Skip to main content
Log in

The Dubious Antitrust Argument for Breaking Up the Internet Giants

  • Published:
Review of Industrial Organization Aims and scope Submit manuscript

Abstract

Recent calls for using the antitrust laws to break up the large Internet giants are misplaced for a number of reasons. First, similar efforts against oil, tobacco, motion-picture, and telecommunications monopolies have not proved to be beneficial to economic welfare. Second, the failure to break up Microsoft using Section 2 has not proved to be a mistake: competition in operating systems and Internet browsers has flourished recently. Finally, a Section 2 case against Amazon, Facebook, or Google could not succeed if it focused on the digital advertising market. Even in a case based on market power on the other side of their platforms, a structural remedy—a break-up—would not improve economic welfare in the long run.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Subscribe and save

Springer+ Basic
EUR 32.99 /Month
  • Get 10 units per month
  • Download Article/Chapter or Ebook
  • 1 Unit = 1 Article or 1 Chapter
  • Cancel anytime
Subscribe now

Buy Now

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Fig. 1

Source: Statcounter available at http://gs.statcounter.com/os-market-share/desktop/worldwide

Fig. 2

Source: Statcounter, available at http://gs.statcounter.com/os-market-share/mobile/worldwide/#monthly-200901-201806

Fig. 3

Source: W3 Counter, available at www.w3counter.com

Similar content being viewed by others

Notes

  1. For a useful outline of the various steps in U.S. v. Microsoft, see “U.S. v. Microsoft: Timeline,” WIRED NEWS, Nov. 4, 2002, http://www.wired.com/techbiz/it/news/2002/11/35212.

  2. For example, see Shapiro (2009, p. 762); Nicholas Economides (2001); and Gregg Keizer, “The Microsoft breakup that never happened,” Computerworld, June 18, 2013, available at https://www.computerworld.com/article/2497911/microsoft-windows/the-microsoft-breakup-that-never-happened.html.

  3. See, for example, Brian Feldman, “U.S. v. Microsoft Proved That Antitrust Can Keep Tech Power in Check,” New York Magazine, December 12, 2017, available at http://nymag.com/selectall/2017/12/u-s-v-microsoft-proved-that-antitrust-can-check-tech-power.html.; Greg Ip, “The Antitrust Case Against Facebook, Google and Amazon,” The Wall Street Journal, January 16, 2018, available at https://www.wsj.com/articles/the-antitrust-case-against-facebook-google-amazon-and-apple-1516121561?mod=searchresults&page=1&pos=3.

  4. A more complete analysis of Section 2 cases may be found in Crandall (2001).

  5. U.S. v. Standard Oil of New Jersey, 173 F. 177 (C.C.E.D. Mo., 1909), aff’d. as modified 221 U.S. 1 (1911).

  6. Crandall (2001, p. 132).

  7. Crandall (2001, p. 136).

  8. United States v. American Tobacco Co., 164 F. 700 (C.C.S.D.N.Y) 1908), rev’d. 221 U.S. 106 (2011); United States v. American Tobacco Co., 191 F. 371 (C.C.S.D.N.Y. 1911).

  9. Crandall (2001, pp. 138–141).

  10. United States v. Aluminum Company of America, 148 F.2d 416 (2d. Cir. 1945).

  11. Crandall (2001, pp. 148–153).

  12. United States v. Paramount Pictures, Inc., F. Supp. 53 (S.D.N.Y. 1946), aff’d in part and rev’d in part, 334 U.S. 131 (1948).

  13. United States v. Paramount Pictures, Inc., 334 U.S. 131 (1948).

  14. Crandall (2001, pp. 158–163).

  15. United States v. United Shoe Machinery Corp., 110 F. Supp 295, D. Mass. 1953, aff’d. 391 U.S. 244 (1954).

  16. Crandall (2001, pp. 163–175).

  17. Greater detail on these historical developments may be found in Crandall (1990, Ch. 2).

  18. Modification of Final Judgment, United States versus American Telephone and Telegraph Company, 552 F. Supp. 131 (D.D.C. 1982), affd. sub. nom., Maryland v. United States, 460 U.S. 1001, (1983).

  19. The Telecommunications Act of 1996, 47 U.S.C. 229. “Unbundling” is the offering of specific separate network elements—local loops, network intelligence, etc.—to entrants.

  20. See Crandall (2005, Ch. 8).

  21. Capital expenditures were much slower to recover in the telecommunications industry than in the cable television industry (which was not subject to the unbundling mandate) after the “dot com” bubble burst in 2000–2001. See the data in the Census Bureau’s Annual Capital Expenditure Survey, available at http://www.census.gov/econ/aces/xls/2007/Full%20Report.htm.

  22. A useful summary of this timeline may be found at https://www.wired.com/2002/11/u-s-v-microsoft-timeline/.

  23. United States v. Microsoft Corp., 97 F. Supp. 2d 59, 64–65 (D.D.C. 2000).

  24. United States v. Microsoft Corporation, 253 F3d. 34 (D.C. Cir. 2001).

  25. New York v. Microsoft Corp., 224 F. Supp. 2d 76 (D.D.C. 2002) (D.D.C. States Remedy2002), aff’d sub nom. Massachusetts v. Microsoft Corp., 373 F.3d 1199 (D.C. Cir. 2004) (entering Final Judgment in the district court case that was brought by the various litigating states).

  26. Shapiro, fn. 2, supra.

  27. Brian Feldman, “U.S. v. Microsoft Proved That Antitrust Can Keep Tech Power in Check,” New York Magazine, December 12, 2017, available at http://nymag.com/selectall/2017/12/u-s-v-microsoft-proved-that-antitrust-can-check-tech-power.html.

  28. Greg Ip, “The Antitrust Case Against Facebook, Google and Amazon, The Wall Street Journal, January 16, 2018, available at https://www.wsj.com/articles/the-antitrust-case-against-facebook-google-amazon-and-apple-1516121561?mod=searchresults&page=1&pos=3.

  29. The tying argument was subsequently dismissed by the court of appeals, but the remedy focused in part on the difficulty in uninstalling Internet Explorer in Windows and installing rival browsers.

  30. Pollock (2010, p. 6).

  31. Julia Angwin "Sun Valley: Schmidt Didn't Want to Build Chrome Initially, He Says". Wall Street Journal, July 9, 2009, available at https://blogs.wsj.com/digits/2009/07/09/sun-valley-schmidt-didnt-want-to-build-chrome-initially-he-says/.

  32. Id.

  33. Browser Market Share, NetMarketShare, December 2017, available at https://www.netmarketshare.com.

  34. Id.

  35. Tess Townsend, “Here's how Google’s rival to Microsoft Office, G Suite, came together,” Recode, March 18, 2017, available at https://www.recode.net/2017/3/18/14955654/short-history-g-suite.

  36. Page and Lopatka (2007).

  37. Microsoft does both. As it explains in its 2017 Form 10K, p. 43: “Costs incurred internally in researching and developing a computer software product are charged to expense until technological feasibility has been established for the product. Once technological feasibility is established, all software costs are capitalized until the product is available for general release to customers. Judgment is required in determining when technological feasibility of a product is established. We have determined that technological feasibility for our software products is reached after all high-risk development issues have been resolved through coding and testing. Generally, this occurs shortly before the products are released to production. The amortization of these costs is included in cost of revenue over the estimated life of the products”.

  38. Microsoft, 2002 Form 10K, p. 52.

  39. Based on quotations found on https://finance.yahoo.com. One would expect MSFT stock to outperform the S&P 500 in a time of rising equity prices, given that its estimated β is 1.28, according to Yahoo! Finance.

  40. Easterbrook (1984).

  41. Id., p. 23.

  42. One of his examples references a Commodore64 home computer!

  43. Certainly, there are dissenting opinions to this view, given the decline in initial public offerings (IPOs), a wave of large mergers, and apparently rising concentration in U.S. industries. See, for example, Gao et al. (2013), Grullon et al. (2018).

  44. Federal Trade Commission, FTC Approves AOL/Time Warner Merger with Conditions: Competitive Concerns Addressed through Open Access and Interactive Television Provisions, DSL Marketing Requirements, December 14, 2000, available at https://www.ftc.gov/enforcement/cases-proceedings/0010105/america-online-inc-time-warner-inc. The merger was also reviewed by the Federal Communications Commission (FCC), which imposed additional conditions in approving the merger.

  45. Shapiro, fn. 2, supra.

  46. Emarketer.com data, reported in Facebook, Google Digital Ad Market Share Drops as Amazon Climbs, Investopedia, available at https://www.investopedia.com/news/facebook-google-digital-ad-market-share-drops-amazon-climbs/#ixzz5JSCv8ZDy.

  47. Id.

  48. One Click Retail data as reported at https://www.zacks.com/stock/news/288587/youll-never-believe-amazons-share-of-the-ecommerce-market.

  49. In 2013, Apple was successfully prosecuted for conspiring with publishers in fixing the prices of books through its e-book program despite Amazon’s very large presence in the retailing of books. See United States v. Apple Inc., 952 F. Supp. 2d 638 (S.D.N.Y. 2013).

  50. European Commission, Factsheet, “Antitrust: Commission sends Statement of Objections to Google on Android operating system and applications,” available at http://europa.eu/rapid/press-release_MEMO-16-1484_en.htm

  51. Nicholas Hurst, “Facebook’s Data Collection Faces Antitrust Charge in Germany,” Politico, May 18, 2018, available at https://www.politico.eu/article/facebook-data-collection-could-be-an-antitrust-abuse-in-germany/.

  52. Large fines are also a possibility as the European Union has shown in cases against Microsoft, Google, and other large firms.

  53. A recent case brought against American Express, which operates a two-sided credit card platform charged the company with violating Section 1 of the Sherman Act by requiring merchants to agree to “anti-steering” provisions: forbidding merchants to steer customers to credit cards that charge lower merchant transaction fees. The Supreme Court ruled that these provisions do not violate the Sherman Act. See Ohio v. American Express Co., 585 U.S. ___, (2018).

  54. See, for example, Mayer-Schӧnberger and Ramge (2018).

  55. Even if the resolution of these cases did not generally lead to a major improvement in economic welfare, it is possible that they may have succeeded in deterring future attempts to monopolize. The benefits of any such deterrence, if it exists, are very difficult to observe and even more difficult to measure.

References

  • Butts, C. (2010). The Microsoft case 10 years later: Antitrust and new leading “New Economy” firms. Northwestern Journal of Technology and Intellectual Property, 8(2), 275–291.

    Google Scholar 

  • Crandall, R. (1990). After the breakup. Washington: The Brookings Institution.

    Google Scholar 

  • Crandall, R. (2001). The failure of structural remedies in Sherman Act monopolization cases. Oregon Law Review, 80(1), 109–198.

    Google Scholar 

  • Crandall, R. (2005). Competition and chaos: U.S. Telecommunications since the 1996 Act. Washington: The Brookings Institution.

    Google Scholar 

  • Easterbrook, F. (1984). The limits of antitrust. Texas Law Review, 63(1), 1–40.

    Google Scholar 

  • Economides, N. (2001). United States v. Microsoft: A failure of antitrust in the New Economy. UWLA Law Review, 32(3), 3–44.

    Google Scholar 

  • Gao, X., Ritter, J., & Zhu, Z. (2013). Where have all the IPO’s gone? Journal of Financial and Quantitative Analysis, 48(6), 1663–1692.

    Article  Google Scholar 

  • Grullon, G., Larkin, Y., & Michaely, R. (2018). Are US industries becoming more concentrated? Review of Finance (forthcoming). https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2612047.

  • Manne, G., & Wright, J. (2011). Google and the limits of antitrust: The case against the case against Google. Harvard Journal of Law and Public Policy, 34(1), 171–244.

    Google Scholar 

  • Mayer-Schӧnberger, V., & Ramge, T. (2018). Reinventing capitalism in the era of big data. New York: Basic Books.

    Google Scholar 

  • Page, W., & Lopatka, J. (2007). The Microsoft case: Antitrust, high technology, and consumer welfare. Chicago: The University of Chicago Press.

    Book  Google Scholar 

  • Pollock, R. (2010). Is Google the next Microsoft? Review of Network Economics, 9(4), 4.

    Article  Google Scholar 

  • Shapiro, C. (2009). Microsoft: A remedial failure. Antitrust Law Journal, 75(3), 739–772.

    Google Scholar 

Download references

Author information

Authors and Affiliations

Authors

Corresponding author

Correspondence to Robert W. Crandall.

Additional information

Publisher’s Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Crandall, R.W. The Dubious Antitrust Argument for Breaking Up the Internet Giants. Rev Ind Organ 54, 627–649 (2019). https://doi.org/10.1007/s11151-019-09680-y

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11151-019-09680-y

Keywords

Navigation