Competition, not break-up, is the cure for tech giants’ dominance

IT HAS BECOME impossible to avoid the debate over how to tame the world’s ever more powerful technology companies. On March 8th Elizabeth Warren, a left-leaning senator from Massachusetts and candidate for the Democratic presidential nomination, caused a sensation by calling for the big Silicon Valley platform firms, such as Facebook and Google, to be broken up. In Europe, meanwhile, tech firms face death by a thousand cuts, as national governments and the European Union stab at them over privacy, fake news, tax and competition.

In the midst of these fights, a report published on March 13th provides a welcome note of calm. Written by a commission appointed by the British government and led by Jason Furman, who was an economic adviser in Barack Obama’s White House, the Report of the Digital Competition Expert Panel recommends more competition rather than stifling regulation or break-ups. To this end it proposes a new regulator to force firms to rewire themselves, so that users have control of their data and can switch between providers. It also suggests modernising antitrust rules.

The experts start by noting the benefits of big tech: its products are wildly popular. Britain’s dozen most digital-intensive industries generate 16% of its GDP and 10% of employment. But digital markets are also highly concentrated. As in most of the rich world, one or two companies dominate Britain’s markets for online search, advertising, social media and phone operating systems. Measured by time spent online by British users, Alphabet (including Google and YouTube) and Facebook have a combined market share of 37%. Even firms regarded as bit players in Silicon Valley are larger than Britain’s home-grown content platforms, measured by aggregate time spent online by British users—Sweden’s Spotify beats the BBC.

This concentration is, the report argues, an innate feature of digital markets. Network effects mean single firms can grow especially large. Their collection of data about their users is a formidable barrier to entry that inhibits new competitors and makes it hard for consumers to switch. Whereas the dominant tech firms of the past, such as IBM or Nokia, were eventually displaced, today’s giants are more deeply entrenched, thanks to their data, their vast investment budgets and their habit of buying up putative rivals. If sustained, their dominance could pose a threat to consumers and business users such as advertisers, who could face rising prices and less choice. And too little competition could dampen innovation. The tech giants would then be a drag on the economy, not a stimulant.

Mr Furman and his colleagues reject breaking up big tech firms, which Britain, on its own, would be unable to do anyway. They also dismiss the idea of regulating them in the same way as water or power utilities, with capped profits and tight state supervision. This would, they argue, amount to an acceptance of permanent monopolies in the heart of the economy. Instead they suggest that government action to stimulate competition and choice is the best way to handle the digital age.

To this end, says the report, Britain should create a new digital regulator. It would designate some large firms as having “strategic market status”. These would be subject to a code of conduct on competitive behaviour that would, for example, prevent an online marketplace such as Amazon from favouring its own products over those of a rival in a search result shown to a consumer. The watchdog would also require firms to redesign their software to allow “data mobility”. Individual customers could move their search and purchasing histories from one platform to another. Social-media users could post their messages to friends, regardless of the networking site those friends use. And anonymised bulk data gathered by one firm would be made available to new entrants with safeguards for privacy. (The report argues that the EU’s GDPR regime for personal data falls short of making true data mobility possible.)

On top of this, the experts reckon, Britain should beef up its antitrust rules. The report sticks with the underlying philosophy of antitrust in America and Britain—that the consumer should come first, rather than suppliers or other interest groups. But it recommends that Britain’s competition watchdog should act earlier and faster when big tech firms try to stifle competition by buying smaller firms that could one day become a threat.

As a balanced piece of analysis that puts markets and consumers first, rather than big tech firms or the government, the experts’ report is first rate. However, two important questions stand out.

First, how might data mobility work in practice? There are few examples—Britain has a system opening up payments and bank-account data, but it has so far been a damp squib.

Second, what impact will the report have? Even if Britain were to adopt its recommendations, the tech titans are global in scope and American by nationality. Ultimately America and the EU (which Britain is due to leave soon) are the powers that will decide their destiny. Still, politicians and regulators in both jurisdictions, who are struggling to deal with an avalanche of proposals and mounting public anger, would do well to study Britain’s report closely.

This post was originally posted at https://www.economist.com/business/2019/03/12/competition-not-break-up-is-the-cure-for-tech-giants-dominance.

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