This article was written by Mark MacCarthy, an adjunct faculty member at Georgetown University, who teaches technology policy.

In his insightful article on the legacy of the 1940s Commission on the Freedom of the Press, Victor Pickard quotes Zechariah Chafee, the Harvard Law Professor, First Amendment scholar and Vice Chairman of the Commission as saying that one of the main problems confronting the Commission was “whether the giants should be slain or persuaded to be good.’’

The Commission had been formed to look at communication policy, not antitrust. But it faced the same fundamental challenge concerning the media titans of its day that had bedevilled competition policymakers from the beginning: whether to slay monopolies or make them good.

Today’s version of this dilemma is whether to break up online companies that are increasingly causing concern among policymakers or to regulate their conduct to make it easier for competitors to grow. Many including former U.S. Presidential candidate Elizabeth Warren, former Facebook official Chris Hughes, and antitrust scholars Tim Wu and Lina Khan have publicly called for breaking them up. It is hard to do, but it seems to be a simple, clean, one-time solution and appears to avoid the need for messy ongoing supervision of the separated companies.

In contrast, the regulatory approach appears to be slow and uncertain. It would first require us to create a new agency to oversee the Internet giants, and there’s no guarantee it would ever be able to enforce complex, technical rules that get to the heart of the problem. Still, it might be the better option.

Breaking up is hard to do

Breaking up means different things for different online companies. For Amazon, it means denying it the ability to be a merchant on its own electronic marketplace.  For Facebook, it means unwinding its recent mergers with WhatsApp and Instagram and preventing it from acquiring any potential competitors in the future. For Google, a break up means separating its search engine from its ad network services.

But the key idea is the same: prevent companies from abusing their market dominance to hurt competitors by diffusing their strength and limiting the lines of business they can enter. The most famous case is the 1984 forced separation of the integrated U.S. Bell Telephone System, which had controlled the U.S. telephone market for generations as a regulated monopoly and was frustrating the entry of new competitors.

Bell got broken up into one long-distance telephone company and seven regional companies providing local telephone service.

But the breakup option is fraught with peril. For one thing, as former U.S. antitrust enforcer Phil Verveer has noted breaking a company up is far from a simple event. Instead, it results, if at all, from a long, resource-intensive and uncertain process. It is hard to break up a company, and under existing competition law, it is supposed to be hard to impose that draconian penalty. Moreover, it is not clear where to find a joint to make a clean break. Previous breakups such as Standard Oil and the Bell System divided companies geographically, which makes no sense for online companies.

But, integration brings benefits. Independent merchants want access to Amazon's enormous customer base. People want a single social media network for all their online friends. These benefits of integration would be lost under structural separation. The separated companies could try to restore these benefits through contractual re-integrating. But they could also agree to collaborate in ways that would make it hard for competitors to flourish. There would have to be continuing supervision of the separated companies to stop that.

As a result, there will need to be ongoing regulatory controls even under structural separation. This is the basic insight in three recent reports recommending the creation of a strong regulator with authority to explore what measures might promote online competition in the absence of separation.

The other approach

A report by Jason Furman, former Chief Economist to President Obama, written for the UK government, makes the case for a new digital markets unit in the UK government empowered to create special pro-competitive rules for platforms with strategic market position. Another report by Harold Feld, senior vice president for the advocacy organisation, Public Knowledge, argues for a dedicated agency to regulate dominant digital platforms with authority to establish and enforce pro-competitive and information diversity rules.

Fiona Scott Morton, an American economist, currently the Theodore Nierenberg Professor at Yale School of Management, authored a report for the Stigler Center urging the US government to create a Digital Authority, which she envisions as a specialist regulator with authority over digital platforms with bottleneck power, and power to prescribe a variety of pro-competitive rules for these companies.

In this context, “pro-competitive regulation” means imposing various requirements on dominant tech companies which are designed to foster competitive alternatives or to allow companies that rely on tech company platforms to reach their customers without abusive or discriminatory conditions.

For Amazon — rather than demanding that they stop selling as a merchant on their own marketplace — this kind of regulation might mean non-discrimination rules, requiring it to offer independent merchants on its electronic marketplace the same terms and conditions that they provide to their own or affiliated merchants. This wouldn’t create an alternative marketplace, but it would allow merchants to use Amazon’s marketplace without anticompetitive abuse.

For Facebook, pro-competitive regulation might mean requiring it to allow its users to take their data with them when they go to another social media company or messaging service or to allow its users to communicate with users of another social media platform or messaging service.  These rules for data portability and interoperability might facilitate switching to new social media providers and provide direct competition for Facebook’s own social media service. Mark Zuckerberg and his compatriots might argue about the details of such requirements, but they would be a lot more palatable than forcing them to sell off acquisitions such as Whatsapp.

For Google, it might mean ensuring that its search results are not biased in favour of services it owns and operates. This wouldn’t create a new alternative search engine to rival Google’s, but it would protect companies that rely on Google’s search engine to reach their customers. For the tech giants that use data for targeted advertising, pro-competitive regulation might mean mandated data sharing with smaller or upstart competitors, which would promote diversity in the provision of advertising services. Again, this would be significantly less painful for Google than splitting its search engine from its ad network services.

Can regulation work?

Policymakers must be clear-eyed about the regulatory approach: these proposed pro-competitive measures might not work.

Data portability seems to provide limited opportunities for new entrants, if we are to believe the assessment of the entrepreneurs who are supposed to be its beneficiaries. Interoperability rules seem to work best with stable technology and require drawing a complicated and evolving line between a basic service such as messaging, which would be interoperable, and a value-added service such as the ability to store and retrieve messages, which would not. Such a line seems needed to preserve innovation incentives: Why would a company invent a new feature of a service if it immediately became available to all its competitors?

Non-discrimination rules might prove to be a frail defence against abusive and discriminatory tactics by dominant companies, who might regularly disable or discourage competitors before the regulators can stop them.

Moreover, some measures such as data sharing seem to create policy risks that might outweigh any pro-competitive benefits. Users who trust their information with one online company might not be pleased to share their sensitive data with any and all potential rivals. Interoperability might make it difficult for a responsible online company to enforce content moderation decisions, as bad actors lob disinformation and hate speech at its users from shadowy but interconnected platforms. These potential conflicts might require a unified agency expert in many policy domains or necessitate close coordination between a new competition agency and regulators with other policy expertise.

Despite these concerns, pro-competitive measures are all worth trying as steps towards a more vibrant and innovative online environment. The concerns with the regulatory approach need to be addressed, but the objections to tech company breakup are insurmountable.

It might feel satisfying to contemplate the demise of the tech titans, but the wiser course is to put in place a comprehensive regulatory structure that can persuade, and if necessary require, online companies to be good. – Mark MacCarthy

(Picture credit: Pixabay)