Setting The Record Straight: Antitrust Expert Herbert Hovenkamp Breaks Down Warren’s Proposal
While a handful of policymakers have made similar comments to Sen. Elizabeth Warren’s (D-Massachusetts) proposal to “break up” big tech, University of Pennsylvania law professor and antitrust expert Herbert Hovenkamp makes a strong argument for why these proposals could backfire, harming consumers and labor. Hovenkamp warns, “Although the proposals sound simple, they mask complex issues and are likely to produce unintended results.”
Warren’s proposal to keep platforms from selling their own products disregards the benefits of vertical integration (in any industry) for consumers.
—Neither consumers nor labor benefit from the inability of companies to sell their own products. “Who gains from Senator Warren’s first proposal to keep large platform companies from selling their own merchandise? Not consumers or labor, both of whom benefit from high output and low prices. Indeed, the text of the Warren proposal is largely indifferent to output or pricing—and may even lead to lower output and higher prices. The statement outlining the proposal justifies its prohibition by citing Progressive Era rules that required structural separation of public utilities from ordinary businesses. But utilities at that time, including railroads, were subject to price regulation. A price-regulated utility’s expansion into unregulated markets—for instance, when railroads acquired coal mines or hotels— created opportunities for manipulating the costs of its regulated business. By contrast, if it is not subject to price regulation, a company’s “vertical” integration of inputs and outputs can be good for competition. For example, oil refiners also sell gasoline in order to prevent price fixing by independent gasoline stations.”
—Vertical integrations allow companies to eliminate price premiums, but Warren faults generics that make items more affordable for consumers and supports the status quo of entrenched brands’ price premiums. “The proposal faults house brands for copying the goods of others. To be sure, intellectual property laws are not always effective at preventing copying. Nevertheless, making a cheaper generic copy of another firm’s trademarked brand is not any kind of theft at all. Rather, it serves consumers by giving them the opportunity to avoid paying for a trademark or name that they do not want. The result is less monopoly, not more.”
Warren’s proposal to undo mergers masks complex issues and protects potentially ineffective rivals.
—Mergers place pressure on rivals to innovate, and protecting rivals should not be the purpose of antitrust laws. “For example, Walmart is now expanding its offerings to include delivery and other services. Any time a merger or other practice reduces a firm’s costs or improves its products or services, it boosts competition by putting pressure on obsolete or less efficient rivals. But protecting these rivals should not be the purpose of the antitrust laws. Rather, the focus of antitrust laws should be on maximizing output, which benefits both consumers and workers.”
—Protecting rivals from competition comes at the cost of consumers. “One stark deficiency [in Warren’s proposal] is the lack of concern about high consumer prices, even though Senator Warren made her career promoting the protection of consumers. Nevertheless, her proposal ignores them and is more concerned about protecting inefficient, higher cost competitors.”
Warren’s proposals oversimplify a nuanced conversation.
—Talking concentration without looking at increased margins across industries means an unwarranted focus is being placed on the technology industry. “Why would a Warren Administration focus on large tech platforms? Although monopoly is a serious problem and margins have grown rapidly since the 1980s, the increases have mainly occurred in markets for manufactured products (such as cars), breakfast cereal, steel, airlines, household goods (such as batteries), and beer. By contrast, most of Google’s products are sold at a price of zero to consumers, although businesses pay for advertising.”
—”First, the Warren proposals largely ignore the mainstream understanding of the problem. Second, although the proposals sound simple, they mask complex issues and are likely to produce unintended results.”