By Pam Martens and Russ Martens: July 31, 2020 ~
The CEOs of four of the most valuable technology companies in the world — Google’s Sundar Pichai, Amazon’s Jeff Bezos, Facebook’s Mark Zuckerberg and Apple’s Tim Cook — testified remotely on Wednesday in a House investigation into whether they are exercising monopoly power in violation of antitrust law in the United States and need to be broken up or more tightly regulated.
Amazon and Facebook came out of the hearing the most severely damaged with evidence obtained by the House Judiciary’s Subcommittee on Antitrust, Commercial and Administrative Law that strongly suggests they have engaged in illegal, predatory behavior.
There was also significant evidence that Google and Apple are engaging in practices that stifle competition and harm America.
Fines and new regulatory legislation are going to be needed to rein in the abuses.
What was missing from the hearing, unfortunately, was the critical role that Wall Street and the Securities and Exchange Commission have played behind the scenes that has enabled these tech firms to grow so powerful. We’ll get to that shortly, but first let’s get to what the hearing did cover.
Committee Chair David Cicilline (D-RI) opened the hearing with a detailed statement that explained that the hearing was called after a year-long investigation in which “millions of pages of evidence,” were collected that included internal emails that were read later in the hearing, suggesting egregious predatory behavior against would-be competitors. Cicilline also said that the Subcommittee had conducted “hundreds of hours of interviews.”
Cicilline set the tone for the hearing with this explanation of each of the four tech giants:
“Amazon runs the largest online marketplace in America, capturing 70% of all online marketplace sales. It operates across a vast array of businesses—from cloud computing and movie production to transportation logistics and small business lending. Amazon’s market valuation recently hit $1.5 trillion, more than that of Walmart, Target, SalesForce, IBM, eBay, and Etsy combined.
“Apple is a dominant provider of smartphones, with more than 100 million iPhone users in the United States alone. In addition to hardware, Apple sells services and apps, including financial services, media, and games.
“Facebook is the world’s largest provider of social networking services, with a business model that sells digital ads. Despite a litany of privacy scandals and record-breaking fines, Facebook continues to enjoy booming profits—$18 billion last year alone.
“Lastly, Google is the world’s largest online search engine, capturing more than 90% of searches online. It controls key technologies in digital ad markets and enjoys more than a billion users across six products—including browsers, smartphones, and digital maps.”
Amazon’s CEO, Jeff Bezos, the richest man in the world, attempted to roll out a heart-wrenching, pulling-himself-up-by-the-bootstraps story about his early years to disarm hearing watchers as to what was to come in the way of hard evidence against his company. According to evidence introduced in the hearing, Amazon, the company he founded in his garage, has been using a raft of dirty, sneaky tricks to seduce small businesses into selling their wares at Amazon.com, then spying on their internal sales data that Amazon collects in order to crush them and steal their business.
Congresswoman Mary Gay Scanlon of Pennsylvania directed these remarks to Bezos:
“Our investigation produced documents that show that sometimes Amazon doesn’t play fairly, crossing the line from robust competition to predatory pricing to destroy rivals rather than out-compete them. Let’s take the example of Quidsi that used to own Diapers.com and provided online baby care products.
“In 2009, your team viewed Diapers.com as Amazon’s largest and fastest-growing online competitor for diapers. One of Amazon’s top executives said that Diapers.com keeps the pressure on pricing on us and strong competition from Diapers.com meant that Amazon was having to work harder and harder so that customers didn’t pick Diapers.com over Amazon. And the customers we’re talking about are hardworking families, single parents with babies and young children.
“Because Diapers.com was so successful, Amazon saw it as a threat. The documents that we obtained show that Amazon employees began strategizing about ways to weaken this company. And in 2010, Amazon hatched a plot to go after Diapers.com and take it out.
“In an email that I reviewed and we’ve got these up on the slides, one of your top executives proposed to you an ‘aggressive plan to win’ against Diapers.com; a plan that sought to undercut their business by temporarily slashing Amazon prices.
“We saw one of your profit and loss statements and it appears that in one month alone, Amazon was willing to bleed over $200 million in diaper profit losses…
“Your own documents make clear that your price war against Diapers.com worked and within a few months it was struggling, and so then, Amazon bought it. After buying your lead competitor, Amazon cut promotions and the steep discounts it used to lure customers away from Diapers.com and then increased the prices of diapers for new moms and dads…
“The evidence we’ve collected suggests that the predatory practices weren’t unique here. In 2013 it was reported that you instructed the Amazon employees to approach discussions with certain business partners, and I quote, ‘the way a Cheetah would pursue a sickly Giselle.’ Is the Giselle project still in place and does Amazon pursue similar predatory campaigns in other parts of its business?”
Bezos said he couldn’t remember this campaign.
Scanlon said that during this pandemic one of the biggest needs that she is seeing in her district during the food drives they have to hold is the need for diapers by struggling families.
Congresswoman Pramila Jayapal produced evidence that Facebook had cloned competitors’ products and then used that threat to purchase the competitor. After building its own similar product to Instagram, Jayapal said that Instagram felt Facebook planned to go into “destroy mode” against it unless it sold itself to Facebook, which it did.
Congresswoman Jayapal added that “Facebook is a case study, in my opinion, in monopoly power because your company harvests and monetizes our data and then your company uses that data to spy on competitors, and to copy, acquire and kill rivals.”
Congressman Jerry Nadler of New York stated that “Facebook and Google have gravely threatened journalism in the United States. Reporters have been fired, local newspapers have been shut down, and now we hear that Google and Facebook are making money over what news they let the American people see. This is a very dangerous situation.”
The primary complaint against Apple was its dominance with its App Store and whether it is taking an unfair cut of revenues from the independent app developers that sell their apps in the Apple App Store.
The hearing was dominated by probing questions from Democrats on the Subcommittee based on the evidence acquired over the prior year. While a few Republicans showed sincere concern in the monopoly power of these tech giants, the majority of Republicans wasted their time whining about a liberal bias at the four tech companies. Congressman Jim Jordan, a Republican from Ohio, who focused exclusively on this alleged bias, erupted in a shouting match with other members after Congresswoman Scanlon accused him of getting off the antitrust subject of the hearing with “fringe conspiracy theories.”
Subcommittee Chairman Cicilline said that the next step would be a detailed report that the Subcommittee will be releasing to the public with their findings.
Missing entirely from the hearing was the critical role that Wall Street banks have played, potentially illegally, in fostering these tech giants. First, it’s the biggest Wall Street banks that have underwritten mountains of debt for these firms that have allowed them to engage in share buybacks, which have spiked their stock prices to unfathomable levels. These same Wall Street banks, despite their conflicts of interest, are also allowed to put out buy ratings on the stock of the tech giants, which dramatically influences the same banks’ hordes of retail stock brokers to encourage their customers to buy the stocks.
And, finally, these same Wall Street banks have been trading the stocks of these tech companies in the banks’ own Dark Pools, which are unregulated stock exchanges that the SEC bizarrely allows to operate internally inside these Wall Street banks. For all anyone knows, these banks could be making a two-sided market in these stocks. But Congress will never be able to figure that out because the Securities and Exchange Commission has been stalling for years to complete its work on a Consolidated Audit Trail (CAT) that could monitor and catch manipulations of stock prices.
Until these Wall Street issues are addressed, monopolistic policies and practices will continue unabated in America, including among the largest Wall Street banks, which are also allowed to trade their own bank stock in their own Dark Pools.
Full Text of Opening Remarks by Chairman, David N. Cicilline, of the House Subcommittee on Antitrust, Commercial and Administrative Law at July 29, 2020 Hearing: “Examining the Dominance of Amazon, Apple, Facebook, and Google”
“More than a year ago, this Subcommittee launched an investigation into digital markets. Our two objectives have been to document competition problems in the digital economy, and to evaluate whether the current antitrust framework is able to properly address them.
“In September 2019, the Chairman and Ranking Members of the Full Committee and the Subcommittee issued sweeping, bipartisan requests for information to the four firms that will testify at today’s hearing.
“Since then, we have received millions of pages of evidence from these firms, as well as documents and submissions from more than 100 market participants. We also conducted hundreds of hours of interviews.
“As part of this investigation, we have held five hearings to examine the effects of online market power on innovation and entrepreneurship; data privacy; a free and diverse press; and independent businesses in the online marketplace.
“We have held 17 briefings and roundtables with over 35 experts and stakeholders in support of our work.
“This investigation has been bipartisan from the start.
“It has been an honor to work alongside my colleague, Congressman Jim Sensenbrenner, the Subcommittee’s Ranking Member, as well as the former Ranking Member of the Full Committee, Congressman Doug Collins.
“We worked closely with all the Members of the Subcommittee, who have taken this work seriously and studied these issues closely.
“As my colleague Congressman Ken Buck recently commented, ‘This is the most bipartisan effort that I have been involved with in five and a half years of Congress.’
“The purpose of today’s hearing is to examine the dominance of Amazon, Apple, Facebook, and Google. Prior to the COVID-19 pandemic, these corporations already stood out as titans in our economy. In the wake of COVID-19, however, they are likely to emerge stronger and more powerful than ever before. As American families shift more of their work, shopping, and communication online, these giants stand to profit.
“Locally-owned businesses, meanwhile—mom and pop stores on Main Street—face an economic crisis unlike any in recent history.
“As hard as it is to believe, it is possible that our economy will emerge from this crisis even more concentrated and consolidated than before.
“These companies serve as critical arteries of commerce and communications. Because these companies are so central to our modern life, their business practices and decisions have an outsized effect on our economy and our democracy. Any single action by any one of these companies can affect hundreds of millions of us in profound and lasting ways.
“Although these four corporations differ in important and meaningful ways, we have observed common patterns and competition problems over the course of our investigation.
“First, each platform is a bottleneck for a key channel of distribution.
“Whether they control access to information or to a marketplace, these platforms have the incentive and ability to exploit this power. They can charge exorbitant fees, impose oppressive contracts, and extract valuable data from the people and businesses that rely on them.
“Second, each platform uses its control over digital infrastructure to surveil other companies—their growth, business activity, and whether they might pose a competitive threat. Each platform has used this data to protect its power, by either buying, copying, or by cutting off access for any actual or potential rival.
“Third, these platforms abuse their control over current technologies to extend their power. Whether it’s through self-preferencing, predatory pricing, or requiring users to buy additional products, the dominant platforms have wielded their power in destructive, harmful ways in order to expand.
“At today’s hearing we will examine how each of these companies has used this playbook to achieve and maintain dominance—and how their power shapes and affects our daily lives.
“Why does this matter?
“Many of the practices used by these companies have harmful economic effects. They discourage entrepreneurship, destroy jobs, hike costs, and degrade quality. Simply put: They have too much power. This power staves off new forms of competition, creativity, and innovation.
“And while these dominant firms may still produce some new innovative products, their dominance is killing the small businesses, manufacturing, and overall dynamism that are the engines of the American economy.
“Several of these firms also harvest and abuse people’s data to sell ads for everything from new books to dangerous ‘miracle’ cures.
“When everyday Americans learn how much of their data is being mined, they can’t run away fast enough. But in many cases, there is no escape from this surveillance because there is no alternative. People are stuck with bad options.
“Open markets are predicated on the idea that if a company harms people, consumers, workers, and business partners will choose another option. We are here today because that choice is no longer possible.
“In closing, I am confident that addressing the problems we see in these markets will lead to a stronger, more vibrant economy.
“Because concentrated economic power also leads to concentrated political power, this investigation also goes to the heart of whether we, as a people, govern ourselves, or whether we let ourselves be governed by private monopolies.
“American democracy has always been at war against monopoly power. Throughout our history, we have recognized that concentrated markets and concentrated political control are incompatible with democratic ideals.
“When the American people confronted monopolists in the past—be it the railroads and oil tycoons or AT&T and Microsoft—we took action to ensure no private corporation controls our economy or our democracy.
“We face similar challenges today.
“As gatekeepers to the digital economy, these platforms enjoy the power to pick winners and losers, shake down small businesses, and enrich themselves while choking off competitors.
“Their ability to dictate terms, call the shots, upend entire sectors, and inspire fear represent the powers of a private government.
“Our founders would not bow before a king. Nor should we bow before the emperors of the online economy.”