Setting The Record Straight: The Consumer Welfare Standard Powers U.S. Tech Leadership
Yesterday’s Public Knowledge event calling to undercut the consumer welfare standard and to shift standards governing mergers and acquisitions (M&A) does not acknowledge the damage such an approach would have on U.S. leadership in global tech. In fact, the U.S. tech sector sets an example for the rest of the world in competition and innovation thanks to the long-standing, pro-consumer antitrust and competition laws. For the U.S. to continue as a global tech leader, and for consumers and small businesses to continue as the major beneficiaries of tech innovation, policymakers should keep in mind:
— The U.S. is home to the most innovative companies, and provides the best regulatory and cultural environment for the next generation of innovators.
— The consumer welfare standard should continue to be upheld as the beacon of antitrust laws in the U.S. because it is objective, pro-innovation, and pro-consumer.
— Shifting the burden of proof in antitrust and M&A cases distorts the innovation economy.
The U.S. is home to the most innovative companies, and provides the best regulatory and cultural environment for the next generation of innovators.
BCG’s Most Innovative Companies 2020 rankings shows that American companies comprise 14 of the top 20 companies and half of the top 50. “Overall, U.S. companies represent 25 of the top 50 companies (50%). Only 14 of the top 50 companies (28%) are European-based, and they enter the ranks at 21. None of these [European] companies fall within what generally is considered the tech sector, but rather represent industries such as automobile manufacturing, retail, pharmaceuticals, and consumer goods.”
The U.S. is home to nearly half of the world’s “unicorn” firms, proving that the next generation of innovators value the tech climate in the U.S. Jan Rybnicek, Senior Fellow at the Global Antitrust Institute: “This data shows that entrepreneurs seek to innovate and grow their businesses in the United States more so than in any other country further, further supporting the notion that the United States has fostered a superior climate for innovation than has Europe—one in which innovators and entrepreneurs can attain the funding they need to grow and have ample opportunity [to] vigorously compete against old and new rivals.”
American venture capital investing has grown by nearly 400%, with deals rising by 140% in the last 10 years, long leading Europe. Jan Rybnicek, Senior Fellow at the Global Antitrust Institute: “The disparity between the United States and European venture capital markets is one reason why the U.S. has consistently been home to the most innovative companies and technological development. But it also is evidence that investors view the United States as a better place to invest, in part because of its more favorable innovation climate.”
The U.S. leads the rest of the world in research & development spending, a key indicator of dynamic competition and innovation. “Among individual countries, the United States was the largest R&D performer in 2017, followed by China, whose R&D spending now exceeds that of the EU. Together, the United States (25%) and China (23%) accounted for nearly half of the estimated global R&D total in 2017.”
The consumer welfare standard should continue to be upheld as the beacon of antitrust laws in the U.S. because it is objective, pro-innovation, and pro-consumer.
The consumer welfare standard gives antitrust enforcers a clear mission, immune from political weaponization. Joshua D. Wright and Aurelien Portuese, antitrust experts: “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.”
Moving away from an innovation-based consumer welfare standard puts U.S. tech leadership at risk, enabling “regulatory imperialism” and bad-actor nations. Robert D. Atkinson, President of the Information Technology and Innovation Foundation: “In this scenario, the United States either by commission or omission allows the EU model of digital governance to prevail in most parts of the world, other than China and digital bad-actor nations. By commission, the United States would support the right of the EU to enact stifling regulations and encourage companies around the world to adopt them, so they become the de facto rules. By omission, the United States does little to actively work with other nations to educate and pressure them to adopt the U.S. innovation-based model of digital regulation. Either way, the United States is isolated, and its firms face a global digital economy—one that isn’t based on open, rules-based competition and innovation, but rather on who can best manage multiple conflicting compliance regimes.”
The consumer welfare standard enables antitrust regulators to effectively promote innovation in the technology industry. Joe Kennedy, Senior Fellow at the Information Technology and Innovation Foundation: “[Consumer welfare standard] allows regulators to focus on the long-term trajectory of value and price, and take innovation effects directly into consideration. As UC Berkeley professor Carl Shapiro points out, the consumer welfare standard defines welfare broadly and encompasses nonprice aspects such as improved product variety and more rapid innovation. This is also clear from the merger guidelines themselves, which explain that potential effects are put in terms of price changes ‘[f]or simplicity of exposition,’ and that non price terms and conditions that adversely affect customers also matter, including ‘reduced product quality, reduced product variety, reduced service, or diminished innovation.'”
The claims that consumers are better off with higher prices and more competitors are not grounded in evidence. Herbert J. Hovenkamp, Professor of the University of Pennsylvania Law School: “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.”
Shifting the burden of proof in antitrust and M&A cases distorts the innovation economy.
Digital platforms only account for 0.06 percent of M&A activities worldwide since 1998. “According to the Institute for Mergers, Acquisitions, and Alliances, there have been 894,669 worldwide acquisitions since 1998, an average of 40,667 annually, which means the four digital platforms accounted for .06 percent of total acquisitions.”
Imposing a burden of proof on antitrust defendants would risk increasing false-positives, impeding innovation. Geoffrey A. Manne, President of the International Center for Law & Economics: “The combination of the anti-market bias in favor of monopoly explanations for innovative conduct that courts, enforcers, and economists do not understand, the unwarranted fear of new technologies leading to ‘technopanics,’ and the increased, economy-wide stakes of antitrust intervention against innovative technologies and business practices, increases both the likelihood that antitrust errors surrounding digital markets will be Type I, false-positive errors, as well as increasing their cost.”
Misguided proposals to change antitrust presumptions undermines the pro-consumer focus of antitrust laws and burdens the innovative players. Ben Sperry, Associate Director of the International Center for Law & Economics: “The HJC report’s recommendations on changing antitrust presumptions should be rejected. The harms will be felt not only by antitrust defendants, who will be much more likely to lose regardless of whether they have violated the law, but by consumers whose welfare is no longer the focus. The result is inconsistent with the American tradition that presumes innocence and the ability of people to dispose of their property as they see fit.”