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A Primer on Regulating Big TechFILE – This photo combo of images shows the Amazon, Google and Facebook logos.A review into… [+] competition in the U.K.’s digital market says the countryneeds tough new rules to help counter the dominance of big tech giants likeFacebook, Google and Amazon. The independent review published Wednesday, March13, 2019 says global tech giants don’t face enough competition and thatexisting rules are outdated and need to be beefed up. (AP Photo, file)ASSOCIATED PRESSA bi-partisan consensus has emerged around the need to regulate Big Tech. BothRepublicans and Democrats have increased their scrutiny of the role ofdominant technology firms in our economy, primarily Amazon, Apple, Facebookand Google. Complaints against these and other large tech platforms includethat they censor right-wing content, stifle competition and innovation, andmisuse sensitive consumer data.This article provides a brief primer by describing a handful of cleverapproaches that have been suggested by politicians and other civic leaders toaddress the complaints about big tech.Do NothingIt used to be popular to argue against any new regulations or enforcement oflarge tech companies. One argument in favor of the “do nothing” approach isconcern that new regulations would limit the amount of innovation in thesector, and that the sector is already innovative enough that the large,incumbent tech firms would eventually be disrupted as has happened to otherlarge technology companies in the past. Proponents of the “do nothing”approach like to point to two historical examples – AOL and MySpace – asepisodes in which large tech firms that were dominant at one point in timewere quickly toppled.This “argument by example” approach is problematic. It ignores that the techindustry has matured considerably since the days of AOL and MySpace, and alsoignores how many years have passed since there has been any type of disruptionto the firms at the top of the industry. Moreover, European governments havetaken steps to regulate the sector, for example with the EU’s General DataProtection Regulation in 2018, and with the UK’s creation of a Digital MarketsUnit in 2019. By following the “do nothing” route, the United States wouldabdicate its ability to shape regulation in a way that would be favorable toU.S. technology firms.Break Up Big TechAt the other end of the spectrum from “do nothing” is the “break them up”approach. The idea is that these firms are so big and so dominant that theyare monopolizing their respective industries (e.g., online search in the caseof Google or online commerce in the case of Amazon), and/or have astranglehold over the firms that rely on their platform to reach endconsumers. A break up could be horizontal in nature, meaning that the big techfirm is divided into two smaller, but similar-looking firms. A horizontalbreak up is what people have in mind when proposing that Instagram be spun offfrom Facebook. A break up could be vertical in nature, meaning that the bigtech firm’s platform remains the same, but it has to spin off anything thatuses the platform. For example, Google the search platform would no longer beable to provide its own maps or other “edge services.”In principle, a break up would result in more, smaller tech companies, whichshould increase competition between the companies, and would ultimately leadto better outcomes for customers, in the form of lower prices, higher qualityor more innovations. Breaking up big tech is the preferred approach amongseveral 2020 Democratic presidential hopefuls such as Massachusetts SenatorElizabeth Warren. This approach is also embraced by some Republicans, withMissouri Senator Josh Hawley notably asking “should these platforms exist atall?”It is very difficult, however, to determine how to break up existing companiesinto smaller pieces. One of the very difficult issues in this case is customerdata. When an existing company is broken into two, would the resulting twocompanies each get all the data on a customer that the existing companycurrently has? Are customers comfortable with the idea that now twice as manycompanies have lots of personal data on them? Does this make individualconsumers more susceptible to identity theft and fraud? In short, it is hardto imagine any type of break up of a large tech company that is not alsoaccompanied by new privacy rules and regulations. In addition, vertical breakups would deny any economies of scope that may be created when platforms alsoprovide their own edge services.Other ApproachesThere are a variety of more nuanced approaches to big tech that lie between“do nothing” and “break them up,” including taxes on digital advertising, thecreation of a special venue for discrimination complaints against big tech,data portability, and use and then deletion of personal data, among others.There is much to like in these alternative approaches. However, in each case,much will come down to the specific details around how the approach isimplemented. In particular, it is an open question as to whether any non-structural approach will apply to all tech firms, or only a subset of them, orwhether there are “tiers” of regulation so that smaller firms are not asburdened as large firms.Tax Digital AdvertisingNYU’s Paul Romer, who received the 2018 Nobel Prize in Economics, recentlyargued for taxing digital ad revenue. The idea behind this approach is to makeit more expensive for social media and other online firms to profit from adrevenue, thereby incentivizing them to pursue other models, such assubscriptions for content. Romer also suggests that the tax could beprogressive—meaning the tax would be low (on a per-ad basis) for smallcompanies, and high for large companies—which would make acquisitions lessattractive, and hence may lead to more competition.Special Venue for Discrimination ComplaintsAnother approach is the creation of a special venue (that might exist withinan existing regulatory body such as the FTC or in a new agency) to which firmscould bring discrimination complaints about the behavior of big tech. Anexample of such a complaint might be if a merchant on Amazon’s e-commerceplatform believed that Amazon copied its business and then used its platformto preference Amazon’s affiliated clone in search results. In such a case, themerchant could prove it was discriminated against on the basis of its lack ofaffiliation, and that it was materially impaired as a result; such a complaintwould be adjudicated on an expedited basis by a neutral factfinder. Asexplained by Hal Singer, such an approach has been used to police verticallyintegrated cable companies that discriminate in favor of their own cablenetworks.Data PortabilityAnother approach is mandatory data portability, whereby customers of onedigital platform are enabled to “port” their data to a rival digital platform.As with telephone number portability in the United States and other countries,or the concept of “open banking” in the UK, the idea is that data portabilitygives customers a greater ability to “vote with their feet” and leave onecompany for a lower priced or higher quality rival. As described on a recentAEI online symposium, data portability may be hard to implement in some cases,as it would require extensive coordination by users of the incumbentplatforms. It is also not clear how much data portability would encourageentry by startups, which need access to large amounts of data at once, notpiecemeal access to one or another customer. However, a benefit of dataportability is that it is industry agnostic. A data portability requirementwould not necessarily be specific to large tech firms, but could apply morebroadly across a number of industries including finance, insurance, healthcare and other industries, potentially helping to address the growing problemof market concentration that has been documented in the U.S. and othercountries.“Use Then Delete”A final approach is one that mandates platforms delete customer data afterusing it, or after a pre-determined amount of time. This approach is explainedin a new working paper by Yafit Lev-Aretz at CUNY’s Zicklin School of Businessand Katherine Strandburg of NYU Law School. The authors explain that thisapproach would help safeguard consumer data and incentivize competitionbetween firms. It would eliminate any advantage that a large tech firmcurrently enjoys from vast quantities of consumer data that are a by-productof whatever product the firm offers (i.e., online search, online commerce,online networking). Moreover, economists at large tech firms have claimed thatthere are few economies of scale from data. If true, then it would seem to bedifficult for large tech firms to claim that this “use then delete” approachsomehow unfairly disadvantages them.Further Reading on Antitrust EnforcementThe policy descriptions above have been intentionally kept short and focusedon digital markets—this is intended to be a primer! Readers wanting a more in-depth treatment around antitrust enforcement in general are encouraged to readCarl Shapiro’s recent paper in the Journal of Economic Perspectives. Readersinterested in a more in depth treatment around antitrust enforcement as itpertains to digital markets are encouraged to read a report from University ofChicago’s Stigler Center proposing a Digital Authority. One potential role fora Digital Authority would be to determine appropriate parameters for theapproaches described above, as well as to enforce them.