Amazon, Publishers and Antitrust – Part 2: Where Do We Go From Here? A Conversation with Maurice Stucke

by | Oct 19, 2020 | 0 comments

By: Nancy K. Herther (writer, consultant and former Sociology/Anthropology Librarian, University of Minnesota Libraries

Rather than wait for more information or the next steps in this governmental process, ATG has asked one of the acknowledged legal experts on competition and antitrust for a reality check on what may likely happen next… as well as how this all fits into other historic antitrust events in our history.

Maurice E. Stucke

Maurice E. Stucke is the Douglas A. Blaze distinguished professor of law at the University of Tennessee, and principal of the law firm Konkurrenz. Professor Stucke publishes and speaks regularly on competition policy. His publications include a seminal coauthored piece in the Harvard Business Review as well as two books on the subject – including the 2020 HarperCollins co-authored book, Competition Overdose: how free market mythology transformed us from citizen kings to market servants.

NH: With over 25 years of experience handling competition and privacy issues in private practice and work as a prosecutor at the U.S. Department of Justice, few have your breadth of experience with competition and antitrust issues – as well as the way in which our government works to address these issues. 

In a recent statement, Republican Senator Josh Hawley charged Alphabet with what he called a “monopoly upon monopoly in a classic case of tying.” He went on to assert that the layered control includes their “control [of] YouTube and search, which are the dominant platforms; you control massive amounts of consumer data that you have harvested from your other consumer-facing platforms—Gmail, Google Maps, G Suite, etc. You then use those advantages in the ad stack at every single layer, every layer of which you exercise dominance in.” Hawley made it clear that this market dominance is just keeps building and building.

MES: Yesterday’s Senate hearings were focused narrowly on the ad tech stack, which is one segment that Google dominates.  As you’ve noted, Senator Harley commented interestingly that it was like having one monopoly stacked on top of another monopoly. The concern there is how Google is leveraging its dominance into other markets in order to extract more personal data and even greater monopoly profits. The other interesting issue that came up in yesterday’s hearings is how Google’s dominance extends beyond advertising dictates how website publishers should monitor comments on their websites. If the publisher fails to meet Google’s standards, the publisher is kicked out of Google’s advertising network. This power to coerce publishers to restructure their websites or moderate the content reflects not only Google’s monopoly power, but the extent to which a powerful platform can stifle or promote the marketplace of ideas.

The recent House hearings were far broader than just looking at Google’s ad tech stack, and examined the market dominance of four powerful platforms – Google, Apple, Facebook and Amazon – and the implications that their monopoly power can have not only on our pocketbooks but on our well-being, autonomy and democracy. 

NH: It was interesting to see the very reaction of these company leaders to the issues.  It was more of a shrug and a sense that they were just doing their job and getting the most value from their assets. Is the horse out of the barn? Are we past a point where we can impose control over these huge, powerful companies in this global economy?

MES: This raises an interesting debate that we had in the early 1900’s.  Teddy Roosevelt ran against Woodrow Wilson and William Howard Taft on, among other things, the government’s response to monopolies.  At that time, Roosevelt felt that monopolies were the natural outcome of market forces. Consequently, the government should regulate them, rather than dismantle them. That way, the public could get the benefits of the monopolies while tempering some of the excesses. 

Woodrow Wilson (who was advised by Louis Brandeis), questioned whether monopolies were a natural consequence of market forces or the reward of superior products and business acumen. He felt that many monopolies relied on unfair and underhanded tactics to attain their dominance.  He even wrote a book about this, The New Freedom.  But even if monopolies with their growing power would be hard to regulate, they would game the system and ultimately capture the regulators. Even if monopolies were the result of a superior product, skill, foresight, the  monopolies with their growing power would always be hard to regulate; they would game the system and ultimately capture the regulators.   

Roosevelt believed that monopolies were impossible to break apart because they were inevitable. Wilson and Brandeis, in contrast, warned that monopolies weren’t inevitable and if we accept them as inevitable, individual autonomy would be inhibited. After he was elected, Wilson created a new agency with broader power to deal with these monopolies. Congress enacted the Clayton Act and Federal Trade Commission Acts to prevent the formation of trusts and monopolies.  So we are having a similar debate today. 

Some say these powerful digital platforms are inevitable and there are problems in trying to break them up. So we should regulate them. There is some truth to this, because of forces, which economists call “network effects,” that operate in the digital platform. If we broke the social network Facebook into various components, the concern is that because of these network effects, we will eventually end up again with a dominant platform.

On the other hand, Google and Facebook also obtained their dominance through acquisitions.  Google, for example, became dominant in the ad tech stack by acquiring rivals, like DoubleClick. As a result, Google currently represents most of the ad buyers and nearly all of the sellers of the ad space; it controls the leading ad exchange, and it sets the rules. There is no reason to think that Google needs to control every aspect of the advertising chain, so the government could require Google to divest some of these businesses. Likewise, there’s no reason why one company has to control the leading video platform, YouTube, and leading search engine.

It’s the same thing with Facebook. There is nothing inevitable or natural about Facebook controlling both Instagram and WhatsApp. Facebook acquired both of these companies and the government could require Facebook to divest them. Granted Facebook helped grow Instagram and WhatsApp, but there’s no reason these companies couldn’t exist independently. 

The same thing applies with Amazon, which is leveraging its power into so many different services. Even if Amazon controls the leading online shopping platform, it doesn’t also have to require the third party merchants to also use Amazon’s shipping and delivery services. 

NH: The size of these companies today makes this a difficult issue.  Do you see divestiture as a viable solution now?

The Federal Trade Commission building is seen in Washington on March 4, 2012. REUTERS/Gary Cameron (UNITED STATES) – RTR2YUEL

MES: Absolutely! The FTC is currently investigating Facebook’s prior acquisitions. One might ask why the government didn’t block these acquisitions when they were originally announced. In fairness to the agencies, one problem is that the courts now require the agencies to prove that these mergers will substantially lessen competition. That is hard to prove when the company being acquired is relatively small.

Another problem is that the FTC and DOJ typically make these predictions before the merger is consummated. But the agencies rarely revisit the industry a few years later to see if they predicted accurately. The agencies challenge very few mergers each year. When the agency and courts predict incorrectly, we as a society end up paying the price. And, as the antitrust scholar John Kwoka found in his research, the agencies have allowed many mergers that proved to be anticompetitive.

The law allows the agencies to revisit mergers and unwind them if they proved to be anticompetitive or tended to create a monopoly. One problem is that the FTC and DOJ rarely go back and undertake this type of analysis.

NH: What is the current independence or role of the FTC and DOJ today?

MES: That is a good empirical question. Our Founding Fathers recognized that economic power can often translate to political power.  We saw with Nazi Germany, for example, how concentrated political and economic power worked hand in had. Today in many markets we have a few firms wielding a lot of economic power. To what extent is that power being leveraged on our government? Some economic research supports what we already suspect, namely that lobbying is associated with more favorable review outcomes.

Today we see the powerful platforms ramp up on lobbying, because it has worked in the past. The week after the FTC opened its original investigation of Google in 2011, Google hired twelve additional lobbying firms. In 2012 Google increased its lobbying expenses by 88% and became one of the top 10 spenders seeking to influence the federal government. Nonetheless, the FTC legal staff, based on the evidence, found that Google violated the law. But in a highly controversial decision, the FTC Commissioners decided to do nothing, and closed the investigation after Google made a few promises to change its behavior. That decision was even more troubling after the Europeans brought several cases against Google, and some of the damaging internal documents came to light.

So the Obama administration promised greater transparency and more antitrust enforcement than under the Bush administration. But the Obama administration did not bring any significant monopolization cases. It wasn’t as if there were no violations . The Authors Guild, for example, called on the DOJ to launch an antitrust investigation into Amazon, based on multiple anticompetitive actions by the dominant bookseller. But the DOJ did nothing.

The latest book that  my coauthor and I wrote is an example of the power that Amazon has over publishers and the book industry itself.  HarperCollins published our latest book in March, at the onset of the pandemic. To help the book, we did a speaking tour via Zoom, and sales were increasing. Then, as more people turned to Amazon during the pandemic, Amazon decided to continue delivering “some” books within a few days and other in “a few weeks.” Our book sales suffered. 

When Amazon had a dispute with the publisher Hachette over the terms for ebooks, Amazon simply removed the buy button for Hachette books on their website. Rather than buying the Hachette book elsewhere, many customers went with Amazon’s recommended titles and Hachette’s sales plummeted. It is mind-boggling to consider. 

Despite all of this, the DOJ did nothing under the Obama administration – a real abdication of its responsibility. And it wasn’t just the Obama administration. The Bush administration didn’t enforce the monopolization law either. 

The last case of any note that we have from the DOJ was Microsoft which was filed in 1998 and settled in 2001. There was only one case filed by DOJ since 2000. In contrast, the Nixon administration between 1970 and 1972 brought 39 civil and three criminal cases against monopolies and oligopolies. The lack of enforcement represents a real failure.  Lobbyists have been pushing an agenda for years now: ‘Everything is OK, the current legal standards are fine, we can’t do anything rash and we are all benefiting from the status quo.’ 

NH: I know that many publishers as well as booksellers share your concerns about this. Walmart recently started their own $98/month (versus Amazon’s $119/month) delivery service they are calling Walmart+ to challenge Amazon’s dominance. Even some authors, like Cory Doctorow, are trying to find ways to circumvent the stranglehold that Amazon has over books today. I guess we will all need to stay tuned!

Recently I’ve been studying the work of the Federal Banks – the reports and other work done independently in their system to study the economy and look deeper into systemic issues, like racism, that haven’t been fully explored or factored into their metrics. The very structure of the Beige Book has each of the 12 Federal Reserve Banks and their 24 Branches gathering anecdotal information on current economic issues and sponsoring/collaborating on research with the economic sector. Is the Fed – or the DOJ for that matter – perhaps too concentrated, too centralized to be able to deal with all of this? Would a shared power structure be more constructive to bring in different perspectives and data?

MES: Under Alan Greenspan, the Fed bullied some of the regulators that voiced concerns about the sub-prime mortgage markets. Brooksley Born, who headed up the CFTC, sounded the alarm about the largely unregulated over-the-counter derivatives market. Greenspan marginalized her and sought to further deregulate. Our book, Competition Overdose, recounts this and addresses the larger issue of how many regulators were blinded by their ideology or simply lacked the political will to do what was right. I would caution about leaving important issues to any single agency with the assumption that the agency is both all-knowing and all-seeking. Greenspan was touted as the maestro, and he used his power to stifle any dissent. Rather than rely on the discretion of agencies and their heads, we should turn to a system of complementary regulatory frameworks that advance rule of law principles. 

NH: As global companies, are their international agencies or legal systems that can be effective? EU’s work on privacy has been strong, I don’t believe the World Court has made any significant rulings. Look at TikTok – a Chinese company operating in the US – which has become their base was formed and grown here.  It seems rather complicated, teasing out what can and can’t be controlled for foreign-based companies. Is there hope for a global solution?

MES: Yes, but this is one area where some credit that is due to the US, the EU and other jurisdictions that have worked together to mitigate the risks of different countries reaching inconsistent decisions on mergers.  The OECD’s competition bureau has been an intellectual leader in identifying potential areas of conflict and encouraging the different jurisdictions to discuss the benefits and shortcomings of their approaches on these cutting-edge issues. The International Competition Network is a global group of 140 competition agencies from 129 jurisdictions that get together annually to discuss current practices at the agencies, discuss what’s working and what’s not working, and agree upon best practices for the agencies.  

Another forum for mitigating conflicts are the agencies coordinating on merger reviews and investigations through bilateral agreements. So there is a strong global effort to coordinate antitrust review to prevent the jurisdictions from taking inconsistent and incompatible actions. This has been a success story.

NH: Who would have thought, even ten years ago, how much control these companies would have today?  Or the lack of privacy. Hearings, so far, seem unable to force action. Is there a real chance that the federal government will step in? Are they really looking deeper at these issues and seeking change?

MES: The good news is that within a relatively short time period, the evolution in thinking has been incredible.  Policy makers around the world are very interested in this issue. Antitrust normally moves slowly, so the evolution in thinking has been astonishing. 

The EU, UK, Australian, German and French competition authorities have all conducted extensive inquiries into the digital platform economy. Each report builds on the other, and they inform and are being cited by other policy makers as well.  So the members of Congress in the recent hearings cite the 2020 report by the UK competition agency, which relies on the findings of Australian competition authority, which relies, in turn, on the findings of the EU, German and French authorities. We are seeing policy makers recognize that the powerful digital platforms present both privacy and competition problems, that these markets won’t self-correct, and that their current tools are inadequate. We are also seeing policy makers propose a broader range of privacy and antitrust tools to give us greater control. Tools where we can actually gain control of our data and privacy.

NH: You seem very positive and hopeful!

MES: Absolutely! We often hear about how divisive politics can be; but in this area in the last year or two it has been incredibly bipartisan.  It gives reason for hope.  A Congressional report will be issued later this month that should be important. I think that change is afoot at both an international level, national level and state level.  All 50 states are now investigating these antitrust issues.  New York may strengthen its antitrust laws as well.  

We don’t have to accept monopolies or the lack of privacy as a fait acompli.  We can actual gain control over our data and our autonomy. I think this is an area of great promise – and there are good reasons to be hopeful.

Nancy K. Herther is a writer, consultant and former Sociology/Anthropology Librarian at the University of Minnesota. 

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