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The DOJ Antitrust Enforcer Says No More Easy Vertical Mergers For Digital Platforms

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Assistant Attorney General Jonathan Kanter, who leads the Department of Justice Antitrust Division, is pressing a tougher interpretation of American antitrust law to meet the requirements of a new digital economy.

The department historically hasn’t exercised its full powers and interprets laws cautiously. The inclination was to underenforce the law. According to the logic of the time, business monopolies self-correct in time while judicial errors can’t be undone, Kanter said last Friday at the Fordham Competition Law Institute’s annual conference in New York City.

But that’s no longer the case.

“We have all seen that in digital markets, monopolies self-sustain,” he said. “Platforms that are fundamentally collaborative become critical trading partners for entire industries, and without competition have greater power to discourage rivalry.”

For one thing, he said the DOJ is rethinking its reliance on enforcement based on horizontal or vertical merger status. (Buying a company in a new category is a vertical deal, such as AT&T’s one-time acquisition of WarnerMedia, whereas a horizontal merger, like T-Mobile and AT&T’s rejected merger, fuse direct competitors.)

For instance, Susan Athey, the DOJ Antitrust Division’s chief economist, recently co-authored a paper about the potential competition issues if a major platform were to acquire a multi-homing service, he said. People use multi-homing services to switch back and forth between multiple platforms from one centralized system or to manage accounts across multiple platforms simultaneously. If one monopolist acquired the tech, it could be a powerful tool to prevent competition even though it would be a vertical merger – which the DOJ historically interprets as kosher.

“We have been too limited by a self-imposed requirement that we use our most powerful microscopes to examine an exclusionary act before intervening to stop it,” Kanter said. “We need a wider lens, and a greater willingness to pursue and remedy all of the harmful behaviors that make up an exclusionary course of conduct.”

Rather than simply cracking down on horizontal mergers and letting vertical deals slide by, he said that antitrust enforcers should think more about how a deal or acquisition create “a flywheel effect” that reinforces a monopoly.

Kanter also emphasized how digital platforms rely on collaboration and user engagement. They aren’t installing physical networks of nationwide cables and telephone poles, as with former monopoly investigations.

“Platforms that are fundamentally collaborative become critical trading partners for entire industries, and without competition have greater power to discourage rivalry,” he said.

Digital platforms can also have mutually reinforcing monopolies, with special business arrangements that solidify multiple dominant companies and prevent competition. One notorious example was Google and Facebook’s “Jedi Blue” deal: Google allegedly offered Facebook unique bidding rights and guaranteed inventory access in exchange for Facebook shifting spend from the open web header bidding product to Google’s closed system.

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Apple and Amazon also have a complex network of partnerships. Amazon signed Apple as a first-party seller (essentially Amazon gets to wholesale and then resell Apple products, which was unheard of for Apple). In return, Amazon scrubbed its platform of Apple resellers and also cracked down on competitors using Apple’s key search terms.

Shortly after that agreement, Apple TV+ came to Amazon Fire TV, while Amazon Prime likewise launched on Apple TV and began allowing film and TV subscriptions and purchases via Apple, reportedly because Apple charges Amazon a special, low subscription fee.

Digital platforms rely on collaboration in the sense that YouTube, Google, Amazon and others need users to make their platforms compelling and to create network effects. But by collaborating exclusively with one another, they can stake out strong monopoly positions.

“They can pick winners and losers in adjacent markets, discourage switching to rival services, and punish entrepreneurs that stray too closely into competition,” Kanter said about new platform monopolies. “We have seen how exclusionary tactics exploiting this power can strengthen already-dominant positions and deepen the moat around a digital castle.”

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