PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Antitrust This Week: The Good, the Bad and the Ugly

By at 29 June, 2021, 6:58 pm

by RAYMOND J. KEATING –

No other movie in film history has provided a title more readily applicable to discussing assorted issues than the 1966 spaghetti Western “The Good, the Bad and the Ugly” directed by Sergio Leone and starring Clint Eastwood. So, Sergio and Clint, here we go again, as we look at various developments on the antitrust front.

Given that antitrust activism amounts to imposing significant and varied costs, as politicians and bureaucrats (largely at the behest of special interests) overrule entrepreneurs, investors and businesses in a competitive marketplace disciplined by consumer sovereignty, a hot-off-the-presses court decision points to a clear victory for economic common sense. However, other reports indicate that additional regulatory threats loom large. Yes, the good, the bad and the ugly regarding antitrust policymaking.

Case Against Facebook Dismissed (for now), Radical and “Destructive” House Antitrust Package Dissed by Majority Leader

First, the “good.”

Facebook gets a Legal “Like”: Judge James Boasberg of the U.S. District Court of the District of Colombia dismissed an antitrust complaint against Facebook brought by the Federal Trade Commission (FTC), along with a parallel case brought by 48 state attorneys general. If the complaints by these governmental entities succeeded, Facebook might have been forced to divest Instagram and WhatsApp.

The court in effect said that the FTC cannot simply declare that Facebook has a monopoly in the U.S. personal social networking market. That market needs to be clearly defined, and then evidence provided regarding the status of being a monopoly. The government did no such thing, and hence, the complaint was tossed out.

As Judge Boasberg wrote: “The FTC has failed to plead enough facts to plausibly establish a necessary element of all of its Section 2 claims — namely, that Facebook has monopoly power in the market for Personal Social Networking (PSN) Services.”

And later: “The Complaint is undoubtedly light on specific factual allegations regarding consumer-switching preferences. These allegations — which do not even provide an estimated actual figure or range for Facebook’s market share at any point over the past ten years — ultimately fall short of plausibly establishing that Facebook holds market power.”

And then there was this: “The FTC’s Complaint says almost nothing concrete on the key question of how much power Facebook actually had, and still has, in a properly defined antitrust product market. It is almost as if the agency expects the Court to simply nod to the conventional wisdom that Facebook is a monopolist.”

As for the states’ complaint, the message was, in part, “too late.” The Facebook acquisitions of Instagram and WhatsApp in 2012 and 2014, respectively. Also, the states’ argument that “Facebook preventing interoperability with competing apps fails to state a claim under current antitrust law, as there is nothing unlawful about having such a policy.”

(Oh yes, and there is the fact that the FTC approved the acquisitions of Instagram and WhatsApp, and now the FTC and the states were looking to reverse the FTC’s own work.)

While in this era of politics when one can too often say anything with little regard for evidence and reality, that thankfully is not always the case, including, in this instance, with the U.S. District Court of D.C.

Common Sense Emerges on Radical Antitrust Package in House:  A second good piece of good news was announced by House Majority Leader Steny Hoyer (D-Md.) during a press briefing on June 30. After key Democrats objected to the rushed and slipshod package that moved through the Subcommittee on Antitrust and House Judiciary Committee, Leader Hoyer added his criticism by stating that the effort needs to be “constructive, not destructive.”  So, it appears these bills will not see the light of day on the House floor for a vote, but that does not mean members will sit back and do nothing. Hopefully, this will be an opportunity for impacted parties – like entrepreneurs, small businesses and consumers – to meaningfully engage on this issue.  As SBE Council president & CEO Karen Kerrigan noted in a media release as the House Judiciary Committee was voting on the messy and far-reaching antitrust package:

“These intrusive bills would radically disrupt the digital economy in a very bad way for entrepreneurs and small businesses. I really do not believe members pushing these bills have thought through the consequences of the legislation. They certainly have not explored these consequences, especially for small businesses, and how the legislative package would put America’s technology sector – and therefore all of our businesses – at a competitive disadvantage in the global marketplace.”

She added: “Our small businesses are in a position to recover nicely because of the availability of these tech tools and platforms. We are relieved to see members on both sides of the aisle expressing concern and alarm, and we urge them to continue to speak up.”

Obviously that bipartisan advocacy made a big difference.

However, as noted below in the “bad” and “ugly” on antitrust, there are many others in government who are pushing radical ideas that would harm the environment for risk-taking, innovation, entrepreneurship and investment, which in the end would undermine competition and U.S. economic leadership.

FTC’s Khan Moves Quickly

Regrettably, the “bad” was entirely expected.

President Joe Biden appointed Lina Khan – who is a radical on antitrust matters – as chairwoman of the FTC. The warning signs were clear on bringing Khan into the FTC, never mind appointing her as chairwoman. As SBE Council explained in a recent analysis:

The dangers of antitrust policy coming completely unmoored, once again, from sound economics can be seen in, for example, appointments being made or considered as commissioners to the Federal Trade Commission (FTC). Consider a few points made in a recent Wall Street Journal report titled “Big Tech Adversary Poised to Take Assertive FTC Antitrust Role.” That article made quite clear the troubling shift under way. As the Journal noted:

“Lina Khan, a progressive champion nominated by President Biden for a key enforcement post, wants to transform antitrust policy into a bulwark against corporate power by blocking more mergers, attacking monopolistic practices and potentially breaking up some of America’s largest companies… She has risen to prominence—and gained bipartisan support—as Democrats and Republicans alike have said lax antitrust enforcement, especially in the tech sector, has allowed dominant firms to hobble rivals and stifle competition. Her targets have included not just Big Tech but also Big Chocolate and others.” (Um, “Big Chocolate”?)

Khan is a leading advocate for moving away from the consumer welfare standard, and replacing it with the neo-Brandeisian assumption that “big” in business is bad (never mind that the only way for a business to become “big” is to serve consumers well), and to favor a far more expansive regulatory effort coming under the umbrella of antitrust.

The Journal noted that Khan has been able “to forge common ground with some Republicans by arguing that concentrated corporate power is a threat to liberty,” with Senator Ted Cruz (R-TX) saying “at the hearing that the FTC ‘should be doing much more’ on Big Tech and that he looked forward to working with her.”

It also was noted that Khan is open to having government impose what lines of business technology companies can enter, as well as regulating technology companies as if they were old-style utilities.

Therefore, while troubling, it’s not surprising that on June 24, the FTC announced the following for its July 1 meeting: “‘Statement of Enforcement Principles Regarding ‘Unfair Methods of Competition’ Under Section 5 of the FTC Act’ (2015): The Commissioners will vote on whether to rescind the policy statement issued by the Commission in 2015 in order to better align with the requirements set out by Congress to condemn ‘unfair methods of competition.’”

This would be a vote on stepping back from the agency being focused on consumer welfare, and adopting a far more sprawling and activist agenda. And the 2015 policy is expected to be rescinded by the FTC’s Democratic majority. As The Washington Examiner’s Nihal Krishan noted:

“This has worried the two Republican commissioners at the agency, and some in Congress say the trade commission under Khan could overstep its bounds and regulate industries in a way never seen before.”

That concern, of course, is spot on. Again, no one should be surprised.

Biden Plans to Green Light Antitrust Activism Across Industry Sectors

And this takes us to the “ugly.”

That is, various reports have noted that the Biden White House is preparing an executive order that would bring antitrust regulation down on large businesses across industries.

Reuters reported: “The White House is working on an antitrust executive order that aims to push government agencies to consider how their decisions will impact competition in an industry, according to two sources familiar with the matter. The order goes after corporate monopolies across a broad swath of industries ranging from banking to airlines, one of the sources said.”

And Politico noted: “Most broadly, the order calls on the United States’ two antitrust agencies, the Justice Department and Federal Trade Commission, to update guidance on how they examine proposed corporate mergers. Those include so-called vertical mergers, involving companies that are not direct competitors, that have typically attracted only light attention from regulators — such as CVS Pharmacy’s acquisition of health insurer Aetna.”

Politico also pointed out: “The order, which could be issued as soon as this week, fits in with a growing theme for President Joe Biden, who has elated progressives by appointing advocates of tougher antitrust enforcement to top jobs at the White House and agencies such as the Federal Trade Commission.”

That lines up not only with the appointment of Khan, but also Biden appointing Tim Wu to his National Economic Council. As a devastating Reason magazine profile made clear, Wu is best known for peddling apocalyptic fears and predictions about the evils of large businesses in assorted industries, especially in the high-tech realm, and that the only answers happen to be dictates and controls from big government.

While Wu has managed to be consistently wrong, his consistent call for big government to counter big business has found sympathetic and enthusiastic allies in the Biden administration. So, again, with the likes of Tim Wu and Lina Khan in prominent policy positions, unleashing antitrust activism on leading U.S. businesses should be expected.

Some Republicans are Fueling the Flames

Finally, in terms of regulatory activism not exactly being a shocking development, populist Republicans have been stoking the antitrust regulatory fires as well, such as Senator Josh Hawley, so they should not be shocked or surprised to see the regulatory fires spreading among progressive Democrats and bureaucrats in the Biden administration and Congress.

If we take politics supplanting sound economics as both “bad” and “ugly,” and given the actions being taken or considered by the FTC and the Biden administration, not to mention bipartisan efforts in Congress to expand regulatory activism and costs in the area of antitrust (as explained in this SBE Council brief), this is a bad and ugly moment in antitrust policymaking.

In order to advance the “good,” that is, sound policymaking that deals in economic realities and promotes entrepreneurship, investment and innovation, then it will take more than decisions from the U.S. District Court of the District of Colombia (as welcomes as the one from Judge Boasberg is). It is critical that antitrust policymaking be pulled back from knee-jerk reactions against large businesses, understanding that those large businesses were once small businesses that grew by serving customers well, and that small businesses are both customers and partners of such large firms, including in the high-tech arena with companies like Amazon, Apple, Facebook and Google. (See SBE Council briefs here, here, here, and here, for example.)

For good measure, as noted in a recent SBE Council analysis, “Whether or not you buy into the latest anti-big-business trend (and there is no economic basis for buying in), the question is: What’s the most beneficial path for keeping large businesses focused on serving consumers well?”

The answer is: Create an environment in which entrepreneurship can flourish. After all, the economic reality is that big businesses must compete against current, emerging and future rivals. In today’s dynamic marketplace, the notion that a large business could possess a monopoly, and could raise prices and reduce quality, accordingly, is simply preposterous.

As stated before, “In the end, so-called ‘Big Tech’ shouldn’t have to be worried about dealing with overwrought politicians and regulators, but instead about entrepreneurs who relentlessly push to advance innovation and dynamism.”

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

 

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