its most famous bets on nascent technology from years ago: the purchases of Instagram and WhatsApp, which helped the company cement its position as the dominant player in social networks.
“Facebook is going to probably have a near-monopoly in VR software before it even matters,” Heath tweeted. “Facebook will have literally reinvented itself for a new paradigm shift in computing by the time regulation gets around to addressing it in its current state.”
I, for one, am happy to see these bills but the devil is in the details; I suspect if these bills become law we’ll have years of lawsuits which will distract Big Tech, maybe leading to the next huge shift in computing paradigms that Big Tech might miss or not be able to participate in.
References
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