Before Today’s Senate Antitrust Hearing, Read This
The rigor and objectivity of the modern antitrust framework have long enabled tech-led prosperity for consumers, small businesses, and a wide array of industries. Ahead of today’s Senate Judiciary Subcommittee on Competition Policy, Antitrust, and Consumer Rights hearing, it is important to keep in mind that:
— American market dynamism leads the world and unlocks shared benefits for consumers, business owners, and workers.
— Placing hefty restrictions on M&A could harm innovation and deter investment in startups.
— Widening the scope of exclusionary conduct could do more harm than good for the innovation ecosystem.
— Antitrust reforms that deviate from the consumer welfare standard could put American innovation and economic leadership at risk.
American market dynamism leads the world and unlocks shared benefits for consumers, business owners, and workers.
Today’s American tech sector is competitive, productive, and innovative, spurring more competition across the economy, agree 23 antitrust economists, legal scholars, and practitioners in a joint letter to lawmakers. “The most recent studies suggest that the observed changes in national-level concentration are brought about by the expansion of more productive large firms into local markets leading to, in these economists’ own words, ‘more, rather than less, competitive markets.'”
— “Further, despite occasional claims to the contrary, the literature has not uncovered systematic competition problems in digital markets. The best interpretation of existing evidence is that the deployment of new technology by traditional industries has increased economies of scale and scope and enhanced local competition. None of the economic evidence supports claims about generally enhanced market power in markets inhabited by the companies that develop such technological tools.”
“Further, despite occasional claims to the contrary, the literature has not uncovered systematic competition problems in digital markets. The best interpretation of existing evidence is that the deployment of new technology by traditional industries has increased economies of scale and scope and enhanced local competition. None of the economic evidence supports claims about generally enhanced market power in markets inhabited by the companies that develop such technological tools.”
The U.S. is home to nearly half of the world’s “unicorn” firms, demonstrating America’s “superior climate for innovation,” writes Jan Rybnicek of 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.”
M&A enables the American tech sector to operate more efficiently, ultimately benefiting both consumers and workers and leading to more competition, explains FTC Commissioner Noah J. Phillips. “[M&A] helps allocate assets in an efficient manner, for example giving those with the wherewithal to operate resources (think companies, or plants) an opportunity that others may be unable to utilize. Consumers benefit if a merger leads to the delivery of products or services that one company could not efficiently provide on its own, and from the innovation and lower prices that better management and integration can provide. Workers benefit, too, as they remain employed by going concerns. It serves no good, including for competition, to let companies that might live, die.”
American small businesses benefit from having a robust toolbox of digital tools. More than 1,600 American small businesses urged policymakers to reject efforts to undercut their digital safety net, reminds Jake Ward, President of the Connected Commerce Council. “Small businesses have been through a year of agony. Many of them are still taking orders and serving customers because the Digital Safety Net is real, and it kept millions of small businesses open during the pandemic. Elected officials must understand that digital tools are so effective for small businesses because the companies offering them are large, interconnected, constantly innovating, and engaged in fierce competition for small businesses’ dollars. Rather than launching investigations, government should empower small businesses and invest in increasing access to and educational resources for digital tools to help small businesses survive and prepare for the next crisis.”
Placing hefty restrictions on M&A could harm innovation and deter investment in startups.
Restricting M&A could burden startup formation and VC funding, argues Sam Bowman of the International Center for Law and Economics. “Making it harder for large firms to make acquisitions may hurt startup formation and investment, since being acquired is the main way that venture capital-backed startups can deliver a return to their founders and investors. Analysis of M&A activity in 48 countries concluded that venture capital investment falls when countries pass laws that make takeovers harder, and investment rises when they become easier.”
Increasing barriers to M&A could impede the innovation of many technology developers that actively seek to be acquired, reminds Sarah Richard of the Developers Alliance. “Developers are serial entrepreneurs who often measure their success by their ability to sell their product and use that capital to move on and create the next best thing. Measures to blindly curb mergers and acquisitions in this space in the name of competition are tone-deaf to the needs of the developer community and harmful to growth in the technology sector.”
Presuming all acquisitions by leading companies to be anticompetitive could limit funding for startups, ultimately handcuffing innovation and harming consumers, notes a joint letter by the App Association, Developers Alliance, and Engine. “Startups and serial entrepreneurs often focus on creating new, innovative technologies, with the goal of selling to a larger company that can bring the product to scale. This procompetitive exchange has clear synergies and benefits consumers by making the latest innovations widely available. Past completed acquisitions can also serve as a track record of success, enabling entrepreneurs to attract capital for their future ventures. Making it harder for startups to get acquired—or injecting uncertainty about acquisitions being unwound down the road—will hurt the ability of some new and small tech companies to raise funding and get off the ground.”
Reversing the burden of proof in antitrust and M&A cases could deter mergers that would otherwise spur innovation and competition and benefit American consumers, highlights Jennifer Huddleston, Director at the American Action Forum. “Changing these standards would make mergers and acquisitions more difficult. This shift would be particularly harmful in dynamic markets such as the technology sector where it is unpredictable what disruption may gain popularity or fundamentally change the market. The current, higher standard for government intervention already prevents mergers and acquisitions that could improve competition and aid consumers. Misunderstanding the changing market or the impact of innovation can already lead to denying mergers that would actually benefit consumers or allow smaller players to pool resources in ways that make them more competitive. A lower standard for challenging mergers would also make such beneficial deals less likely.”
A case in point: DirecTV and Skype both benefited from creative business deals to continue to innovate and compete, writes Adam Thierer of the Mercatus Center. “Consider DirecTV and Skype, both once considered innovative market leaders in their respective fields of satellite TV and internet telephony. Both firms stumbled, however, and they might not even be with us today without creative business deals.”
Widening the scope of exclusionary conduct could do more harm than good for the U.S. innovation ecosystem.
Blanket bans on vague misconduct could “inadvertently criminalize pro-competitive conduct,” resulting in greater uncertainty for innovation and investment in the U.S., says Alec Stapp of the Progressive Policy Institute. “The problem with the proposed [Competition and Antitrust Law Enforcement Reform Act of 2021] is that it would drastically lower the bar for antitrust liability and might inadvertently criminalize pro-competitive conduct. A prohibition on ‘conduct that materially disadvantages competitors’ would essentially degrade antitrust law to a ‘know it when you see it’ standard for anticompetitive conduct. In reality, lots of corporate conduct is ambiguous at first glance. Enforcers need to do the work of economic analysis and fact-finding to determine whether it’s pro-competitive or anti-competitive. We shouldn’t short circuit that process.”
Though Sen. Klobuchar’s recently proposed bill takes an important step in providing additional agency funding, the suggested changes to exclusionary conduct could compromise due process and lead to never-ending litigation, slowing U.S. “market dynamism,” reminds Marianela Lopez-Galdos of CCIA. “The bill also proposes some changes to dominant players with respect to exclusionary conduct which according to the proposal will now include acts that disadvantage current or potential competitors or limit rivals’ ability or incentive to compete. This will be a rebuttable presumption, but the suggested change puts successful big players on the ‘guilty’ side of the equation first, when they should still hold the right to be ‘innocent’ until proven otherwise. This is another instance where antitrust risks being trapped under eternal litigation where parties struggle to make their case, slowing down the market dynamism.”
Antitrust reforms that deviate from the consumer welfare standard could put American innovation and economic leadership at risk.
The Competition and Antitrust Law Enforcement Reform Act could have far-reaching negative consequences beyond the tech sector, highlights Carl Szabo, Vice President and General Counsel at NetChoice. “‘This misuse of antitrust law could render America decades behind in its technological innovation and investment, something that will surely impede our post-COVID recovery,’ continued Szabo. ‘Not only will we be stuck with inferior technology, Americans could see this precedent make local newspapers fail, our grocery retailers unaffordable, and our hopes for more small businesses and start-ups dashed.'”
The unwavering goal of antitrust reforms should be to prioritize consumer welfare, not competitor welfare, reminds the International Center for Law & Economics. “Under current antitrust law, a plaintiff must show that conduct harms consumers. CALERA instead defines harm entirely in terms of the effect of conduct on competing firms. As we describe in our tl;dr on the Consumer Welfare Standard (CWS), prioritizing competitor welfare over consumer welfare would make some procompetitive behavior illegal, because conduct that benefits consumers often will also ‘disadvantage’ competitors.”
The consumer welfare standard provides a much-needed dose of empirical objectivity to antitrust laws and enforcement in an evolving economy, highlights Joshua Wright of George Mason University. “The consumer welfare framework has the flexibility to expand and contract enforcement in response to changes in sound empirical evidence over time. Indeed, it’s done so over time, with changing technology and changing understanding of business behavior.”