Tech Giants Brace for Washington Showdown in Echo of Bill Gates

(Bloomberg) -- U.S. technology giants are headed for their biggest antitrust showdown with Congress in 20 years as lawmakers and regulators demand to know whether companies like Alphabet Inc.’s Google and Facebook Inc. use their dominance to squelch innovation.

Executives from Google, Facebook, Apple Inc. and Amazon.com Inc. are set to appear Tuesday before the House antitrust panel, whose Democratic chairman is leading an investigation into the market power of the biggest tech companies and their effect on competition.

The hearing harkens back to Microsoft Corp. co-founder Bill Gates’ appearance before the Senate in 1998 when Microsoft was the target of government scrutiny into its monopoly in computer operating systems. Two months later, the Justice Department filed a landmark antitrust lawsuit against Microsoft that reined in its practices and nearly led to the company’s breakup.

“This is really a deep dive by the committee to understand what’s going on in the tech sector, what needs to be done in terms of antitrust enforcement but also to understand better whether there is a need for change in the law,” said Gene Kimmelman, a senior adviser at the policy group Public Knowledge, who served in the Justice Department’s antitrust division under President Barack Obama.

While the executives testifying Tuesday don’t have the star power of Gates, their appearance marks the first time the largest technology companies will face questions from lawmakers amid a rising chorus of criticism that they are violating antitrust laws. That was the same accusation leveled at Microsoft two decades ago.

Rhode Island Democrat David Cicilline, who leads the antitrust panel, is bearing down on technology companies as antitrust enforcers prepare their own scrutiny of the industry. The Justice Department and the Federal Trade Commission, which share antitrust jurisdiction, have taken the first steps toward investigating conduct by the biggest companies, with the Justice Department taking responsibility for Google and Apple, and FTC overseeing Facebook and Amazon.

Tuesday’s hearing will focus on innovation and entrepreneurship. One of the key complaints from critics of the big tech companies is that they can use their power to thwart competition from smaller rivals. Academic research has shown a steady decline in business start-ups across the economy. One possible explanation is that rising market concentration across industries effectively shuts out entry by new businesses.

While some barriers to competition are inherent in any business, the key question for the antitrust committee is whether and how dominant tech platforms can intentionally raise barriers to new entrants, said Michael Kades, the director of markets and competition policy at the Washington Center for Equitable Growth.

A report by the University of Chicago’s Stigler Center this year found that digital markets tend to be winner-take-all in which one firm comes to dominate. That creates an incentive for the companies to edge out new challengers that could threaten that dominance.

Lack of competition can lead to reduced innovation, which harms consumers over time, according to the report. “The evidence thus far does suggest that current digital platforms face very little threat of entry and are negatively impacting investment in key digital areas,” it said.

One of the authors of the Chicago report -- Yale University economist Fiona Scott Morton -- will testify Tuesday. The company executives scheduled to appear are Adam Cohen, Google’s director of economic policy, Matt Perault, head of global policy development at Facebook, Amazon associate general counsel for competition Nate Sutton, and Kyle Andeer, vice president of corporate law at Apple.

E-commerce trade association NetChoice, which includes Google and Facebook, will tell the committee a different story: The reach of tech platforms gives small businesses the opportunity to target large audiences of potential customers through digital advertising. Not long ago, their only choice was expensive advertising in a local newspaper or television station, the group said.

“These platforms are helping small businesses the same way a large retailer operates as an anchor for a shopping center or mall,” Carl Szabo, vice president of NetChoice, will say, according to his prepared remarks. “The larger these platforms grow means the more customers small businesses can reach with better targeting and lower costs.”

Sarah Miller, deputy director of Open Markets Institute, which advocates for aggressive antitrust enforcement, countered that tech platforms are harming entrepreneurs.

“These companies were the darlings of most Democrats and now the dynamic has changed profoundly,” she said. “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.”