Monday, May 20, 2024
Business & EconomicsFinance

Breaking Up Big Tech? Why It Might Be Time To Revisit Antitrust Law

The concept of “breaking up big tech” has come up a lot in discussions with presidential hopefuls, US Senators Bernie Sanders (I-VT) and Elizabeth Warren (D-MA). Both argue that companies this large and that control this high a share of commerce are bad for democracy– and also bad for the economy. Polling shows widespread support for breaking up Big Tech. It’s one of the few things on which Donald Trump and the two senators, including the self-described socialist, might agree. There’s not clear agreement in the media echo chamber, and executives obviously argue against it because they would lose control of their empires worth, at least for now, trillions.

It’s a policy position that has some legs.

Here is how it could work– and why it might.


“Breaking up” simply means regulating or suing companies such that they are forced to split off business units into separate entities. Anyone who thinks that antitrust actions are somehow antithetical to American capitalism and freed’m might do well picking up a history book. This regulation finds its origins in three major pieces of legislation authored over more than a generation– one in 1890 and two in 1914- and more than a hundred pivotal lawsuits.

Antitrust acts covered exploitative, predatory, discriminatory, and anticompetitive practices within the oil (Standard Oil), railroad (Northern Securities Company), steel, and other industries. The Acts were constitutionally justified based on the federal government’s ability to regulate interstate commerce to ensure relatively equitable and democratic market access.

Breaking up the companies did not destroy the economy. Rather, it fostered competition and encouraged more equitable access to markets by consumers and smaller companies. That effective monopolies were later formed by some of the progeny of the erstwhile trusts doesn’t mean that antitrust didn’t work. It just means that it failed to prevent a cyclical recurrence as companies reorganized over a generation or two.

Here’s a look at the companies being discussed.

Apple’s iconic white and grey design scheme.


Amazon: While Amazon’s core is its retail business, that isn’t where most of its profit comes from. The business model would flummox the smartest business professors of yesteryear. The retail business is actually suspected to in many cases lose money. Of course, over 100 million Prime members deliver a heck of a lot of cash to the company. But Amazon Web Services, the company’s cloud division, is the company’s cash cow. Amazon’s balance sheet— which includes money-losing retail business as well as profitable advertising services- delivers a 4-5% profit margin, while AWS delivers a whopping 26%. Critics cite deceptive business practices, an abysmal labor record, and a toxic corporate culture. But a key objection is the same as with the rest of big tech, and that’s how much data the company controls. ($1.08 trillion market capitalization as of 2/11).

Apple: Apple recovered from its doldrums in the late 90’s, when investors speculated it’d probably get bought by a larger company. It came out swinging. The iconic turquoise iMac signaled the beginning of a new era that saw the iPod and iPhone transform consumer economy as we know it. ($1.41 trillion market capitalization as of 2/11).

Microsoft: We think about Microsoft as making Windows and Office– but, much like Amazon, its business is increasingly coming from cloud computing. ($1.43 trillion market capitalization as of 2/11).

Alphabet (Google): Google effectively maintains a monopoly of the search engine market. This, Rand Fishkin argues, is problematic as a matter of monopolies in general. It’s also problematic as a matter of the enormity of data that Google then controls. European litigation against the behemoth has focused on this specific issue, and thus the GDPR was born. ($1.05 trillion market capitalization as of 2/11).

Facebook: Mark Zuckerberg raised the ire of lawmakers when he told them that his company wouldn’t ban the distribution of untruthful information. The Cambridge Analytica scandal was perhaps the crest of this wave in the public imagination. But Mark Zuckerberg, who joins Martin Shkreli and Donald Trump as one of the most hated men in America, would rather invite regulation than lose control of his company. ($597 billion market capitalization as of 2/11).

Combined, these four companies’ market capitalization– the sum total of their stock valuations- represent 20.4% of the US economy (capitalization divided by GDP). That seems, uh, a bit problematic. One might argue that these companies won’t weather the next stock market crash too well. $AMZN trades at 94.8x price-to-earnings, 6-7 times the average valuation on the S&P 500. $AAPL trades at 1.8x the average and $MSFT . But disirregardless, as it were, these companies have pots of cash and Biblical portions of floods of cash flow.


There are plenty of other US companies that I didn’t include in this list that are still very large. But I’m unconvinced that they will all continue to be as large after the next economic contraction (Intel, Oracle, Adobe, Qualcomm). Samsung is huge– but not a US-based company, and the much smaller Hon Hai (FoxConn), which makes Apple products, is Taiwanese. Tesla is egregiously overinflated these days, but it is unlikely to maintain this high valuation over the next few years.


I looked at eight articles on the subject to get some more perspective. The arguments against (like this one from Wired) seem to rely on the crux that existing antitrust regulation against specific sectors hasn’t made those sectors of the economy continuously competitive for generations to come, so we shouldn’t do it. Is this the fault of antitrust law? Or the fault of those who refuse to enforce it? I’m thinking more likely the second one.

Three articles were resounding  “nays.” Vox issued a “yea.” The Economist was skeptical, but circumspect. A Boston University piece was exhaustively detailed in its skeptical characterization of the plan. NPR and Investopedia both had fairly balanced explanations that compared arguments in favor and in opposition.

Inc.’s Jeff Bercovici argues in favor of a less aggressive strategy that involves what is called enforcement of “nondiscrimination” laws. This would prevent companies serving as platforms from promoting their own products and services, which they usually sell at much higher margins. Amazon’s own brands and its “Amazon Basics” are a widely recognizable example. It gets a bit murkier, though, when you’re talking about services that involve the delivery and management of information, and how some are treated preferentially by things like search engines.


Elizabeth Warren wants to regulate these companies as what she calls “platform utilities.” This derives precedent from an otherwise relatively obscure Supreme Court case referring to “essential facilities” that must be shared between competing entities. Much of the issue at hand is less about retail commerce than it is about the warehousing and monetization of data.

Hurdles remain. On CBC’s The Current this morning, UCLA professor and Bernie Sanders surrogate Ramesh Srinivasan told host Rosemary Barton that simply breaking up the companies could maintain the same power if share ownership doesn’t change radically. Mark Zuckerberg owns 80% of Facebook’s preferred stock, giving him 53% control in the company. (Common stock is what you buy on the open market through Robinhood or TD Ameritrade, while preferred stock, less liquid than common stock, usually has some special terms attached to it, like certain voting rights).

This is certainly a detail to be worked out. But Srinivasan’s emphasis is that oversight would be needed in the approach. He suggests that the companies hire independent, “ethical auditors.” He also proposes a democratic approach to the companies information systems, saying that “we should be influencing the design of their AI systems instead of having them thrust onto us.”

Srinivasan emphasized that he isn’t arguing to wipe off the face of the earth these companies’ landmark services– like Instagram or Amazon Prime. Rather, he says, he is just seeking a more equitable, competitive system. He says as it stands now, he knows plenty of people who work in Big Tech. But he is troubled by the industry’s byzantine systems and utter opacity, and the effects individual systems have on broader society. “I don’t think [most tech employees] are fully aware of the downstream implications of how they are socially engineering their world,” he said. This sentiment is echoed in Cathy O’Neil’s book, Weapons of Math Destruction, a great read that I finally read last year after many moons on my “to read” list.


Even the most skeptical coverage of the subject suggest that something has to be done. Action would seem to largely depend on who wins the election in November, as it has not been a priority for the current administration.

One approach short of breaking up the big tech companies would be to eliminate their competitive edge by forcing them to make some of their systems transparent. This addresses both Srinivasan’s and Warren’s critiques. This might well allow startups and competitors to imitate or undermine the big guys to gain market share. Tesla has done this with engineering and patents. While no one has copied Tesla’s technology quite yet because of just how intricate it is (no doubt Elon Musk is an asshole, but that doesn’t mean that he’s not a genius), it’s an interesting precedent.

I’m increasingly interested in the question of open source movements and post-scarcity economics. Incremental regulatory approaches effecting greater transparency could address some of these issues. The question of the correct approach may well be resolved when the market crashes and wipes out some serious bucks from these companies’ valuations. (I wrote most of this article three weeks ago, before the current market downturn).

But in an age increasingly preferential to already-amassed wealth and power, it would seem that unequivocal and sweeping action is required– and demanded. If the current market downturn continues, it’s likely that it will have profound effects on the abilities of these companies to marshal capital and, indeed, demand. But in the mean time, we still need to be thinking about all of these questions about transparency and competition in the pursuit of a more democratic society.

Nat Zorach

Nat M. Zorach, AICP is a city planner, community development professional, and MBA candidate at American University's Kogod School of Business, based in Detroit.

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