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The UK’s Digital Competition Report: The Anticompetitive Risks of a Pro-Competition Policy

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The UK’s recent Digital Competition Report produced under the leadership of former Obama Council of Economic Advisors Chairman Jason Furman proposes a radical departure from existing competition policy that may create new problems and make some existing ones worse, potentially harming the consumers it seeks to protect.

That is the prediction of competition policy expert Thomas Lenard, a senior fellow at the Technology Policy Institute, following his detailed review of the Digital Competition Panel’s proposal.  Lenard’s analysis is contained in a new study, UK’s Digital Competition Report: The Anticompetitive Risks of a Pro-Competition Policy.

“This new regulatory regime would represent a radical departure from standard competition policy, at least as practiced in the U.S.,” Lenard writes. “Although the report endorses the consumer welfare standard for antitrust, it fails to present analysis showing that its proposals would, in fact, enhance consumer welfare or pass a cost-benefit test.”

Lenard, an economist, predicts that, if enacted, the proposal would create opportunities for rent seeking and anticompetitive behavior by digital platforms and other parties, and advantage incumbents. “If the recommendations are implemented, incumbents may become more firmly entrenched and [market] entry may be more difficult, contrary to the panel’s intent.”

He questions the report’s recommendation to block mergers based on speculation about how companies and technologies may perform in the future. He also stands up for startups and investors, saying “Acquisition by a large platform, such as Facebook or Google, is a frequent exit strategy for successful tech startups, so making that strategy more difficult would be a disincentive to investing in those startups.”

He also challenges the report’s assumptions that the economic characteristics of digital markets always create a serious digital competition problem and that creating more competitors is always a good thing.

“As long as anticompetitive behavior is not discouraging entry, then policies that artificially encourage entry may simply deprive consumers of savings from scale and scope economies,” Lenard writes. “In other words, encouraging entry when no market failure is preventing it, and when consumers are happy with the status quo, may simply waste resources.”

Calling the panel’s recommendations “a risky experiment in public utility-style regulation of the digital sector of the economy,” Lenard believes the report “reflect[s] an unwarranted confidence in government’s ability to micromanage this complicated sector of the economy in the interest of consumers.”

His conclusion: “The report does not weigh the costs and benefits of its proposals and therefore cannot conclude with any confidence that consumer welfare would be enhanced. Consumers may be harmed because, under the best of circumstances, the regulatory task is difficult.”

Read the full paper here: https://techpolicyinstitute.org/wp-content/uploads/2019/05/Lenard_The-UKs-Digital-Competition-Report.pdf

Contact: David Fish, 571-389-4446, dfish@techpolicyinstitute.org

The Technology Policy Institute

The Technology Policy Institute is a non-profit research and educational organization that focuses on the economics of innovation, technological change, and related regulation in the United States and around the world. More information is available at http://www.techpolicyinstitute.org/.