ICYMI: Digital Economy At Risk Of Being Overmanaged
Over the past two weeks, Competition Policy International (CPI) and CCIA brought together a broad panel of experts to discuss the most pressing challenges for antitrust during the final approach to the U.S. presidential election. With extreme antitrust proposals sweeping across the technology sector, risking compromising the future growth of the innovation economy, antitrust experts cast doubt on the need for stringent antitrust interventions that would endanger the market’s incentive to innovate and improve consumers welfare.
When enhanced government interference in the competitive process mischaracterizes the technology sector in the digital economy, it would do more harm than good for every stakeholder involved.
Highlights from the panels include:
— Prescribing unreasonable, expansive antitrust rules present harm to the whole economy.
— Antitrust reform requires an accurate and complete understanding of the digital economy.
— Digital advertising is an important information intermediary that would be undermined by antitrust intervention.
Prescribing unreasonable, expansive antitrust rules present harm to the whole economy.
Big is not bad under antitrust laws as long as the market share is legally acquired and maintained. Makan Delrahim, Assistant Attorney General, Antitrust Division, US Department of Justice: “There are some changes that are recommended and good, and some other changes that just seem to say big is bad, but as we have said sophomorically, big is not bad under the antitrust laws. It is big when it behaves badly, whether you have obtained or maintained monopoly power illegally. That’s what we should be condemning, not so much the incentive for somebody through better acumen, greater efficiency to stay market power.”
The HJC report invokes an invasive regulatory regime and price controls in the technology sector that create considerable risks for the economy. Geoffrey Manne, President and Founder, International Center for Law & Economics: “The House report portends not just a takeover of tech, but a takeover of the entire economy in many respects. It reminds me of the days of the Industrial Reorganization Act proposals in the ’60s and ’70s from Senator Hart. This is sort of an indirect way of getting at the same thing. You can’t accomplish, I believe, the things that the House report most wants without a pretty invasive regulatory regime and price controls to regulate access and the terms of access and the regulation of treating various aspects of the economy as essential facilities. I don’t think that’s beneficial for anyone and is a real risk.”
The HJC Report misses the full picture of the technology sector by relying on one-sided, anecdotal evidence. Koren Wong-Ervin, Partner, Axinn, Veltrop & Harkrider: “I think one of my problems with the House report is that it’s very one-sided. It’s based on a lot of anecdotal evidence of complaints. From cherry-picked facts saying that entrepreneurship is down looking at the period from the dotcom boom through the Great Recession, relying on the Kwoka study for the merger presumptions without even mentioning much less grappling with the widespread criticism of that study.”
Structural separation and shifting burden of proof to the defendant in antitrust would have a drastically negative effect on consumer welfare. Noah Phillips, Commissioner, U.S. Federal Trade Commission: “Broad ideas of Glass–Steagall type structural separation that I don’t know are warranted. I don’t know at all that those would be good for consumers. There are even other rules that some people view as modest, like shifting the burden of proof in cases to the defendant, which is certainly not the tradition of American law or law enforcement that I think are anything but modest, and in fact, would have a very dramatic, and in many cases, very negative effect.”
Treating tech platforms as essential facilities undermines innovation and dynamic competition. Maureen K. Ohlhausen, former FTC Commissioner: “[T]here really was a strong correlation between stronger IP laws and more investment in R&D, which can be a rough approximation for innovation. So that is one of the main reasons why I am concerned about putting forward the idea that we are going to make companies share their facilities just because a competitor wants them to get through the door because I think it would have a suppressing effect on investment, and ultimately the innovation that leads to more competition down the road.”
Antitrust reform requires an accurate and complete understanding of the digital economy.
Applying the industrial economy view of antitrust to the complex digital economy would do more harm than good. David J. Teece, Professor in Global Business, Berkeley Haas: “[T]he probability that we are going to do more good than harm is incredibly low if we adopt a sort of industrial economy view of things… There is plenty of evidence out there, not in the economic literature, but in the management literature about how fragile these things are—if managers make one major mistake, they are out of the game. So we need new tools and actually have managers having a role in it, to actually focus as much on capabilities as on markets. When I think about the strength of firms, I do not think anymore about markets and market share, I think about capabilities. If we do not start understanding these complexities about how these industries are different and just try out the same, old structures and frameworks of the past, it will unquestionably make things worse.”
Today’s antitrust dialogue fails to consider the importance of innovation to driving competition. David J. Teece, Professor in Global Business, Berkeley Haas: “At the end of the day, it is innovation that drives competition. If we do not put innovation first, we are going to kill both competition and innovation. My view is that if it’s going to be the FTC, we have to have the FTC come up to speed not just on how competition drives innovation, but also how innovation drives competition, which, quite frankly, is missing from the antitrust dialogue.”
Breakthrough innovation in the market will require constant collaborations between public and private sectors with a mutual understanding of how industry works. William Kovacic, Professor of Law and Policy, The George Washington University: “The firms that are leading the charge in this area did not exist 20 years ago. Their success is attributable to a collection of public and private initiatives… It (SpaceX) has advanced in a number of ways because of this constellational factor. Part of the effort here has to be a fast-paced move to study in more detail why some sectors have advanced and elevated, why do we see thriving sectors of development that do not necessarily have likes to the familiar firms.”
Digital advertising is an important information intermediary that would be undermined by antitrust intervention.
Third-party digital advertising serves an important informational purpose for consumers in the free market. Christopher S. Yoo, Professor of Law, Communication, and Computer & Information Science, Penn Law: “I have an article that was really a free speech one that talks about the myth of the internet as an intermediate experience. And what I said there is, I don’t wake up in the morning and crawl the entire internet to see what’s new. I don’t have that capability. I rely on email exploders, or content venues that I go to, or even search engines to do customized queries to assist me to do this. But in the end, I am relying on tools, someone else’s tools or someone else’s editorial judgment, to help me cull the internet, the fire hose of content.”
Today’s marketplace, physical and digital, demands more data to be used to increase efficiency of ad spending and engage consumers in need. Leigh Freund, President & CEO, Network Advertising Initiative: “[C]ontextually, the very most simple form of contextual advertising, which is serving a Nike golf ad on the PGA site or a Nike soccer ad on a ESPN site, requires data. And the market is demanding more and more uses of that data to ensure that their advertising dollars are spent the right way. They’re no longer satisfied with, well, the New York Times has a circulation of print media of 7 million people. I know that 7 million people will see my Tiffany’s ad in section A. They’re no longer satisfied with that. And so the demand in the marketplace is for more and more data to be used, even if we’re not talking about targeted advertising.”
Calls for antitrust intervention compromise the healthy progress of advertising technology, which will have negative ripple effects for consumers and market at large. Christopher S. Yoo, Professor of Law, Communication, and Computer & Information Science, Penn Law: “So to understand before we bring antitrust to bear, we have to make sure we are just talking about a garden variety privacy violation, where we have enforcement regimes to deal with that? Or is this an antitrust violation where it’s a systematic behavior that represents exclusionary conduct that actually affects markets? When we look at the consumer protection side, we have to look at the two H stores that Ramsi brought up in our conversation before, which is there are good uses of data and bad uses of data. And one of the problems that we have in GDPR and other regimes is by treating all forms of personally identifiable information as suspect, you lose the ability to do certain forms of targeted advertising and certain uses of data.”