Reaching the Tipping Point in Tech Regulations

The term tipping is common in antitrust and refers to the point at which a product has accumulated enough users or consumers that it gets launched towards a monopoly status. When applied to regulations, tipping point refers to a point in time, at which gradual regulatory costs eventually reach the point where it is no longer profitable or worthwhile for businesses to operate. Recent reactions by tech companies, following regulatory developments, suggest we are nearing such a tipping point.

Before proponents of regulations cheer this development, it is worth considering whether Americans would truly be better off without the companies that allow us to stay connected with loved ones and bring new levels of convenience to tasks as broad as going to the airport or shopping.

The flaws of large tech companies have been well publicized, and concerns reach across the political spectrum. Many individuals on both sides of the aisle are unhappy over content moderation and the implications of such influence.

These concerns have almost certainly contributed to the loss of public confidence in some of the companies. Overall, support for additional regulation has declined but remains significant with 44 percent of respondents supporting greater regulation, according to 2022 Pew Research polling.

The decreased support for greater regulation was particularly pronounced among Republican-leaning respondents. The trend might appear surprising given the liberal slant of tech companies, but it is reflective of a preference towards limited regulation that has been a stalwart stance of conservatives for decades.

Those who take the position of limited regulations usually do so through an understanding of the imposed cost on businesses and the economy. The National Association of Manufacturers found that in 2022, federal regulations cost the U.S. economy over $3 trillion and an average of $277 thousand in compliance costs per firm. Such expenses can’t accumulate indefinitely without eventually resulting in a regulatory tipping point.

The most recent example comes from the ride-sharing companies Uber and Lyft. After Minneapolis passed minimum wage requirements which would take hourly compensation from an average of $13.63 per hour to an estimated $15.57 per hour, the two companies announced they would cease operations in the city. While this may appear to be a minor regulatory change, it directly challenges a business model that relies on independent contractors who are paid on a per-ride, not a per-hour basis.

Google and Facebook have also looked to restrict services based on regulations. Legislation designed to require platforms to pay fees for the use of news content has either been proposed or passed in Australia, Canada, California, and at the U.S. federal level. However, these types of bills have historically been met with threats or actual removal of news content by Google and Meta.

While agreements have previously been reached to maintain news content on these sites, it does show that regulations targeting revenue models can eliminate key services consumers rely on.

One of the more popular proposals popping up in states across the country are age verification requirements. These primarily focus on social media or adult content sites. In instances where age verification requirements have been passed at the state level for adult content, we have seen companies no longer offer their service within those states, the most recent example being Texas.

A report by the American Consumer Institute found that based on population estimates “thirty-nine states and the District of Columbia were identified as having an estimated social media user base low enough that high regulatory compliance costs might surpass potential revenue.”

From minimum wage laws to age verification, tech companies are facing new regulatory pressures, and often they choose to end service rather than comply.

It should give lawmakers pause when companies choose to limit services in regulated locations. It is possible to critique some of the impacts of tech companies while also acknowledging the conveniences they provide to consumers every day. Regulatory actions should be careful to not pass the regulatory tipping point and cut access for consumers.