Get Up To Speed Before Today’s HJC Antitrust Hearing
When considering competition policy, it’s important to remember the facts. Get up to speed before today’s House Judiciary Subcommittee on Antitrust, Commercial, and Administrative Law Antitrust hearing, and remember this:
— The current American approach to competition policy and enforcement is working for consumers and the broader economy.
— An economics-based approach to antitrust rooted in consumer welfare is vital to America’s continued economic leadership.
— The current American approach to competition policy has also benefited small businesses.
— Overburdening M&A deals with more regulation would cause more harm than good, slowing innovation and restricting startups’ access to capital.
The current American approach to competition policy and enforcement is working for consumers and the broader economy.
The American tech sector is competitive, innovative, and serves consumers well, wrote 23 antitrust economists, legal scholars, and practitioners in a joint letter to lawmakers. “Debate about whether the antitrust laws should be fundamentally re-written originated from a concern that markets have recently become more concentrated and that competition had decreased as a result. The popular narrative, that increases in concentration have caused harm to competition throughout the economy, does not withstand close scrutiny. In reality, most markets in the American economy—including digital markets—are competitive, and thriving, and create huge benefits for consumers.”
Antitrust laws are not meant to address multiple, conflicting objectives, according to Douglas Melamed, professor at Stanford Law School. “The Report’s first recommendation is that Congress consider making clear that the antitrust laws ‘are designed to protect not just consumers, but also workers, entrepreneurs, independent businesses, open markets, a fair economy, and democratic ideals.’ Using the antitrust laws to address all these worthy objectives is problematic, in part because any law that has multiple and often conflicting objectives risks arbitrary and unpredictable decisions and is more susceptible to regulatory capture than a law whose enforcement and judicial decisions can be assessed by an unambiguous metric. These risks seem especially serious with antitrust law because it applies to almost all sectors of the economy, is enforced in a decentralized system by a multitude of potential plaintiffs, and is therefore applied to diverse and often complex commercial problems.”
The American antitrust legal framework is “up to the job,” due to its objectivity and ability to adapt to changes in empirical evidence, highlights Joshua Wright of George Mason University. “Modern antitrust law, guided by the consumer welfare standard, is, to put it plainly, up to the job… 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.”
Policymakers should avoid undermining the inherent benefits of a competitive ecosystem, reminds Matt Schruers of CCIA. “Competition on the merits is welfare enhancing, and [that] less efficient firms should exit the market. Another [principle] is that customers benefit when firms mobilise their resources to enter new markets and stimulate competition. As the Report acknowledges, even where digital disruption is prevalent, ‘”big” is not necessarily “bad” in these markets.'”
The FTC continues to work efficiently, and in 2020 brought a record-setting 27 merger enforcement actions, the highest number in a single year in the past two decades, said FTC Commissioner Noah Phillips in his testimony today, citing the FTC’s Annual Performance Report. “In FY 2020, the agency concluded 27 matters in which it took action to maintain competition, including 11 consent orders and 11 abandoned transactions, focusing its efforts on markets with the greatest impact on American consumers. This fiscal year saw a continuation of the Commission’s ambitious antitrust litigation docket, with 11 active litigations from the current or prior years.”
An economics-based approach to antitrust rooted in consumer welfare is vital to America’s continued economic leadership.
Other nations are watching to see whether the United States abandons the tenets that have made it the most innovative country on Earth, warns Congressman Darrell Issa. “So make no mistake, Europeans would like us to overreact because they would like to have an opportunity to have these dominant companies that they have never been able to have because they have never had the freedom for the next generation of ideas to go from startup to trillion dollars.”
Thanks to our current framework, the U.S. is home to the most successful companies in the world, says Sean Heather from the U.S. Chamber of Commerce. “The United States is home to the world’s most successful companies – success that has been achieved as a reward for constant innovation in the marketplace. Consumers, including other businesses, have flocked to their products and services. It is important that U.S. antitrust be vigilant and ensure businesses continue to earn market share by serving the consumer. However, the U.S. should reject European thinking that a firm that has earned its dominance needs to be punished and given a special responsibility.”
The current American approach to competition policy has also benefited small businesses.
Government overreach in the tech ecosystem could hurt the competitiveness of small businesses, notes Nancy Vargas, CEO of DH2 Limo. “Before policymakers overreact and over-regulate, and before they force tech companies to change how they operate, everyone should take stock of how their technology helps small businesses. If the government over-regulates and commands the way digital platforms operate, it will likely mean higher prices and less effective business tools for my company, and declining service that is more costly for my clients. Without open and available use of these platforms, my small business will lose a considerable competitive edge.”
Large companies and small businesses enjoy a mutually beneficial relationship, highlights Jake Ward, President of the Connected Commerce Council. “When considering the role of large tech companies in the market, it is essential Members of Congress think about small businesses’ deep connection to these companies. This market is interconnected and big companies power growing companies to compete and win.”
— “It is indisputable that large digital platforms, services, and marketplaces provide small businesses with affordable, scalable, and secure business solutions. They have opened up new markets and allowed small businesses to compete globally and in ways that were unimaginable a few decades ago. What is not understood is that these solutions are affordable, scalable, and secure because of the platforms’ relative size. Big is not always bad and in this instance, big is essential. It is the size and scale of platforms and marketplaces that enable them to invest in new tools and provide the price flexibility that gives small businesses a pathway to viability, growth, and success.”
Case-in-point: tech that helps local businesses stand out online. As Bryan Caplan, CEO of Bryan Caplan Marketing, points out, “Google My Business is a free tool that allows small business owners (and nonprofits) to promote their business information on Google Search and Maps. With Google My Business, you can connect with your customers, post updates to your business profile, and see how customers are interacting with your business on Google.”
Overburdening M&A deals with more regulation would cause more harm than good, slowing innovation and restricting startups’ access to capital.
Restricting M&A would harm startup formation and venture 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.”
But don’t take our word for it. Here’s what Engine, the App Association (ACT), and the Developers Alliance had to say in a joint letter to the Antitrust Subcommittee:
— Measures to curb M&A are “tone-deaf” to the needs of American entrepreneurs. “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.”
— For many startups, being acquired is the goal. “Failing to see the importance of acquisitions for driving innovation in the startup ecosystem—as the report does—is similarly likely to reduce the number of successful startups and harm competition. For many startups, being acquired is sought-after. In a 2019 survey, 50 percent of startup executives said they expected acquisition to be a ‘realistic long-term goal for [their] company,’ while only 18 percent said initial public offering (IPO).”
— Tech M&A powers startup growth and innovation. “Unnecessarily limiting mergers and acquisitions in the technology sector will chill startup growth and innovation by closing off an avenue for exits and altering incentives for investment.”
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.”
Proposed merger curbs would likely deter innovation and investment, writes Douglas Melamed of Stanford Law School. “A flat prohibition on all acquisitions of potential and nascent competitors would be likely ex post to prevent a multitude of procompetitive transactions ex ante, by cutting off a valuable exit strategy for venture capital investments, to deter some valuable investments and resulting innovations. The Report makes no effort to assess the costs and benefits of its proposed prohibition. Nor does it discuss narrower alternatives.”