Daniel Hanley: Google and Facebook Are Essential, Let’s Regulate Them That Way

Google and Facebook have extraordinary control over information and communications systems in the United States. These two corporations dominate internet search, social media, and digital advertising, and each one serves as the gateway to the internet for billions of people. Google and Facebook have

Daniel Hanley: Google and Facebook Are Essential, Let’s Regulate Them That Way
The author of this Expert Opinion is Daniel Hanley, a policy analyst at the Open Markets Institute

Google and Facebook have extraordinary control over information and communications systems in the United States. These two corporations dominate internet search, social media, and digital advertising, and each one serves as the gateway to the internet for billions of people. Google and Facebook have even become the dominant sources for how most Americans obtain their news. Google and Facebook have maintained their dominant position in these markets for more than a decade.

These two corporations can – and do – arbitrarily exercise their unrivaled monopoly power to suppress competition and crush smaller, dependent rivals. They have deprived and locked out rivals’ access to their platforms and manipulated their platforms to favor their services at the expense of smaller and dependent competitors. Without access to data and their platforms more generally, dependent competitors can find themselves unable to compete effectively, create desirable applications for consumers, provide critical product features, or even catch the attention of potential customers.

But antitrust enforcers can stop this harmful concentration of power with laws already on the books, by declaring Facebook and Google essential facilities. The Federal Trade Commission or Department of Justice could litigate an antitrust case designating Facebook and Google as essential facilities, or the courts could do so in response to a lawsuit from private citizens.

The goal of regulating corporations as essential facilities is to ensure fair competition by decreasing the power of dominant firms over smaller firms. An essential facilities designation would mandate that rivals have equal access to the corporation’s facilities or ensure that dependent firms are charged equal prices for the corporation’s goods or services.

The role of the essential facilities doctrine in antitrust

The essential facilities doctrine is based on the principle that a dominant firm should not be allowed to deny rivals access to its infrastructure. When a dominant firm is deemed an essential facility, the firm loses the ability to decide which firms to do business with, because access to the dominant firm’s facilities are necessary for competition to exist in the first place.

Historically, the essential facilities doctrine has been applied by courts and other antitrust enforcers to critical aspects of infrastructure, such as railroads, trucking, electrical facilities, news syndicates, and telecommunications firms, including telephone and telegraph companies. By withholding access to a platform, such as communications wires or railroad tracks, dominant companies stymied competitors, entrenched their monopoly positions, and often extended their dominance to adjacent markets.

Federal and state legislators have also deployed a similar regulatory designation. Legislators have designated some industries, such as hospitals, pipelines, and electrical plants, as natural monopolies, and so these industries were managed as public utilities. Similar to an essential facilities designation, lawmakers decided that they had to classify certain firms and industries as public utilities because of the difficulty of supporting competition in the industry and because of the likelihood that a dominant corporation would crush smaller rivals or exclude dependents.

Similar to railroad tracks and telephone wires, the source of Google’s and Facebook’s dominance is that each controls critical gateways to the internet – internet search and social networking, respectively – and controls extensive, unparalleled, and nonreplicable data collection infrastructure that they have woven into every aspect of the internet, far beyond their own websites.

Facebook’s familiar Like button is embedded into more than 8 million websites, from which the corporation collects extensive data on users who visit pages with the Like button embedded into it and from users who click on it.

Google has embedded tracking code in 85 percent of websites and 94 percent of Android Play Store applications. Google’s information collection efforts are so extensive and frequent that the corporation can determine whether a user is running or walking.

Google and Facebook’s data repositories serve as a choke-point

Google’s and Facebook’s data repositories are so extensive they have become critical avenues for academic research, and they form the foundation for countless software applications and enhanced software features such as frictionless user sign-on. Google’s and Facebook’s data also provide these corporations with the ability to engage in highly targeted advertising campaigns to attract the attention of the right audiences to use or purchase an advertised product or service. Access to Google’s and Facebook’s data infrastructure is necessary for any internet upstart to become a viable company in the technology sector.

Google and Facebook exploit their duopoly control over critical information and communications systems, using anti-competitive practices against current and potential rivals. Google and Facebook have routinely denied access to their essential data troves and platforms, for example. In 2013, Facebook CEO Mark Zuckerberg personally approved revoking the video application Vine’s access to Facebook’s Friends List. This cut off Vine’s access to the dominant social network, which it needed to reach potential users to become a viable competitor.

This was not the first time that Facebook abused its power. Internal Facebook documents reveal that the corporation has routinely used access to its data as a bargaining chip to leverage its dominance over potential rivals to win favorable partnerships. A recently filed class action alleges similar conduct, as the lawyer representing the plaintiffs against Facebook says that “Facebook deliberately leveraged its developer platform, an infrastructure of spyware and surveillance, and its economic power to destroy or acquire anyone that competed with them.”

Google engages in similarly anti-competitive practices. In an internal memo accidentally sent to The Wall Street Journal, FTC staff stated that Google “adopted a strategy of demoting or refusing to display” links to certain rival websites. The report concluded that Google’s conduct resulted in “real harm to consumers and to innovation.”

Google and Facebook have also repeatedly abused their dominant market positions to engage in self-dealingpromoting their own products over those of rivals. For example, a 2017 analysis by The Wall Street Journal found that 91 percent of 25,000 product searches on Google search featured Google products in the first advertisement slot. The study also found that 43 percent of the searches featured Google products in the top two advertisement slots. An analysis conduct by The Markup on Tuesday showed that 41 percent of the search results on Google search were for Google’s own services.

This ability to manipulate its dominant platforms ultimately gives Google’s services an unbeatable comparative advantage, suppresses competition, and snuffs out the innovations of alternative services. In short, Google and Facebook can leverage their platforms to pick the winners and losers in the marketplace – and they pick themselves whenever possible. Consumers are deprived of alternative services that have better features, and we are all deprived of the innovations that fair and robust competition would provide.

The COVID-19 pandemic is only heightening users’ dependence on Google and Facebook

In sum, Facebook’s and Google’s services are as critical to both work and leisure as public utilities and the telephone were in the 20th century for energy and communications. The COVID-19 pandemic has only exacerbated users’ dependence on these services. Facebook’s user base has increased by more than 11 percent since last year, and the number of monthly active users have increased by 10 percent.

The number of users of Google Classroom doubled to 100 million in March alone. Google’s videoconferencing service has experienced a 30-fold increase since January. News organizations have flocked to YouTube to broadcast their content, evidenced by a 75% increase in the number of users watching news sources from certain outlets.

Our increased reliance on these platforms only increases the need for essential facilities regulation. This designation would promote additional accountability and scrutiny over Google’s and Facebook’s conduct to ensure that their policies are equitable and fair for all users, so that rival platforms could not be arbitrarily blocked by Google and Facebook. Such accountability may also help lawmakers understand the effects of Google’s and Facebook’s conduct and promote additional regulatory actions, such as limiting their invasions of privacy for their panopticons of data collection and ad targeting.

The testimony during the House of Representatives’ investigation into online platforms on Wednesday revealed the depth of lawmakers’ concern with the economy-wide repercussions resulting from any decision made by Google and Facebook without public oversight. An essential facilities designation from enforcers would resolve most of their concerns.

The FTC has applied an essential facilities-like designation on corporations with far less power than Facebook and Google. In January, a federal judge refused to dismiss a case by the FTC against Surescripts, the dominant provider of a “must-have” e-prescribing software used by medical professionals and pharmacies, for denying rivals’ access to their essential platform by using exclusionary contracts. In deeming Surescripts as “must-have,” the FTC argued that it is an essential service for both prescribers and pharmacies.

Also, in February, the Seventh Circuit Court of Appeals affirmed the use of a closely related legal doctrine against Comcast for leveraging its dominant position to exclude Viamedia from access to for cable-television advertising services. Comcast’s actions caused Viamedia’s customers to abandon Viamedia as a supplier of advertising. Viamedia’s situation is similar to how Facebook and Google shut off access to their platforms and data, preventing rivals from becoming viable competitors in the industry.

Google and Facebook are facing at least five antitrust investigations, including a review of Google’s and Facebook’s business operations by the House of Representatives. These investigations should provide rich evidence to support later antitrust litigants such as private parties, federal agencies, and state attorneys general to impose essential facilities requirements on Google and Facebook.

This designation would invigorate competition in the sectors dominated by Google and Facebook, and it would restrain them from abusing their dominant market power to stifle competition and harm rivals.

Daniel A. Hanley is a policy analyst at the Open Markets Institute. You can follow him on Twitter @danielahanley. This piece is exclusive to Broadband Breakfast.

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