What They’re Saying: Antitrust Reform Proposals Could Do More Harm Than Good
Recent antitrust reform proposals, while offering some important changes, could slow innovation and restrict startups’ access to capital while ignoring the specific nuances of distinct business practices, warn several antitrust experts and consumer groups. Here’s what they’re saying:
Placing restrictions on M&A would disincentivize 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.”
Banning mergers would deprive startup founders of a key exit opportunity, predicts Patrick Hedger of the Taxpayers Protection Alliance: “Mergers and acquisitions are key drivers of investment and innovation in new companies and products that better serve consumers. Investors and entrepreneurs deserve to be rewarded for their efforts and this legislation closes one of those avenues. In addition, large mergers often help existing firms survive in the face of new, innovative competitors, and are usually a sign of weakness, not strength.”
These proposals ignore the on-the-ground realities present in markets and faced by capital-hungry startups, says the Information Technology and Innovation Foundation: “To imply that market concentration necessarily leads to anticompetitive practices overlooks both decades of antitrust jurisprudence and comprehensive economic scholarly analysis. Also, start-ups find it increasingly difficult to access capital through venture capital or financial institutions and have a viable long-term goal of acquiring the necessary scale. The bill overlooks the dynamics of these volatile markets and risks hampering innovation.”
Though recent legislation takes important positive steps, changes in the definition of “exclusionary conduct,” could slow market dynamism via endless litigation, warns Marianela Lopez-Galdos of CCIA: “The Bill also proposes some changes to dominant players with respect to exclusionary conduct which according to the proposal will now include acts that disadvantage current or potential competitors or limit rivals’ ability or incentive to compete. This will be a rebuttable presumption, but the suggested change puts successful big players on the ‘guilty’ side of the equation first, when they should still hold the right to be ‘innocent’ until proven otherwise. This is another instance where antitrust risks being trapped under eternal litigation where parties struggle to make their case, slowing down the market dynamism.”
Sweeping bans on vague misconduct do not take into account the particular nuances of each case, says Alec Stapp of the Progressive Policy Institute: “A prohibition on ‘conduct that materially disadvantages competitors’ would essentially degrade antitrust law to a ‘know it when you see it’ standard for anticompetitive conduct. In reality, lots of corporate conduct is ambiguous at first glance. Enforcers need to do the work of economic analysis and fact-finding to determine whether it’s pro-competitive or anti-competitive. We shouldn’t short circuit that process.”
Blanket bans could discourage pro-consumer behavior, says Carl Szabo of NetChoice: “By establishing a guilty-until-proven-innocent standard for mergers, this approach would undermine businesses that use acquisitions to ensure new and innovative products are quickly available to consumers.”
Antitrust scholars across the political spectrum disagree with discarding the consumer-welfare approach to antitrust, reminds Asheesh Agarwal of TechFreedom: “Major changes to the antitrust laws were opposed by the bipartisan Antitrust Modernization Commission and a majority of antitrust experts who submitted comments to the House Judiciary Committee’s Antitrust Subcommittee last year.”