Lina Khan Wants to Change the Antitrust Argument Against Big Tech

February 6, 2022

The rise of the “Chicago School” in the 1970s completely upended traditional, “big-is-bad” antitrust enforcement theory. Robert Bork (yes, that Robert Bork), in his seminal work, The Antitrust Paradox, argued that the intention of antitrust laws was the pursuit of maximizing consumer welfare, and nothing more.  In other words, only a few acts should be prohibited by antitrust law: mergers creating monopolies, predatory pricing schemes, and price-fixing or market-dividing cartels.  This is because these actions almost always will result in higher prices or inferior products (or both) for consumers which limits consumer welfare.

But how do you apply this framework to a company like Google or Meta (Facebook), where services are offered for free?  What about Amazon, whose platform is available for free to consumers and who sells its own goods at (typically) competitive prices?  There is wide consensus among Americans that something needs to be done to reign in the power of major technology companies, but without action from Congress, how exactly do we go about it?  The Federal Trade Commission Chairwoman, Lina Khan, thinks she has the answer.

Khan wants to change the terms of the antitrust argument by focusing less on the harm these companies do to consumers or rivals.  Instead, she wants to focus on how Big Tech’s business harms other companies that are, essentially, its partners.

Khan wants to change the terms of the antitrust argument by focusing less on the harm these companies do to consumers or rivals.  Instead, she wants to focus on how Big Tech’s business harms other companies that are, essentially, its partners.  Khan argues that the proper approach is to view Big Tech as monopsonists instead of monopolists.

So what exactly is a “monopsony”?  Most people likely have some idea of what a monopoly is (and no, not the boardgame).  Put simply, it is a firm that possesses a dominant or solo position in an industry or sector as a seller.  Capitalist economies disfavor monopolies because it allows the firm to price-gouge, limit output, and provide lower quality goods because consumers lack a viable alternative.  In other words, monopolies tend to engage in the exact behavior that antitrust condemns, minimization of consumer welfare.  A monopsony, on the other hand, presents a “mirror image of monopoly” where one firm possesses a dominant or solo position in an industry or sector as a buyer.  A monopsonist distorts the market by driving down the price of the inputs it purchases, such as by restricting the amount it buys.  Frequently, a monopsonist will take the form of an employer that supplies most or all of a region’s jobs.  This monopsonist is a purchaser of labor from employees and, given its dominant position and the lack of alternatives for employees (geographically) to “sell their labor,” can drive down wages and increase profit margins above where they would be otherwise.

Khan and the FTC say that Big Tech’s platforms essentially have turned them into middlemen that allows them to control markets and act as monopsonists.  As such, they “are abusing their positions as effectively the ultimate proxy buyers for all users of their platforms.”  For example, Apple’s App Store is the dominant app that sellers need to go to in order to sell their software and services.  Google and Meta dominate the market for publishers selling ad space.  Amazon sets the terms for companies that want to sell things online.  It is effectively the dominant buyer of these companies’ goods, even if it does not represent the end consumer.  It has complete control over the fees paid to list goods on the platform, rates paid for advertising, among other things (not to mention which and where good appear on the site).  Amazon’s role as a gatekeeper over its platform is no different than a retailer who decides what to stock at a traditional store, however, imagine that forty percent of all traditional store sales in the country go through this one store.  This, in fact, was part of the thesis that brought Khan to prominence in the world of antitrust theory.

Recently, a federal judge allowed the FTC’s antitrust lawsuit against Facebook to proceed after dismissing it before it began last summer, though it predicted winning would be a “tall task.”  Whether Apple was a monopolist in the market for mobile gaming was recently addressed in Epic Games v. Apple, where the court found the answer was “no.”  The Supreme Court, in 2018, ruled in Ohio v. American Express Co. that any action against credit card companies would need to come in response to harm to both merchants and consumers.  Though not an exact match, the credit card networks are analogous to Big Tech platforms because they facilitate transactions between merchants and consumers.  The ruling in Amex suggests that the Supreme Court still expects a showing of consumer harm in these monopsony cases.

Whether this new approach to antitrust will ultimately succeed remains to be seen.  Congress is drafting laws that will give the FTC expanded powers to address Big Tech, but there is no guarantee that these laws will ever make their way to the president’s desk.  Until that happens, Lina Khan will just have to hope she can get the courts to bite.

Jacob M. Perrone

Jacob attended the University of Delaware for college and majored in Economics and Finance.  Before attending law school, he worked in finance for three years.  After law school, he plans to pursue a career in corporate law.

See the author’s previous blog post here.