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In-Depth: Scathing report labels tech giants monopolies that curb competition, stifle small businesses

Congressional Dems says big tech companies are a monopoly
Posted at 5:24 PM, Oct 08, 2020
and last updated 2020-10-08 18:59:27-04

CLEVELAND — Their products connect us in ways never seen before. They can control what we see, where we go and, in some cases, what we buy and when. Much like the railroads and Standard Oil back in the 1800s, some U.S. House lawmakers consider the four Big Tech giants, Amazon, Alphabet (Google), Apple and Facebook, to be monopolies. A scathing report released this week lays bare the allegations of anti-competitive behavior by Big Tech and the impact it has had on small businesses and the market overall.

The damning 450-page report is the culmination of a year-long inquiry by the House Antitrust Subcommittee, a bipartisan panel that held several hearings and reviewed more than one million documents. Among the possible recommendations floated by the subcommittee are a possible break up of the four conglomerates, sweeping antitrust reform as well as strict limitations on what markets the four companies can operate in. Although the panel was bipartisan, Republicans and Democrats appear to be in disagreement with some of the report's recommendations.

You can read the report here.

The report contains some surprising revelations even for the most well-versed tech enthusiast. According to the report, Amazon routinely and frequently uses its massive power in the e-commerce space to cripple its competition. More than a third of Amazon's 2.3 million third-party sellers rely on Amazon for their income, making those sellers increasingly more vulnerable to changes in Amazon's rules.

Additionally, Amazon forces its sellers into arbitration in the event of a dispute. According to the report, the Online Merchants Guild stated that sellers rarely initiate arbitration proceedings, likely because the sellers know Amazon holds all the cards. Between 2014 and 2019, only 163 sellers and 16 vendors initiated arbitration, despite the fact that the number of sellers on Amazon's marketplace grew exponentially.

"Because sellers are generally aware that the process is unfair and unlikely to result in a meaningful remedy, they have little incentive to bring an action," the report states.

The report also alleges Amazon's data-collecting measures allow the company to identify hot products sold by third-party vendors. In many cases, the report states Amazon used that information to make a very similar product under its own brand and at a lesser cost, essentially using the third-party seller's success against them.

For Kim Crow, the owner of Evie Lou, a women's clothing store in Tremont, Amazon's influence and sheer market power forces her to make changes to her inventory. She cited one recent example of when she received products from a jewelry line she intended to sell at her store. However, on the day the product arrived, she saw an email that the same product was being sold by major online retailers at significantly lower prices than she could afford.

"The minute one of our brands does become available on a larger platform, I tend to drop them. It's just because they're going to start marking things down right away," Crow said. "We're never going to compete on your basic white tank top but for a glamorous dress to wear to a wedding, we'll have you covered for that."

Specialization and unique product offerings have allowed Crow to survive and thrive over the past 10 years. The former fashion editor of the Plain Dealer parlayed her fashion expertise into her own business. She recently added a second storefront in Oberlin and has an active e-commerce presence.

"In our first year, [e-commerce] was maybe a tenth of our business. Now, it's 60 or 70 percent," she said. "I feel like everyone has to have some modicum of their inventory online just to give people a sense of what your store is all about. It's what people expect out of retailers."

Amazon has also profoundly impacted consumer expectations when it comes to shipping. Two-day and even same-day shipping courtesy of Amazon's extensive distribution network has shifted consumer expectations, which have created negative consequences for small retailers like Evie Lou.

"There is a lot of that expectation that shipping should be free. It should be fast. People should have their things in a day or two," Crow said. The tactics used by Alphabet — most commonly known as Google — have also impacted Crow and her business. She said Google will frequently make small but meaningful changes to its algorithms, which impact the reach and ultimate success of Crow's online ads. When those changes are made, Crow said she will be contacted by companies specializing in search engine optimization. On at least one occasion, Crow said she was contacted by a company which she later learned was a Google subsidiary.

In the subcommittee's report, lawmakers alleged Google achieved and continues to maintain its search engine dominance by siphoning data from third parties without permission in order to improve search results. The report also alleged that Google made subtle and secretive changes to its search process in order to emphasize its owner services while suppressing competitors. Additionally, the Android mobile operating system, which is owned by Google, comes pre-loaded with Google products. Google is also alleged to have forced smartphone makers to use Google products as the default, including Google's search engine. The report also found Google pays Apple, which was also deemed by lawmakers to be a monopoly, billions of dollars every year to be the default search engine on iPhones.

This 'walled garden' approach was a common tactic used by all four companies named in the report. An additional commonality was the siphoning of massive amounts of personal data from the companies' users. The report alleges the companies use this data to effectively gain real-time intelligence on what products people are using and whether people are using competing products.

"A lot of the large tech companies have more power than a lot of states and even some countries," said Anat Alon-Beck, an assistant professor at Case Western Reserve University that specializes in corporate law. "They control information. Information is power. The problem is what happens when you have certain players that control several industries. They can control your payment, shipping, information. They might influence the upcoming election. Congress is saying, stop. The question is where do they put the stop."

Alon-Beck said she agreed with the report's conclusion that Apple, Amazon, Facebook and Google are all monopolies that — without question — have created tremendous products. Similar to the railroads and oil giants in the 1800s, any time a new market emerges, the leaders in those markets eventually become monopolies.

"We're in historic times because we are in what I call the knowledge economy," Alon-Beck said. "We're talking about a tremendous amount of power that is limited to several people holding that power. I can see why people would be concerned about these developments."

As an expert in the field of corporate law, Alon-Beck said she's personally concerned with the potential ramifications of severe actions taken against Big Tech. Whether those actions lead to higher or lower prices on consumer goods or, perhaps, more or less innovation and investment will ultimately be determined by what actions lawmakers take.

For example, if lawmakers place severe restraints on mergers and acquisitions involving Big Tech, it might create a chilling effect on start-up companies, reducing investment and, ultimately, reducing innovation.

"What is it that they are targeting? Are they concerned about privacy? Are they concerned about price-fixing? Are they concerned about mergers and acquisitions?" Alon-Beck said. "Anything that they do is going to have an effect on us, our society, our commerce, our development and our ability to compete. My concern is Congress has to have very clear goals with this."

Alon-Beck said Amazon in particular may experience the tightest restrictions, if implemented by Congress.

"It's not only a retailer, it's a marketing platform. It's a delivery and logistics network. It's a payment service. It's a credit lender. It's an auction house. It's now a major book publisher. It's a producer of television and films. It's a fashion designer. It's a hardware manufacturer. It also, very importantly, is a leading host of cloud server space," Alon-Beck said, referencing Amazon's ultra-profitable Amazon Web Services division. "The way that they are conducting themselves, the way that they are entering into all of these other markets, those raise anti-competitive concerns."
Facebook and Apple also drew sharp rebukes by lawmakers in the antitrust report.

In regards to Facebook, lawmakers concluded that the social networking giant is firmly entrenched in its monopoly power, despite the company's public statements to the contrary. The report states Facebook has either crippled, out-flanked or absorbed competitors through data collection, acquisitions and the copying of a rival company's products. The report cited Facebook's acquisition of a data analytics firm that enabled the tech giant to gather data on potential rivals, effectively acting as an 'early warning' system.

The report was also sharply critical of Facebook's dominance in the market, which has negatively impacted user privacy while also allowing a surge in misinformation on the platform.

Similar to the allegations against Google, Apple is also accused of implementing and effectively perfecting a 'walled garden' approach by introducing and implementing policies that favor their own apps and, in many cases, making those apps the default option. The report concluded that this practice creates an unlevel playing field for third-party app developers. Additionally, the report found Apple's 30% cut on all app and in-app purchases creates a financial burden on app developers and, in turn, consumers. Google also takes a 30% cut of app store purchases but, unlike Apple, allows users to 'side-load' alternative app stores, but at great difficulty.

The report also found Apple has asserted its control over the App Store by burying rival apps lower in search results and also using its rules and terms of service to capriciously disallow certain apps inside the store. Furthermore, Apple drew criticism by appearing to show favoritism to certain companies by collecting less than the 30% cut applied to other app developers.

In a series of blog posts and statements posted on their respective websites, all four companies denied the report's findings and assertions.