In a paper published this week, preeminent legal scholar Herbert Hovenkamp, one of the foremost authorities on antitrust law, detailed the competitive nature of the tech sector and explained why the approach to competition policy outlined in the American Innovation and Choice Online Act (AICOA) “should be abandoned.” He concluded that AICOA “was a bill that deserved to die.”  

Here are the key takeaways from his paper:

— AICOA unjustifiably targeted the tech sector, where competition is alive and well and prices remain low.

— AICOA regulated based on harm to competitors, not consumers.

— AICOA should not serve as a model for future competition legislation.

AICOA Unjustifiably Targeted The Tech Sector, Where Competition Is Alive and Well and Prices Remain Low

Hovenkamp explained that regulating a sector of the economy that is performing well, as AICOA did, “is a bad choice on every score.” “One disturbing thing about the AICOA is that it targets for harsh treatment a portion of the United States economy that is performing better than most. If one were looking for problem areas for increased antitrust enforcement it would be markets and products that exhibit stagnant growth, stable market shares, lack of new entry, signs of oligopoly or widespread price fixing, or lack of innovation. Focusing on the internet economy is a bad choice on every score.”

Hovenkamp also noted the low cost for consumers of identifying and switching options as two areas in which the digital economy “seems to be competitively superior.” “Here online commerce seems to be competitively superior on both counts. Searching and switching are both easier and broader in online markets than on conventional markets. Customers can travel from one site to another with a mouse click. As a result, depending on a consumer’s location, the variety of sellers that are available online can be much greater than the variety that the brick-and-mortar world realistically permits. Price and product comparison can often be accomplished at little cost and almost instantly.”

Hovenkamp explained “there is little reason” to claim greater exercise of market power in the digital economy. “While more studies need to be done, there is little reason today for thinking that the exercise of market power is more common or more harmful on online markets than on traditional markets. Internet and traditional markets exhibit differing degrees of competition depending on the product.”

Hovenkamp also noted that “a focus on internet commerce is misplaced” given competition in the sector. “Examination of the competitive situation in online and traditional offline markets hardly suggests that online markets overall should receive more aggressive treatment. Further, the social cost of intervening in highly innovative markets is almost certainly higher than that of intervention in stagnant markets that are showing little progress. While antitrust rules do need to be made more aggressive in some areas, a focus on internet commerce is misplaced.”

AICOA Regulated Based On Harm To Competitors, Not Consumers

According to Hovenkamp, AICOA’s objective is “not to protect the consumer interest,” but “to protect the competitors of covered platforms.” “The AICOA process of selecting covered platforms by size rather than market share seems to be based on the premise that its goal is to protect the competitors of covered platforms from more aggressive sellers, not to protect the consumer interest in low prices and high quality.”

Hovenkamp explained that the AICOA’s approach of targeting large companies does not work “if our goal is to protect consumers.” “Pursuing ‘bigness’ of firms as a goal for competition policy might be useful if our purpose is to protect smaller firms who may have higher costs or do less innovating. It does not work, however, if our goal is to protect consumers, with their interest in high output, low prices, and high quality and innovation.”

AICOA Should Not Serve As A Model For Future Competition Legislation

Hovenkamp criticized AICOA’s ‘gatekeeper’ approach of targeting leading companies in a particular sector, saying the approach “should be abandoned.” “AICOA was a bill that deserved to die. The issue certainly remains alive, however, and will almost certainly be considered again by Congress. When it does so, the ‘gatekeeper’ approach to competition policy should be abandoned. It is too narrow because it ignores the conduct of firms that are not designated as gatekeepers, including offline sellers who are not included no matter what their size. It is too broad because it overreaches, perhaps egregiously, to condemn competitively harmless conduct on those firms that are defined as gatekeepers.”

Hovenkamp also called out the unintended consequences of AICOA, stating they “will certainly tilt the playing field in ways that are difficult to foresee.” “The self-preferencing obligations imposed by AICOA are aggressive and far reaching for covered platforms, but they do not do anything to change the status quo with respect to traditional markets as well as the thousands of internet sellers who are not designated as gatekeepers. This will certainly tilt the playing field in ways that are difficult to foresee.”