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For big tech regulation, a hammer may not be the answer

Experts believe breaking up big tech companies does more harm than good. Other, light-handed approaches, including third-party audits of algorithms, might be better.

Global efforts are underway to reign in big tech, but a significant question remains -- what should regulation look like?

That's what academic experts convened to discuss during the "Should we regulate platforms? How?" panel, hosted by the Digital Business Institute at Boston University's Questrom School of Business. While panelists agreed that regulation is necessary, opinions differed on what kind of regulation. Several panelists spoke in favor of controlling data collection and usage, while cautioning against breaking up the companies.

Susan Athey, economics of technology professor at the Stanford Graduate School of Business, said policy makers should consider how new laws could affect businesses, in general, and not just the companies currently targeted by regulators. Regulation applied to big tech would likely be applied to their potential competitors as well.

"Who is it that actually could threaten these entrenched platforms?" Athey said during Thursday's panel discussion. "It probably will be a big firm who has the resources to lose the money on the way and also might have some complementary assets that make it more strategically valuable for them to take those risks and lose that money. Regulation that just gets down on big firms can be really counterproductive."

Proposed remedies

Breaking up tech companies is an approach that's commonly tossed around -- and it's one Andrei Hagiu, associate professor of information systems at the BU Questrom School of Business, argued against.

Tech giants, such as Google and Amazon, often play a dual role as platform provider, where they own and operate the marketplace, and retailer, selling their own products and services within that marketplace. One concern voiced by regulators is whether companies that own the digital marketplaces are playing fairly -- using algorithms to promote products equally and not just favoring their own.

You have to choose: Either you're a pure marketplace or you're a pure retailer. I think this is one of the most misguided policy approaches to platforms.
Andrei HagiuAssociate professor of information systems, Boston University Questrom School of Business

"Unfortunately, one of the most prominent policy remedies that has been advanced and actually implemented in a couple countries around the world -- including India -- has been to say you are not allowed to function in this dual mode," Hagiu said. "You have to choose: Either you're a pure marketplace or you're a pure retailer. I think this is one of the most misguided policy approaches to platforms."

Instead, Hagiu argued for more nuanced "behavioral remedies," where a company could be impartially evaluated for how its algorithms perform, rather than using a "blunt hammer of structural remedies." Hagiu suggested the use of third-party audits could help address concerns about whether tech giants are operating fairly.

"A proposal I've seen is to ask the platforms to have public APIs, which would be accessible to approved outsiders, which would allow these outsiders to audit what the algorithm does," he said. "I don't want them to disclose the algorithm to make it open source, but it should be possible for an outside regulator or researcher to say, 'For this given product category, does it truly give me the best product or does it favor Amazon?'"

Fiona Scott Morton, Theodore Nierenberg professor of economics at the Yale School of Management, offered a different approach to regulation, noting that regulators already have a powerful tool at their disposal: interoperability.

Scott Morton argued that just like competing email applications, electric plugs and DVD players have achieved universal communication, so, too, can digital platforms.

Requiring platforms like Facebook to be interoperable with other social networks encourages competition and is simultaneously a "light touch" approach to regulation, she said.

"Interoperability is super common in the modern economy," she said. "If a platform is required to be interoperable, that opens access to the platform, that lowers entry barriers and then, suddenly, you have more competition."

Getting ahead of concentrated market power

The U.S. has seen a bevy of antitrust lawsuits filed against big tech as well as bills introduced to increase antitrust enforcement, but no federal action has been taken to regulate big tech.

In the European Union, however, regulatory efforts have been underway for years -- from the introduction of the General Data Protection Regulation to protect online consumer data to the creation of the Digital Markets Act to ensure digital platforms are operating fairly.

Yet Cristina Caffarra, senior consultant at EU-based Charles River Associates, argued that, while the laws have been architected, enforcement has lagged. She cited the timidity of regulators and fear of losing in court as two main reasons enforcement has been poor. Antitrust enforcement by the EU's European Commission has also not been successful, she said, although it recently charged Apple with anticompetitive practices in its App Store.

That's why Caffarra said it's essential that regulators try to get ahead of these issues and focus on forthcoming mergers and acquisitions as a way of staying on top of tech giants' growing power.

"The way in which you need to address market power is by effectively deterring and tackling mergers that will create that market power in the future that is difficult to deal with," Caffarra said. "This is fundamental."

Makenzie Holland is a news writer covering big tech and federal regulation. Prior to joining TechTarget, she was a general reporter for the Wilmington Star-News and a crime and education reporter at the Wabash Plain Dealer.

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