Replacing Big Tech with Big Government Won’t Benefit Consumers

This commentary originally appeared in the Dallas Morning News.

In his farewell address delivered just over 60 years ago, President Dwight Eisenhower warned Americans to “guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.”

Critics of the high-tech industry consider companies such as Amazon, Google and Apple to have misused market power and harmed competition. It certainly is true that those firms have a significant advantage because they effectively own and operate online marketplaces that have come to be used by hundreds of millions of shoppers. Third-party online retailers or app developers that use these platforms have the challenge that, in addition to competing against each other, they also have to compete against Google, Apple and Amazon.

Many members of Congress, along with Lina Khan, the head of the Federal Trade Commission, believe that the Big Tech companies have exploited control of their platforms to give themselves an unwarranted influence in their marketplaces that harm other sellers and consumers. These members, abetted by Khan, recently introduced legislation, the American Innovation and Choice Online Act, that would strictly limit the actions of tech companies on their own platforms as well as the extent to which they can use the data they collect from their platforms to improve their offerings.

However, rather than benefit sellers and consumers by increasing competition, the act will increase the “unwarranted influence” of government over markets while driving up the cost for businesses and consumers that depend on the tech companies’ platforms.

The nascent history of internet commerce is replete with companies growing rapidly, obtaining a modicum of market power, and then quickly being supplanted by a rival. For instance, while Netscape made the first internet browser, which at one point was how most people accessed the web, Microsoft soon put forth a better browser and made it a standard part of its operating system, which led it to becoming the dominant web browser.

Netscape being driven out of business was not predatory. Rather, the company failed to understand that the real market was not in selling software but in exploiting access to the internet. Likewise, Microsoft’s inability to fully exploit its Internet Explorer software to help its customers led to it being marginalized to irrelevance by Google’s software.

Distinguishing between anti-competitive conduct and strategic but commercially risky behavior (such as giving away a product for free) has long baffled the courts. When entities manage to create platforms that service creators’ innovations and that also benefit consumers, the result is often larger market shares and higher profits. Yet, courts have historically looked for both as evidence for anti-competitive conduct. More recently, courts have been hesitant to label conduct as anticompetitive that might, upon further economic analysis, prove to be pro-competitive. But the American Innovation and Choice Online Act displays no such hesitancy. If broadly enforced, it would crush much of the innovation that is driving growth in the American economy.

The act would give the government wide latitude to decide the threshold whereby companies give themselves an unfair advantage, probably leading to the prosecution of companies that do not carry out the desired policies of Congress, the president and the administrative state. Companies that turn over private information to law enforcement and help their competitors will be allowed to operate unfettered, but those that do not would be subject to government interference. Regardless, higher costs and lower profits will be the result.

A recent Data Catalyst Institute white paper by economists Cameron D. Miller and Liad Wagman reinforces this conclusion, calling into question the extent to which the government’s efforts to rein in Big Tech will benefit consumers. Their paper lays out the case that the fight to prevent Amazon, Google and Apple from using their platforms to provide them an advantage in any way — a key tenet of the legislation — would increase the costs of startups that use these platforms, which in turn degrades the value to consumers of these platforms and amplifies the cost disadvantages of startups compared to the incumbents.

The control over internet platforms is powerful but not monolithic. Consumers and sellers have options, and if one platform makes it too costly or burdensome for firms to operate on it, the value of the platform altogether wanes.

We do not want large tech companies to become de facto utilities, closely regulated by the government without regard to efficiency or consumer satisfaction. Rather than pass legislation that increases their authority over Big Tech, Congress should heed Eisenhower’s warning by getting out of the high-tech business and letting the market work.