On Tuesday, the House of Representatives’ subcommittee on antitrust matters released the fruits of its 16-month investigation into the big four tech companies and its July grilling of their CEOs. The 450-page report shows how Amazon, Apple, Facebook, and Google climbed to the top of the global economy in part through acquisitions and unfair practices, and how they maintain those commanding heights today, dictating terms to consumers, workers, suppliers, sellers, app developers, and advertisers and deciding who succeeds and who fails in many markets. The subcommittee report also presents a suite of policy recommendations on taming the titans of tech and strengthening antitrust law.
We don’t know whether this Congress or the next one would be amenable to the sweeping legislative reforms suggested in the report, which include breaking up the diversified tech corporations and strengthening anti-merger rules. But should Joe Biden be elected president, his administration would have a significant antitrust arsenal to help roll back monopolies and curb unfair competitive practices. One important place to start is exclusionary contracts—something that the Federal Trade Commission, whose chair and commissioners are appointed by the president, already has the power to crack down on. Through contracts, Google, Apple, and many other firms have forced or bribed their customers, distributors, or suppliers not to do business with their rivals. This summer, a coalition of groups spearheaded by the Open Markets Institute, where I work, and including Color of Change and SEIU, petitioned the FTC to ban such exclusionary contracting by dominant firms and to prevent corporations from controlling markets using this tactic.
A dominant firm wields great power over its customers, distributors, and suppliers and can use this power to perpetuate its market dominance. With contracts, it can forbid its distributors from carrying competitors’ goods or prohibit suppliers from selling their products to rivals. Alternatively, it can offer rebates and other payments to customers or suppliers on the condition of exclusivity and withdraw these inducements and penalize trading partners if they do business with the dominant firm’s competitors. Through this exclusionary contracting, dominant players deprive their rivals of outlets for their products or starve them of essential inputs (think of flour purchased by a bakery) for making them.
This practice is ubiquitous throughout the economy and a preferred weapon of monopolists—not just the big tech companies—seeking to keep out unwelcome competitors. Consider these four examples from technology, pharmaceuticals, and professional sports.
Google dominates the general search market on the internet, including on mobile devices, in much of the world. It did not acquire this position through a superior service alone. As the European Commission found in a 2018 decision, Google bribed smartphone manufacturers and wireless operators not to install rival search engines on devices they sold. It promised them large payments in return for the exclusive installation of Google search as the default on their devices. And Google reportedly paid Apple $12 billion in 2019 to install Google as the default search engine on Apple’s Safari browser—in lieu of Bing or DuckDuckGo or another competitor. Through this deal, Google effectively shared the spoils of its monopoly with Apple.
Apple itself has allegedly used exclusionary contracts and technical restrictions to establish the App Store as the bottleneck retailer of iPhone apps. The company has power over what apps are sold and on what terms and collects a 30 percent commission on app sales. Epic Games, in its complaint against Apple, accused Apple of coercing iPhone owners and iPhone app developers into buying and selling apps exclusively through the App Store. In other words, iPhone owners and app developers are prohibited from transacting directly or using app intermediaries besides the App Store.
Outside tech, “pharma bro” Martin Shkreli achieved worldwide notoriety in 2015 after acquiring Daraprim—a medicine essential for those with HIV-AIDS, cancer, and other immunocompromising conditions—and increasing its price 4,000 percent overnight. Recognizing that this astronomical price increase would likely attract competitors into the market, Shkreli set to work to protect his monopoly. Among other practices, he used contracts to forbid manufacturers of the active pharmaceutical ingredient in Daraprim from selling it to rivals of his company. The FTC and a group of states have sued Shkreli in a case pending in court over this contracting and other exclusionary conduct.
Exclusionary contracts are also an anti-worker tool. The Ultimate Fighting Championship has built a monopoly in professional mixed martial arts in the United States. The UFC acquired its principal rivals and secured itself against future competition. It prohibits fighters from participating in contests organized by rival leagues. Although classified as independent contractors, the fighters are bound to the UFC. Similarly, venues under contract with the UFC are barred from hosting the fights of competing leagues. The managers and promoters of the UFC mint money from their monopoly while the fighters are severely underpaid (relative to other professional athletes) and often suffer debilitating injuries in the course of competition.
The FTC already has the power to outlaw exclusive contracting by dominant firms. To its credit, as the case against Shkreli indicates, the commission takes the practice seriously and has brought cases against multiple monopolists for their exclusionary contracting. At present, however, the FTC and other antitrust enforcers must labor under legal standards that are friendly to corporations, invite them to push the boundaries on exclusionary business practices, and ensure costly, protracted litigation in the event of a lawsuit. Even if legal action eventually stops the exclusionary contracting, the public—consumers, rivals, suppliers, and workers—must endure the burden of corporate dominance for an extended period, sometimes even five or more years as a case winds its way through the court system.
Through a rulemaking, the FTC should make clear to dominant corporations, whether in technology, pharmaceuticals, or sports, that exclusionary contracting is illegal. Powerful businesses should not be allowed to use coercion and kickbacks to keep out rivals and perpetuate their market control. They should instead compete by improving their products and offering better terms to customers, suppliers, and workers. Joe Biden should pledge that, if elected next month, he would appoint FTC commissioners committed to stamping out exclusionary contracting and other unfair business practices. While Congress must ultimately legislate to fully tame corporate hegemony, the FTC can strike important blows in the fight for fair competition.
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