Competition is not a click away; the consumer welfare standard is failing consumers
The United States Congress is on the precipice of passing bipartisan legislation that would meaningfully rein in Big Tech’s stranglehold on our access to information, the products we buy, and how we interact with one another online. Despite tech monopolies spending nearly $100 million on lobbying, including efforts to destroy this legislation, political leaders from both sides of the aisle must stand up for small businesses, and for a level playing field that brings back the competition and innovation that made America a world technology leader.
The need for legislative action is due in large part to the failure of antitrust enforcement over the preceding two decades. Unfortunately, U.S. antitrust officials — along with the courts — have relied on a narrow definition of what is known as the “consumer welfare standard” that puts the interests of large industry incumbents ahead of upstart entrepreneurs. Coined by Robert Bork in 1978 as a means to analyze whether business practices violated antitrust laws, the consumer welfare standard was originally intended to assess full economic efficiency or total welfare.
However, in the years following, judges and enforcers have wrongly interpreted it to mean that the antitrust laws should be concerned with whether the consumer alone is positively or negatively affected. And in reality, the only analysis that has mattered is whether consumers see prices increase or output decrease. In practice, this has meant a company can evade scrutiny for otherwise blatant anti-competitive actions so long as it cannot be shown that consumer prices will rise right away.
While this shortcut application may have worked until the early 2000s, its shortcomings became evident when a new era of companies born out of the internet and flush with enormous amounts of private capital began to exploit the consumer welfare definition. Knowing they had practically endless cash reserves, big companies artificially lowered their prices while taking enormous losses in order to amass huge numbers of customers and build ecosystems that were nearly impossible to penetrate by potential competitors. With low prices, antitrust enforcers and judges looked the other way when these companies squashed fledgling competitors by employing anti-competitive practices such as predatory (below cost) pricing, acquisitions, nefarious data collection and tracking, and self-preferencing.
The consumer welfare standard has really become a “corporate welfare standard,” paving the way for a handful of companies to insulate themselves from competition and amass unprecedented market share and power over our daily lives. History shows monopolies in the long term are bad for innovation and bad for consumers. With more competition, companies fight to create innovative and better experiences for consumers, instead of anti-competitive schemes that burn cash today to generate monopoly profits tomorrow.
Big tech companies facing the daily pressure of returning value to shareholders end up prioritizing advertisers and ad revenue at the expense of consumers. The result is an ever-increasing ad-load, ad-driven content that can be misleading and harmful, and company practices that value profit over user privacy.
These anti-consumer outcomes are not only ignored by how enforcers and courts have chosen to interpret the consumer welfare standard, they are actively encouraged by it. And so — because the product is “free” in the eyes of U.S. regulators and courts — big tech companies have largely avoided antitrust repercussions.
The failure to accurately apply the original and more comprehensive definition of the consumer welfare standard has led to unprecedented market consolidation and given rise to companies with profits larger than the GDP of many nation-states. Left unchecked and without legislative intervention, these companies have nearly omnipotent power over the long run to raise consumer prices, exploit consumer privacy, reduce R&D, and slow innovation at will with few consequences.
Legislation like the The American Innovation and Choice Online Act that is focused on ridding the system of gatekeeping abuses such as self-preferencing and pre-installation has an important role to play in unleashing a new era of innovation. It’s long past time for Congress to act.
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