Eric Posner | The monopolists fight back

As the Google antitrust trial winds down, corporate opposition to antitrust reform in the United States is winding up – and not by coincidence.

With the trial having once again revealed the prevalence of anticompetitive behaviour in the tech industry, big corporations are turning to the United States Congress to block the two federal agencies tasked with antitrust enforcement, the Department of Justice and the Federal Trade Commission, from ramping up their efforts after decades of neglect.

In the Google trial, the Justice Department argues that the company has a monopoly over “general search” and related markets, and that it has illegally maintained this monopoly by, among other things, paying other tech firms to incorporate its search engine into browsers and devices such as smartphones. Google paid Apple US$18 billion in 2021 alone. Though iPhone users can change the search-engine default by going into the settings menu, hardly anyone does.

For its part, Google argues that people prefer its search engine, and that Apple therefore might as well make it the default. But if everyone preferred the Google search engine, Google would not need to pay Apple billions of dollars every year to make it the default, nor would it be so worried – as Google’s CEO apparently was – about Apple deliberately degrading the Google search experience.

Google’s deals with Apple and other tech firms ensure that competing search engines like Microsoft’s Bing won’t reach most customers. Moreover, Google appears to have feared that Apple would develop its own search engine and incorporate it, rather than Google’s, into the iPhone. If so, that means Google paid Apple not to compete with it in the search market, a serious violation of antitrust law.

Google denies that it has a monopoly, despite commanding a roughly 90 per cent market share that has endured for over a decade. During that time, the user experience has been steadily degraded by ads crowding the top of every search result like a jungle of highway billboards.

Now that antitrust authorities have finally caught on to their tactics, Google and the other tech giants are in a panic. We have come a long way since 2010, when Google, Apple, and few other companies settled a lawsuit with the US accusing them of agreeing not to hire each other’s software engineers.

The companies barely received a slap on the wrist. Today, the executives who hatched that plan – Apple founder Steve Jobs among them – would face criminal prosecution for such behaviour.

At the time, the widely held view of tech companies as benign engines of growth may have discouraged the Justice Department from prosecuting. But it has since become clear that these companies use the standard old-economy bag of tricks – exclusive-dealing arrangements, most-favoured-nations clauses, predatory pricing, and acquiring competitors – to extend and protect their monopolies.

Google faces charges over its domination of online advertising, Meta/Facebook has been sued for its acquisition of Instagram, and Amazon for abusing its marketplace platform.

One way that US antitrust regulators are trying to reverse decades of underenforcement is by revising the guidelines that they use to evaluate proposed mergers. (Full disclosure: I worked on the new draft guidelines during a stint at the Department of Justice Antitrust Division). But large corporations and their allies have geared up to derail these efforts.

Just this month, a rogues’ gallery of business lobbying groups, led by the National Association of Manufacturers, sent a letter to the Senate Judiciary Committee urging Congress to block the agencies’ update of the reporting rules that govern the types of information that firms that plan to merge must disclose to antitrust agencies before they consummate a merger. Though these organisations claim to be acting “on behalf of thousands of small businesses and workers,” they seem to have failed to persuade any small business organisation, union, or other worker-advocacy group to sign their letter.

Citing a report written by economist S.P. Kothari of MIT, the letter claims that the new reporting requirements would impose more than US$2 billion in annual costs on industry, an amount vastly greater than what the agencies estimated.

Kothari relied on a survey of corporate lawyers who specialise in merger cases, conducted by the US Chamber of Commerce, a leading business lobby. But the resulting average of US$437,000 per merger is dwarfed by the average transaction size. Reporting requirements kick in only for transactions greater than US$111 million. And actual costs will be lower for firms at the lower end of the range, as they have less to report than the behemoths that the agencies usually target.

Kothari argues that the money is wasted in any case, because mergers boost productivity and innovation. In fact, most experts believe that mergers generate minimal efficiencies over what firms achieve through organic growth. More to the point, the question is not whether mergers in aggregate produce gains or losses; it is whether additional reporting will root out harmful mergers at reasonable cost.

The answer is almost certainly yes. Research indicates that numerous approved mergers have caused more harm than good. By giving large firms a cheap and effective way to further aggregate their market power, mergers enable them to raise prices, suppress wages, and reduce quality.

The additional reporting requirements should help the agencies reverse their history of underenforcement.

Even the article that Kothari cites to argue that mergers generate welfare gains recommends a 2.0 per cent tax on mergers to offset the “churning” inefficiency caused by excessive entry by entrepreneurs who seek to cash out.

If this is right, the additional reporting costs would pay for themselves even if the reports yielded no information whatsoever.

Eric Posner, a professor at the University of Chicago Law School, is the author of How Antitrust Failed Workers.

© Project Syndicate 2023

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