As the CEOs of Amazon, Apple, Facebook, and Google prepare forhistorictestimony today in front of the House antitrust committee and withlegal chargesexpected soon I have a request: Before we dismiss the possibility of breaking them up, can we please stop comparing the worlds most powerful companies to eggs?
The current Chair of the U.S. Federal Trade Commission stated that after Facebook and Instagram have integrated their systems following their merger, splitting up the two social networks becomes more difficult because the eggs are scrambled. The U.S. Department of Justice antitrust chief under President Obama made a similar observation that it can be very difficult, or impossible, to unscramble the eggs. Over decades, references to this breakfast plate have repeatedly appeared in official speeches, scholarly articles, and judicial rulings.
The metaphor is misguided. Businesses routinely break themselves up. More than3,000 voluntary divestitures occur each year, amounting to abouta third of all mergers and acquisitions. Many are enormous. Not that long ago, Hewlett-Packard split itselfdown the middle to createtwo independent Fortune 100 companies. Last year Fox sold its movie business to Disney for$71 billion.
In other words, while most in the government and academia see breakups as radical and extreme, leading business executives see them as astandard part of corporate governance. I know because I have advised executives at several of the nations largest companies on massive reorganizations. If we must analogize monopolies to eggs, at the very least we should recognize that while nobody unscrambles eggs, we regularly carve up omelets after theyre prepared.
This seemingly harmless metaphor expresses a potentially devastating worldview that helps explain why the government has not broken up any of the largest U.S. companies since 1984. Thats when the Department of Justicesplit the AT&T monopoly into seven pieces, a move widely celebrated especially byconsumers who were paying over eight dollars for a five-minute call from Washington, D.C. to New York.
Today, however, even many leadingleft-leaning intellectualscalling for more aggressive antitrust enforcement opposesplitting up Big Tech due to breakups perceived messiness. They prefer other remedies, like mandating access. Access mandates leave the monopoly in place but require it to help competitors. For instance, rather than forcing Facebook to divest its previous acquisition, Instagram, the social network could be required to allow users to transfer their accounts or post simultaneously to other social networks.
One clear problem with this and other alternative remedies is that theyare unlikely to deter anticompetitive behavior. At trial,companies almost always fight for something other than breakups. Weaker remedies give CEOs incentives to build monopolies. Equally problematic is that these other remedies are extremely difficult and expensive. For example, requiring Amazon to share its platform fairly with competitors would require ongoing monitoring by the government over decades to ensure compliance.
In contrast, breakups are cleaner and cheaper because they provide a one-off event after which the government can move on. By instead pushing antitrust toward government-heavy remedies, the resistance to breakups leaves antitrust with only unattractive options. Unattractive remedies mean enforcers are less likely to take any action.
In other words, the animosity toward breakups has enfeebled the very institution of antitrust in America.
Of course, while breakups of Facebook and Instagram or Google and Waze may make sense, there are limits to how much some of these tech companies can be carved up without harming consumers. And antitrust breakups involve considerable costs in executing the reorganization. As a result, some caution is appropriate in choosing them as the remedy, and access mandates have a place in the antitrust arsenal. It would be a mistake to launch into an indiscriminate breakup rampage of all concentrated industries.
In weighing those costs, however, authorities should recognize that even private divestitures require tremendous organizational expenses. The key in both public and private breakups is not to let the inevitable reorganization costs prevent economic progress. In 1911, John D. Rockefellers lawyers argued that breaking up his oil monopoly would not only be dangerous to the industry, but calamitous to shareholders. Similar arguments were made before theAT&T breakup.
ButRockefellers wealth skyrocketed after the Standard Oil breakup, and AT&T shareholders who held onto their stock earnedhigh returns. Thats because buyers of broken up monopolies pay for the carved-up pieces. And smaller,nimbler companies can better adapt to changing markets. More importantly, nobody can deny thatthose U.S. industries subsequently flourished and led the world.
A better antitrust analogy would be to firefighting.The Forest Serviceregularly manages controlled burns, which prevent catastrophic wildfires and enable ecosystems to thrive. Occasional breakups that have costs in the short-term can help make markets healthier in the long run. The harms to our economy from large monopolies are far more certain than the speculative fears of messy breakups.
Rory Van Loo is a professor at Boston University and the author, most recently, ofIn Defense of Breakups: Administering a Radical Remedy. He previously advised multinational corporate executives on mergers and acquisitions. Follow him on Twitter @RoryVanLoo
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Stop with the egg metaphor in discussing Big Tech break-ups | TheHill - The Hill
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