What They Are Saying: Experts Say Consumer Welfare Standard Should Continue To Guide Antitrust Policy
As the American Bar Association convenes its 66th Antitrust Law Spring Meeting in D.C., discussions around antitrust’s potential applicability to the tech sector are at the forefront of the agenda. In particular, the contributions of and competition within the digital economy, whether “big is bad” when it comes to firm size and competition, and consumer protection policy are key themes for this year’s meeting.
But while contrived complaints about the tech sector continue to generate headlines, a wide array of regulators and experts agree on a few critical points about antitrust and tech:
— Leading tech services have created significant economic benefits for consumers and jobs for workers, with the digital economy growing at an average annual rate of 5.6 percent per year (compared to the overall economy’s 1.5 percent) and employment in the digital economy growing at a rate of 3.7 percent yearly (compared to the overall economy’s 1.7 percent).
— Big data doesn’t guarantee success, and the notion data is the new oil ignores that data is non-rivalrous – multiple companies can collect, share, and use the same data simultaneously.
— The outcry against the tech sector is fueled by bigger, political self-interested business concerns, which shouldn’t distract from the fact the consumer welfare standard is the right approach to antitrust policy. This conclusion will be a key focus at the ABA’s meeting, when Carl Shapiro, former Deputy Assistant Attorney General for Economics at the Department Of Justice’s Antitrust Division, will discuss his paper on the subject: “Antitrust In A Time Of Populism.”
More information is below.
Data Doesn’t Guarantee Success, With More Focus On How A Company Uses Data Rather Than Simply Possessing It
Economists Anja Lambrecht And Catherine Tucker Note, “Big Data Is Not Inimitable Or Rare,” With Insight Into Consumer Needs More Critical To Startup Success. “Our analysis suggests that big data is not inimitable or rare, that substitutes exist, and that by itself big data is unlikely to be valuable. There are many alternative sources of data available to firms, reflecting the extent to which customers leave multiple digital footprints on the internet. In order to extract value from big data, firms need to have the right managerial toolkit. The history of the digital economy offers many examples, like Airbnb, Uber and Tinder, where a simple insight into customer needs allowed entry into markets where incumbents already had access to big data.Therefore, to build sustainable competitive advantage in the new data-rich environment, rather than simply amassing big data, firms need to focus on developing both the tools and organizational competence to allow them to use big data to provide value to consumers in previously impossible ways.” (Anja Lambrecht And Catherine Tucker, “Can Big Data Protect A Firm From Competition?” MIT Initiative On The Digital Economy, 12/18/15)
Andres Lerner, Executive VP At Compass Lexecon, Says The Narrative That User Data Quantity Leads To Significant Returns To Scale Is “Based On Unsupported Assumptions.” “Although the collection of user data is generally valuable for online providers, the conclusion that such benefits of user data lead to significant returns to scale and to the entrenchment of dominant online platforms is based on unsupported assumptions. Although, in theory, control of an “essential” input can lead to the exclusion of rivals, a careful analysis of real-world evidence indicates that such concerns are unwarranted for many online businesses that have been the focus of the ‘big data’ debate.” (Andres Lerner, “The Role Of ‘Big Data’ In Online Platform Competition,” Compass Lexecon, 8/26/14)
Center For Data Innovation’s Joshua New: “How A Company Uses Data, Rather Than Its Mere Possession Of It, Is What Most Often Determines A Company’s Competitiveness.” “Similarly, some policymakers see tech companies that have collected large stores of data as the new oil cartels, and they mistakenly fear ‘Big Data’ is becoming the new ‘Big Oil.’ But consumers benefit from the network effects and economies of scale that arise with these large companies. Unlike the oil industry, which like most industries has an upward sloping supply curve where marginal costs increase with higher production, data producing firms generally have marginal costs near zero, which drives down consumer prices as they get larger. Moreover, the amount of data a company has rarely insulates it from competition and rarely serves as a serious barrier to entry. That is because how a company uses data, rather than its mere possession of it, is what most often determines a company’s competitiveness. For example, MySpace had a several-year head start on Facebook when it came to collecting user data, but Facebook quickly surpassed MySpace in popularity because it created a better product.” (Joshua New, “Why Do People Still Think Data Is The New Oil?” Center For Data Innovation, 1/16/18)
Leading Tech Services Have Created Significant Economic Benefits For Consumers And Jobs For Workers
Robert Atkinson, Founder Of The Information Technology And Innovation Foundation, Says Larger Companies Provide Higher Wages, Better Benefits, More Benefits, And Lower Prices, Among Other Positives. “Bigger companies provide higher-wage jobs, better workplace benefits, lower prices, stronger environmental protection, and greater workplace diversity, safety, and stability, while engaging in less tax evasion. Regardless, neo-Brandeisians want to go back to an economy in which most Americans are employed in small, locally owned firms or worker co-ops, and they want to use aggressive antitrust enforcement to get there.” (Robert Atkinson, “The Neo-Brandeisian Attack On Big Business,” National Review, 10/2/17)
Carl Shapiro, Former Deputy Assistant Attorney General For Economics At The Department Of Justice’s Antitrust Division, Says We Should Avoid A “Big Is Bad” Mentality And Truly Have The Interests Of Consumers In Mind. “I believe this approach is sound and has widespread support among industrial organization economists. So I say: let these inquiries proceed when suspicious conduct can be identified. But in doing so, let us avoid a ‘big is bad’ mentality and let us truly have the interests of consumers in mind. We learned long ago that proper antitrust enforcement is about protecting consumers, and protecting the competitive process, not about protecting competitors. We must not forget that guiding principle. Indeed, that principle is especially important in markets subject to large economies of scale, whether those scale economies are based on traditional production economies or based on network effects, which are often important in the tech sector.” (Carl Shapiro, “Antitrust In A Time Of Populism,” Haas School Of Business, 10/24/17)
Progressive Policy Institute Chief Economist Michael Mandel Notes Today’s Leading Tech Companies Have Created More Jobs Than Leading Companies Of The Past. “Tech giants such as Google, Apple, Facebook and Microsoft are adding jobs as fast or faster than the great job-producing companies of the past, like GM, AT&T, Walmart, IBM, GE, US Steel, and Bethlehem Steel. Consider this: Twenty years after its 1892 founding, General Electric had 41,000 employees. Google beat that mark in 2012, only 8 years after its 2004 initial public offering.” (Michael Mandel, “A Historical Perspective On Tech Job Growth,” Progressive Policy Institute, 1/10/17)
The Outcry Against The Tech Sector Is Fueled By Bigger Political and Self-Interested Business Concerns, But The Consumer Welfare Standard Is The Right Approach To Antitrust Policy
According To Carl Shapiro, Former Deputy Assistant Attorney General For Economics At The Department Of Justice’s Antitrust Division, Antitrust Enforcement Is About Protecting Consumers, Not Protecting Competitors. “So I say: let these inquiries proceed when suspicious conduct can be identified. But in doing so, let us avoid a ‘big is bad’ mentality and let us truly have the interests of consumers in mind. We learned long ago that proper antitrust enforcement is about protecting consumers, and protecting the competitive process, not about protecting competitors. We must not forget that guiding principle. Indeed, that principle is especially important in markets subject to large economies of scale, whether those scale economies are based on traditional production economies or based on network effects, which are often important in the tech sector.” (Carl Shapiro, “Antitrust In A Time Of Populism,” SSRN, 10/25/17)
Former FTC Commissioner Joshua Wright Notes That Deviating From The Consumer Welfare Standard Would Come In Spite Of Economic Evidence That Makes Quite Clear That Such Moves Would Make Consumers Worse Off. “The current debate arises from proposals that antitrust law adopt a standard that would reduce consumer welfare—that is, to diminish the well-being of consumers and their ability to consume everyday goods and services—in exchange for advancing some combination of other, vague goals ranging from increasing fairness, to reducing income inequality, to protecting specific national interests or markets, or to protecting particular jobs. Specifically, critics of the consumer welfare standard have proposed steps including that we ban all vertical mergers, make per se unlawful horizontal mergers based solely upon the a firm’s size—i.e., return to the ‘big-is-bad’ enforcement style of early antitrust—and even prohibit Amazon from selling groceries. These proposals come despite that the economic evidence makes quite clear that such moves would make consumers worse off.” (Joshua Wright, Testimony, Senate Judiciary Subcommittee On Antitrust, Competition, And Consumer Benefit, 12/13/17)
Former FTC Policy Director David Balto And CCIA Outside Counsel Matthew Lane: “We Already Have The Right Tools To Protect Competition, We Just Need To Make Better Use Of Them.” “While I admire the enthusiasm of these advocates, and share many of their goals, they need to recognize that their ideas are outside of the mainstream for a reason — they just don’t work. Here we see a stark contrast between the antitrust scholars, such as pro-enforcement stalwarts like Herbert Hovenkamp, Steve Salop, Diana Moss, and Carl Shapiro, and the antitrust newcomers. Those in the antitrust world tend to agree that we already have the right tools to protect competition, we just need to make better use of them.” (David Balto And Matthew Lane, “‘Hipster Antitrust’ Movement Is All Action, No Plan,” The Hill, 3/16/18)