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The Separation of Platforms and Commerce

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The Separation of Platforms and Commerce THE SEPARATION OF PLATFORMS AND COMMERCE Lina M. Khan* A handful of digital platforms mediate a growing share of online commerce and communications. By structuring access to markets, these firms function as gatekeepers for billions of dollars in economic activity. One feature dominant digital platforms share is that they have inte- grated across business lines such that they both operate a platform and market their own goods and services on it. This structure places domi- nant platforms in direct competition with some of the businesses that de- pend on them, creating a conflict of interest that platforms can exploit to further entrench their dominance, thwart competition, and stifle innovation. This Article argues that the potential hazards of integration by dominant tech platforms invite recovering structural separations. Separations regimes limit the lines of business in which a firm can engage, either by proscribing entry in certain markets or by requiring that distinct lines of business be operated through separate affiliates. Previously implemented both as a standard regulatory intervention and key antitrust remedy in network industries, structural separations have been largely abandoned. At the same time that lawmakers have weak- ened or eliminated sector-specific regulatory regimes, judicial interpre- tation of antitrust law has drastically narrowed the forms of vertical conduct and structures that register as anticompetitive. And when antitrust enforcers have targeted these forms of conduct and structures, they have applied remedies that generally (1) fail to target the under- lying source of the problem and (2) overwhelm the institutional capacities of the actors assigned to oversee them. Neglecting struc- tural remedies results in both substantive harms and institutional * Academic Fellow, Columbia Law School. For generous conversations and insightful feedback, I am deeply grateful to Shah Ali, Rebecca Haw Allensworth, David Balan, Commissioner Rohit Chopra, Joshua Fischman, Jeffrey Gordon, David Grewal, Michael Guttentag, Scott Hemphill, Robert Hockett, Jen Howard, Sally Hubbard, Ted Janger, Richard John, Kathryn Judge, Amy Kapczynski, Al Klevorick, William Kovacic, Mark Lemley, Christopher Leonard, Christopher Leslie, Zachary Liscow, Barry Lynn, Jonathan Macey, Daniel Markovits, Doug Melamed, Urja Mittal, Stacy Mitchell, John Morley, Thomas Nachbar, Saule Omarova, Matt Panhans, Frank Pasquale, David Pozen, George Priest, Sabeel Rahman, Blake Reid, Daria Roithmayr, Hal Singer, Ganesh Sitaraman, Dina Srinivasan, Marshall Steinbaum, Matt Stoller, Maurice Stucke, Olivier Sylvain, Zephyr Teachout, Sandeep Vaheesan, Barbara van Schewick, and Tim Wu, as well as participants in Vanderbilt Law School’s “The New Infrastructure” roundtable, the Competition, Antitrust Law and Innovation Forum at UC–Irvine, and workshops at Boston College, Brooklyn, Cardozo, Columbia, Cornell, Loyola L.A., University of Michigan, Stanford, Texas A&M, UCLA, University of Southern California–Gould, University of Virginia, and Yale law schools. Many thanks to Jeremy Patashnik and the Columbia Law Review for exceptional editorial support. 973 974 COLUMBIA LAW REVIEW [Vol. 119:973 misalignments—effects that are especially pronounced in digital platform markets. This Article seeks to give structural separations a seat back at the table. Tracing the history of separations reveals that they have been motivated by a host of functional goals, ranging from fair competition and system resiliency to media diversity and administrability. Recalling this broader set of concerns brings into focus the range of factors at stake when dealing with dominant intermediaries and invites consideration of the degree to which separations in platform markets would also respond to a diverse set of problems. INTRODUCTION ......................................................................................... 976 I. INTEGRATION BY DOMINANT DIGITAL PLATFORMS.............................. 983 A. Amazon........................................................................................ 985 1. Marketplace/AmazonBasics................................................. 985 2. Alexa/Alexa Devices/Alexa Skills........................................ 994 B. Alphabet ...................................................................................... 997 1. Google Search/Google Verticals ......................................... 997 C. Facebook.....................................................................................1001 1. Facebook APIs/Facebook Apps ..........................................1001 2. Facebook’s Publishing Network/Facebook Ads .................1003 D. Apple ..........................................................................................1005 1. Apple iOS/App Store/Apple Apps.....................................1006 E. Effects of Discrimination and Appropriation on Investment and Innovation ..................................................................................1008 1. Are Dominant Digital Platforms Stifling Innovation?........1008 2. Innovation and Platform Design Principles .......................1012 II. LEGAL SCRUTINY OF VERTICAL INTEGRATION BY DOMINANT NETWORKS ..............................................................................1015 A. Evolving Approaches to Restricting Business Lines .................1015 B. Contemporary Antitrust’s Treatment of Vertical Integration ..1024 1. Denial of Access and the Essential Facilities Doctrine.......1027 2. Discriminatory Refusal to Deal ...........................................1029 3. Information Appropriation.................................................1030 4. The Shift Away from Structural Remedies .........................1033 5. Adjusting Competition to Regulation?...............................1035 III. SEPARATIONS REGIMES .......................................................................1037 A. Railroads.....................................................................................1037 B. Banking ......................................................................................1041 C. Television Networks ...................................................................1044 2019] SEPARATION OF PLATFORMS AND COMMERCE 975 D. Telecommunications: Maximum Separation............................1045 E. Telecommunications: The Breakup of AT&T...........................1049 F. Common Threads ......................................................................1051 IV. FUNCTIONAL GOALS ..........................................................................1052 A. Eliminating Conflicts of Interest ...............................................1052 B. Preventing Protected Profits from Financing Entry into New Markets .......................................................................................1055 C. Preserving System Resiliency .....................................................1057 D. Promoting Diversity ...................................................................1059 E. Preventing Excessive Concentration of Power and Control ....1061 F. Prioritizing Administrability ......................................................1063 G. Shared Features Across Justifications ........................................1064 V. TOWARD A GENERAL FRAMEWORK FOR SEPARATING PLATFORMS AND COMMERCE ........................................................................................1065 A. Substantive Case.........................................................................1066 1. Innovation Concerns...........................................................1066 2. Broader Concerns................................................................1067 a. Extending Dominance Through Cross-Financing ......1067 b. Media Diversity..............................................................1071 c. System Resiliency...........................................................1073 B. Institutional Shortcomings ........................................................1074 C. Theory ........................................................................................1077 D. Application: Challenges and Unresolved Questions................1080 1. Defining Platform................................................................1080 2. Distinguishing Between Platform and Commerce.............1082 3. Institutional Mechanism and Timing.................................1083 E. Costs and Tradeoffs....................................................................1085 F. Alternative Remedies .................................................................1088 CONCLUSION ............................................................................................1090 APPENDIX.WHY WOULD PLATFORMS UNDERMINE THEIR ECOSYSTEM? ...1092 A. More Fully Exploiting Existing Market Power: Exclusionary Conduct Enables Price Discrimination.....................................1095 B. Expanding Market Power: Complementary Market Is a Source of Outside Revenue ........................................................................1096 C. Expanding Market Power: Primary Good Is Inessential for Uses of Complementary Good ...............................................................1098 976 COLUMBIA LAW REVIEW [Vol. 119:973 INTRODUCTION “No competition can exist between two producers of a commodity when one of them has the power to prescribe both the price and output of the other.” —U.S. House of Representatives, Committee on Interstate & Foreign Commerce1 “In short, the choice is between a Bell
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