A Senate subcommittee on Tuesday took aim at what one witness described as a “dire threat” to the digital marketplace—the processes by which “platform monopolists” such as Google allegedly maintain a stranglehold over the range of apps and services most commonly adopted by consumers; using its own services, in fact, to effectively smother any David-sized competitors before they can squeak out even minuscule victories against the trillion-dollar Goliath.
“Antitrust law aims to stop established companies from shutting out competitors,” Sally Hubbard, director of enforcement strategy at Open Market Institute, wrote in a prepared statement. “If entrepreneurs and businesspeople bring their hard work and the best products, services, and ideas forward, an open and freely competitive market rewards them with success and prosperity.”
This concept of meeting opportunity with hard work and innovation to feed entrepreneurial successes, though a central tenet of the American economy, has been hamstrung by powerful players that seek to profit instead through illegal mergers and monopolization, argues to Hubbard, which deprives consumers of “choice, innovation, quality, and pricing structures that come from real competition.”
But not everyone in attendance agreed. Where some experts see a market ecosystem that suffocates innovators by enabling the self-preferencing of large companies like Google and Apple, others credited the trillion-dollar firms with ushering in boundless economic successes; a trickle-down effect of sorts, to use an admittedly loaded, if not apropos, turn of phrase.
The hearing, which included testimony from a noted economics professor, the president of an app industry trade association, and a public interest group focused on choice in the digital market, served in some ways as a backdrop for a new antitrust bill introduced by Sen. Amy Klobuchar, the ranking member of the Judiciary Committee whose bid for the White House came to an end last week. The Anticompetitive Exclusionary Conduct Prevention Act (cosponsored by Sen. Richard Blumenthal and Sen. Cory Booker) is geared toward deterring “anticompetitive exclusionary conduct that harms competition and consumers” by enhancing the authorities of the Justice Department (DOJ) and Federal Trade Commission (FTC) to enforce antitrust laws.
Notably, the legislation would impose new civil penalties (up to 30 percent of revenue) to be administered by the FTC for violations of the Clayton Act, the 1914 law that prohibits the merging of two companies when the effect “substantially lessens competition.”
“Together, Facebook and Google have bought more than 150 companies since 2013,” Hubbard noted in her written testimony. “Google alone has acquired nearly 250 companies since 2006. At last count, Apple has bought more than 100 companies and Amazon nearly 90,” she said.
Much of the ire is focused on Google Search, which critics have long painted as anticompetitive and even abusive—allegations bolstered last year by findings in the European Commission, which found that Google had introduced restrictive clauses in contracts aimed at crippling its advertising rivals while engaging in “illegal misuse of its dominant position in the market for the brokering of online search adverts.” (The commission prescribed a €1.49 billion fine as a result.)
Luther Lowe, senior vice president of public policy at Yelp—a longtime vocal critic of Google Search’s practices—told lawmakers that Google’s “exclusion of third party competitors” in search results was not the result of concern for its user experience, nor “borne out of any technical necessity.” Instead, he argued: “It was designed to leverage Google’s extraordinary power in one market for the benefit of its position in adjacent markets.”
Lowe continued:
There are many other quantifiable ways to demonstrate Google’s deceptive self-preferencing is worse for consumers than pure competition. These include comparing the number, quality, and distribution of user ratings and reviews offered by different local search providers or looking at how well different providers weed out false or biased information. Perhaps the most damning indictment of Google’s quality was that, for years, the search behemoth’s own PageRank-style quality scores suggested its local review content belonged dozens of pages after the first page. When antitrust authorities were shown how poorly the Google organic algorithm ranked Google’s local review product, Google hid the ball, de-indexing all of its review content so enforcers could no longer monitor the overt bias.
But not everyone at Tuesday’s hearing lined up behind the notion that Google is merely a profit-driven monster purposely crushing the opportunities of independent developers under foot.
Morgan Reed, president of the App Association, which represents some 5,000 app makers in the U.S. and EU, explained that major software platforms, such as Google’s Play Store and the Apple App Store, have revolutionized the way in which small businesses connect with consumers, helping innovators “enter and even create new markets.” Antitrust concerns focused on these platforms, he said, are often overstated.
“Consumers and developers experienced significant changes since the introduction of various mobile software platforms,” Reed said. “In addition to having more choices, consumers also benefit from lower prices for software and even access to new markets that did not previously exist. Similarly, developers benefit from lower overhead costs, built-in consumer trust, and wider distribution and market access.”
To wit, Reed said, consumer choice has exploded since the advent of these platforms, such as the Apple App Store, which generated over $50 billion in 2018 and whose top search results “are some of the most fought after real estate in the online economy,” as the New York Times explained in an exposé last autumn examining the alleged tactics employed by Apple internally to steer users toward its own products and away from those of its rivals. (Notably, the paper of record found that Apple’s own apps had been “ranked first recently for at least 700 search terms in the store,” citing search results compiled by the app analytics firm Sensor Tower. “Some searches produced as many as 14 Apple apps before showing results from rivals, the analysis showed,” the Times reported.)
Reed pushed lawmakers to “look well beyond” the highest ranking apps in each platform to “appreciate the depth” of the app economy and its potential: Without platforms such as the App Store, the journey faced by independent developers was longer and more arduous. Developers were forced to host and promote their own websites (as opposed to app store listings) and hire third parties to manage financial transactions and legal teams to protect intellectual property, among other steps now automated by software platforms.
Reed also pointed to the element of “trust” app stores imbue developers who—absent a centralized marketplace—would be forced to build on their own. “Prior to platforms, software developers often handed over their products to companies with a significant reputation to break through the trust barrier,” he said.
Reed’s demurral was shared, in part, by Professor Thomas Hazlett of the John E. Walker Department of Economics at Clemson University, whose prepared testimony before the subcommittee focused largely on the benefits of “vertical integration,” which he described in one example: “General Motors once purchased car bodies from an independent supplier, Fisher Body; it then acquired Fisher Body and made these components internally.”
“This integration has been explained by economists as an efficient coordination of risky, long-term, complementary investments,” added Hazlett, who argues that Apple’s strategy of bundling its proprietary hardware and software exclusively—specifically, the iPod and iTunes, which antitrust authorities at the time saw as a threat to competition—is actually responsible for giving birth to an entire new industry.
“Rival platforms were available from Samsung, Sony, and others,” he said, “and over the long haul the tight integration has given way to alternative arrangements.”
Hazlett’s testimony comes as Apple, Spotify, Google, and other companies in the streaming business face a new lawsuit brought by the Pro Music Rights (PMR), a for-profit performing rights organization that licenses several million songs by major artists and has accused the companies of having “entered into an illegal agreement, combination and/or conspiracy to shut PMR out of the market and to fix prices at infracompetitve levels.”
The complaint (uploaded by Apple Insider) accuses over a dozen entities of having “choreographed a refusal” to deal with PMR, which licenses works by the likes of Wiz Khalifa, Pharrell, and 2 Chainz. “No television station, radio station or music streaming service has entered into a license to perform the musical works in PMR’s repertory,” it says, “let alone engaged in any substantive negotiations therefor.”
“There are many vertical relationships and platform rules that favor one combination of services over another which may cause heartburn for a specific company but do not violate the antitrust laws,” Gene Kimmelman, senior advisor at Public Knowledge, a non-profit public interest group, told lawmakers Tuesday, adding: “However, self-preferencing and other forms of anti-competitive discrimination are often harmful to competition and consumers.”
Kimmelman points to Amazon, which he notes was originally just an online bookstore, but has now grown into a massive online marketplace where it also sells its own products, often promoting them ahead of other search results. He notes that Apple’s iOS “works most fluidly with Apple’s own apps.” Email on an iPhone, for example, defaults to Apple’s Mail app; directions default to Apple’s Maps; and music defaults to Apple Music or iTunes, excluding widely popular alternatives, such as Spotify, which, incidentally, last year filed a complaint against Apple with the European Commission for giving itself an “unfair advantage.”
“Even if such preferencing is more convenient for some consumers in the short run, the impact on competition may harm consumers with fewer choices, lower quality products, and higher prices in the long run,” Kimmelman said. “Investigations can establish whether these concerns are valid, whether they are doing more harm than enabling benefits, and if they rise to the level of an antitrust violation.”
“Congress should also establish a framework to protect competition and consumers from this potential conflict of interest for dominant platforms that act as a gatekeeper,” he said.
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