Biden turns up the heat on tech giants with sweeping overhaul

Late last week Joe Biden signed a sprawling executive order that aims to curb the market power of America’s big businesses, the big technology companies in particular, that opens a new front in the debate about competition policy in the US.

The order, which contains 72 different initiatives ranging from airline baggage fees, to drug imports, to phone and tractor repairs, health insurance, non-compete agreements and net neutrality, directs federal agencies to develop rules that reflect the administration’s intent. It doesn’t have any force of law.

US President Joe Biden is turning up the heat on the likes of Amazon and Apple.Credit: AP

It does, however, reflect a major shift in the direction of US competition policy that, particularly when it comes to Big Tech, has some bipartisan support after decades of a more hands-off approach to the increasing consolidation of US industry.

The order itself claims that 75 per cent of US industries are now more concentrated than they were 20 years ago, leading to higher profit margins, lower wages and fewer choices for consumers.
While the order is a grab bag of disparate competition-related issues, there is a more considered focus on big technology companies.

The biggest of the big tech companies – Facebook, Google, Apple and Amazon – are already facing (and in Facebook’s most recent action winning) court actions and there is legislation winding its way through the US Congress that largely reflects the thrust of Biden’s orders.

He wants the Federal Trade Commission to adopt new rules and policies that would govern online surveillance and impact their ability to surveil and accumulate users’ data; that would restrict their ability to acquire competitors or potential competitors; that would inhibit them from using their dominance of one market to gain control in another and which bar them from deploying “unfair methods of competition on internet marketplaces.“

Some of the tech giants, like Amazon with its marketplace that sells competitors’ products alongside its own, or Apple with its “walled garden” of apps, have been accused of using their data to launch competing products or having used access to their platforms to inhibit competition.

Biden also said that the largest platforms had acquired hundreds of companies over the past decades to “shut down a competitive threat.” The administration lost a recent court case against Facebook (initiated by the Trump administration) over its acquisitions of Instagram and WhatsApp, although it may appeal the decision.

The big $US1 trillion ($1.3 trillion)-plus tech companies represent a unique challenge for competition regulators, one highlighted by Biden’s new FTC chair, Lina Khan, before her appointment. Competition laws weren’t framed for digital markets.

Some of the tech giants, like Amazon with its marketplace that sells competitors’ products alongside its own, or Apple with its “walled garden” of apps, have been accused of using their data to launch competing products or having used access to their platforms to inhibit competition.Credit: AP

In markets where there are no prices – consumers receive “free” services in exchange for their personal data – and where the consumers benefit from the network effects that confer dominance on the big technology companies, it is extremely difficult to prove harm to consumers or establish that competition itself has been adversely affected. Big techs have no direct competition of substance.

The models pursued by the tech companies have been very profitable. According to Yardeni Research the margins of the S&P 500’s tech sector have doubled over the past 15 years while the margins of the entire S&P 500 have remained steady at 10 per cent – less than half that of the tech companies.

There are now five tech companies with market capitalisations of more than $US1 trillion – Apple, Microsoft, Amazon, Alphabet (Google’s parent) and Facebook.

It is, however, impossible to untangle the impacts of network economics and the appeal of their offerings that have created that scale and value from any potential anti-competitive behaviours.

Regardless of the fate or effectiveness of Biden’s orders, there is a global push to respond to the dominance of the big platforms (and to make them pay more tax) that crosses party lines and which will inevitably force the re-drafting of competition laws throughout the developed world to respond to a new corporate and economic landscape that wasn’t envisaged in the existing laws.

Kahn has her work cut out to try to devise rules that limit the ability of Big Tech to abuse their market power, that limit their ability to acquire potential competitors in adjacent markets or that prevent them from predatorily pricing or self-preferencing while also acknowledging their right to compete.

The US business’s lobby, of course, opposes the orders, arguing that they will undermine scale and US competitiveness and reduce investment and innovation.

Around the world, however – including here in Australia – legislators and competition regulators are moving ahead of the US to develop frameworks for dealing with the big tech dominance. Indeed, with the European Union, it could be argued that the Australian Competition and Consumer Commission under Rod Sims has emerged as one of the most aggressive, and successful, regulators of Big Tech activity.

The two broad streams that legislators and regulators (including the US Congress) are pursuing to rein in the power of the big techs are responsibility for the data and information they carry, the transparency to users and regulators of what they do with it and their (arguably) anti-competitive behaviours.

In the EU “gatekeepers” – companies with EU revenues of more than €6.5 billion ($10.5 billion) – and more than 45 million end-users would be prohibited from linking access to one service to purchases in another or from giving preferential treatment to their own services or products over third parties’. Walled gardens would have to be opened to others.

In the US, a bill before Congress would actually make it illegal for a dominant platform to create products or services that compete with those of competitors who use the platform. Consumers would be given more control over their data, including the right to transport it elsewhere. There would be limits on stakes in competitors.

In other words, regardless of the fate or effectiveness of Biden’s orders, there is a global push to respond to the dominance of the big platforms (and to make them pay more tax) that crosses party lines and which will inevitably force the re-drafting of competition laws throughout the developed world to respond to a new corporate and economic landscape that wasn’t envisaged in the existing laws.

That’s going to be challenging, given the big tech models, their scale, power and the undoubted consumer benefit they have produced.

Dealing with their abuses of their dominance and enabling competitors to emerge, discipline their behaviours and create new dynamism in a century where technology will drive economic activity without undermining their own ability to innovate and compete is the great conundrum for competition policy thinkers to unravel. They are, however, working on solving it.

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