A User Guide To Competition Policy
With the House Judiciary Committee’s Antitrust Subcommittee digital markets report imminent, we want to bring you a useful guide through the biggest issues in antitrust in the tech industry and our go-to resources.
Define and dive in to these key concepts:
– Consumer Welfare Standard
– Kill-Zone Myth
– Network Effects
Antitrust: The legal framework aimed at ensuring that competition governs markets by protecting the competitive process, and does not aim to protect companies from competition.
– The Supreme Court’s 1977 decision in Brunswick Corp. clarifies, “The antitrust laws, however, were enacted for ‘the protection of competition, not competitors.'”
– Former FTC Commissioner Maureen Ohlhausen explains, “Antitrust is intended to protect the market process, not ensure a particular market outcome at a particular time.”
Read more from Springboard: What Is Antitrust For—And Not For
Consumer Welfare Standard: The objective, economics-based standard, that posits that the maximization of benefits to consumers is the goal of the antitrust law. Consumer welfare has held up as the standard precisely because it is clear and pro-consumer.
– The consumer welfare standard gives antitrust enforcers a clear mission, writes former FTC Commissioner Joshua Wright and antitrust scholar Aurelien Portuese. “The adoption of the consumer welfare standard gave antitrust enforcers a coherent mission: protect the benefits of the competitive process by preventing activities likely to raise market prices, lower market output, or otherwise harm competition. When antitrust focuses upon socio-political goals, it detracts from this mission, likely slowing economic growth and depriving consumers of goods and services.”
Read more from Springboard: A Brief History Of The Consumer Welfare Standard
Kill-Zone Myth: The unfounded allegation that successful technology companies stifle venture capital funding and growth ability among startups and small businesses. The kill zone holds that leading tech services replicate the products of their smaller competitors and leverage market power to stifle competition.
– Today’s thriving venture capital investment rejects the conventional “kill zone” wisdom, according to Jim Pethokoukis of the American Enterprise Institute. “Indeed, given all the many areas of interest to Big Tech, one might think there would also be so many kill zones that few startups would get funded. Yet VC investment in the US reached $136.5 billion last year, second only to 2018’s $140 billion.”
Read more from Springboard: Debunking The Myth Of The “Kill Zone”
Multihoming: Consumer “switching” between platforms with similar or comparable uses, rather than choosing only one platform to use, e.g., consumers using multiple social media companies or searching for information using multiple providers.
– Platforms make it convenient for consumers to multihome, so the need for platform loyalty is nonexistent in today’s marketplace, as outlined by Economist David Evans. “The number of apps that people can use is limited mainly by their ability to keep track of icons or bookmarks. Many online platforms are available to users for free. Consumers face no significant expense in installing an additional online platform app. Nor must they agree to use an online platform exclusively. As a result of these features, it is easy for people to multihome on several online platforms. They can conveniently switch back and forth depending upon which they prefer for which purpose. It is also easy for people to try a new alternative online platform and decide whether to keep using it or not.”
Read more from Springboard: Multihoming In The “At Home” Era
Network Effects: The concept that as a product or service gains users, the usefulness of that product increases, e.g., the experience of using a social network increases as more friends and family members use that network.
– Network effects “do not necessarily create durable market power,” according to AAG for Antitrust Makan Delrahim. “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.”
Read more from Springboard: The More, The Merrier: Competition For Network Effects
Self-Preferencing: The allegation that platforms elevate their own products and services compared to those provided by third parties.
– Platforms’ self-preferencing actually increases the value of their entire ecosystems, resulting in consumer benefits, not harms. “[P]latforms’ incentives are to maximise the value of their whole ecosystem, which includes both the core platform and the services they attach to it. Platforms that preference their own products frequently end up increasing the value of the market overall by growing the total share of users of a particular product, and those that preference inferior products end up hurting the attractiveness to users of their ‘core’ product, weakening themselves to competition from rivals.”
|Read more from the International Center for Law & Economics: Self-Preferencing: Building an Ecosystem.|