After the FTC Fails to Fix Facebook, Commissioner Chopra’s Powerful Dissent Points to a Path Forward
On Wednesday, the Federal Trade Commission announced the details of its $5 billion fine and settlement with Facebook over charges that it violated a 2011 consent decree with the enforcement agency. In addition to the fine, the FTC and Facebook agreed that Facebook would establish a privacy committee within its board of directors to review all privacy issues and choices along with an “independent assessor.” Other conditions of the settlement include transparency and security measures around gathering, storing, and sharing user information, as well as requiring Facebook Chairman and CEO Mark Zuckerberg to certify Facebook’s ongoing compliance with the FTC’s order. Facebook also announced in its second quarter earnings call that the FTC had opened an antitrust investigation into the social media giant.
Enforcers and policymakers should pay particular attention to FTC Commissioner Rohit Chopra’s powerful dissenting statement. Chopra condemned the settlement, writing, “This framework does not protect the public — it protects Facebook” and “ratifies Facebook’s governance structure instead of changing it.” But Chopra’s statement also lays out where policymakers and law enforcers should go in the future — which is to directly address the dependence of Facebook’s business model on “surveillance and manipulation.”
“The case against Facebook is about more than just privacy – it is also about the power to control and manipulate,” Chopra wrote. “Global regulators and policymakers need to confront the dangers associated with mass surveillance and the resulting ability to control and influence us. The behavioral advertising business incentives of technology platforms spur practices that are dividing our society. The harm from this conduct is immeasurable, and regulators and policymakers must confront it.”
Facebook being, after all, a private for-profit corporation, Chopra added, “We should reasonably assume it seeks to advance its own financial gains. Here, Facebook’s behavioral advertising business model is both the company’s profit engine and arguably the root cause of its widespread and systemic problems. Behavioral advertising generates profits by turning users into products, their activity into assets, their communities into targets, and social media platforms into weapons of mass manipulation. We need to recognize the dangerous threat that this business model can pose to our democracy and economy.”
Also see the letter from Sens. Edward J. Markey, D-Mass., Josh Hawley, R-Mo., and Richard Blumenthal, D-Conn., calling the settlement “woefully inadequate.” And read reactions to the initial reports of the FTC’s $5 billion fine from Sens. Amy Klobuchar, D-Minn., Mark Warner, D-Va., and Elizabeth Warren, D-Mass., and Reps. David Cicilline, D-R.I., and Jan Schakowsky, D-Ill.
Why Price Transparency May Not Actually Help Patients
After President Trump last month signed an executive order requiring hospitals to post the prices they charge, the big question was: Will the new plan work? The administration’s stated goal is to bring down prices by allowing purchasers of health care, including most notably health insurance companies, to know what others are paying.
The order, titled “Improving Price and Quality Transparency in American Healthcare to Put Patients First,” requires hospitals to publicly release the prices that they charge for procedures. The order builds on a rule implemented in January by the Medicare payments office requiring hospitals to post their prices for services. But the new order, released on June 24, goes further and requires hospitals to disclose the rates they negotiate with each individual insurer.
Both hospitals and insurance companies have attacked the plan. American Hospital Association President and CEO Rick Pollack said the measure could “undermine the competitive forces of private market dynamics, and result in increased prices.”
America’s main association of health insurers, meanwhile, said in astatement that “publicly disclosing competitively negotiated, proprietary rates will reduce competition and push prices higher – not lower – for consumers, patients, and taxpayers.” Health insurance companies do most of the actual purchasing of health care when they negotiate with hospitals over the rates hospitals can charge for treating people with commercial health insurance plans.
Why are both providers and purchasers of health care against publicly posting the price of health care services, in the same way that car dealers and grocery stores do?
Critics of the executive order argue that the lack of price transparency is actually a benefit to the public. Their theory is that when a hospital sees that it is being paid less by one insurer than another hospital, it may charge all insurers the higher rate. Some invoke the example of the Danish concrete industry in the 1990s, where, reportedly, prices for concrete rose after the government required that all contracts for concrete pouring be made public.
What both critics and supporters of the executive order miss, however, is that just making prices transparent or keeping them secret doesn’t change the balance of market power between providers and payers. In local health care markets where only a few insurers are writing policies and many hospitals are competing for patients, the balance of power lies with the insurers. Powerful insurers can not only negotiate with providers for lower rates, but use their concentrated buying power to keep other insurers out of the market, further increasing their profits.
Conversely, in markets where it is the providers who are highly concentrated (which is more and more the case thanks to waves of hospital mergers) it is the providers who are price-makers and insurers price-takers. Of course, insurance companies can just pass along these higher prices to ordinary Americans by raising premiums. Either way, whether the prices are publicly posted doesn’t really make any difference.
A better solution would be to simply ban price discrimination and establish price caps in health care. When so much energy goes into negotiating different prices for different patients with the same condition, the results are not only unfair but inefficient. According to Paul Hewitt, a policy analyst and consultant for the Council for Affordable Health Coverage, “There’s a lot of market manipulation that goes on with price discrimination.” Banning such practices, he adds, would “force [insurers] to compete fairly on the basis of efficiency.”
For an account of how such a policy might work, see this article by Hewitt and Open Markets Policy Director, Phil Longman.
🔊 ANTI-MONOPOLY RISING:
Last week, the Senate and House Banking Committees had tough questions for Facebook’s David Marcus about the social media giant’s plan to launch a private currency. Sen. Sherrod Brown, D-Ohio, calledFacebook “dangerous” and warned, “Like a toddler who has gotten his hands on a book of matches, Facebook has burned down the house over and over and called every arson a learning experience.” Rep. Ann Wagner, R-Mo., said, “I’m concerned a 2020 launch date represents deep insensitivities about how Libra could impact U.S. financial security, the global financial system, the privacy of people across the globe, criminal activity, and international human rights.”
After the hearing, Hawaii Senator Brian Schatz sent around a draft billbanning “reserve-backed digital currencies” while the Democratic leadership of the House Financial Services Committee sent around a similar proposal – banning “large platform utilities” with at least $25 billion in revenues from offering financial services.
Read Open Markets’ letter to Facebook’s 27 partners in Facebook’s Libra consortium, encouraging them to walk away from the venture here.
- Printing giants Quad and LSC Communication called off their proposed $1.4 billion merger on Tuesday, after the Justice Department’s Antitrust Division had filed a federal lawsuit opposing the deal. “This result is a victory for American consumers and publishers, and a testament to the Division’s resolve to enforce the antitrust laws,” said Assistant Attorney General for Antitrust Makan Delrahim. (Read Open Markets’ March letter with the Authors Guild and PEN America to the Justice Department calling on them to block the deal here.
- The European Union announced last week that it was opening an investigation into whether Amazon was “abusing its dual role as a seller of its own products and a marketplace operator,” The Wall Street Journal reported.
- Amazon agreed to revise its rules surrounding its marketplaces for third-party sellers in Europe, North America, and Asia last week, to settle an investigation by the German Federal Cartel Office. The changes include giving third-party sellers a month’s notice before removing them from the platform and giving third-party sellers the ability to appeal decisions over who will pay for refunds and returns in court.
- The European Union fined Qualcomm $272 million for abusing its dominant position to “drive a rival out of business, hindering competition in the market” for baseband chips. In a press release, Competition Commissioner Margrethe Vestager said, “Qualcomm sold these products at a price below cost to key customers with the intention of eliminating a competitor.”
- Sen. Bernie Sanders, I-V.T., asked if he would break up Facebook, Google, and Amazon as President, responded “absolutely,” adding that he would appoint an attorney general “who would break up these huge corporations.”
- Treasury Secretary Steve Mnuchin said in an interview yesterday that Amazon, “although there are certain benefits to it, they’ve destroyed the retail industry across the United States, so there’s no question they’ve limited competition … There’s areas where they’ve really hurt small businesses.” Mnuchin made the comments after the Justice Department’s Antitrust Division announced that it was opening a “review” into “market-leading online platforms.”
- The American Book Association (ABA) submitted a 21-page letterto the Federal Trade Commission Task Force, pushing for an investigation into Amazon’s anticompetitive conduct and increasing dominance in the tech sector. “By all standards, Amazon is a book industry monopoly, and trends – coupled with knowledge of Amazon’s previous patterns of behavior and abusive tactics in the book and publishing industry – clearly show that it is well on its way to monopolizing the retail, distribution, and web services channels,” wrote ABA CEO Oren Teicher.
📝 WHAT WE’VE BEEN UP TO:
- Matt Stoller wrote a three-part series of posts for the ProMarket blog, titled “Why Antimonopoly Awoke From Its Slumber.” Stoller discusses the recent history that has led the country to its current, revitalized anti-monopoly moment. You can read Parts 1, 2, and 3 at the ProMarket blog.
- Barry Lynn talked about monopolies and common carriage rules to regulate them on the Pitchfork Economics podcast with Nick Hanauer. The “essence of common carriage,” Lynn explained, “is that you cannot discriminate. You have a vital monopoly.”
- Matt Stoller appeared on the Competition Lore podcast with University of Melbourne law professor Caron Beaton-Wells to talk about the history of antitrust. Stoller argued that democracy includes “whether you have power, whether you have choices, whether you have a sense of control over your community, over your family life and that’s very much a question of how our markets are set up.”
- Sally Hubbard spoke with Bloomberg last week about the Justice Department’s interest in conducting an antitrust investigation of Google. “If you’re looking into Google, it would be remiss not to look at YouTube … You’ve got monopolies upon monopolies,” said Hubbard.
- Sally Hubbard sat with Yahoo! Finance to discuss reports that the Justice Department would be “reviewing the practices of market-leading online platforms.” Hubbard said, “The question is how is this going to relate to existing efforts.” Hubbard added, “Enforcers could do a lot more with existing laws as they stand.”
- Sally Hubbard talked about the House antitrust subcommittee’s hearings into dominant platforms’ market power in a separate interview with Yahoo! Finance. “I think the hearings are a useful public airing,” Hubbard said. “But I think the most meaningful conduct or changes is going to come out of the investigation” in the House “requesting documents from the Big Tech companies, getting their internal communications, and learning more about their strategies.”
- Matt Stoller spoke at the “DOD Procurement Conference,” hosted byThe Capitol Forum today. Stoller appeared on a panel on “Problems in the Defense Industrial Base.” (Read Stoller’s article in The American Conservative on how “Wall Street’s short-term incentives have decimated our defense industrial base and undermined our national security.”)
- Sarah Miller talked with Bloomberg in its coverage of the House’s ongoing hearings into dominant online platforms’ power. Miller said, “These companies were the darlings of most Democrats and now the dynamic has changed profoundly … There is really a period of learning going on in Congress, with staffers, with the broader public, around the varying ways that all of these tech companies, these tech monopolies, are destructive.”
- Sandeep Vaheesan explained to ABC News that, like past corporations, Google might try to argue that antitrust law doesn’t require it to deal with rival businesses.
- Barry Lynn told Al Jazeera, in an article about whether Amazon is a monopoly, that “Amazon holds a monopoly over the US book market, as well as the market for some types of toys and electronics.” Lynn noted that this economic power translates into political power because “a lot of publishers and authors are terrified of speaking out about Amazon’s monopoly.”
- Matt Stoller commented on the bipartisan appeal of antitrust to The New York Times. Stoller said, “The white supremacists liked to appropriate this language around antimonopoly and free speech … But now there are real networks on the right that are not white supremacist networks, and the people in them are genuinely concerned about the power of Big Tech.”
- Last week, farmers and ranchers traveled to Washington to push the Department of Agriculture to enforce rules protecting them from retaliation for speaking out against big meatpacking corporations. Civil Eats’ coverage of the group cited Claire Kelloway and Sarah Miller’s agriculture policy brief.
Three Takeaways from Congress’s Second Hearings on Dominant Platforms]
Last Tuesday, the House Subcommittee on Antitrust, Commercial, and Administrative Law held the second hearing in its planned 18-month investigation of dominant online platforms. Led by Chair David Cicilline, D-R.I., the subcommittee grilled representatives from Amazon, Apple, Facebook, and Google on how their business practices affect independent businesses and innovation. The subcommittee also heard from expert witnesses. Here are three takeaways:
- House Democrats came prepared
- The House Democrats on the committee used the hearing as an opportunity to gather information
- Rep. Val Demings, D-Fla., understood that Amazon’s position as an essential intermediary between small businesses and customers gives it the ability to, in essence, extort money from those businesses. She asked Amazon’s representatives, “Given how dependent businesses are on Amazon’s platform for online sales, what if anything prevents Amazon from using ads as another way to charge a toll for using its platforms?”
- Rep. Joe Neguse, D-Colo., in questioning of Facebook’s representative Matthew Perault, noted that Facebook, WhatsApp, Facebook Messenger, and Instagram are the first, third, fourth, and sixth-largest social media services in the world. “When a company owns four of the largest six entities measured by active users in the world in that industry, we have a word for that. It’s monopoly. Or at least monopoly power.
- House Republicans recycled monopolists’ talking points
- Rep. Greg Steube, R-Fla., asked Amazon, “What’s the current market share of Amazon in total US domestic retail sales?” The answer: 4 percent. But the question is designed to make Amazon seem smaller than it is by hiding the corporation’s dominance of many specific sectors of the American economy. Roughly half of all online sales, for instance, occur through Amazon.
- Rep. Jim Sensenbrenner, R-Wisc., spent much of his time asking Google’s representative to talk about the advantages of online advertising over print.
- Rep. Kelly Armstrong, R-N.D., celebrated Amazon’s logistics empire: “When we’re talking about competition … I also think we got to remember at no point in time from my house in Dickinson, North Dakota have I had more access to more diverse and cheap consumer products.”
- Some of the corporations may have misled or even lied to Congress
- Rep. Pramila Jayapal, D-Wash., asked Amazon, citing their “massive trove of data,” “When people sell products on your site, do you track which products are most successful and do you sometimes create a product to compete with that product?”
- The Amazon representative said, “…that data on popularity on products is actually public data … we do not use any of that specific seller data in creating our own private brand products.”
- Observers and commentators quickly expressed bewilderment at this answer. David Dayen quoted a Capitol Forum report and said that it was “hard to draw any other conclusion than that Amazon lied to Congress.”
- Cicilline has since sent Facebook, Google, and Amazon a list of questions to clarify their answers and asked them to reply by tomorrow.
📈 VITAL STAT:
Total number of American newspapers owned by Gannett and GateHouse Media, the largest and second-largest owners of newspapers in the US last year, according to a study from the University of North Carolina. The Wall Street Journal reported last week that Gannett and GateHouse are “nearing a deal to combine.”
📚 WHAT WE’RE READING:
- “Antitrust Regulators are Using the Wrong Tools to Break Up Big Tech” (Quartz, Tim O’Reilly): Why gathering more information on Amazon’s, Facebook’s, and Google’s business models would help understand and address their market power.
- “Towards the Giant Three: The Rise and Rise of the Big Three Index Funds” (ProMarket, Lucian Bebchuk and Scott Hirst):How BlackRock, Vanguard, and State Street, the “Big Three” index fund managers, could soon “come to dominate shareholder voting in the most significant public companies.”
- “Why the Justice Department Waved Through the CVS-Aetna Merger” (The American Prospect, Hal Singer): Why and how the Justice Department erred in approving CVS’ acquisition of Aetna.
Written by Barry Lynn, Phil Longman, Olivia Webb, and Matt Buck
Edited by Barry Lynn, Phil Longman, Sandeep Vaheesan, Katherine Dill, Stella Roque, Garphil Julien, Krista Brown, Bhargav Setlur, Olivia Webb, Ram Sharma, and Matt Buck
Photo courtesy of FTC.gov.