A major new antitrust report from House Democrats proposes to nullify a half-century of jurisprudence and regulate American tech companies like public utilities. Inspired by Sen. Elizabeth WarrenElizabeth WarrenSenate Democrats propose corporate minimum tax for spending package The Hill's Morning Report - Presented by Facebook - Budget negotiators: 72 hours and counting Democrats face critical 72 hours MORE (D-Mass.), who proposed something similar when she ran for president, House Democrats appear to have realized that antitrust can be misused to reshape the American economy wholesale.
The report’s principal recommendation — a “structural separation” prohibiting large tech companies from competing on their own platforms — is drawn from banking regulation that dates back to the Middle Ages, when moneylenders were barred from other business activities lest knowledge of their clients’ balance sheets gave them an unfair advantage.
Today, the report’s authors adopt the same cynical view of digital platforms, alleging that “store-brand” products in digital markets compete unfairly with third-party merchants because platforms can use the data they hold to gain a leg up on their rivals. In the name of fairness, they propose to bar companies like Amazon and Apple from offering products on their own platforms, even when they are cheaper and better.
Taken on its face, a law like this would mean Apple offering iPhones without the iOS operating system (let alone any of its own apps), Netflix not producing “Stranger Things,” and Google shelving Gmail. These aren’t the examples put forward by the report, but this is exactly what a law like this would mean in practice. The fact that such outcomes seem absurd should highlight how poorly thought-through the proposal is. What the report does explicitly contemplate is a prohibition on Amazon selling its own private-label commodity products (like batteries and USB cables), though Kroger, Costco, Walmart, and almost every other major U.S. retailer does the same.
In all of these cases, implicit and explicit, it’s not hard to identify a competitor that may be harmed by such arrangements: HBO, perhaps, or Duracell. But the focus should be on consumers, not competitors. There is scant evidence that consumers are harmed by this sort of business structure, even though particular competitors invariably are. That the report’s overriding focus is on the fortunes of a select few of these competitors betrays the paucity of evidence supporting the legal revolution it contemplates.
The same is true of the report’s seemingly less radical proposal: a requirement that tech platforms operate under a “nondiscrimination” mandate. Under this proposal, platforms may continue to operate in related markets, but they may not give preference to their own products if they do so.
Consumers wouldn’t benefit from such a rule. A nondiscrimination mandate would preclude Google from “preferencing” Google Search by requiring its pre-installation on Google Android devices. That may help Microsoft’s Bing in the short run, but this is precisely how Google makes money from Android. Take away its ability to guarantee sufficient revenue by setting search as the default, and there’s no reason for Google to develop Android at all. It’s difficult to see how that outcome would increase competition.
Rather, treating platforms as essential facilities would mean regulating these businesses as public utilities, with inevitable price controls and ongoing government micromanagement. Yet there is no economic basis for treating a search engine or online marketplace like it’s an electricity network: new entry by a better rival is always possible; switching costs for users are low; and many people will use several competing platforms at the same time to get the best deal, locate the best information, or find the best content. The cost of such regulation, however, will be constrained innovation and companies forced to focus more on lobbying their regulators than on pleasing their customers.
Finally, the report’s authors appear willing to use growing skepticism of Big Tech as an opportunity to reshape the laws that govern the whole economy. Thus the report also calls for Congress to overturn eight landmark Supreme Court decisions, all of which underpin markets that have nothing to do with Google or Facebook. Many of these were unanimous decisions; all are important examples of the role of economic analysis in informing the restrained application of antitrust law to complex business arrangements.
The report is a partisan exercise, but its implications are bigger than left and right. It is not hyperbole to say that at stake is the American model of competitive capitalism against the world — against European death-by-regulation, and Chinese state capitalism. For America to give up on the system that built companies like Apple and Amazon in favor of heavy-handed regulation and price controls would be a historic blunder.
Geoffrey A. Manne is the president and founder of the International Center for Law and Economics (ICLE). He is also a distinguished fellow at Northwestern University Center on Law, Business, and Economics and a member of the American Law and Economics Association, the Canadian Law and Economics Association, and the Society for Institutional & Organizational Economics. Sam Bowman is Director of Competition Policy at the International Center for Law and Economics (ICLE), where he manages the Center’s work on competition and platform regulation issues in the US and overseas.