Break Them Up: Congressional Report Slams Big Tech Companies As Enjoying ‘Monopoly Power’

A lengthy report by House Democrats has condemned four mega-cap tech companies for having ‘monopoly power’ and recommended changing their business operations.

The 450-page Democratic congressional staff report, published after a 16-month investigation, found that Facebook (FB), Amazon (AMZN), Google parent Alphabet (GOOG) and Apple (AAPL) should be subject to new antitrust laws that would compel them to spin off units, separate parts of their businesses, or make it more difficult to acquire smaller firms.

For example, CNBC reported, Google might be pressured to divest its YouTube video subsidiary, or Facebook could be compelled to separate from Instagram and WhatsApp.

The report recommended that Congress “consider reasserting the original intent and broad goals of the antitrust laws, by clarifying that they are designed to protect not just consumers, but also workers, entrepreneurs, independent businesses, open markets, a fair economy and democratic ideals.”

Specifically, the report determined that Facebook has monopoly power in online advertising and social networking markets. Facebook may also have acquired Instagram in order a control a growing competitor, rather than save a floundering business.

“We compete with a wide variety of services with millions, even billions, of people using them,” a Facebook spokesperson said in a statement. “Acquisitions are part of every industry, and just one way we innovate new technologies to deliver more value to people. Instagram and WhatsApp have reached new heights of success because Facebook has invested billions in those businesses. A strongly competitive landscape existed at the time of both acquisitions and exists today. Regulators thoroughly reviewed each deal and rightly did not see any reason to stop them at the time.”

The report said that Amazon has monopoly power over most of its third-party sellers and many of its suppliers. Amazon’s share of U.S. online retail sales is at least 50%, well above the commonly reported 40% figure, the report noted.

“Amazon has engaged in extensive anticompetitive conduct in its treatment of third-party sellers,” the report stated. “Publicly, Amazon describes third-party sellers as ‘partners.’ But internal documents show that, behind closed doors, the company refers to them as ‘internal competitors.’”

The report added: “Amazon’s dual role as an operator of its marketplace that hosts third-party sellers, and a seller in that same marketplace, creates an inherent conflict of interest. This conflict incentivizes Amazon to exploit its access to competing sellers’ data and information, among other anticompetitive conduct.”

In response, an Amazon spokesperson stated: “All large organizations attract the attention of regulators, and we welcome that scrutiny. But large companies are not dominant by definition, and the presumption that success can only be the result of anti-competitive behavior is simply wrong. And yet, despite overwhelming evidence to the contrary, those fallacies are at the core of this regulatory spitballing on antitrust. This flawed thinking would have the primary effect of forcing millions of independent retailers out of online stores, thereby depriving these small businesses of one of the fastest and most profitable ways available to reach customers. For consumers, the result would be less choice and higher prices."

"Far from enhancing competition, these uninformed notions would instead reduce it.”

The report found that Apple enjoys monopoly power with respect to software app distribution on its Phone operating system, or iOS, devices

Apple, the report alleges, uses the control of its operating system and app store “to create and enforce barriers to competition and discriminate against and exclude rivals while preferencing its own offerings.”

The report also claims Apple uses its market domination “to exploit app developers through misappropriation of competitively sensitive information and to charge app developers supra-competitive prices” within the App Store.

In response, Apple stated: “The App Store has enabled new markets, new services and new products that were unimaginable a dozen years ago, and developers have been primary beneficiaries of this ecosystem. Last year in the United States alone, the App Store facilitated $138 billion in commerce with over 85% of that amount accruing solely to third-party developers.“

Apple added that its commission rates are “firmly in the mainstream of those charged by other app stores and gaming marketplaces.”

As for Google, the report said the company monopolizes the online general search and search advertising markets.

Google operates “as an ecosystem of interlocking monopolies,” the report noted.

“Google exploits information asymmetries and closely tracks real-time data across markets, which -- given Google’s scale -- provide it with near-perfect market intelligence,” the report said. “In certain instances, Google has covertly set up programs to more closely track its potential and actual competitors.”

Google has also maintained its dominance by imposing high barriers to entry, including the default position it has gained in many browsers and devices, the report added.

A Google spokesman defended the company.

“Google’s free products like Search, Maps and Gmail help millions of Americans and we’ve invested billions of dollars in research and development to build and improve them,” the spokesman said in a statement. “We compete fairly in a fast-moving and highly competitive industry. We disagree with today’s reports, which feature outdated and inaccurate allegations from commercial rivals about Search and other services.”

The Chairman of the Subcommittee on Antitrust, Commercial and Administrative Law, David Cicilline, D-R.I., has commented that big tech could face what financial institutions did under the Glass-Steagall laws which separated investment banking from commercial banking.

While Republican colleagues in the House generally oppose sweeping changes to the structure of big tech companies, they generally support the investigation and want bipartisan cooperation in finding solutions to the power wielded by these tech corporations.

Subcommittee ranking member Rep. Jim Sensenbrenner, R-Wis., said: “There actually is a lot that we agree on, including the lack of sufficient scrutiny on past activity by these companies.”

Subcommittee member Rep. Pramila Jayapal, D-Wash., told CNBC she thinks “significant legislation” based on the report’s recommendations could be introduced within three to six months in the next session of Congress

“It may be that some pieces of legislation take longer because we do have to get it right, but I think that it’s very important that we move urgently because we’ve seen how innovation and creativity have been really stifled and how small businesses, in particular, have been losing out and how consumers have been losing out,” Jayapal said.

Acknowledging that some House Republicans are skittish about making wholesale structural changes at these companies, Jayapal added: “I’m looking forward to working in a bipartisan way and also if there are areas where we differ on the need of the strength of our proposals, we have to make that case, And honestly, I think time will continue to show that it’s absolutely essential that we take on issues like structural separation.”