Dynamic Competition in Digital Markets: A Critical Analysis of the House Judiciary Committee's Antitrust Report

Abstract

Amazon, Apple, Facebook, and Google, often referred to as the “big four” tech companies, are four of the five most valuable US companies traded on the public market and together control over $5 trillion in market capitalization, almost one-fifth of the S&P 500. As these companies have grown in size and power, so has public scrutiny of them, including calls for them to be broken up. The latest example is the recent antitrust report from the Subcommittee on Antitrust, Commercial, and Administrative Law of the House Committee on the Judiciary. The report focuses specifically on competition in digital markets. The report is the result of a lengthy investigation conducted by the subcommittee. It attempts to assess the state of competition in digital markets and the effects of competition within these markets. It focuses primarily on the power and conduct of the big four tech companies and provides a detailed analysis of its findings with regard to each of these companies. It also proposes several reforms that seek to strengthen antitrust law and enforcement in light of the problems affecting these growing markets. This policy brief provides a critical analysis of the report and its recommendations based on the consumer welfare standard, which has governed antitrust policy since the late 1970s. It also proposes a theoretical framework for refutation of the report’s allegations about anticompetitive conduct of the big four tech companies that we hope will be useful for future empirical work. Using this framework, we find that the report likely overstates the market power held by these tech companies and the extent to which their conduct is actually harmful to consumers. In addition, our framework leads us to hypothesize that the reforms advocated in the report may actually make consumers worse off by interfering with market dynamism and slowing innovation.