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House of Reps “Big Tech” Indictment is Full of Small Businesses Pitfalls

Details matter. In the case of the House Judiciary Committee Democratic Staff Report that calls for dramatic changes to how America regulates the Internet, it is astounding how many details the Report got wrong. Once again, Congress has demonstrated it simply does not know how Internet technology and e-commerce work. Millions of digitally empowered small businesses across the country should be extremely worried.

In broad strokes, the Report misinterprets and misleads. It proudly declares that Staff reviewed more than 1 million documents, interviewed dozens of witnesses, and that the Committee held seven hearings, including one with CEOs. Still, the Report reads like a restaurant’s Yelp page, full of complaints about Google, Facebook, Apple, and Amazon competing by providing better service and lower prices. In the simplest terms, the Report had only one task – to show that America’s leading digital platforms are harming or are likely to harm consumers. It fails. Nowhere does the Report provide any evidence:

  1. That consumers are being charged monopoly prices or even increased prices as a result of “Big Tech’s bad behavior;” 
  2. That competition against or between these large companies has subsided; or
  3. That innovation, startup capital, or new business formation has declined in the last decade.

In America, antitrust law is about protecting consumers; it is not about protecting competitors. If the Staff Report proves only that the four companies are large, successful, profitable, fierce competitors, that continue to invest in growth opportunities and leverage existing assets to expand into new businesses that deliver innovation, value and low prices to consumers – then the Committee has failed to justify enforcement action against the companies or the need for new laws. 

What is evident in this Report is that the Committee started with its desired result and then worked backwards, and sometimes contorted or ignored evidence to force the narrative into supporting the Committee’s “big is bad” thesis. For example: 

  • Using Outdated, Invented and Simply Incorrect Data: Antitrust regulators must rely on business and economic forecasts to justify blocking mergers or breaking apart companies. But to persuade jurors and judges, the analyses must be substantively grounded, the forecasts must be rational, and the data must be accurate and cited appropriately. Unfortunately, the House Judiciary Committee Report instead relies on outdated data, fabricated data, and seemingly accurate data twisted out of context in Trumpian fashion.
  • One theme of the Report is that the four companies’ dominance of Internet industries and their aggressive business tactics combine to depress capital for startups (thereby diminishing innovation and competition). But, as Ben Evans points out in his October 16 newsletter, the Report cites 2011 data to support this point. It conveniently ignores more recent National Venture Capital Association data that documents strong growth in VC investments and startup formation throughout the last decade.
  • On Page 15, the Report cites “most analysts” for the statistic that Amazon’s share of e-commerce is about 40%, but then says, “we’re told that 50% or higher is more credible.” If 50% was a credible number from a credible source (as contrasted, perhaps, with an unhappy anti-Amazon complainant), we are confident that the Committee would cite the source. 
  • Similarly, the Report references the “diverse range of views” of “several dozen antitrust experts” who were consulted. But it never discloses the experts’ names, references their analyses or competing viewpoints, or suggests why Staff considered some theories and analyses credible and others not credible.
  • On Page 11, the Report states that in a decade, the four targeted firms (and a handful of others) may capture 30% of the world’s gross economic output. But the Report’s footnote references a study that concludes 30% of the world’s economic output may be from companies “that operate a network of interconnected businesses” and use “ecosystem strategy.” The primary source, McKinsey, identifies many ecosystem conglomerates, including Microsoft, GE, Rakuten, Ford, Idea Bank of Poland, Lloyds Bank, Tencent, Alibaba, Ping An (China), and American Express.
  • When convenient for its result-driven narrative, e.g., when analyzing Amazon’s market share, the Report states that only retailers – and NOT single-category retailers – are competitors of Amazon. But then in the “predatory acquisition” discussion, the Report identifies offline retailer Whole Foods, single-category retailer Zappos, and niche retailer Quidsi (which managed Diapers.com and Soap.com) as “direct competitors.”
  • The Report summarily narrows the scope of Amazon’s competition to only pure online retailers. It rejects the notion, embraced by millions of consumers, that online and offline retail are direct competitors, and that retailers such as Target, Walmart, and Best Buy, that are strong online and offline, are particularly strong competitors. Remarkably, the Report ignores Walmart’s offline business entirely. 
  • Inventing Unhappiness: On Page 15, the Report notes that about 850,000 third-party sellers rely on Amazon Marketplace as their sole source of income. The Report suggests that this is evidence of Amazon’s market power as these sellers “do not have a viable alternative for reaching online consumers.” Is the Committee unaware of third-party marketplaces hosted by Walmart, Shopify, eBay, Wish, Etsy, Taobao, JD.com, and others? Amazon sellers could choose to sell on these marketplaces or sell directly to consumers and bear their marketing, e-commerce, logistics, and delivery costs. Perhaps the Committee should credit these 850,000 sellers as rational actors, who knowingly choose to only sell on Amazon, fully understanding the risks and weighing them against the benefits selling on Amazon brings. 

These flawed details are the foundation for disrupting how Amazon, Google, Facebook, and Apple do business. Such sweeping proposals to change the way the digital economy works could be a small business debacle. Because the Committee, and so many other policymakers, fail to realize is that these companies are a large part of The Digital Safety Net, the free and low-cost digital tools that help small businesses grow in normal times and have kept them in business through the most challenging times. Communications and workflow tools, digital marketing and advertising, websites and social media, back-office tools, e-commerce, and online payment tools all make up the Digital Safety Net. Our recent report, Digitally Driven,  documents that millions of small businesses survived the pandemic and are preparing for stronger futures by embracing and fully integrating digital tools into their business. 

The Report’s proposals would harm small businesses far more than the consumer harm the Report demonstrates. Before the Judiciary Committee or any other policymakers advocates for overturning the apple cart on the digital economy, they have to consider what doing so will mean for millions of small businesses. 

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