DOJ’s New Antitrust Action Could Harm Consumers
The United States in recent decades has been the beneficiary of extraordinary technological innovation. This unprecedented growth and the consumer benefits that have come along with it were made possible thanks in part to a regulatory environment that encourages innovation while protecting consumers. The Justice Department’s new lawsuit might chill innovation if the case does not reflect facts and evidence, and if consumer benefits take a back seat to political considerations.
When discussing the DOJ action, it is important to keep in mind:
— Search faces competition from both advertising alternatives and the continued emergence of new entrants in Search.
— Big tech companies invest heavily in improving the user experience and innovations that benefit consumers.
— This case may depart from established antitrust legal standards.
— Expanding antitrust to include novel theories undermines innovation and harms consumers.
Search faces competition from both vertical search and advertising alternatives, as well as the continued emergence of new entrants in Search.
Online search platforms compete for advertising dollars with a broad array of competitors, including social media companies and print media, writes PPI’s Alec Stapp. “Advertisers maximize return on investment. If prices increase in one advertising channel, they likely substitute that spending to other channels. If anything, the simultaneous rise of digital advertising and fall of print advertising — while other advertising channels have remained flat — suggests that ‘US digital advertising’ might be too narrow of a market. It seems that advertisers are substituting digital advertising for print advertising. A good rule of thumb in antitrust is that the more adjectives someone tries to use to define a market, the less likely it has any relation to economic reality.”
Search engines have faced competition from vertical search providers for decades; this competition from specialized, vertical search is only increasing. Via Search Engine Land: “In order to sift through the information at their fingertips and arrive at the right result as quickly as possible, an increasing number of consumers prefer the specialized nature of a vertical search engine… If we home in on the share of searches for all platforms in February 2018, it becomes clearer still that vertical search engines cater to specialized — but still very lucrative — audiences. Sophisticated marketers will pay close attention to search intent, as well as sheer search quantity.”
Vertical Search Mainstays Have Been Around For Decades, Including:
The emergence of new competitors in Search signals that competitors see the market as open: earlier this year, Walmart rolled out a paid search function. “Almost 160 million consumers shop with Walmart either online or in-store on a weekly basis, which is instant accessibility to a large melting pot of different audiences to market towards. Walmart is able to use its collection of data and behavior from shoppers to enhance targeted advertisements to consumers with a higher propensity to purchase from that specific brand. Sponsored Product campaigns are not limited to Walmart.com but can also be featured on VUDU, Walmart’s video-on-demand platform.”
Big tech companies invest heavily in improving the user experience and innovations that benefit consumers.
It’s not the size of a company that matters, but rather its innovation and high-quality products, explain economist Richard Sousa and antitrust expert Nicolas Petit. “What matters is the consumer welfare generated by firms, regardless of their size. If large tech companies make our lives better by putting people to work at good wages and by innovating and creating higher quality products, they should be acknowledged for their role in the economic recovery and their contributions to society’s well-being. They should not be vilified by unsupported claims that the grass could be greener.”
Technology companies are powering the US economy forward through their investments in R&D, says Rani Molla of Recode. “Tech companies lead top U.S. companies in R&D spending. That’s notable because spending on research and development is a key indicator for U.S. productivity, a measure of how well our economy is doing… But spending on R&D is another factor in measuring productivity, and tech companies are certainly contributing in that area.”
Search incumbents continue to innovate and improve user experience, as described by Edgy Labs. “Last year, Google introduced and open-sourced a neural network-based technique for natural language processing (NLP) called BERT. Its function stems from being able to process words in relation to the other terms in a sentence. As a result, BERT models can consider the full context of a phrase using the words that come before and after. Thanks to this technology, anyone should be able to train their state-of-the-art question answering system.”
Consumers attach enormous value to the free tools tech services provide. Via The Economist: “A new working paper by Erik Brynjolfsson, Felix Eggers and Avinash Gannamaneni, three economists, does exactly this and finds that the value for consumers of some internet services can be substantial. Survey respondents said that they would have to be paid $3,600 to give up internet maps for a year, and $8,400 to give up e-mail. Search engines appear to be especially valuable: consumers surveyed said that they would have to be paid $17,500 to forgo their use for a year.”
This case may conflict with the existing U.S. legal standards for antitrust.
Antitrust law is grounded in the consumer welfare standard, which benefits both businesses and consumers, says Libertas Institute’s James Czerniawski. “In 1979, the courts shifted away from the rule of reason standard to what has been used to this day, the consumer welfare standard. This standard focuses on whether or not [consumers are harmed]. Big was no longer necessarily bad. As a result, more companies were able to flourish, and consumers were the beneficiaries of the new goods and services they were exposed to.”
The pre-empirical antitrust era was characterized by “great uncertainty” for businesses, says Joe Kennedy, Senior Fellow of ITIF: “[A]ntitrust morphed into an attack on bigness per se with the government seeking to prevent mergers that would give companies any sort of market power, breaking up large companies into smaller units, and forcing firms to share intellectual property with competitors. The attack on bigness often resulted in great uncertainty as companies wondered how big was too big and the potential consequences of gaining too much market share—even if it was the result of offering consumers better products at lower prices.”
Expanding antitrust to include novel theories undermines innovation and harms consumers.
Claims that consumers are better off with higher prices and more competitors are not grounded in evidence, says “Dean of Antitrust” Herbert Hovenkamp. “To date, the strongest and most central claim of the neo-Brandeis movement remains untested; that is its assumption that individuals in our society would really be better off in a world characterized by higher prices but smaller firms. Everyone in society is a consumer and consumers vote mainly with their purchasing choices. The neo-Brandeisians still face the formidable task of providing evidence that most citizens believe they would be better off in a world of higher cost smaller firms selling at higher prices, their market behavior notwithstanding.”
Moving away from the consumer welfare framework could make antitrust enforcement subject to the political whims of whomever is in power, says Pinar Akman of the University of Leeds. “Replacing the consumer welfare standard with that of protecting a market structure superimposed by the ideals of those gleaning into the market would be a move in the wrong direction for competition policy. The same goes for adopting objectives such as protecting—the imprecise, uncertain, and undertheorised concepts of—‘competitive process’ or ‘fairness’. Such substitutes would not only leave competition enforcement vulnerable to hijacking by the loudest lobbying interests, they would also allow political interests to be forced upon competition authorities, potentially damaging their independence and credibility.”