STRS: The FT Misses The Mark On Antitrust & The Consumer Welfare Standard
In her latest for the Financial Times, Rana Foroohar argues that antitrust policy should move away from the consumer welfare standard toward a far broader definition. But as Assistant Attorney General for Antitrust Makan Delrahim has pointed out, the consumer welfare standard is adaptable and flexible, and arguments around data ownership are not actually evidence of impenetrable barriers to entry.
More on this below from Delrahim and other experts.
Experts agree with AAG for Antitrust Makan Delrahim: The consumer welfare standard should remain “the bedrock” of antitrust policy.
Contrary to the arguments of critics like Foroohar, ITIF’s Joe Kennedy finds the consumer welfare standard goes well beyond pricing harms to consumers and is well-equipped to handle new business models. “Regarding the claim that the consumer welfare standard does not adequately take into account nonprice harms such as reduced product quality and slower innovation, it in fact does incorporate nonprice harms, including threats to innovation. Specifically, it allows regulators to focus on the long-term trajectory of value and price, and take innovation effects directly into consideration. As UC Berkeley professor Carl Shapiro points out, the consumer welfare standard defines welfare broadly and encompasses nonprice aspects such as improved product variety and more rapid innovation.”
Hasty arguments to “break up” leading tech services could impose significant economic costs without providing benefits to consumers, writes Kennedy: “Even if policymakers could decide on the right priorities, breaking up large companies would be extremely hard to accomplish. Will Rinehart of the American Action Forum points out that breaking up the Internet platforms would require the government to break up both integrated working teams and the underlying technology, something it is ill-suited to do. It would also need to create and enforce a regulatory system that separates the firm from other markets. He points out that the history of government-imposed breakups has been ineffective, imposing significant economic costs without achieving much benefit for consumers or competitors.”
AAG for Antitrust Makan Delrahim does not endorse the view of tech critics, instead emphasizing that the consumer welfare standard is flexible: “As you are all aware, some critics assert that the antitrust consensus is not equipped to address competitive threats posed by new developments in technology—digital markets and platforms in particular. I don’t endorse that view. Indeed, last month at the University of Chicago Booth School of Business, I emphasized that the bipartisan antitrust consensus is flexible to challenges posed by digital platform markets because it can incorporate the latest economic wisdom in determining whether business practices or transactions are harmful to competition and consumer.”
As former FTC Policy Director David Balto has explained, proposals to discard the consumer welfare standard are “shallow” in details, being “all action, no plan.” “The consumer welfare standard is surprisingly simple. Alleged anticompetitive activities are held to one measure: whether they lead to more consumer harm than benefit. These harms can be in the form of higher prices, lower output, reduced quality or lost innovation. The neo-Brandeisians think this standard is too limiting, because what is good for consumers could potentially be bad in some other way. But if you look closely at the neo-Brandeis movement you will see that it is surprisingly shallow in its details: all action, no plan. There is no consensus on how a new standard would work in courts. What we are left with are calls for change for change’s sake. This is not the way to build policy that needs to be as stable and forward looking as antitrust law. The impacts of enforcement can ripple out for decades and errors in either pursuing or not-pursuing cases have long-lasting effects.”
Foroohar’s argument that data should be priced ignores the reality of data, as described by Delrahim.
While Foroohar argues that data pricing should be revealed to customers, AAG Makan Delrahim notes that there isn’t obvious pricing: “Because many online services are free for users, there has been a temptation to use ‘data’ as a proxy for price when determining the anticompetitive effects of a merger or conduct. Consumers, however, have different preferences with respect to sharing their data. As a result, there is no uniform value yet assigned to ‘data.’ It’s not necessarily the case that the more data a platform extracts, the higher the ‘price’ on consumers. In some cases, more data can be better for consumers.”
Foroohar argues that data is being collected by companies offering “no better service in return.” But, as AAG Delrahim notes, examples of data helping improve product quality are all around us: “The accumulation of data can benefit consumers by improving the quality of existing goods and services and by creating new ones. Platforms and apps pair large amounts of data with technology to create some of the economy’s most important innovations, including in medical diagnoses, weather forecasts, transportation safety, and language translations. These innovations are having a significant impact on almost every aspect of our daily lives, making possible many of the conveniences we have begun to take for granted.”
Delrahim has said data is not a barrier to entry despite Foroohar’s implications, as noted by economists like Catherine Tucker and Anja Lambrecht.
Economists Anja Lambrecht and Catherine Tucker write, “Big data is not inimitable or rare,” with insight into consumer needs more critical to startup success. “Our analysis suggests that big data is not inimitable or rare, that substitutes exist, and that by itself big data is unlikely to be valuable. There are many alternative sources of data available to firms, reflecting the extent to which customers leave multiple digital footprints on the internet. In order to extract value from big data, firms need to have the right managerial toolkit.”
—”Therefore, to build sustainable competitive advantage in the new data-rich environment, rather than simply amassing big data, firms need to focus on developing both the tools and organizational competence to allow them to use big data to provide value to consumers in previously impossible ways.”
At a recent fireside chat on the topic, Makan Delrahim described the difference between data and finite currency: “Some people equate personal information to currency in evaluating the antitrust implications in the new markets,” but, as Delrahim explains, “I don’t know if that’s the appropriate way of looking at it. If I had ten dollars and if I had to give away a dollar for a product each time, I can only do that ten times. But I can provide my information to an infinite number of sources who ask for my name, my email, my cell phone number if I so choose to provide that in exchange for that.”
—Delrahim has consistently argued that data is not the same as finite currency: “For example, some argue that U.S. or international agencies should simply declare that data is the new digital currency, that online platforms have been exploiting data without consent, that loss of informational control is anti-competitive, and then impose eye-popping penalties by multiplying some measure of data value by the size of the customer base. I wouldn’t call that an antitrust remedy stemming from an evidence-based analysis. Such an approach ignores the economic nuance of revealed preference—that is, not every customer values their data, or their privacy, the same way.”