Opinion

By Evolving to Accommodate Consumers’ Privacy Demands, Companies Show They Aren’t Acting Like Monopolists

A number of critics seem to suggest that many of our high-tech companies are like monopolists of old: controlling access to markets, unresponsive to the interests of consumers and leading the easy life. Classic monopolists like the AT&T Bell System and Microsoft rested on their laurels once they acquired their dominant position; they deterred innovation and became unresponsive to consumer demand. But that caricature of monopoly sloth simply doesn’t fit companies today — as demonstrated by how they’ve recently approached consumer privacy.

Studies have proven what we all already know: consumers demand data privacy. One study found that one-third of consumers have taken action and stopped doing business with companies that weren’t adequately protecting their data. Consumers switch services or products all the time when they’re not receiving the quality or prices they want. In the 21st century, data privacy is a critical factor in customer satisfaction.

And tech companies are noticing. In a slew of recent privacy announcements over the last few years, tech companies are offering users more privacy and control over their online information. For example, Apple recently rolled out a new feature on the iPhone that will ask users if they want to allow an app to track their digital activity. More and more messaging services – from WhatsApp to Signal – are offering users end-to-end encryption. And like Apple’s Safari browser and Mozilla’s Firefox browser, Google announced that it would phase out support for third-party cookies — code that allows advertisers to track users across the internet — on its Chrome browser. The company further announced that it would subject its own websites like Google Search and YouTube to the same standards as everyone else, and will not use technology that tracks users as they browse across the internet. These are notable decisions that technology companies are making for consumer privacy, but they also have very real competition implications.

The definition of a monopoly means that a company has so much market power that it doesn’t need to evolve or innovate. The concept is known as “monopoly sloth.” Judge Learned Hand wrote in the 1945 antitrust case against Alcoa that “possession of unchallenged economic power deadens initiative, discourages thrift and depresses energy; that immunity from competition is a narcotic, and rivalry is a stimulant.” These companies’ recent privacy decisions show that they’re competing in a highly competitive market where they have to respond to increasing pressure from rivals and consumers.

Just look at past instances of cut-and-dried antitrust cases like AT&T and Microsoft. Ma Bell controlled the entire telephone services industry for the United States in the second half of the twentieth century. The company slogan even bragged about its monopoly: “One Policy, One System, Universal Service.” On top of owning all of the local telephone companies, AT&T also owned the physical phones. It rented the phones to American consumers for a fee, not allowing them choice in style or technology.

The Bell System monopoly under AT&T endured for decades. AT&T controlled the industry and did not need to accede to consumers’ demands. So it stopped innovating and held back the spread of new technologies like answering machines, fax machines and cordless phones.

Similarly, Microsoft used its monopoly to lock consumers into Windows and to block popular startups like Netscape’s Navigator. Its rationale for monopolization was centered on protecting high prices and preventing consumers from having choices. Microsoft had monopoly power on PC operating systems in its heyday as virtually the only interface for accessing software, and competitors found it nearly impossible to overcome the barriers to entry. By forcing consumers to use Internet Explorer and threatening other companies for trying to make rival browsers available in an age where Windows PCs were the only game in town, federal courts found Microsoft guilty of extremely anti-competitive behavior.

By responding to customer demand and doubling down on privacy, companies have shown that they must improve their services to compete. When it comes to the internet and digital products, new search providers, platforms and social networks are continually emerging and flourishing. There’s no reason to believe any company won’t be immune from competition in the future if its products don’t keep up with what consumers want.

Before we venture off and try to replace market forces with regulation, let’s make a candid assessment of whether the market is really broken. The fact that companies have responded to consumer demand by improving privacy protection demonstrates there is strong competition and that the consumer is sovereign.

 

David Balto has practiced antitrust law for over 30 years in the Antitrust Division of the Department of Justice, the Federal Trade Commission and in private practice at the David Balto Law Offices, where he advises clients including Google, Broadcom and ASUS.

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