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Babies, Bathwater and Pending Antitrust ‘Reform’

Babies, Bathwater and Pending Antitrust ‘Reform’

The U.S. House of Representatives’ suite of antitrust bills seems designed expressly to violate the old cliché regarding babies and bathwater. Turning these bills into laws would harm economic welfare by prohibiting conduct and business practices that often benefit consumers and the economy (clean babies) in order to eliminate the prospect that the practices may occasionally harm competition (dirty bathwater).

The American Choice and Innovation Online Act, Ending Platform Monopolies Act, Platform Competition and Opportunity Act, and Augmenting Compatibility and Competition by Enabling Service Switching Act are all premised on the assumption that if an action might ever yield a bad outcome then that action must be prevented, regardless of the costs. To put it differently, each bill is concerned with behaviors that can, under certain circumstances, be anticompetitive, but under other circumstances are pro-competitive and important to promoting innovation and the overall functioning of the economy.

The American Choice and Innovation Online Act bars “covered platforms” from promoting their own products and services over competitors. The bill appears to make any advantage such a firm has over a competitor illegal, or at least subject to challenge. Consider maps. MapQuest may be able to challenge any improvement to Google Maps. Google could challenge any improvement to Apple Maps, and so on. Indeed, any improvement in quality or reduction in prices, which most often benefits consumers, could be subject to challenge and potentially be illegal.

Similarly, the Ending Platform Monopolies Act effectively prevents “covered platforms” from offering their own products other than the platform itself. But anyone who has ever left Costco with a cart full of Kirkland underwear, water, and bacon knows that companies commonly offer their own products alongside the products of other firms, and that this practice can benefit consumers.

The Platform Competition and Opportunity Act would make it almost impossible for large platforms to acquire other firms. This bill comes in response to concerns that big tech companies buy up potential competitors rather than compete with them when they become successful. But the vast majority of mergers and acquisitions are either competitively neutral or procompetitive with roughly 98 percent of all mergers over the past 40 years having been found to not run afoul of existing antitrust law. Additionally, acquisitions play an important role in encouraging entry and innovation in the first place. Investors help start new and innovative businesses because they want to earn returns on their investments; selling businesses can be a key mechanism for achieving this. Making it more difficult to sell businesses lowers these expected returns and reduces incentives to start new businesses.

The Augmenting Compatibility and Competition by Enabling Service Switching Act is particularly insidious. Although the goal of reducing consumer switching costs is laudable, the practical challenges of developing compatible interfaces across numerous companies in a dynamic ecosystem will be overwhelming and the level of intrusiveness sure to severely impair innovation and changes in business models.  Moreover, it converts FTC antitrust enforcement activities into sector-specific regulation of business operations on a day-to-day basis, and does so without any thought towards accountability, transparency, or procedure. Specifically, the bill requires the FTC to create technical committees that must approve “interoperability interfaces” that covered firms develop. But any change in an interface by one company is likely to cause difficulties to some other firms, with countless challenges.

We are not saying the issues the bills raise should be ignored. Far from it. They all address real issues. Platforms might behave in ways that benefit their own products and services anticompetitively. They might use acquisitions as a tool to block competition. They might make it unnecessarily difficult for competitors that need access to the platform to gain that access.

The tools for handling these problems, however, already exist. The FTC (or DOJ, depending on the industry and circumstances) can investigate and enforce when firms are found to have violated the law. Competitors can bring suit if they feel they are being discriminated against anticompetitively. And to the extent that big tech or other sectors of the economy need more competitive oversight, we can modify existing tools by, for example, increasing the likelihood of enforcement actions when the antitrust authorities perceive the prospect of anticompetitive behavior.

But no evidence suggests that the behaviors identified and mostly outlawed in the bills are always, or even in a significant number of cases, bad. On the contrary, economic analysis has shown that often they benefit consumers. Outlawing these actions, as proposed in these bills, will lead to higher prices, lower quality, and slower innovation, all of which harm economic welfare.

A more detailed version of this blog is available at the Georgetown Center for Business and Public Policy

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