Republican and Democratic leaders have both called for greater scrutiny of the power and influence of Big Tech firms, but, unsurprisingly, they have disagreed about how to address the problem.  Senator Elizabeth Warren and many other leading Democrats have called for breaking up Google, Amazon, and Facebook in a revival of the trust-busting progressive era of the early 20^th century.  In contrast, the Trump administration has triggered traditional monopoly review of  a number of leading technology firms, which is likely to lead only to financial sanctions or more modest remedies.

In a recent article, I argue that politicians’ concerns may be legitimate, but they are looking at the problem from the wrong perspective.  The larger concern is less monopoly than oligopoly domination (and more the potential for damage than current impact).  The challenge is that it is difficult to monitor the individual and collective exercise of market power by oligopolists.  Existing oligopoly regulation in the United States is almost exclusively reactive and fails to identify and address the potential impact of market concentration, with the notable exception of the Federal Trade Commission’s and Department of Justice’s review of prospective mergers.

I make the case for requiring federal regulators to oversee oligopolies in a preemptive way in order to better identify the potential for market abuses and to open up concentrated markets to greater competition.  The underlying logic is that, even if regulators cannot pinpoint antitrust violations in the present, the higher the degree of market concentration, the greater the risk that oligopolies will possess and exercise market power to entrench their power and undercut competition.  But rather than focusing on invasive divestments, I suggest that policymakers should consider employing a range of disclosure rules, regulatory exemptions, and tax incentives to level the playing field for smaller competitors in oligopolistic markets.

I focus on the imperative for antitrust oversight of “filtering” or “access oligopolies” who serve as gatekeepers against fraud, data aggregators, and screeners of information and reputation.  A small number of oligopolists dominate internet searches, social networking, online shopping, and the more traditional spheres of accounting, rating agencies, and investment banking.  Participants in these concentrated markets can easily engage in conscious parallelism to mimic one another’s prices and practices because of the homogenous nature of the goods or services they provide.  But the defining feature of many of these oligopolists is that they have prioritized market share growth and entrenchment by focusing on economies of scale, network benefits, and barriers to entry rather than on the conventional supra-competitive pricing that monopolists and oligopolists have embraced in the past. In fact, the paradox of many of these filtering intermediaries is that they may even enhance consumer welfare by for example, offering consumers “free” internet searches or messaging while at the same time leveraging their market power to pressure corporate clients to adopt or retain their services.

Conventional antitrust regulation focuses on preventing monopolists’ abuse of their market power to distort market pricing.  In contrast, antitrust regulation of oligopolies is almost exclusively reactive and limited in scope.  Regulators prohibit express collusion among oligopolies and impose limits on the expansion of oligopolies through mergers and acquisition based on the potential impact on market concentration.  But regulators lack the means to remedy the underlying entrenchment of oligopolies and the resulting market distortions when there is no evidence of express communication or circumstantial evidence of agreement among the parties.

I suggest that there is a need for a paradigm shift for antitrust regulators to sustain preemptive periodic oversight of highly concentrated markets (rather than react primarily to merger reviews).  In addition, regulators should consider imposing heightened disclosures on oligopolists to facilitate monitoring and seek to open up these markets to greater competition by lowering the regulatory, disclosure, and tax barriers to entry for small market participants.  This approach may not satisfy those echoing politicians’ calls for mandatory divestments, but it is designed to recognize that high levels of market concentration increase the potential danger of collusion and leveraging of market power by oligopolists.

This post comes to us Professor Jeffrey Manns at George Washington University Law School. It is based on his recent article, “The Case for Preemptive Oligopoly Regulation,” available here.