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Antitrust Legislation Needs to Weigh the Benefits of Big Tech

 

By Tirzah Duren,  American Consumer Institute

While hostile rhetoric towards big tech dominates political discussions, lawmakers should consider what is at stake if overregulation harms current industries. Tech companies add enormous benefits to consumers, create millions of jobs, and contribute trillions to the national GDP. Before changing current antitrust laws, lawmakers need to consider the societal benefits of these companies.

Lawmakers from both sides of the aisle have come together to criticize big tech and change the rules that govern them. Bills range in scope, but one particularly harmful bill that enjoys broad bipartisan support is the American Innovation and Choice Online Act (AICOA), which would prohibit certain companies from preferencing their goods and services on their platforms.

Bipartisan support of these bills increases the odds of harmful legislation becoming law.

Current legislative efforts are the culmination of widespread techlash – a fear of big tech’s political and societal influence. This reaction led to a report last October by the Democratic majority on the House Committee of the Judiciary Subcommittee on Antitrust, which concluded that large tech firms use their size and position to “gatekeep” markets and favorably preference their goods and services. Despite only looking into four companies, this report was a catalyst for legislative attempts to rein in tech companies with little forethought to the benefits tech brings to society.

While the techlash has resulted in numerous legislative proposals to reform big tech, they fail to outline consumer harms and the numerous benefits these companies provide. A recent report by the American Consumer Institute (ACI), the first in a series, attempts to quantify these companies’ social and economic impact and the potential impact of proposed legislation.

According to the ACI  report, while the five largest companies – Amazon, Apple, Alphabet, Microsoft, and Meta – generated $2.7 trillion in revenue in 2021, they provided substantially more to the global economy, roughly $7 trillion, or comparatively the equivalent of 16% of U.S. gross domestic product. Essentially, for every dollar earned, these companies contributed nearly threefold. Additionally, these five companies added directly and indirectly to 12 million jobs.

Other businesses also benefit. Many of these companies serve as platforms for smaller businesses that rely on these tech giants’ traffic. For example, Amazon has over 6 million third-party sellers as of 2021. These third-party sellers make on average $200,000 each year in sales on Amazon. So when lawmakers propose new rules governing big tech, they need to consider the impact on small and medium-sized businesses that depend on access to online marketplaces.

A common theme in current antitrust legislation is that regulations should vary according to a firm’s size. Specifically, larger firms should operate under more stringent rules. AICOA sets this limit at $550 billion in annual sales or market capitalization. However, market capitalization refers to the value of a company’s stock, which is prone to change as stock price and the number of shares change, and it ignores the benefits these companies generate for consumers and small businesses.

Recent valuations of Meta, Facebook’s parent company, highlight the flaws of using market capitalization as a metric for size. Recently, the company’s market capitalization fell to $600 billion, which is close to avoiding the legislative threshold. Further falls could see one of the principal targets exempted from the legislation.

The focus on size is a marked shift away from the consumer welfare standard, which has been the basis for antitrust rules since the 1970s and guides legal decisions to focus on the consumer impacts of firms’ behavior. Big companies, like the tech giants, are permissible under the consumer welfare standard as long as their conduct and performance does not negatively impact consumer benefits. In contrast, recent proposals use size to determine legal behavior and ignore consumers’ benefits from technology companies.

During the pandemic-related lockdowns, benefits derived from tech companies became increasingly important. As the authors of the ACI report stated, “these companies ensured that employees could work remotely, people could socialize virtually, and students could learn online. Without these benefits, the COVID pandemic would have been far more disruptive to the economy and the lives of Americans.”

Lawmakers should refrain from reshaping U.S. antitrust laws that move away from safeguarding consumer welfare. Moving away from the standard because of techlash risks inflicting significant harm onto American consumers and denies them the myriad of social and economic benefits big tech provides.

 


Tirzah Duren is a Policy Analyst at the American Consumer Institute, a nonprofit educational and research organization. For more information about the Institute, visit www.TheAmericanConsumer.Org or follow us on Twitter @ConsumerPal.