When Robert Bork published “The Antitrust Paradox,” in 1978, concerns about monopolies suppressing competition were not new. The first U.S. antitrust law, the Sherman Antitrust Act, was passed in 1890; during the early years of the twentieth century, President Theodore Roosevelt used the law to break up Standard Oil and to apply new regulations to the dominant railroad companies. In 1914, Congress passed the Clayton Act, which granted powers to the Department of Justice and the newly created Federal Trade Commission to insure companies did not become too dominant in the first place. President Franklin Roosevelt and other New Deal policymakers continued the tradition of aggressive antitrust enforcement. But Bork, a professor at Yale Law School and later a nominee for the Supreme Court, argued that many of these antitrust measures had been unnecessary. When deciding whether a particular enterprise posed an antitrust threat, he wrote, the government should only take action in cases where concentration of power in the market harmed consumers in the form of higher prices. In the decade after Bork published his influential treatise, there was a boom in corporate mergers as airlines, energy companies, pharmaceutical firms, and media conglomerates acquired their competitors; as long as it could plausibly be argued that the prices consumers paid for products wouldn’t rise, regulators generally allowed the deals to proceed.
Bork’s consumer-based theory had many flaws. One of the most obvious was that it did not anticipate the rise of online companies such as Facebook and Google, which offer their products to consumers for free. The companies make money by monitoring their customers’ online activity and selling the data, largely to advertisers. As long as the official cost to consumers to use the platforms remained the same—around zero—the giant tech firms argued that their increasing size and influence over every aspect of online life posed no antitrust threat.
In March, Senator Elizabeth Warren released a plan that aims to reverse what is now a nearly four-decade trend in the concentration of corporate power in the U.S. economy. The proposal, which was released as part of Warren’s campaign for President, would both break up the major technology companies and regulate them more heavily. Central to her argument is the idea that, though consolidation might not have raised prices for certain online services, it has helped depress wages, inflate executive pay, and stifle the rise of new businesses. This, in turn, has contributed to the decline of middle-class financial security and the rise of income and wealth inequality. “Left unchecked, concentration will destroy innovation,” Warren has said. “Left unchecked, concentration will destroy more small companies and startups. Left unchecked, concentration will suck the last vestiges of economic security out of the middle class.”
As a law professor, antitrust was not Warren’s expertise; rather, her background as an academic was in bankruptcy and consumer debt, and how those issues created rising economic insecurity for the middle class. In the years following the financial crisis, though, the two subjects seemed increasingly connected. Market consolidation reduced consumer choice, as Bork had argued, but it also led to job losses and wage stagnation as employees and small businesses had less and less power when faced with giant competitors. In particular, monopolies and oligopolies (when a few large competitors control a market) helped explain one of the biggest mysteries of the current economy: why low unemployment had not led to commensurately higher wages.
In early 2016, one of Warren’s advisers reached out to a Yale law student named Lina Khan. Khan had worked for Open Markets, a think tank at the New America Foundation, in Washington, D.C., studying antitrust in different industries, including agriculture and airlines. She was among a handful of legal scholars and journalists who have been trying to sound the alarm about rising monopolies for several years. In Warren, Khan and the head of Open Markets, Barry Lynn, found a high-profile figure in Washington who was willing to listen and who had the ability to draw attention to the cause. They met for dinner, where Khan and Lynn talked through their views with Warren, mainly that certain market-dominating conglomerates were abusing their power and undermining the country’s economic health. They suggested several anti-monopoly tools, including breaking up some of these giant companies.
On June 29, 2016, Warren delivered a speech, titled “Reigniting Competition in the American Economy,” at an event for Open Markets. She began the talk with a few lines about her academic research related to the functioning of competitive markets. “I love markets!” Warren said. “Strong, healthy markets are a key to a strong, healthy America.” But, she went on, competition in America is declining. In the financial sector, already large banks had become even bigger, increasing the likelihood of excessive risk-taking; four major airlines control eighty per cent of all domestic airplane seats; a few health-care conglomerates comprise the vast majority of the health-insurance market; and three pharmacy chains represent ninety-nine per cent of the nation’s drug stores. She then held up some of the country’s largest technology firms for their own critique: the largest tech companies controlled online platforms that other businesses depend on to survive, making it nearly impossible for others to fairly compete. “Google, Apple, and Amazon have created disruptive technologies that changed the world, and every day they deliver enormous value,” she said. “They deserve to be highly profitable and highly successful. But the opportunity to compete must remain open for new entrants and smaller competitors who want their chance to change the world.”
In “Amazon’s Antitrust Paradox,” published in the Yale Law Journal, in January, 2017, Khan made a similar argument that the old antitrust paradigms were outdated in the Internet era. Amazon, in particular, had become so large that it was influencing the economy in all sorts of unseen ways. Amazon had access to unprecedented amounts of data, both about consumers and also other retailers using its platform. This, Khan argued, gave the company an unfair advantage because it essentially had access to its competitors’ operating information. Approximately fifty per cent of all online sales now take place on Amazon, making it nearly impossible for independent retailers to avoid the site if they want to be viable. Furthermore, Khan continued, Amazon was willing to offer its products below the cost of delivering them and therefore operate with years of losses, giving it a potentially unfair incentive to engage in “predatory pricing.” “Through this strategy, the company has positioned itself at the center of e-commerce and now serves as essential infrastructure for a host of other businesses that depend upon it,” Khan wrote. “Elements of the firm’s structure and conduct pose anticompetitive concerns—yet it has escaped antitrust scrutiny.”
The Amazon example has since become a recurring feature of Warren’s campaign speeches. She notes that, like most everyone else, she uses Amazon. At a town hall in April, Warren recalled that the last thing she’d purchased on the site was a new mailbox for her house. Still, her plan to break up Big Tech reflects a growing awareness of the drawbacks of decades of relaxed antitrust enforcement, even if certain activities such as shopping for housewares has become easier for consumers. The plan she released consists of several parts. Companies with revenue of twenty-five billion dollars or more that provide an online marketplace would be designated as “platform utilities” and would not be allowed to both own the marketplace and participate on it. Right from the start, Warren says, Amazon would have to separate its “Basics” business, which sells products under a house brand, from the rest of Amazon, and Google’s advertising business and its search business would have to be split apart. Secondly, she pledged to “empower” federal regulators to undo many of the tech-industry mergers that have already happened, such as Amazon’s acquisition of Whole Foods and Zappos; Facebook’s takeover of Whatsapp and Instagram; and Google’s purchase of Waze, Nest, and DoubleClick. Amy Klobuchar and Cory Booker have followed Warren’s lead, introducing legislation to address the problem; on July 23rd, the Justice Department announced that it was conducting a wide-ranging investigation into the “market-leading online platforms,” which are widely believed to include Google, Facebook, and Amazon.
Not long after Warren’s declaration of war on Silicon Valley, several tech executives issued public protests. Tim Cook, in a CNBC interview, said that Apple wasn’t a monopoly and objected to being lumped in with Google and Facebook; other critics suggested that the Warren plan was too vague and would be difficult to implement. In August, 2017, around a year after Warren’s New America speech, the Open Markets Institute was ousted from the New America Foundation, reportedly after the former Google C.E.O. Eric Schmidt—one of the Foundation’s major funders—complained about an article that the Institute had published in support of sanctions that the European Union had levied against Google for antitrust violations. (New America’s president, Anne-Marie Slaughter, publicly denied that this was the reason Open Markets was asked to leave; the think tank has since been reëstablished independently).
According to Sandeep Vaheesan, the legal director at the Open Markets Institute, the kinds of reforms Warren is proposing aren’t as radical as they sound. The weakening of the old system, he said, had been “a bipartisan project,” and people are once again starting to realize that the way the government and the public look at giant corporations needs to change. “I think the 2008 crisis led to a critical reëvaluation of the structure of our economy, and to the law and politics that have given rise to our current system,” he said. He also cited the publication of Thomas Picketty’s book “Capital in the Twenty-First Century,” from 2013, which had drawn significant attention to income and wealth inequality; the Occupy Wall Street movement; and the campaign for net neutrality as factors that roused public attention. Warren’s plan, he added, involved reversing merger transactions that are only a few years old. “I think that her ideas would really challenge the core model of these Big Tech companies,” he said. “It would force them to behave in more socially responsible ways.”