Stop with the egg metaphor in discussing Big Tech break-ups
As the CEOs of Amazon, Apple, Facebook, and Google prepare for historic testimony today in front of the House antitrust committee — and with legal charges expected soon — I have a request: Before we dismiss the possibility of breaking them up, can we please stop comparing the world’s 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 than 3,000 voluntary divestitures occur each year, amounting to about a third of all mergers and acquisitions. Many are enormous. Not that long ago, Hewlett-Packard split itself down the middle to create two 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 a standard part of corporate governance. I know because I have advised executives at several of the nation’s 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 they’re 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. That’s when the Department of Justice split the AT&T monopoly into seven pieces, a move widely celebrated — especially by consumers who were paying over eight dollars for a five-minute call from Washington, D.C. to New York.
Today, however, even many leading left-leaning intellectuals calling for more aggressive antitrust enforcement oppose splitting 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 they are 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. Rockefeller’s 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 the AT&T breakup.
But Rockefeller’s wealth skyrocketed after the Standard Oil breakup, and AT&T shareholders who held onto their stock earned high returns. That’s 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 that those U.S. industries subsequently flourished and led the world.
A better antitrust analogy would be to firefighting. The Forest Service regularly 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, of “In Defense of Breakups: Administering a ‘Radical’ Remedy.” He previously advised multinational corporate executives on mergers and acquisitions. Follow him on Twitter @RoryVanLoo