Changing antitrust rules will cause confusion

Changing antitrust rules will cause confusion
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Last week Sen. Amy KlobucharAmy KlobucharIt's as if a Trump operative infiltrated the Democratic primary process Congress must fill the leadership void The Hill's 12:30 Report: Trump spotted wearing a face mask MORE (D-Minn.) introduced a new bill alongside Sens. Richard Blumenthal (D-Conn.) and Cory BookerCory Anthony BookerIt's as if a Trump operative infiltrated the Democratic primary process Booker introduces bill to create 'DemocracyCorps' for elections On The Money: GOP senators heed Fed chair's call for more relief | Rollout of new anti-redlining laws spark confusion in banking industry | Nearly half of American households have lost employment income during pandemic MORE (D-N.J.) to change a critical section of antitrust law. According to Klobuchar, the Anticompetitive Exclusionary Conduct Prevention Act of 2020 would deter anticompetitive abuses and keep markets competitive by clarifying a part of the statute known as exclusionary conduct. While this section of antitrust law is rife with confusion, the proposed legislation is unlikely to add clarity. Policymakers should trust the process and consider changes once the Federal Trade Commission (FTC) and the Department of Justice (DOJ) have wrapped up their investigations into the largest tech companies.

The bill targets exclusionary conduct, a central and ill-defined concept in antitrust that was established in Section 2 of the Sherman Antitrust Act of 1890, which makes it illegal to monopolize trade or commerce, or to attempt or conspire to do so. But as scholars, judges, and attorneys have noted time and again, separating competitive behavior from anticompetitive behavior remains difficult since both harm competitors. 

Judge Frank H. Easterbrook, known for his scholarship in antitrust, summarized the problem when he noted that, “It takes economists years, sometimes decades, to understand why certain business practices work, to determine whether they work because of increased efficiency or exclusion.”

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For example, when a user searches for a flight on Google, the search results display Google Flights before competing websites like Expedia, Orbitz and Travelocity. Does Google’s inclusion of flights harm competition because it demotes every other outlet, weakening their ability to compete? Or do consumers benefit through expanded choice and easy access to flights? Depending on the perspective, the same conduct could be considered either good or bad for consumers and competition. 

While the flight search example might seem trivial, the Federal Trade Commission considered bringing a case against Google for including specific flight and shopping products in search results. The agency ultimately decided against a suit, a move that Klobuchar has been critical of in the past.

In contrast, the European Union fined Google €2.42 billion because it “abused its market dominance as a search engine by giving an illegal advantage to another Google product, its comparison shopping service.” In advancing the bill, Klobuchar made clear that she wanted to change the direction of U.S. law: “Companies need to be put on notice that exclusionary behavior that threatens competition cannot continue.”   

Due to the difficulties in deciding whether conduct is pro-competitive or not, courts have not agreed on a general standard. As Professor Thom Lambert once quipped, “a generalized test for exclusionary conduct has become a sort of Holy Grail for antitrust scholars and regulators.” In its absence, courts have tended to formulate narrow rules based on specific practices such as predatory pricing, loyalty discounts and bundling. In fact, the search for one test to rule them all has instead yielded four distinct tests, according to the Federal Trade Commission. The Anticompetitive Exclusionary Conduct Prevention Act would charter a new path and create the first generalized test by combining elements of these four tests. 

Here’s how the act would work. First, the act applies to monopolists, which the act defines as having a market share over 50 percent or otherwise having substantial market power. If this condition is met, the company’s conduct would be deemed illegal if it “materially disadvantages 1 or more actual or potential competitors” or it “tends to foreclose or limit the opportunity of 1 or more actual or potential competitors to compete.” However, the company could be off the hook if 1) the benefits of the conduct “eliminate the risk of harming competition”; 2) if the conduct helps to expand the presence of other companies, or 3) if the conduct does “not present an appreciable risk of harming competition.” It is a difficult test, and because each part is new, all of it would have to be interpreted in court decisions. 

Instead of Congress trying to establish a general rule, the FTC should pursue specific cases that have the effect over time of creating precise rules. Indeed, the FTC and the Department of Justice are investigating the biggest names in tech, including Amazon, Apple, Google and Facebook. We should wait until these investigations have run their course. Only then will we know if the laudable intentions behind this recent reform proposal will actually tackle the problem.

Will Rinehart is a senior research fellow at the Center for Growth and Opportunity at Utah State University. Follow him on Twitter @WillRinehart.