Government Doesn’t Need to Regulate Big Tech, Free Markets Will

If there’s one thing Republicans and Democrats can agree on these days it’s the desire to regulate Big Tech. The fact that both sides of the aisle are advocating for this should scare the hell out of you. They each have somewhat different reasons, but for this exercise we’re going to focus on the antitrust lawsuit recently filed against Google.

On October 20, 2020 the DOJ filed a civil antitrust lawsuit to “stop Google from unlawfully maintaining monopolies through anticompetitive and exclusionary practices in the search and search advertising markets and to remedy the competitive harms.”

Having a monopoly isn’t necessarily against the law in and of itself. The issue is that antitrust regulators say Google achieved monopoly status by illegal means.

Google SVP Global Affairs and Chief Legal Officer Kent Walker countered the government’s accusations in a blog post, “People use Google because they choose to, not because they’re forced to, or because they can’t find alternatives.”

This lawsuit has also led to a broader question that goes far beyond Google: have tech companies such as Google, Apple, Facebook, and Amazon grown too large, and do their dominant positions ultimately harm consumers?

In theory, antitrust laws are designed to increase competition. An unregulated market would, in the mind of a central planner, ultimately lead to the establishment of illegal monopolies, shutting out competition and harming consumers.

What is often overlooked is how government creates monopolies by picking winners and losers through regulation and subsidies.

Antitrust laws can sometimes punish successful companies that have managed to offer superior goods and services at competitive prices. They also raise the barriers to entry for competition and protect less-efficient firms from the hard work of becoming or staying competitive, artificially keeping them in business. This maintains the status quo, solidifies larger firms’ position in the marketplace, and ensures that only a few firms dominate any given market.

Regulation doesn’t spur competition, it stifles it. There is usually an immense cost in adhering to new and ever changing government regulations. That cost can be easily absorbed by large companies (and passed on to the consumer), however smaller companies do not enjoy endless cash reserves and are usually priced out of the market, leaving only a few big firms (with political connections, of course) to serve the very market government was trying to “fix” on behalf of American consumers.

Ron Paul, ever the advocate for free markets, gave an example of how regulations stifle competition and actually lead to monopolies in a 2016 USA Today op-ed:

The DOJ’s targeting of Google has eerie similarities to the case they tried to make against Microsoft in 1998. The United States government accused Microsoft of trying to create a monopoly following the “browser wars” that put Netscape, one of it’s biggest rivals at the time, out of business partly because Microsoft bundled Internet Explorer within its Windows operating system.

Needless to say this was not a popular lawsuit with free market economists, as evidenced by this open letter to President Bill Clinton from 240 economists that argued:

Ultimately the presiding judge ruled that Microsoft violated parts of the Sherman Antitrust Act, (established in 1890 to outlaw monopolies and cartels) and found that Microsoft’s position in the marketplace constituted an illegal monopoly. Microsoft was ordered to divide the company and create two separate entities. The operating system would make up one half of the company and the software arm would make up the other.

Microsoft appealed the decision… and won. The Department of Justice instead settled with Microsoft, abandoning the requirement to break up the company. In return, Microsoft agreed to share more of the inner workings of its Windows operating system so competitors could make sure their software worked better on Windows. They also gave computer makers more leeway to offer/bundle non-Microsoft products (such as other browsers, ISPs, media players, etc.) with their computers.

Here’s the reality: the free market would have pushed Microsoft to arrive at the same exact place without the government having to spend $9.4 million. If Microsoft didn’t adjust to consumer demand for better software they’d put themselves in serious jeopardy from quality upstarts within their industry.

How do we know this? Because the free market had already kicked many of tech’s largest companies to the curb without any government interference. Remember BlackBerry, Yahoo!, and AOL? How many of you had a MySpace profile?

Notice that all of those tech companies are essentially irrelevant in today’s digital landscape. BlackBerry, for example, once controlled 50% of the smartphone market in the US, and 20% globally. Today? BlackBerry commands exactly 0% of the smartphone market. Let me say that again. BlackBerry went from 50% market share to ZERO PERCENT.

MySpace was the most visited social media site in the world garnering about 75 million unique visitors a month in 2008. Today it’s a music site of little to no relevance in anything related to “social” as we’ve come to know it today.

We didn’t need the government to come in and regulate BlackBerry and MySpace to foster more competition in their respective areas; the free market did that all on its own, helped in part by two companies named Apple and Facebook.

It’s also important to note that tech companies like Microsoft and Google have actually advocated for increased regulation at the World Economic Forum in Davos in January of this year. The linked article touches upon the adverse consequences of Europe’s General Data Protection Regulation which has caused exactly the kind of issues with competition those 240 economists warned Bill Clinton about:

Of course privacy is an important issue, but consumers have been advocating for privacy protection long before government decided to step in. Companies that don’t value and protect consumers’ privacy will suffer the consequences of bad publicity, decreased sales, and loss of market share. Social reputation is a valuable commodity nowadays and actually helps to self-regulate markets. No government needed.

Innovation happens at breakneck speed, and success today doesn’t mean success tomorrow. A market, free of government interference, provides the best environment to spur innovation, which naturally leads to increased competition, quality goods and services, and lower prices. Rather than the government advocating for increased regulation, consumers should be advocating for less government.