To defang the FAANG?

Earlier this week, a meme of Rep. Alexandria Ocasio-Cortez went viral on social media with the hashtag #ItalianAOC and a litany of references to The Godfather. Despite its apparent humor, the image was taken during her gruelling interrogation of Mark Zuckerberg addressing Facebook’s lack of fact checking in political advertisements. In a 3 minute clip, Zuckerberg embarrassingly stumbles through the questions with no concrete answer. The lack of regulation begs the question: in today’s digital economy, does power lie in the hands of the wrong people? And if so, is it time to break down FAANG? 

Just like any hot topic, this has people divided. Some are strictly against the premise of monopolies generating increasing revenue while minimizing competition; for instance, Sen. Elizabeth Warren’s "How we can break up Big Tech" plan strives to give people back control of their personal data, while breaking up the FAANGs that use barriers of entry to reduce competition and innovation. This antitrust strategy would reverse “anti competitive” mergers (e.g. Facebook, Instagram, Whatsapp), and prevent firms with revenues larger than $25 million from selling their own products alongside that of their participants. 

Earlier in the year, Facebook co creator Chris Hughes argued for the same move from a more personal perspective: "Mark's [Zuckerberg’s] influence is staggering, far beyond that of anyone else in the private sector or in government.” Moreover, he argues, big tech needs to be regulated because its enormous unchecked power allows companies like Facebook, Amazon, Apple and Google to unfairly monopolize online advertising, collect personal data and influence political decision making. 

While both arguments are accurate, there’s a huge difference between adopting strict regulation as the solution, versus axing the companies altogether. Under the 1890 Sherman Antitrust Act, monopolies and “unreasonable combinations of companies” which manipulate interstate commerce are illegal. Thus, a breakup of any of the Big Tech is only necessary if they officially

violated the Sherman Act- which officially, they do not. Moreover, actually breaking up any of the “Big Tech” firms has little economic reasoning. The hosts of podcast Capitalisn’t Kate Waldock and Luigi Zingales address this excellently throughout their three part series on antitrust, Facebook and Google. 

Most importantly is the concept of the network effect: an economic concept whereby users of a good/service gain an advantage from others using it. This is something all the FAANGs leverage upon. It indicates that breaking down companies wouldn’t necessarily resolve the issues of a monopoly. With this kind of growth, even a small company can essentially become a monopoly in the long run, resulting in the repeated issues of extreme power, unchecked online advertising and political influence. The reason this is possible is because of the primary tool FAANGs leverage upon for growth: data. In today’s economy, the abundance and speed of data collection and transfer essentially makes it a form of “money” paid by consumers to producers. And consequently, FAANGs easily get past the traditional definition of a monopoly which overcharges its customers- because if Facebook is free, how can it charge any price from consumers? In short, the antitrust method of breaking up the FAANGs would not accurately target the problem at hand. So what will? 

At the moment, regulation seems to be the most viable option; proposals include the Honest Ads Act to increase transparency, a centralized authority overseeing data conditions and standards as well as variations of the old and trusted fining method. While the finer details would depend from country to country and firm to firm, one thing is guaranteed: Big Tech deserves to stay. We just need to spruce up our antitrust regulations to match.