Micromanaging Innovative Companies Would Harm Consumers
Recent months have seen a proliferation of misguided proposals to enhance government interference in the tech sector, largely based on a fundamental misunderstanding of the multi-sided business models that characterize many of the most innovative firms. Making independent business decisions—or self-preferencing—including promoting store brands and products, has not only been a key characteristic of retail markets for decades, but also is a primary driver of competition that benefits consumers. Recent proposals from the Democratic Staff of the House Antitrust Subcommittee to interfere in the competitive process would likely distort the incentive structures of the tech sector, leaving consumers with fewer options and higher prices. Further:
— Promoting your own products in your own stores adheres to the consumer welfare framework and provides benefits for all users by elevating efficiency and innovation.
— Proposals to artificially split up tech firms based on “separate lines of business” ignore the incentives of the innovation economy.
— Similarly, proposals to break up companies which would prevent tech companies from participating in sectors they foster, lack adequate rationale and would harm consumers.
Promoting Your Own Products In Your Own Stores Adheres To The Consumer Welfare Framework And Provides Benefits For All Users By Elevating Efficiency And Innovation.
Law professor Herbert Hovenkamp argues that generic products promote competition rather than harm it. Under line-of-business separation, “Amazon could no longer sell AmazonBasics batteries in competition with these brands. 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.”
NetChoice’s Carl Szabo argues that proposals to end generic brands would hurt consumers. “Unfortunately, though, these generic brands are now on the antitrust chopping block. Congressman David Cicilline (D-RI) now wants to make it illegal for marketplaces to sell their own products. To Cicilline, this age-old process of selling both name brand items and a lower-cost in-house alternative is a conflict of interest so great that it should be illegal. Of course the Chairman ignores the fact that if Band-Aids were so opposed to competing with CVS’s brand, Band-Aids could just stop selling to CVS. But rather than letting the businesses or customers decide this, Rep Cicilline wants to make the decision for them.”
The ultimate arbiter of anticompetitive theory of harm is the impact on consumers and should not be overshadowed by a laser focus on competitors, writes John M. Yun: “Some caution must be exercised in overly focusing on the notion that rivals are harmed from a certain business practice—as the claim that harm to rivals, in of itself, constitutes harm to the competitive process is one that was long ago—and properly—discarded by antitrust jurisprudence. Firms in a free market do not possess a ‘right’ to make sales at prices they might wish to charge. It is not overstating things to say that policies favoring competitors over competition turn antitrust policy on its head, and impede, rather than protect, the competitive process.”
Proposals To Artificially Split Up Tech Firms Based On “Separate Lines Of Business” Ignore The Incentives Of The Innovation Economy.
The borders between business lines are “arbitrary and fluid” in digital markets, making it difficult to determine how separation on business lines would work or what benefits this would bring, writes The Economist. “Separating platforms from services which run on them sounds elegant. But how would one divvy up all the data the tech giants have collected? What is part of the platform and what is not? What happens if the lines between them move? Instant-messaging could be described as a feature of a social-networking platform but also a separate service.”
Breaking up leading tech services would likely lead to reduced innovation and productivity, writes Will Rinehart. “While breaking up the largest firms might not create more competition or output or even lower prices, both the affected company and the broader industry would change. For firms, being under the watchful eye of the government would cause them to second guess their moves, leading to a decline in innovation. Productivity would drop as teams and technology stacks would be broken.”
The Hepburn Act and Interstate Commerce Commission (ICC), misleadingly cited in the report a successful example of separation by business line, actually led to higher prices and decreased efficiency, according to Tom Hazlett. “And while the ICC brought stability to railroads, it did so while creating higher average prices. The agency, which was established in 1887, was abolished in 1995 for undermining railroad and trucking efficiencies, wasting fuel, savaging the environment, killing economic growth, and waterboarding consumers. With less “public interest” and more open market rivalry, shipping costs were slashed, pollution declined, and innovation sprouted. A Brookings Institution study pegged efficiencies at $18 billion in 1996 alone, while crediting deregulation for allowing the emergence of new competitors in overnight shipping, including Federal Express.”
Similarly, Proposals To Break-Up Companies, Which Would Prevent Tech Companies From Participating In Markets They Create, Lack Adequate Rationale And Would Harm Consumers.
Different from the regulated co-location practice in finance, tech platforms running real-time digital advertising exchanges service provide critical benefits for everyone involved. Sam Bowman counters one shallow analogy used to suggest a “Glass-Steagall for Tech”: “[T]o think that co-location itself needs to be stopped requires a belief that faster trading speeds from co-location do not have any overall positive-sum benefit. But this is not the case when it comes to real-time ad bidding. In this case, the speed of ad bidding is enormously important, because it determines the speed at which a website can be delivered to the user. Speed is extremely valuable to all parties involved, and whatever the publishers, advertising intermediaries and advertisers themselves can do to speed up the process is good for everyone involved, especially the website publishers and their users.”
Using sales data to build private-label products is an extremely common practice for brick-and-mortar retailers, writes PPI’s Alec Stapp: “Private label goods, or store brands, are neither unique to tech nor bad for consumers. Retailers have been selling private label goods for more than a century. … Banning this widespread practice would likely harm consumers, as private label goods are generally similar in quality to but priced lower than brand name goods. And for those who think having “more data” is a reason to treat e-commerce retailers differently than brick and mortar retailers, it is important to note that physical retailers have enormous amounts of store scanner data and invest in information technology at levels near the tech companies (Walmart spends more on IT than Microsoft or Facebook).”
A “Glass-Steagall for Tech” would likely make consumers worse off, writes CCIA President Matt Schruers: “Mandating structural separation of the retail function and the producer function in the digital environment would be similar to prohibiting brick-and-mortar supermarkets from placing their own-branded products on the shelf. If supermarkets wanted to continue to sell their own branded products, they would have to do so elsewhere… Would this benefit consumers? In the best-case scenario, grocery shoppers would have to visit two locations to get the same products, spending more in terms of time, transportation, and transaction costs. In the worst-case scenario, supermarkets might simply discontinue producing affordable, store-branded products, rather than open a new chain of stores or selling through competitors. Consumers would be worse off, with fewer and more expensive choices when grocery shopping.”