ICYMI: Makan Delrahim — The Consumer Welfare Standard Can Handle The Digital Economy
Assistant Attorney General for Antitrust Makan Delrahim’s latest speech answers questions raised by House Antitrust Chair Rep. David Cicilline (D-RI) on whether or not antitrust law should be changed to cover the zero-cost services of tech platforms. Delrahim characterized critics’ proposals of “throwing out the long-standing consumer welfare standard and crafting new rules ” to address tech platforms as “extreme views [that] are misplaced. ”
Highlights from Delrahim’s speech below, and you can read more about his support of the traditional consumer welfare standard here.
Zero-price strategies date back to radio and newspapers, with antitrust law applying to these mediums long before the advance of the modern digital economy.
Zero-price strategies are not new challenges for antitrust law: “Zero-price strategies have exploded in the digital economy, driven in large part by the Internet’s decreased production and distribution costs and the increase of digital platforms characterized by network effects and economies of scale. We should remember, however, that the strategy of selling a product or service at zero price is not new, nor is it unique to the digital economy. Let’s start by taking a look back. Radio, broadcast television and newspapers, all forms of ad-supported media, existed long before the rise of the digital economy, with radio dating back to the 1920s. Audiences have long enjoyed many of these products and services for free, funded by advertisers.”
Consumers benefit from zero-price products and services: “Consumers often benefit from these different types of zero-price business models I’ve just described. Zero-price strategies bring goods and services to consumers who otherwise would be priced-out. Consumers can exchange their data or attention in lieu of money to receive valuable services. Studies demonstrate that many consumers prefer ads to paying for certain services. In the study I just mentioned, 79% of respondents represented they would choose an ad-supported Facebook over paying $1/month. Another study found that consumers almost always choose free and ad-supported apps over the 99 cent alternative without ads. For now, consumers seem to be willing to provide information about themselves so that they receive the product for free, even recognizing that their information will be sold to advertisers in exchange for a zero price. Some consumers even may prefer receiving targeted advertisements that are more likely to be relevant to their needs.”
The consumer welfare standard covers more than price, allowing enforcers to apply it to zero-cost services of tech platforms.
“First, we should not exempt zero-price models from antitrust scrutiny and give a free pass to free services. U.S. antitrust laws apply in full to zero-priced products and services. Traditional conduct that is unlawful under the antitrust laws is still unlawful in the zero-price models more prevalent in today’s digital economy.”
“Second, our long history with zero-price strategies also tells us that we do not need a wholesale revision of the antitrust laws to address competitive concerns in these contexts. As I’ve said before, our antitrust laws and principles are flexible enough to adapt to the challenges of the digital economy. For this reason, we should not rush to throw out the consumer welfare standard in the context of the zero-price economy. The consumer welfare standard is not limited to looking at price effects. It also takes into account effects on quantity, quality, consumer choice, and innovation. With zero-price goods, it simply becomes more important to focus on these other non-price factors, or to focus on the actual consumers who really pay for the service.”
“Third, in the context of zero-price goods, it becomes particularly important to look at non-price competition. Price is only one dimension of competition. Firms in zero-price markets presumably continue to compete against each other on quality, choice, and innovation. These competitive factors are part of our traditional consumer welfare standard and deserve our attention and perhaps renewed focus.”
“Fourth, it’s helpful to take a step back and think about the purpose of market definition. Market definition is not an end to itself. The purpose of defining a relevant market and assessing market power is to identify competitive constraints that limit a firm’s ability to engage in behavior that harms competition and consumers. Where firms are limited by competitive constraints, the free market can self-correct without the need for antitrust enforcement. When there is such competition, consumers can switch away from firms engaging in behavior that raises price, degrades quality, and harms their experience.”
Looking ahead, enforcers must pay close attention to competitive constraints such as quality, privacy, multihoming, and multi-sided markets.
“Don’t enforce away pro-competitive business models”: “We, as antitrust enforcers, need to pay close attention to competitive constraints, to first make sure we don’t enforce away pro-competitive business models, but also to be vigilant that conduct does not unreasonably constrain the ability of new competitors to compete on the merits.”
Today’s leading tech service provide products consumers enjoy using: “Many of today’s large digital platforms have grown because they provide innovative and disruptive services that consumers seem to like and want to use. In my view, it’s no accident, and a point of pride, that a majority of these leading platforms are American companies. Our pro-market economic and legal structures and our venture capital community foster innovation and entrepreneurship. The fact that successful companies can reap the benefits of their hard work encourages the next generation of innovators and entrepreneurs and inserts the dynamic competition that best benefits consumers.”
“The free market can self-correct without the need for antitrust enforcement”: “The purpose of defining a relevant market and assessing market power is to identify competitive constraints that limit a firm’s ability to engage in behavior that harms competition and consumers. Where firms are limited by competitive constraints, the free market can self-correct without the need for antitrust enforcement. When there is such competition, consumers can switch away from firms engaging in behavior that raises price, degrades quality, and harms their experience. A recent Harvard Business Review article observed a number of constraints on a digital platform’s success, even in markets characterized by network effects. The article first points out that the strength of network effects can vary dramatically and can change over time. While network effects often lead to competition ‘for the market’ rather than “in the market, ” they do not necessarily create durable market power.”
—Multihoming as a constraint: “Vulnerability to ‘multi-homing,’ when a user forms ties with multiple platforms at once, is another constraint on platforms. Multi-homing may constrain the ability for a platform to engage in anticompetitive behavior because consumers can easily shift consumption to the other platform. All else equal, multi-homing occurs more often when the cost of adopting an additional platform is low, and is especially common in zero-price markets.”