Taking on Big Tech

With US going after digital monopolies, it will become easier for India to do the same

The surprise is not that the US has finally changed its stance towards antitrust enforcement, but the fact that it took so long. The reason this development is significant for the rest of the world, including India, is because the protective shield of the home country for these firms has been lifted. It will, therefore, become that much easier for India and the EU to proceed in case of violations by these firms without geopolitical repercussions.

THE DISPUTE BETWEEN a Big Tech Goliath like Google and a host of Indian firms is neither new nor unexpected. And I can predict with a near degree of certainty that it will not be the last. The dispute began several years ago -- a complaint was filed by app developers before the Competition Commission of India (CCI) over Google exploiting its dominant position in the Android and the Play Store ecosystem. The search engine was accused of coercing app developers to use Google's proprietary billing system or pay a fee if they chose a competitor. Either way you pay. It’s akin to corkage at a restaurant – the difference is that the restaurant business is fairly competitive so you can carry your liquor elsewhere. With Google's monopoly over Android, that’s not possible. When the developers refused to comply, Google removed the offending apps only to reinstate them after public outrage.

The drama is still on with CCI having asked its Director General to conduct an investigation and file a report in 60 days. Perhaps the outcome will, as CCI expects, implicate Google’s actions as infringing the Competition Act, 2002.

Google is not a lone wolf. We have seen this playbook before from monopolists of all hues, whether of the brick-and-mortar variety, as in the past, or digital, as in the norm nowadays. The only apparent difference is that competition crimes in the digital space are more pervasive, visible and harmful. Why is this so? And why must regulators be more prepared and ready to intervene than before? I will offer some reasons and end with a dash of optimism.

Let’s start with a poser – do markets function more effectively in the digital space? Let me give an economist's favourite answer to this unresolvable question – yes, and wait for it, no. More information is available. So in theory, markets should work better, but monopolies are more easily created by successful firms, which axiomatically undermines their functioning. Of the top seven listed companies in the world with market value above $1 trillion, six are digital.

So what, ask the sceptics? Markets reflect the value created and the valuation is a tribute to the innovative spirit exemplified in these trillion dollar leviathans. And we do not need to worry about setting upfront rules for such firms because free markets will unleash Schumpeterian forces of creative destruction that would render it unnecessary to do so. Innovations (that are hurt by government intervention) by smart start-ups would perform the act of disciplining incumbent monopolies much better and more efficiently than any government decree. You don’t want a “nanny” state do you, say the defenders of free market enterprise, quite disingenuously one might add. By raising the spectre of government excesses, they extoll the virtues of free market enterprise. The costs of government mistakes are exaggerated to the extent that make regulation an anathema to progress. Corporate excesses are forgotten, and bailouts at the taxpayers’ expense are necessary to keep the wheels of commerce ticking.

This is not an invective against markets, but a caution that big monopolies left to themselves do not self-correct, that market dynamics do not unleash forces that discipline incumbents rapidly enough and government intervention isn’t that bad after all. The alternatives could be a lot more damaging, killing competition and innovation.

Here is some evidence. Recall Standard Oil Company that decisively monopolised the market and was forced to split by US regulators. Its owner Rockefeller later helped establish the University of Chicago, home to many Nobel laureates and unmatched free market thought. The post-war era witnessed strong decisions against ALCOA (1945) and American Tobacco (1946) for violating the Sherman Act in the US. “No monopolist monopolises unconscious of what he is doing,” said the order.

There was however a decisive shift in antitrust enforcement in the US beginning in the early 1970s and especially after the publication of Robert Bork’s Antitrust Paradox, questioning the role of antitrust enforcement on consumer welfare. The role of antitrust is to help protect consumers and competition, and not competitors said Bork, and rightly so. But this begs the question whether markets erode monopolies more quickly and effectively than governments.

This is a weighty question that can only be judged empirically. The natural experiment in the US in the last five decades or so suggests that the dice has rolled in favour of markets and against government intervention.

But laissez faire can have its pitfalls. High consumer prices, aborted innovation and extreme inequality to name a few. During this time, IBM and Microsoft got away with mere rap on the knuckles while the EU was busy imposing huge penalties for similar violations. For example, in 2018, the EU fined Google $5 billion for abusing its market power. The case against Google was built around what competition law calls “exclusionary conduct”.

There is growing evidence that things are changing in the US too. The change comes close on the heels of the appointment of Lina Khan as chair of the Federal Trade Commission. Last week, the US Department of Justice and 16 states sued Apple alleging it monopolised and abused the smartphone market. The case against Apple follows a growing list of lawsuits against Google, Meta and Amazon for abusing market power. The modus operandi is familiar – blocking, suppressing, excluding, diminishing functionality of rival products and limiting third-party wallets.

The surprise is not that the US has finally changed its stance towards antitrust enforcement, but the fact that it took so long. The reason this development is significant for the rest of the world, including India, is because the protective shield of the home country for these firms has been lifted. It will, therefore, become that much easier for India and the EU to proceed in case of violations by these firms without geopolitical repercussions. It is to the credit of the Justice Department and FTC that it has not given in to the self-serving argument made by tech giants that more regulation and antitrust action will merely enable the US to lose the technology race to China.

Kathuria is Dean, School of Humanities and Social Sciences and Professor of Economics at the Shiv Nadar Institution of Eminence. Views are personal