PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

ABA Raises Questions about Antitrust Legislation in Congress Targeting Tech

By at 13 May, 2022, 10:17 am

by Raymond J. Keating –

For over 130 years now, antitrust law, its interpretation, and its application have been anything but models of clarity, consistency, predictability and sound economics. Unfortunately, matters would only get worse if assorted legislation put forth in Congress, including, for example, the American Innovation and Choice Online Act (S. 2992), were to become law.

More Reasoned Antitrust Enforcement

Starting in the 1970s, the courts began to develop and apply a consumer welfare standard that at least brought some focus and a degree of reasonableness to antitrust. As opposed to rather mindless “big is necessarily bad” assumptions, the more reasoned application of antitrust law looked at whether or not consumers were being, or would be, harmed. Problems remain even with this application, but that’s largely due to the fact that antitrust legislation largely is built on faulty economics.

Nonetheless, this effort at a more reasonable approach to antitrust regulation, which has at least generally improved matters over the past near half-century, would be undermined, if not completely tossed aside, if current antitrust measures targeting leading U.S. technology firms were to become law.

Abandoning Reason

On April 27, 2022, in comments submitted to Congress, the Antitrust Section of the American Bar Association (ABA) hit on some key problems with S. 2992.

For example, the Antitrust Section raised questions in this legislation regarding the lack of definitions; vagueness; predictability, or the lack thereof; unintended consequences; ignoring essential points of antitrust law and interpretation; replacing concerns over consumers and the “competitive process” with opportunities for individual competitors to use antitrust as a political, protectionist tool; and basically buying into the misconception that “big is always bad.” (While highlighting several key points in the following, the comments deserve to be read in their entirety.)

In addressing various sections of the legislation, the ABA’s Antitrust Section sums up:

“The Section has long supported the evolution of antitrust law to keep pace with evolving circumstances, economic theory, and empirical evidence. Here, however, the Section is concerned that the Bill, as written, departs in some respects from accepted principles of competition law and in so doing risks causing unpredicted and unintended consequences.”

The Antitrust Section also criticizes “ambiguous terminology in the Bill regarding fairness, preferencing, materiality, and harm to competition on covered platforms.”

Indeed, the following points should be seriously considered each time elected officials move to write legislation, quite frankly, of any kind:

“The Section has long cautioned against the creation of free-standing prohibitions on ‘unfairness’ untethered from harm to the competitive process. At a minimum, such prohibitions require difficult and often subjective line-drawing exercises about the meaning of ‘fairness.’ Outside the focused and familiar context of harm to the competitive process, vague concepts like fairness and discrimination inject uncertainty into what is and is not permitted conduct. The risks that this type of uncertainty could have unintended consequences are pronounced in digital markets like those addressed here. Even well-intentioned legislation aimed at promoting competition can cause serious and unintended injuries to the consumers it intends to help.”

It also is highlighted in the comments:

“The Section cautions against departing from the antitrust laws’ commitment to protecting the competitive process as distinguished from favoring one set of competitors over another. This tenet of antitrust has served as a lodestar to antitrust enforcement and should not be omitted.” And later is pointed out, “Failure to adequately define key terms— or clearly delegate authority to the FTC and DOJ to define key terms—will inject variability and uncertainty into the administration of the law, to the potential detriment of businesses and consumers alike.”

Special-Interest Protection

For good measure, antitrust law long has been manipulated by certain businesses, with the assistance of some administrations and Members of Congress, to be used as a political tool for protecting such businesses from competition, as opposed to expanding or strengthening competition. Related to this, the Antitrust Section warns:

“The present version of the Bill replaces earlier language invoking ‘harm to the competitive process’ with ‘material harm to competition,’ which suggests a shift away from protecting competitive processes towards protecting individual competitors.”

Such an explicit statement raises serious concerns about more and more companies that fail to keep up with competitors in the market – which is based on decisions made by consumers – running to the government to gain political favors. Hence, in the end, consumer sovereignty would be replaced by political favors to special interests.

And regarding S.2992’s underlying assumption that “big is bad,” the Antitrust Section writes:

“Some degree of market power is a prerequisite to any firm’s ability to unilaterally harm the competitive process through its conduct. Prohibiting conduct without regard to market power invites arbitrary enforcement and wasteful disruption of normal competitive processes. The risks of unintended consequences are especially severe in digital markets characterized by multi-sided competition, dynamic complexities, and interdependence…. To begin, finding or designating a platform to be a ‘covered platform’ does not require or establish that it has market power in any relevant market. Size, in the sense of number of users or market capitalization, is not by itself evidence of market power. A firm may be large, as measured in these terms, yet lack the power to influence prices or exclude competitors. Because of this, the Section has long cautioned against the use of mere size as a proxy for market power.”

Also, the following points made by the Antitrust Section are essential. In effect, it is saying that political assumptions about firm size should not replace actual analysis in each case, and assumptions should not be made as to such legislation actually being limited to the particulars of the current political debate. The Antitrust Section puts it this way:

“Finally, the Section emphasizes that market power ordinarily cannot be assumed or inferred outside the context of case-by-case factual analysis. The conclusions of prior legislative hearings on digital markets should not be expected to substitute for case-by-case factual analysis. For one thing, the Bill is not limited to the scope of the recent House Report’s conclusions; the Bill is not restricted to ‘markets’ such as ‘online retail,’ ‘general online search and search advertising,’ ‘social networking,’ and ‘the mobile operating system market.’ Nor does the Bill limit itself to the named companies in the House Report. Proof of market power, like proof of all other elements of a violation, should be required to be established in case-specific factual scrutiny within the context of the adversarial process.”

Unintended Consequences for Small Business

When it comes to regulation, including antitrust regulation, politics often trumps sound economics; special interests win out over consumers; and small businesses suffer even as sponsors of legislation talk exclusively about dealing with large businesses and assume that big is bad.

Higher Regulatory Costs, New Market Barriers. Counted among the unintended consequences of overreaching legislation such as S.2992 is the reality that increased regulation raises costs to a point whereby large existing firms are able to deal with such costs, while small businesses in the technology arena cannot handle such costs and entrepreneurship, again due to various forms of regulatory costs, gets dampened, eliminated, or channeled elsewhere.

Higher Prices, Less Innovation, Less Growth. For good measure, as suppliers and customers to firms and industries targeted by enhanced regulation, small businesses also suffer due to increased prices, reduced choices and/or less innovation, and fewer opportunities to do business with (and add value to) these larger firms.

Damage to the Startup Ecosystem. And finally, placing an arbitrary number to determine what is big when it comes to market capitalization and size would be harmful to the vibrant startup ecosystem and the M&A activity that fuels innovation and new business creation.

Again, labeling big as bad and attempting to regulate or restrict activity through the application of random, government-developed size classifications and definitions is fraught with unintended consequences – especially for the startups and small businesses operating in this critical industry, and those that use technology platforms and tools to run their businesses.

For more on this issue, see: Antitrust Fictions (and Actions) Will Have Real, Negative Economic Consequences

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest nonfiction book is The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist.

 

 

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