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Static Ideas of Competition in the Information Age…and in Congress

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The technology sector is earning favorable reviews for its amazing ability to keep consumers connected and elements of the economy functioning during the coronavirus pandemic. The pioneering Silicon Valley and technology policy journalist Ina Fried said as much on a recent TPI podcast

But, while tech may be burnishing its image with consumers and others now, it may have to work hard to dissuade Congress from enacting new internet regulations at some point soon. Congress is out of town and the bipartisan goals of campaign year fundraising may keep members from voting on such legislation this year. But 2021 is another year.

Bipartisan legislation was introduced this congress to require “data portability” and “interoperability” to promote consumer choice and competition between major tech platforms. So, Silicon Valley must assume it will be re-introduced in the new Congress.

Proponents argue that portability and interoperability will make it easier for users to move personal data to new platforms, thus increasing competition among providers. At least, that is the rationale advanced by some people.  Other backers aren’t sure what the legislation will accomplish, but feel the need to put big tech in its place.

Enter Thomas Lenard, senior fellow and president emeritus at the Technology Policy Institute, an economist who falls in neither camp, with a new article in the current edition of Regulation magazine. He asks the big question no one has answered very well: “If data portability is the solution, what’s the problem?”

“Proponents argue that data portability— being able to move one’s personal data to a competing platform easily, perhaps together with the related requirement of “interoperability”—is necessary to promote competition between the major digital platforms,” Lenard writes. “In most cases, however, consumers can use new services relatively easily without transferring their data. This suggests that data portability would do little or nothing to encourage entry.”

The Brown University Economics PhD, who taught at U.C. Davis before joining the Federal Trade Commission and founding TPI, says such measures are “based on a misconception of the dynamic nature of competition in digital platform markets.” He warns that legislation to mandate data mobility and interoperability requirements “would reduce potential returns for market winners and therefore the incentive to invest and innovate.”

Lenard’s prediction: “Investment in existing platforms may decline because the benefits of those investments would be shared with competing platforms.”

He also argues that the implementation of portability and interoperability would suffer from regulatory capture: “The process of developing these standards would be lengthy and costly and would almost invariably favor large incumbents.”

As an economist, Lenard sees a vibrant and developing marketplace that is not broken and is delivering amazing innovations. He worries the cure could be worse than the supposed disease. And he reminds us that there is always the failsafe of antitrust.

“To the extent tech platforms present a market power problem, antitrust is a better answer than data portability and interoperability mandates,” Lenard writes. “Properly applied, antitrust can help assure that new rounds of ‘competition for the market’ will be on the merits. “Antitrust, however, requires finding that a firm has market power, engaged in anticompetitive acts, and harmed consumers. There have been no such findings thus far.”