Why Conservatives Should not Sic Antitrust on Silicon Valley

It is not surprising that Left-liberals are calling for more government power to regulate and break up information technology companies, particularly when, like Franklin Foer, they worked in industries disrupted by those companies. But it is disheartening to find that the some on the Right are joining the interventionist chorus. To be sure, Silicon Valley leans left on everything but government regulation. It is not clear that this exception is just hypocrisy driven by self-interest or reflects the general political truth that people tend to be most conservative on matters on which they are most knowledgeable. But the Right should be grateful that Silicon Valley, unlike Hollywood and the mainstream media, is an ally on one issue.

Arguments that antitrust rules should be changed to apply to dominant tech firms and not just firms engaged in “monopolization”—the term actually used in the Sherman Act—would both weaken our economy and, even worse, allow government to harass firms based on a vague and manipulable standard. Even beyond the statutory language, there are very good reasons that the law requires the government, before it can apply sanctions, to show both that a firm exercises monopoly power and engages in exclusionary conduct unjustified by a substantial business practice.

First, the desire for a monopoly is not itself a bad thing.  It encourages great effort that pays off in innovation for consumers. Second, determining when a firm has substantial power in the marketplace is very difficult. We want to have a high bar lest the government mistakenly harm firms that have no substantial effect on the economy’s allocative efficiency and use a lower standard to go after firms it dislikes for political reasons. For instance, Amazon may be a dominant firm in online shopping, but it does not have a monopoly in the relevant market for almost any good, because it still represents a relatively small percentage of total sales. And while Google’s firing of the engineer for his diversity heresy was wrong, it was not an exercise of economically worrisome power, because Google has no monopsony power in the market for computer scientists.

When it comes to information technology firms, it is likely that firms do not possess enduring dominance because new technological paradigms will come round to disrupt them. The Justice Department sued IBM as a monopoly, but dropped the lawsuit shortly before PCs allowed Microsoft to eat IBM’s lunch. Then the Department sued Microsoft shortly before the rise of the Internet made Google the more important gateway to the high tech world. It was not the antitrust suits that prevented entrenched monopoly but the relentless progress of computation and the new opportunities it offered.

And the tech giants are now competing with one another for the new paradigms, like augmented and virtual reality and voice boxes (see Siri, Alexa, and Google Home) that will become the new portals to a world of communication. Even within our current paradigm, the tech giants are vigorous competitors for eyeballs, ads,  and sales.

I would not even put my money on these firms to be dominant in the next paradigm. As firms get bigger they become by necessity more bureaucratic and less nimble. Somewhere in Silicon Valley a group of young techies with visions of creating their own monopoly is planning to do to them what Bill Gates, Larry Page, and Sergei Brin did their forbears—much to the benefit of the rest of us.

In a subsequent post, I will discuss why antitrust law rightly requires exclusionary conduct without substantial business justification before attacking even those who have monopoly power.

Reader Discussion

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on October 10, 2017 at 09:43:09 am

So I guess it is OK for a powerhouse corporation to deny to its customers the opportunity to express their opinions (speech?) BUT it is not OK for a small baker / florist / wedding hosting service to do the same?

Perhaps, the guvmnt OUGHT to stay out of both large and small company policy making!

As for monopoly power, Google and others have forced out other competitors, or bought them up - Gee, isn't this the same *crime* that brought John D. Rockefeller to the dock. Of course, Rocky's "victims" almost all became rich (and many became partners) as a result of the buyouts - how about Google's?

No, I would suggest that we use the bureaucracy to hobble these new "titans" of industry. When housing developers seek to build large developments, they are hit with numerous *impact* fees. In Seattle, housing prices have skyrocketed, traffic is a mess - Hey, kiddies, let's make amazon / Google, etc pay for new highway lanes, homeless shelters, etc. Good for the goose and all that!!!!!

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on October 10, 2017 at 15:05:57 pm

To say that "Silicon Valley leans left on everything except government regulation" is not quite accurate. In fact, dominant firms almost always use regulation in order to create barriers to entry against competitors.

Today government regulations inhibit the rise of competitors to our dominant tech firms. For example, the SEC makes it more difficult to finance competitors, the FCC through net neutrality almost turned the Internet into a public utility, and many other regulatory agencies make it difficult to start new businesses.

As a result, many of these tech firms are exercising their political preferences when they run their businesses, denying service to political positions that they oppose, and otherwise discriminating against political opponents. That is what we must confront, and I agree that the best regulator is lively competition.

For example, Standard Oil was broken up into its geographic operating units, so we got Exxon, Mobil, Chevron, Amoco, etc, and Ma Bell was similarly broken up and today we have AT&T and Verison. Similarly our six largest commercial banks merit review into functional breakups, especially because they were often formed as mergers of prior firms: Citibank, JP Morgan Chase, Bank of America, Wells Fargo, Goldman Sachs and Morgan Stanley.

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Ed Vidal

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