Digital platforms aren't utilities — treating them like they are won't help
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The aim of the House majority report is to turn digital platforms into neutral essential facilities that cannot self-preference their own products.

Because the report assumes that all of the companies involved are monopolists, it quickly concludes that their self-preferencing are examples of the exercise of market power. It never demonstrates this, and where it does assert monopoly power it often does so in ludicrous ways, such as when it claims that Apple is a monopolist in a market where 60 percent of consumers use Android devices.

After assuming monopolization, it then assumes that self-preferencing behavior that harms competing businesses that use platforms is anticompetitive. This is a serious error, since most procompetitive acts, like lowering prices, are bad for competitors.

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So too might making your platform less open and more secure and tightly integrated. As Jonathan Barnett has demonstrated, there is no a priori optimal level of openness or neutrality of a platform, since both involve costs and benefits. Assuming there is — that the more open and neutral, the better — is one of the biggest mistakes that the majority report makes.

Compare the user experience with Windows to iOS. Windows is far more open than iOS, but, because of that, it is less stable and more vulnerable to viruses and hackers. Software bought from third parties is not always reliable and often involves transactions with unknown merchants. And when you get as big as Windows did, you become a bigger target for bad actors.

Apple, whose slogan for many years was that “It Just Works”, learned from the Windows experience. It built iOS to be as risk- and error-free as possible, to the benefit of users. The tight control it exercises over the ecosystem is a part of this. By increasing trust between users and third-party developers, it lowers transaction costs, raising the total value of the whole platform.

These are clear benefits of platform closedness. Many of the biggest complaints that customers have about Amazon stem from precisely the relative openness of that platform: the increased risk of being sold counterfeit products, or the unreliability of delivery and returns when dealing with third-party sellers.

But the benefits of openness to Amazon and its customers are also significant, allowing it to provide dramatically more choice and range than if the products sold on its storefront were only those that Amazon itself stocked and delivered. But Amazon does provide its own-brand products for certain items, like USB cables, when its data suggests that there is a customer segment that is underserved — for example, when third party merchants are not selling reliable products or when they are selling them at inflated prices.

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Amazon does profit from sales of these products, of course. And other merchants suffer by having to cut their prices to compete. But consumers benefit, and the biggest benefit to Amazon is that it assures its potential customers that when they visit, they will be able to find a product that is cheap and reliable, so they keep coming back.

It is even hard to argue that in aggregate this practice is damaging to third-party sellers: many, like Anker, have built successful businesses on Amazon despite private-label competition because the value of the platform increases for all parties as user trust and confidence in it does. Private label sales account for 1 percent of Amazon’s revenues, compared to the 19 percent it makes from marketplace commissions and services.

In these cases and in others, platforms act to solve market failures on the markets they host, as Andrei Hagiu has argued. To maximize profits, digital platforms need to strike a balance between being an attractive place for third-party merchants to sell their goods and being attractive to consumers by offering low prices. The latter will frequently clash with the former — and that’s the difficulty of managing a platform.

Throughout the report, virtually every behavior imaginable by Big Tech platforms is explained in anti-competitive terms. This does not pass the smell test, and it shows that the report’s authors have failed to appreciate the costs involved with the measures they propose.

Once it is clear that behavior it condemns unequivocally is often pro-competitive, the report’s remedy of forcing platforms to become open and neutral conduits becomes clearly anticompetitive.

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.