The Challenge of Regulating the Internet

Nov 17, 2020

Congress has completed an investigation of how large Internet companies like Google, Facebook and Amazon may violate anti-trust laws – giving themselves bigger profits and preventing small firms from competing.  Now, the Justice Department is suing Google, and other companies might also face trust-busting trials. 

A professor of economics at the University of Virginia says it’s time to regulate big tech, but it may be premature to break the big companies up.

UVA Professor Anton Korinek
Credit UVA

If you own a company that makes nuts and bolts, it costs more to make more for additional customers.  That is not the case for companies that sell information services.

“You can share them with one more person at an almost zero cost,” says Anton Korinek, a professor of economics at the Darden School of Business at UVA. 

In that respect, Internet giants are like utilities. Many states have concluded that providers of electricity and gas, water and cable need not have competition.

“It would be a waste to lay the electricity lines of ten different power companies through our cities or to lay water pipes by ten different water companies,” Korinek explains.

But by law most utilities are regulated to ensure their charges are reasonable. When it comes to firms like Facebook, Google and Amazon, there are no charges to consumers – so governments are starting from scratch, trying to figure out how best to limit their profits. Korinek, who comes from Austria, says Europe has been a leader in regulating cyberspace, going after Google, for example, to control the company’s scope.

“When you search for a restaurant, it shows you a Google map, or it shows you Google recommendations, and in Europe the anti-trust authorities have prevented Google from doing that, because their argument was ‘we don’t want to enable them to spread the monopoly from search to, for example, restaurant reviews or to mapping services.’”

And Internet giants don’t just compete with smaller firms – they buy them.

“Facebook has taken over What’s App, has taken over Instagram, and those services could potentially have become a serious threat to Facebook and could have made more interesting networking apps, but now that they’re all within one company, it is much harder for them to innovate, and – of course – they won’t really compete with each other, because ultimately they want to do what’s best for Facebook shareholders.”

They may also form alliances that put competitors at a disadvantage and limit the choices consumers have.  For Anton Korinek – who owns an Android phone -- it’s gotten personal.

“Apple took over an app by the name of Dark Sky ,"  he recalls.  "They made it exclusive to Apple users, so that essentially they can claim the leading weather app only for their users. Honestly I’m still bummed out about it.  I miss that app!”

Even so, he’s not ready to call for a breakup of big tech, and he sees some advantage to firms having ample cash for research and development.

“Having these large corporations generate a lot of profit allows for a lot of investment into new technologies – into the next search engine within Google, the next social network at Facebook.”

For now, he says, there’s little risk that the courts or Congress will go too far in limiting corporate profits for internet firms, since their earnings are so great -- and growing.  The pandemic, he notes, has given Internet companies a big boost.

“In some ways I think it has accelerated the move toward a more virtual world by a decade.” 

And once the U.S. begins to regulate Silicon Valley, there are areas beyond anti-trust to pursue, like privacy and the use of personal data for profit.