ICYMI: Leading Obama And Clinton Economists Warn Of AICOA’s Grave Consequences
Leading Obama and Clinton economists are in agreement that Senator Klobuchar’s American Innovation and Choice Online Act (AICOA) could have serious negative consequences for innovation and competition. During events with the Bipartisan Policy Center and the Technology Policy Institute, prominent economist and former member of President Obama’s Council of Economic Advisors, Professor Carl Shapiro shared serious concerns about the bill. And in a guest article in the Journal of Antitrust Law, Professor Richard Gilbert, a former Deputy Assistant General under President Clinton, outlines his own criticisms. Here are the highlights:
— The bill arbitrarily puts certain companies “in a box,” making it harder for them to develop new products.
— The bill mandates concepts that are undefined in both antitrust and economics and would lead to harmful enforcement.
— Both economists raised concern that the bill would have a foreseeable chilling effect on innovation and the digital sector.
The bill arbitrarily puts certain companies “in a box,” making it harder for them to develop new products.
The proposed legislation is “trying to keep these companies in a box and not let them grow and expand and indeed compete,” explains Professor Shapiro. “There’s hundreds of hundreds [of mergers and acquisitions], almost all of them are small aqui-hires or adding some capability—often so that they [leading tech companies] can attack each other you know in different places. So to just to say broad brush all of these are presumptively anti-competitive unless there’s—that just seems to me, what are you doing? In the answer you go back to that report. You are trying to keep these companies in a box and not let them grow and expand and indeed compete in other areas, So that’s a different goal.”
Professor Richard Gilbert notes the narrow scope of covered platforms is “troubling.” “The limitation to a subset of firms is troubling. A virtue of existing antitrust laws is that they are agnostic to the identities of the firms that might engage in unlawful conduct, with only a few statutory exceptions. This anonymity insulates antitrust enforcement from regulatory capture: the tendency of regulators to serve the interests of the industries they are tasked with regulating.”
The bills are styled as antitrust when they are actually designed to regulate a certain sector differently than the rest of the economy, notes Professor Shapiro. “I think the problem here is that these bills are fashioned as antitrust, but they’re really proposing to regulate a certain sector differently than the rest of the economy, and so the basis—you might ask well, what’s the basis for regulating the sector? I would really urge people to go back and look at the report that the House Judiciary Committee issued in October of 2020, about a year ago, that is the evidentiary basis for these proposed legislation.”
— Shapiro further explains the bill is premised on a flawed report: “[T]he report did not define what was anti-competitive—even though the stated purpose was to see if these companies are engaging in anti-competitive practices. It’s pretty clear if you read it, that what is thought to be anti-competitive is anything that one of these large companies is doing that harms its competitors. Okay, so which is we learned a long time ago that’s not the right test for whether something’s anti-competitive, and then nor does the report at all engage in therefore ‘are the antitrust laws currently able to address this’ because all this conduct is assumed to be bad, and of course but it’s not caught by the laws, so that indicates supposedly the laws are inadequate. So the whole thing is a structure that doesn’t really work in terms of if you take a view of promoting competition.”
— He continues: “If you take a view that you’re trying to hem in these big companies and their efforts to grow and and indeed compete, it’s a nice drive out of business, other companies, then it makes perfect sense. So we get back to what our goal is. As one example and then I’ll stop, but I think this is the—all the bills follow from the logic of that report. The report says it wants it to be illegal for, and I’m quoting now: ‘a dominant platform to make a design change that excludes competitors, regardless of whether the design change can be justified as an improvement for consumers.’ Okay, so if that’s that’s the world then of course you have to change the law. Okay but that’s not what antitrust law has been about or in my view should be about.”
“Why are you doing something different in this sector?” questions Professor Shapiro. “I think a good discipline for Congress is if you believe a certain principle applies to these tech companies, does it apply to dominant firms generally? Okay, and if it doesn’t, why are you doing something different in this sector okay?”
“If you did this for the whole economy, people would say that’s crazy,” notes Professor Shapiro. “This legislation, now first off okay, if you like that principle go for it across the economy, but it’s more than that. The covered platforms, which are the regulated firms here, in acquisition of any product or service okay it’s any product or service where they compete not in that so something where they’re dominant, so you know that’s like why are you doing that? It seems too broad. Um I think in any competition for the user’s attention, so you know what if one of a platform wants to acquire some content you know? To do a better service of some sort. Like it just seems like it’s not structured to deal with stopping companies from buying emerging threats to their dominance, which is what—that’s what we should be doing. It’s not well structured and if you did this for the whole economy, people would say that’s crazy so that’s a warning.”
The bill mandates concepts that are undefined in both antitrust and economics and would lead to harmful enforcement.
The bill would “cause a lot of damage” by leaving too much open for judicial interpretation, points out Professor Shapiro. “I’m concerned that it would cause a lot of damage if not done well—and then it’s also it’s the federal courts are supposed to sort this out. I’m not too comfortable with that, having testified a lot in court, it just seems like this: you need some agency that has expertise to do this rather than going to court to decide these—what could be very technical issues in a fast-moving business.”
Passing general rules that apply to specific companies on non-discrimination and unfair competition leaves “a huge amount of running room” for inconsistent and unpredictable judicial interpretation, says Professor Shapiro. “A judge could appoint a special master and there’s things judges could do—it’s just, it becomes more technical. There’s a reason we have regulatory agencies to do these things and Congress you know—they’re going to pass some general rule about non-discrimination or unfair competition there’s just a huge amount of running room there. I just think there’s a role for expert agencies so again it’s just institutional capabilities.”
There’s insufficient evidence that there are “substantial harms” being solved by the bill, notes Professor Shapiro. “I just would like more evidence that there’s substantial harms that we’re solving by doing this, and I don’t think that’s been shown either.”
“I believe this is the wrong policy,” asserts Professor Gilbert. “I believe this is the wrong policy, for several reasons. First, antitrust enforcement should not condemn conduct that merely promotes a new product, service, or line of business but instead should condemn conduct only if it prevents consumers from using a competing product without an efficiency justification.”
— Gilbert continues: “Second, conduct that unfairly preferences a product, service, or line of business has no clear definition. Consequently, the boundary that separates fair from unfair conduct and the products, services, and lines of business circumscribed by that boundary would be subjects of persistent debate.”
Both economists raised concern that the bill would have a foreseeable chilling effect on innovation and the digital sector.
The bill’s negative consequences are “very foreseeable,” says Professor Shapiro. “I think a lot of the consequences are very foreseeable. If you—if one understands the process by which these platforms have evolved and become better, then you can see how this bill could easily disrupt that process. I think there are a bunch of companies who that’s what they want, okay? Because they don’t want to face the competition from the platforms who are naturally trying to expand their empires and compete in other areas. This is a classic thing.”
The bill “goes too far,” says Professor Gilbert. “But the proposed American Innovation and Choice Online Act (AICOA) (S. 2992 and its companion in the House, H.R. 3816) goes too far.”
— Gilbert continues: “If the AICOA becomes law, antitrust authorities and courts would have to determine enforcement standards for ‘unfairly preference’ and ‘materially harm competition’. Experience with the 1950 Celler-Kefauver Amendment to the Clayton Act raises the possibility that courts would interpret these terms narrowly, at least for the short run, with adverse consequences for consumers and the economy.”
The bill may force companies to obtain pre-approval for product changes that could hamper permissionless innovation that “has been fundamental to making products better for 25 years at least,” explains Professor Shapiro. “In an innovative world, if you really get into ‘how do products get improved’ and integration is the name of the game—I mean whether it’s hardware or software, this has been fundamental to making products better for 25 years at least. How does it work? Do you need pre-approval? What is the core technology versus something that’s outside of it where these duties arise? Who do you have to interact with, everybody?”
Preventing leading tech companies from entering adjacent markets would stifle “a very powerful force of competition,” explains Professor Shapiro. “I remember when I was at DOJ in ’95, my first time as the chief economist there—Microsoft Windows monopoly? They decided to launch Microsoft Network, which was an online service, and there was a lot of concern about the existing online services that Microsoft would just take over. Well, it didn’t happen that way. It was a foray by Microsoft into an adjacent market. Those can be very powerful and the big tech companies attacking each other can also be a very powerful force of competition. And so I’m just concerned that that will be reduced. It’s not unforeseen. It’s foreseen. I’m telling you it’s going to happen and I just think this needs to be done in a very careful way.”