Moss Unpacks the Implications of Restructuring and Regulating Digital Technology Markets in New Antitrust Source Article
In the October 2019 issue of the Antitrust Source, Diana Moss delivers the first in-depth analysis of proposals to break up large digital technology companies. In Breaking Up Is Hard to Do: The Implications of Restructuring and Regulating Digital Technology Markets, Moss explains that recent proposals to breakup, or restructure, the large U.S. digital technology companies have received mixed reviews in the antitrust community. These proposals highlight a number of issues that pose a conundrum for antitrust. For example, breakup proponents advocate for antitrust as the major policy tool for solving the economic, social, and even political problems raised by the large digital technology companies. While many antitrust advocates have long called for stronger antitrust enforcement in the digital technology sector, they generally have stopped short of calling for wholesale restructuring. They warn that antitrust should not be pressed into service to accomplish goals for which it was not designed, or called on to advance claims that are incompatible with antitrust law. A more effective approach to addressing concerns, they argue, will require a comprehensive “portfolio” of policy tools that includes antitrust, some forms of regulation, and standard-setting for interoperability on digital platforms.
The animating theme for breakup proposals for the digital technology sector is the revival of the comprehensive structural remedy that emerged from the historical Standard Oil and AT&T antitrust cases. Here again, experts suggest caution. Antitrust breakup remedies have been used rarely and few industries have been subject to full structural separation as part of sectoral regulatory reform initiatives. The few instances where these steps have been taken involve companies with significantly different forms of economic organization than those of digital technology firms. The services and functionality these firms provide are the product of highly integrated business-to-consumer (B2C) and business-to-business (B2B) markets, the totality of which form an interconnected digital ecosystem. Many digital technology markets feature strong network effects. Connectivity across markets is driven by leveraging user data that is enhanced by machine learning and artificial intelligence. Given these features, applying comprehensive structural remedies to the digital technology sector will require significantly more analysis than what appears to motivate breakup proposals.
Also absent from these proposals is an assessment of the costs and benefits of breaking up digital technology companies—an essential part of any legislative breakup or restructuring initiative. This is a particularly important for a sector featuring some market segments with characteristics that resemble an essential facility, alongside adjacent more competitive markets. For example, in some industries, the forces of natural monopoly account for a larger proportion of the total delivered cost to the consumer or user than do the forces of competition. However, the efficiency gains from restructuring are likely to be lower in the natural monopoly case than in the competition scenario. Without analysis of this dynamic in digital technology markets, the case for breakups remains cloudy.
Other major questions raised by proposals to break up the large digital technology market players include the following: the appropriateness of the threshold criteria for mandated restructuring; how breakups change incentives surrounding competition and innovation; how antitrust is implicated in addressing violations of any new breakup law; and the implications of a mixed regime of permissible integration, mandated structural separation, competition, and regulation. In light of the foregoing issues, some unpacking of breakup proposals can usefully guide future discussions about the role of antitrust in restructuring digital technology markets. This article pieces together several critical discussions that should lead to both healthy skepticism regarding the use of breakup remedies and the need for a more coherent policy approach for the digital technology sector. It begins by assessing the role of antitrust in breakup proposals. Next, the article turns to the potential consequences of breakup proposals. The article closes by explaining the importance of a policy portfolio approach in addressing the diverse set of concerns in digital technology markets.
Reproduced with permission from The Antitrust Source, October 2019.