Policymakers should be wary of importing harmful competition frameworks
As Europe adopts and implements radical new competition frameworks, it’s crucial that American policymakers understand the harms of such drastic proposals, and what they might mean for consumers and small businesses alike.
1. An objective, economics-based standard has served America well
2. Untested competition theories pose risks for innovation, the startup ecosystem, small businesses, and consumers
An objective, economics-based standard has served America well
– “Competition enforcement in most developed markets around the world has trended toward an objective, economic, effects-based approach focused on establishing anticompetitive conduct through due process. These investigations put weight on efficiency objectives and consumer welfare, rather than targeting a certain level of market concentration,” writes CSIS’s Meredith Broadbent. “Traditional antitrust law, administered and enforced in the United States through courts, the Justice Department, the Federal Trade Commission, and state attorneys general, permits market leadership and large firms. Even potentially harmful conduct is permitted as long as it creates, on balance, improved efficiencies and benefits for consumers, including lower prices.”
– “The ‘rule of reason’ approach in antitrust law reflects a commitment to balancing the need to prevent anticompetitive behavior with the goal of fostering innovation, efficiency, and fairness in markets,” shows a recent ICP Analytics study Commissioned by the Chamber of Progress. “The historical record of antitrust case law shows that the increased investment in enforcement, fact-gathering, and litigation activities necessitated by the rule of reason has often enabled courts to avoid reaching erroneous outcomes that would have run counter to the purposes of the antitrust laws.”
– Ultimately, “the U.S. tradition of antitrust adjudication relies on fact-intensive analysis tailored to market conditions rather than blanket condemnation of certain practices.”
– The empirical nature of the consumer welfare standard allows antitrust enforcement to be coherent, says Marianela Lopez-Galdos, formerly of CCIA. “[S]ince the consumer welfare standard is an economic analysis-based test โ i.e. non-economic considerations are not factored into this pro-consumer test โ enforcement coherence is preserved. The impossibility of weighing non-economic factors against economic considerations without risking discretionary results and injustice disposed the evolution towards adopting the consumer welfare standard.”
– “The rule of reason” has prevailed in U.S. antitrust law because it applies broader analysis to certain practices, writes Professor Herbert Hovenkamp of the University of Pennsylvania Carey Law School. “Courts evaluate most antitrust claims under a “rule of reason,” which requires the plaintiff to plead and prove that defendants with market power have engaged in anticompetitive conduct. To conclude that a practice is ‘reasonable’ means that it survives antitrust scrutiny. This is in contrast to antitrust’s ‘per se’ rule, in which power generally need not be proven and anticompetitive effects are largely inferred from the conduct itself.”
– The “per se” rule assumes anticompetitive behavior, coming in conflict with the consumer welfare standard and the situational analysis that the “rule of reason” encourages. “In rule of reason analysis, the point of using a sequence of prima facie case, offsetting justifications, and less restrictive alternatives is to assess whether the challenged restraint reduces output or increases price from the non-restraint level. This approach is consistent with antitrust’s consumer welfare principle, which identifies antitrust’s goal as competitively low prices and high output, whether measured by quantity or quality,” writes Hovencamp.
Untested competition theories pose risks for innovation, the startup ecosystem, small businesses, and consumers
– Hospitality group HOTREC fears “the proposed changes will impact business performance, reduce competitiveness and consumer choice” across beloved and competitive hospitality businesses, and just ahead of the cherished summer holiday plans! “HOTREC fears that proposed changes will reduce the visibility of direct hotel websites at the expense of powerful online platforms that will be more prominently visible on the new search page.”
– Hotel group Mirai is already reeling from the negative impacts of new antitrust reforms set to take place this month. “According to our data: โ ๐ฏ๐ฌ% ๐ผ๐ณ ๐ฐ๐น๐ถ๐ฐ๐ธ๐, โ ๐ฏ๐ฌ% ๐ผ๐ณ ๐ฏ๐ผ๐ผ๐ธ๐ถ๐ป๐ด๐, โ ๐ฎ.๐ญ% ๐๐ต๐ฎ๐ฟ๐ฒ ๐ผ๐ณ ๐๐ผ๐๐ฎ๐น ๐ฏ๐ผ๐ผ๐ธ๐ถ๐ป๐ด๐ vs. previous month (while the rest of the world experiences a 1% increase). The reality is concerning for the hotel sector.”
– They also reveal that “the number of clicks from #GoogleHotelAds to hotel websites has decreased by 17.6% in #EU countries compared to the rest of the world…. penalizing hotels and benefiting major aggregatorsโฆ”
– Truth on the Market’s Giuseppe Colangelo and Oscar Borgogno note these proposals will harm consumers. “Such regulatory proposals may ultimately harm consumers. Indeed, by questioning the core of digital platform business models and affecting their governance design, these interventions entrust public authorities with mammoth tasks that could ultimately jeopardize the profitability of app-store ecosystems. They also overlook the differences that may exist between the business models of different platforms.”
– Anti-consumer antitrust proposals draw arbitrary lines to designate the so-called “gatekeepers,” which “makes little sense economically,” calls out Aurelien Portuese of the Information Technology & Innovation Foundation (ITIF). “It permits treating firms with similar market positions differently based merely on whether they fall within the [proposal’s] ambit. In addition, [it] does not define markets and disregards fundamental competition law notions such as ‘market dominance.’ Thus, nondominant companies will be subject to these new competition rules, while some dominant companies will be exempted from these very rules.”
– The U.S. Chamber of Commerce notes that these proposals “prioritize regulation over innovation.” “This regulation ends up managing competition rather than promoting it, potentially stifling the emergence of future competitors.”