FTC Filings Highlight The Value In The Consumer Welfare Standard & Large Platforms
A number of public comments have been filed ahead of the FTC’s hearings on competition and consumer protection in the 21st century. With topics ranging from antitrust and consumer protection law and enforcement to AI and predictive analysis, leading tech experts filed comments to defend the consumer welfare standard.
Major focuses of the comments include:
1. The consumer welfare standard is a flexible, effective antitrust tool that protects consumers and avoids politicization.
2. The tech industry is a bright spot in our economy with robust competition driving innovation.
3. Big is good: Large platforms benefit small businesses.
4. Low barriers to entry and multi-homing increase competition and network effects are no guarantee of market dominance.
Below are key comments from tech experts.
The consumer welfare standard is a flexible, effective antitrust tool that protects consumers and avoids politicization.
TechFreedom highlights that the consumer welfare standard has been the ‘bedrock’ of the agency for nearly four decades and changing the standard “would undermine the FTC’s unique success.” “The FTC’s consumer welfare standard has been the bedrock of the agency’s enforcement work across Democratic and Republican chairmen for nearly four decades. It allows the agency to measure its success and has allowed the agency to escape the kind of politicization that has plagued the FCC. Changing this standard would undermine the FTC’s unique success.” (“Key Issues Facing FTC On Consumer Protection In The Digital Age,” TechFreedom, 8/21/18)
R Street Institute’s Tom Struble notes changes in our economy do not necessitate changes in the framework for antitrust law. “The economy has become increasingly global and dominated by high-tech industries, but these are differences in degree rather than kind. The consumer welfare standard is still the best framework for antitrust and consumer protection law, and the Commission should continue advocating for it both at home and abroad.” (Tom Struble, “Comments Of The R Street Institute,” FTC, 8/14/18)
CCIA notes the consumer welfare standard maximizes consumers’ benefits and significant changes in the standard should be considered with caution. “A competition system guided by the consumer welfare standard has as a goal the maximization of consumers’ benefits, with ‘consumer’ being defined broadly to include both business and consumer purchasers. The debate over the appropriateness of the consumer welfare standard is a healthy exercise, but significant changes should be considered with great caution. Antitrust norms should not be expanded to include other public policy factors unrelated to economics-based competition concerns.” (“The State Of Antitrust And Consumer Protection Law And Enforcement, And Their Development,” CCIA, 8/18/18)
American Action Forum’s Will Rinehart argues the consumer welfare “should be at the core” of antitrust analysis for platforms. “While some boosters of market intervention might want to change this standard, this focus on consumer welfare shouldn’t change. It’s important to note that a focus on conduct doesn’t preclude antitrust enforcement of platforms.” (Will Rinehart And Pranjal Drall, “Platform Competition And The Implications Of Amex,” American Action Forum, 8/21/18)
ICLE’s Geoffrey Manne, Julian Morris, Gus Hurwitz, and Kristian Stout note calls to abandon the consumer welfare standard should not be taken seriously. “Arguments abound that we should ratchet up antitrust and consumer protection enforcement in various ways in order to tackle hot-button issues like excessive concentration, insufficient privacy protection, fake-news, wealth inequality, and the like. But few of them rest on solid empirical evidence, and fewer still (if any) seriously address whether or how defects in policy and enforcement decisionmaking processes may have led to the claimed problems and whether or how altering those processes would correct them. Such arguments should not simply be ignored, but nor should they be taken seriously unless and until they are rigorously supported by economic, empirical, and institutional analysis.” (Geoffrey Manne, Julian Morris, Gus Hurwitz, and Kristian Stout, “ICLE’s Comments: Topic 1: Competition & Consumer Protection In The 21st Century,” International Center For Law And Economics, 8/20/18)
U.S. Chamber of Commerce’s Neil Bradley notes that Congress should address matters like income inequality and concentration of political power, not the Antitrust Division at the DOJ. “Critics of U.S. antitrust law believe that antitrust enforcement should address issues as varied as income inequality to concentration of political power within industry. Congress is the best body to address these and other policy questions, not the Commission or the Antitrust Division of the Department of Justice. It is important to hold true to the traditional role of antitrust enforcement, as the Commission’s planned policy hearings will undoubtedly draw multiple perspectives. The Commission should question whether it would be best to address some of these views as a matter of antitrust enforcement. This is particularly true given the Department of Justice enforces the same antitrust standards, but does not appear to have a formal role in these Commission policy hearings.” (Neil Bradley, Comments Re: Competition And Consumer Protection In The 21st Century Hearings, FTC, 8/20/18)
Competitive Enterprise Institute’s Ryan Radia urges the FTC to avoid coercive regulation that “will preclude new, unseen, or unpredictable avenues of competitive response.” “More probable than purported anti-competitive abuses on the part of private firms operating in voluntary market institutions is that coercive regulation will preclude new, unseen, or unpredictable avenues of competitive response. Scholars have documented the high social costs to innovation that accompany antitrust intervention in new, rapidly evolving markets. Potential remedies for such harmful intervention should seek to minimize error costs—the risk of improperly condemning as anticompetitive conduct that is actually beneficial—include heightening the standard of proof of anticompetitive effects, limiting damage awards in antitrust suits, and limiting the standing of companies to bring suits against their rivals.” (Ryan Radia, “CEI Comments On The Federal Trade Commission’s Hearings Regarding Competition And Consumer Protection Policy,” Competitive Enterprise Institute, 8/20/18)
Consumer Tech Association writes that industry leadership and self-regulation preserve innovation while responding to consumer protection, not over-prescriptive rules. “The primary goal of U.S. government policy on emerging technologies should be to promote innovation. Here, again, industry leadership and self-regulation can provide timely responses to consumer protection challenges while preserving the freedom to innovate. As it considers emerging technologies in its policy and enforcement work, the FTC should be guided by the fundamental principle that regulation should narrowly target specific, concrete harms. According to the FTC, ‘By focusing on practices that have already harmed or are likely to harm consumers,’ the agency can address the ‘most problematic’ practices, ‘while avoiding overly prescriptive rules that may quickly become obsolete in a rapidly-changing industry.’ And with respect to nascent technology in particular, the FTC has aptly recognized that premature regulation could stifle innovation.” (Julie M. Kearney, Comments Of The Consumer Technology Association, FTC, 8/20/18)
NetChoice’s Carl Szabo and Steve DelBianco note abandoning the consumer welfare standard risks politicizing antitrust analysis. “Removing the consumer welfare standard would risk injecting politics into what should otherwise be impartial decisions. Doing so would seriously degrade the trust Americans have in the impartiality of the FTC and would expose yet another component of our government to political scrutiny.” (Carl Szabo And Steve DelBianco, “NetChoice Response To FTC Request For Comments On The State of Antitrust and Consumer Protection Law And Enforcement And Their Development, Since The Pitofsky Hearings,” FTC, 8/20/18)
The tech industry is a bright spot in our economy with robust competition driving innovation.
PPI’s Michael Mandel finds the tech sector has ‘outperformed’ the rest of the private sector, suggesting competition in the tech sector is fierce. “The TTE sector has outperformed the rest of the private sector on every macroeconomic indicator. Indeed, the evidence suggests that to the degree that there are competition problems in the US economy, they are more likely to be found outside the TTE sector.” (Michael Mandel, “Taking Competition Policy Seriously: Macro Indicators For Regulators,” FTC, 8/15/18)
U.S. Chamber Of Commerce’s Neil Bradley notes the benefits of innovation and competition to the U.S. economy. “The American economy has changed dramatically since the establishment of the Commission over one hundred years ago. Innovations, competition in the market, and consumer demand have driven those changes, and technology and data continued to change the American economy today. The entire business community benefits from the technology digitizing the economy and from the data revolution the digital economy has enabled. The Commission’s enforcement flexibility over an ever-changing economy has been its strength. Such an approach avoids stifling or limiting innovation, competition, or access to in-demand products and services.” (Neil Bradley, Comments Re: Competition And Consumer Protection In The 21st Century Hearings, FTC, 8/20/18)
National Taxpayers Union’s Pete Sepp writes that analysis “must consider fiscal, not just economic, outcomes” like jobs and benefits to the economy. “Job creation (and with it various tax collections) could likewise be jeopardized by an imprudent regulatory stance. In May of 2011 the McKinsey group conducted an exhaustive survey of 13 countries called ‘Sizing the Internet.’ One fascinating finding came from a sub-survey of 4,800 small businesses, which determined that for every job ‘lost’ due to ‘technology-related efficiencies,’ 2.6 jobs were created. And, in confirming the trends observed in the Census numbers, roughly ¾ of the benefits from the Internet accrue to ‘traditional sectors’ outside of high-tech. Such benefits are even larger when specific parts of the Internet economy are examined. A separate McKinsey study from 2011 calculated that search technologies alone added $780 billion of value to the global economy, fully 96 percent of which went to sectors outside search. In 2017 the Interactive Advertising Bureau determined that including indirect jobs, some 10.1 million people are employed in the ad-supported Internet ecosystem. More current predictions about the “Internet of Things” estimate a worldwide economic added value of as much as $11.1 trillion in the year 2025. In short, a far-reaching cost-benefit analysis must consider fiscal, not just economic, outcomes. Such outcomes may not be easy to isolate, but increasingly sophisticated tools allow them to be weighed with lesser degrees of uncertainty than in the past.” (Pete Sepp, “Comments To The FTC On Competition And Consumer Protection In The 21st Century,” National Taxpayers Union, 8/21/18)
Big is not bad: Large platforms benefit small businesses.
NetChoice’s Carl Szabo and Steve DelBianco note big is not bad for America’s small and mid-size businesses. “Anti-business advocates claim that ‘big is bad.’ But for America’s small and mid-size businesses, the bigger the platform the better for trying to reach larger audiences. Consider the local custom furniture store. Just fifteen years ago businesses like this one could barely afford to place an ad in a local newspaper, let alone on TV or radio. But now, thanks to large online platforms, for less than ten dollars small-business can reach thousands of potential customers and target them more accurately than ever.” (Carl Szabo And Steve DelBianco, “NetChoice Response To FTC Request For Comments On The Identification And Measurement Of Market Power And Entry Barriers, And The Evaluation Of Collusive, Exclusionary, Or Predatory Conduct Or Conduct That Violates The Consumer Protection Statutes Enforced By The FTC, In Markets Featuring ‘Platform’ Businesses,” FTC, 8/20/18)
Connected Commerce Council comments that over-regulation of larger platforms will cause small businesses to suffer. “Privacy and data security enforcement against digital platforms is an important policy tool that can effectively result in important benefits to consumers and platforms’ small business partners. But 3C urges the Commission to focus narrowly on actual harms to consumers and try to avoid remedies that destroy “out of the box” products and solutions on which small businesses and consumers rely. If platforms are burdened with over-enforcement then small businesses will suffer also, and the competition and consumer welfare generated by 3C members and other small businesses will diminish.” (Jake Ward, “Connected Commerce Council’s Comments On Competition And Consumer Protection In The 21st Century,” FTC, 8/20/18)
Low barriers to entry and multi-homing increase competition and network effects are no guarantee of market dominance.
Larry Downes argues network effects are short-term. “Network effects may create temporary market leverage for a platform company at the top of the new adoption curve, but the period during which they can exploit it gets shorter all the time. Even wildly successful technology start-ups have fallen victim to a surprising drop-off in user attention and a failure to prepare in time with a next-generation innovation.” (Larry Downes, “Hearings on Competition and Consumer Protection in the 21st Century,” FTC, 8/20/18)
Niskanen Center’s Alec Stapp and Ryan Hagemann note the prevalence of multi-homing increases competition and reduce the effectiveness of network effects. “Network effects may not be as effective at increasing market power in the 21st century — the age of digital platforms and multiple devices per consumer — as they were in the 20th century, when there was one dominant platform (i.e., Windows) tied to one piece of hardware (i.e., the desktop computer). Users often engage in what’s known as “multihoming,” where they use multiple products or services in the same market (e.g., many consumers carry multiple credit cards in their wallet). This behavior naturally leads to an increase in competition as alternatives are always one click away, either figuratively or literally.” (Alec Stapp And Ryan Hagemann, “The Identification And Measurement Of Market Power And Entry Barriers, And The Evaluation Of Collusive, Exclusionary, Or Predatory Conduct That Violates The Consumer Protection Statutes Enforced By The FTC, In Markets Featuring ‘Platform’ Businesses,” Niskanen Center, 8/20/18)