The DOJ’s new enforcement chief is signaling an aggressive approach to competition in digital markets. Compliance expert Michael Volkov warns that big-tech mergers, moat-building and favoritism/discrimination are about to endure closer ongoing inspection.
A new traffic cop is presiding over the global economy. This is not a surprise. Aggressive antitrust enforcement is now bipartisan, and the first target — digital markets — has become the focus of both Democrats and Republicans.
This article is republished here with permission from the author, Michael Volkov. It originally appeared on his blog Corruption, Crime & Compliance.
Jonathan Kanter, the new assistant attorney general for the DOJ’s antitrust division, gave an important speech at an international meeting in Brussels outlining the theoretical underpinning of the need for robust antitrust enforcement to bring competition to various digital markets.
Kanter focused on the rise of monopoly power over digital markets. He analogized the state of digital markets to historical concerns that monopoly power over a market was inconsistent with our form of government. Market-based economies give citizens choice and opportunity as part of our fundamental freedoms.
According to Kanter’s perspective, citizens have little choice in many digital markets — citizens have too little choice where they get their information or who takes or controls their personal data. Further, consumers cannot choose which algorithm controls what news is promoted and how to interact with their social network online. These limitations stifle open markets and competition.
The root cause of these restrictions is what economists call “network effects,” which enable digital companies the ability to engage in “moat-building,” which in effect protects existing monopolies from competition.
Anti-competitive moat-building blocks would-be competitors from challenging a monopolist’s product or services. Another way to describe this new terminology is the famous “barriers to entry.” However, as suggested by Kanter, moat-building incorporates the concept of a knowing construction of a moat, that is, the knowing and intentional creation of barriers to entry. This terminology may stick when it comes to digital markets given the unique market factors associated with digital monopolists.
Kanter’s point is underscored by his description of how moats defend the core platform monopoly from entry and disruption. In the digital economy, potential competition could come from platform participants, potential entrants and disruptive technologies.
At its core, monopolists in digital markets rely on exclusionary conduct. Kanter cited two significant factors in the digital market that perpetuate this problem — first, the powerful network and feedback effects across entire connected ecosystems create “enormous” monopoly power and later competitive incentives. Given the breadth and instantaneous effects on the internet, a monopolist does not face large physical network demands or time to create a “network” akin to the historical natural monopoly of telephone and electricity services.
Second, a novel feature of digital markets is the wide range of business relationships and the market dynamics associated with this scope. A dominant platform can be a critical trading partner to thousands or hundreds of thousands of smaller businesses.
Given these market realities and the increasing prevalence of moat-building by dominant market participants, Kanter advocated for three active and deliberate strategies: (1) aggressive merger enforcement in these core digital markets to prevent monopolists from preventing entry into their core markets; (2) assessment of moat building strategies when considering unilateral conduct; and (3) review of actual or threatened discrimination by dominant companies and the impact that such actions have on other businesses.