Some (Don't) Like It Concentrated

IN THE COURSE OF 2021, BIG TECH COMPANIES COULD CHANGE THEIR SKINS DUE TO NEW ANTITRUST RULINGS AND PROVISIONS. FACEBOOK AND GOOGLE, BUT ALSO AMAZON AND APPLE, HAVE BEEN TARGETED

by Francesco Decarolis, Avvocato Giovanni Agnelli Chair of Economics
Translated by Alex Foti

The giants of the tech economy could change forever following a series of antitrust actions in both Europe and America. After more than eighteen months of official investigations by the Federal Trade Commission and Attorneys General of several US States, the allegations brought against Google and Facebook for engaging in anti-competitive behavior have led to a number of lawsuits last month. Many commentators expect similar legal actions be waged against other giants of the digital economy soon. In fact, last July to testify on these accusations before the US House of Representatives were called not only Sundar Pichai, the CEO of Alphabet, the parent company of Google, and Mark Zuckerberg, the CEO of Facebook, but also Jeff Bezos of Amazon and Tim Cook of Apple.

For all these companies that have changed our lives and the economy at large over the last twenty years, allegations of violation of antitrust law can represent a drastic regime change. Suffice it to say that in the case brought against Facebook, one of the main accusations is that of having acquired a multiplicity of startups, Instagram in the first place, with the explicit aim of eliminating future competitors. So, although this acquisition received all the required authorizations when it occurred in 2012, it cannot be ruled out that an adverse ruling may involve the obligation to divest from Instagram, WhatsApp or many of the other companies acquired in recent years. In this case, Facebook would enter the list of illustrious precedents of large companies forced to break up, as in the case of the former telephony monopolist AT&T in the 1980s and, at the start of the century, Rockefeller's Standard Oil.

For Google, the allegations are partly different. It is accused of having nipped in the bud a sales mechanism for online advertising that could have undermined Google's dominance in the market and having done so through a secret agreement with Facebook. We must not forget that the sale of online ads is the main business model for Google and Facebook and, precisely for this reason, their services are given free to consumers. In fact, in these digital platforms, the user of the service is also the product being sold to advertisers.

In recent years there has been much debate on whether existing antitrust legislation is suitable for managing the restriction of competition that characterize major digital platforms. In fact, if the presence of damage to the consumer must be the guiding principle for regulatory interventions to protect market competition, it becomes clear how complex it can be to argue that this type of damage exists when the service is provided free to consumers and is of such quality as to make them not switch platforms.

But the issues are indeed complex. For example, for many services the presence of a single platform simplifies the life of consumers and this can make it impossible for rival platforms to exist, thus precluding the possibility of switching provider if the quality of the service deteriorates. Additionally, there are multiple data privacy issues. For example, in the case of Amazon, the controversial element that emerged during the parliamentary hearings mentioned earlier was the use by Amazon of the data of retailers selling through Amazon their wares and services in the decisions on its own products and services, sometimes in direct competition with existing retailers. Despite this obvious conflict of interest, the pervasiveness of Amazon as an online shopping platform makes it essentially impossible for many retailers not to sell through it. In fact, being excluded from Amazon causes enormous economic damage. The same applies to app makers in relation to access to the Apple's App Store and Google Play Store.

The lawsuits brought before antitrust authorities on these issues will characterize 2021, not only in the US but also in the EU, where the European Commission has just adopted a new ad hoc regulation. In particular, the Commission has undertaken a strengthening of antitrust regulations in order to be able to intervene ex post on market behavior that undermines competition (New Competition Tool) and, at the same time, has intervened ex ante to define the rules of the game for digital markets (the Digital Services Act and the Digital Markets Act). Given the ever-increasing importance of the digital economy, in the months ahead it will be important to monitor the effects of these multiple interventions on the functioning of digital markets and the repercussions for consumers.