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Law Profs to Antitrust Enforcers: To Rein in Super-Platforms, Look Upstream

When it comes to antitrust enforcement, we largely focus on the dangers corporations with too much market power pose to parties like consumers. But of equal, if not greater, concern today are the dangers the super-platforms—like Facebook, Google, and Amazon—pose to the supply side, namely those, including authors, who create the content that the super-platforms use to turn massive profits through ad sales. Ultimately, consumers lose out when content suppliers, forced to accept unreasonable terms, have less to invest in quality content.

In the following post, first published at the Oxford Business Law Blog, law professors Ariel Ezrachi and Maurice Stucke argue that competition authorities must look not only at the platforms’ effects on consumers, but also look upstream to the platforms’ suppliers of content, where “the super-platforms can squeeze millions of sellers, including photographers, photojournalists, writers, journalists, and musicians.”

Ezrachi and Stucke are the authors of the book Virtual Competition, which explores the harm that super-platforms inflict on consumers through use of our personal data, price discrimination, and lack of privacy protections.

The E-Scraper and E-Monopsony

by Ariel Ezrachi and Maurice Stucke

An e-monopsonist and his cousin the e-scraper are robbing an upstream bank. The alarm is triggered. The nearby antitrust enforcer, seeing them holding bags of cash, asks: ‘Have you seen any suspects running away from the scene?’

Let us unpack this tale’s moral.

With the rise of Google, Amazon, Facebook and other ‘super-platforms,’ we tend to look down rather than up. It seems like Google, Amazon, and Facebook are using their power in the marketplace to deliver great value to us — wrestling lower prices from producers in the case of Amazon, bringing news onto a single platform in the case of Facebook, and organizing the world’s information, in the case of Google.

While these companies appear to be furthering our interests, a closer look reveals how these super-platforms may wield their power downstream to harm us, the consumer. As our book Virtual Competition explores, the super-platforms can use our personal data to better price discriminate and their disincentive to protect our privacy (and promote technologies that do).

Less discussed, but of significant concern, are the upstream effects of these super-platforms. They are in fact harming many of the companies from whom they buy or acquire content — and that harm ultimately harms us. Our competition laws deal with this kind of buyer power.  These concerns, however, are often low on the enforcement agenda due to the indirect effects on consumer welfare. In the digital age, that urgently needs to change.

In looking up rather down, we see how the super-platforms can squeeze millions of sellers, including photographers, photojournalists, writers, journalists, and musicians. Not only are the upstream sellers poorer; the super-platform’s economic power can translate into political power: As sellers and consumers increasingly rely on these gatekeepers, the super-platforms can shape our political views and the public debate. As the spate of fake news attests, our social fabric and ultimately our welfare are threatened.

Let us begin with the e-monopsony.  Our discussion differs from the textbook monopsony definition. A monopsony typically is characterized as the only or dominant buyer in town. Think of the factory in the one-factory town. As one court noted, ‘Because the factory is the sole employer—the sole purchaser of labor—it can dictate wages, benefits, and working conditions regardless of how large the town’s population.’  Our concern involves the super-platform’s anticompetitive use of power upstream.

Take, for example, publishers who confront a dominant book buyer.  In a competitive market, publishers can play bookstores off each other to secure a fair price for their and their writers’ work.  The dominant book buyer, on the other hand, depresses the price it pays publishers for the books.  It effectively transfers wealth from the publishers and authors to itself.  It gets worse for authors who rely on the e-monopsony to publish and distribute their e-books. They must concede to even more onerous demands, such as the e-monopsony paying the author by the actual number of pages that you and I read of that e-book.

Not only is this tracking creepy, it reflects the e-monopsony’s power both upstream and downstream.  The e-monopsony depresses the price it pays authors below competitive levels. But these price reductions do not necessarily benefit us, the final customer. We pay for the entire e-book; the authors’ royalties are slashed if they can’t hold our attention until the last page; and the e-monopsony pockets the extra profits. Its anticompetitive tactics, instead of promoting economic growth and welfare, can reduce employment, reduce quality, hinder innovation.

It gets worse.  An e-monopsony, like a monopoly, can use its trove of personal data to price discriminate both up- and down-stream.  The e-monopsony, knowing who is reading each author’s work, how far the reader gets, and how loyal the reader is, can charge the author’s loyal fans higher prices. Moreover, the e-monopsony can collect personal data on the authors, including their finances (eg, when college and credit card payments are due). It pays each author only the minimum amount needed for that author to produce the e-book. Authors with a slimmer financial cushion can be more easily exploited; consumers do not necessarily benefit. Indeed, writing-related income of full-time book authors, the Authors Guild found, dropped 30 percent from $25,000 in 2009 to $17,500 in 2015. Part-time authors saw their writing income decline 38 percent from $7,250 to $4,500.

The EU and US competition laws target these anticompetitive practices, but many competition agencies are not lifting their eyes.

One example can be found in Amazon’s case. The US Department of Justice (‘DOJ’), during the Obama administration, heard complaints about how the dominant online retailer was abusing its power. One concern was predatory pricing: Amazon was pricing e-books below cost in order to cement its power, and would eventually seek to reap the rewards by inflating prices and retarding innovation. Another concern was that Amazon retaliated against publishers that tried to take advantage of Apple’s more advanced e-books platform. The Authors Guild pointed out how Amazon often removed the online ‘buy’ buttons for titles from publishers that did not agree to Amazon’s contract terms. Others complained about Amazon’s exclusive distribution agreements with authors. The DOJ responded that the predatory pricing claims were ‘speculative.’ It hailed Barnes & Noble’s entry with its Nook e-reader as shedding any ‘doubt on the future of e-books agency pricing.’  The DOJ never revisited its predictions, as Nook’s sales plunged from $933 million in 2012 to $780 million in 2013, to $506 million in 2014, to $264 million in 2015, and to $192 million in 2016. Nor did the DOJ investigate after the Authors Guild, the American Booksellers Association, the Association of Authors’ Representatives and Authors United told it of Amazon’s anticompetitive practices.  Nor did the recent report by the Institute for Local Self-Reliance of Amazon’s anticompetitive tactics awake the DOJ from its slumber. Nor did the European Commission’s recent and successful challenge of Amazon’s anticompetitive conditions on publishers.

Let us now explore the e-scraper. Even if the super-platform is not a buyer, it can distort competition upstream by scraping the viability of upstream providers.  Let us illustrate. With its dominant search engine and control of the Android mobile operating system, Google has tremendous power.  The US Federal Trade Commission (‘FTC’) investigated allegations that Google ‘unfairly “scraped,” or misappropriated, the content of certain competing websites, passed this content off as its own, and then threatened to delist these rivals entirely from Google’s search results when they protested the misappropriation of their content.’ Basically, Google was stealing content from other providers operating on its super-platform. Google’s scraping, the FTC Bureau of Competition found, was anticompetitive: ‘the natural and probable effect of Google’s conduct is to diminish the incentives of [rivals] to invest in, and to develop, new and innovative content, as the companies cannot fully capture the benefits of their innovations.’ This theft, the FTC legal staff found after its lengthy investigation, violated the antitrust laws, and should be stopped. Google’s threat ‘also sent a message to the broader marketplace that Google could, and would, use its monopoly power over search to extract the fruits of its rivals’ innovations.’  The FTC Commissioners, however, never sued. Instead, the FTC, in a highly unorthodox move, closed its investigation in early 2013 after Google promised to stop stealing. Then-FTC Chairman Jon Leibowitz and Commissioner Julie Brill, in a press release, expected the FTC ‘to enforce vigorously’ Google’s voluntary commitment not to scrape. Both have left the FTC. Google reportedly continues to scrape. As one complainant, Getty Images, notes, ‘Artists need to earn a living in order to sustain creativity and licensing is paramount to this; however, this cannot happen if Google is siphoning traffic and creating an environment where it can claim the profits from individuals’ creations as its own.’ Neither the FTC nor DOJ, during the Obama administration, stopped Google. So American firms have turned to the European Commission, which is currently investigating Google for scraping.

The e-monopsony and e-scraping concerns are not conjectural. Most Americans, despite the gains in productivity, have experienced stagnant wages. The Council of Economic Advisers identifies monopsony, rising concentration, and monopoly pricing as hindering the US economy.

The concerns go beyond our pocketbook and can threaten our democratic ideals. The super-platforms are now an indispensable distribution channel for the news and books we read, the entertainment we watch, and the music we listen. The super-platforms—in directing our views of the world—can influence the marketplace of ideas and our elections. Jonathan Zittrain, for example, identified as a risk Facebook’s ability to manipulate elections. He warned of the super-platform’s potential ability to predict political views, identify party affiliation, and engage in targeted campaigning to mobilize distinct groups of voters to take action. Robert Epstein likewise illustrated how Google, in manipulating the rankings of its search results, ‘can easily shift the voting preferences of undecided voters by 20 percent or more—up to 80 percent in some demographic groups—with virtually no one knowing they are being manipulated.’  We have already seen instances in which super-platforms promoted certain corporate agendas. Google, for example, used its homepage to protest against the Stop Online Piracy Act (‘SOPA’), asking users to petition Congress.

As worldwide web inventor Tim Berners-Lee noted:

‘Today, most people find news and information on the web through just a handful of social media sites and search engines. These sites make more money when we click on the links they show us. And, they choose what to show us based on algorithms which learn from our personal data that they are constantly harvesting. The net result is that these sites show us content they think we’ll click on – meaning that misinformation, or ‘fake news’, which is surprising, shocking, or designed to appeal to our biases can spread like wildfire. And through the use of data science and armies of bots, those with bad intentions can game the system to spread misinformation for financial or political gain’.

One criticism is that the super-platforms shirk the legal and business responsibilities that the traditional media accept, such as responsibility for editorial opinion, paying the cost of investigative journalism and photojournalism, presenting both sides to a story, paying for content creation, and liability for defamation.  As a result, the tech companies operate in something of a ‘lawless zone’ where they benefit from the ambiguity of their role. Thus, in dispensing with both journalists and editors, scraping others’ content, not fairly compensating content providers, and reinforcing the ‘filter bubble’ effect, the super-platforms–rather than promoting the marketplace of ideas–can actually hinder it.

Ultimately, the super-platforms–in harming both the content providers upstream and consumers downstream–can undermine our economic well-being and democracy. Competition law has at its origins the protection of society from the misuse of economic and political power. Thus, our competition authorities must step up.   Failing to challenge the super-platforms’ anticompetitive practices will only embolden these (and aspiring) gatekeepers. When the enforcer only looks down, upstream competition, innovation, and the livelihood of many market participants, who deserve a competitive marketplace, will be hindered.

So if our politicians really care about our welfare, they should tell enforcers to start looking up. Perhaps then they’ll find the culprits.

Ariel Ezrachi is the Slaughter and May Professor of Competition Law at the University of Oxford, and Maurice Stucke is a Professor of Law at the University of Tennessee (Knoxville).