The Justice Department’s antitrust chief came out swinging against Google and Amazon on Tuesday, calling big technology companies “digital gatekeepers” that may struggle to defend themselves by arguing their products are free or really cheap.
Makan Delrahim, who recently launched an investigation of the industry, compared the digital giants to companies that the U.S. government broke up, such as Standard Oil, and defended the power of antitrust laws to police anticompetitive conduct in the tech sector, such as agreements to bundle products.
“The current landscape suggests there are only one or two significant players in important digital spaces, including internet search, social networks, mobile and desktop operating systems and electronic book sales,” Delrahim said in a Tuesday speech.
The Justice Department recently took antitrust oversight of Alphabet Inc.’s Google and of Apple Inc., while the Federal Trade Commission agreed to scrutinize Amazon.com Inc. and Facebook Inc.
Google loomed large in Delrahim’s speech — first as a potential beneficiary of the U.S. government’s antitrust case against Microsoft Corp. and then as a company that pursued potentially problematic agreements in the search market.
Delrahim described “coordinated conduct that creates or enhances market power,” citing a proposed 2008 agreement between Google and Yahoo to have the former power search ads for the latter. He said the department told the companies it would file suit against the agreement and the companies backed away.
The European Union charged Google with antitrust violations for agreements that forced phone makers to preinstall Google apps in return for using the Android operating system free of charge. Google is appealing. Apple and Google both face growing complaints about the fees they charge developers on their mobile app stores.
When “a dominant firm uses exclusive dealing to prevent entry or diminish the ability of rivals to achieve necessary scale,” that can limit competition, Delrahim said. Microsoft was accused of using dominance of PC operating systems to quash competition in the web browser market by bundling its Internet Explorer software. The company was ultimately forced to offer rival browsers with the Windows operating system.
Delrahim played a cameo role in the Microsoft case, which he said arguably paved the way for companies such as Google, Yahoo and Apple to enter the market with their own desktop and mobile products. During the case, he served as counsel to then-Sen. Orrin Hatch (R-Utah), who was Microsoft’s chief legislative antagonist. Delrahim quoted Hatch on Tuesday, saying that robust antitrust enforcement to preserve competition in technology was preferable to later regulation.
Many U.S. antitrust experts have dismissed calls for a crackdown on tech companies, arguing that their conduct doesn’t harm consumers because the businesses offer free or cheap services and products. Delrahim dismissed that line of thinking.
“The antitrust division does not take a myopic view of competition,” he said. “Price effects alone do not provide a complete picture of market dynamics, especially in digital markets in which the profit-maximizing price is zero.”
Delrahim argued that “harm to innovation” is also an important dimension of competition that can have far-reaching effects.
“Consider, for example, a product that never reaches the market or is withdrawn from the market due to an unlawful acquisition,” he added, immediately after noting low prices or free services from Google and Amazon. “The antitrust laws should protect the competition that would be lost in that scenario as well.”
Delrahim said that lack of competition can degrade product quality, citing privacy lapses and free-speech questions as examples. Tech giants such as Google and Facebook have come under fire for mishandling these issues.
“By protecting competition, we can have an impact on privacy and data protection,” he said.
Acquiring start-ups is a common strategy by tech giants, but some critics say this can block the rise of potential competitors. Delrahim said he might not be able to define when such purchases are problematic.