PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Studies Find Klobuchar “Big Tech” Bill Hits Small Businesses Hard

By at 22 September, 2022, 9:05 am

by Raymond J. Keating –

I could write that I have my shocked face on right now, but that would be a lie. Elected official are pushing an agenda supposedly targeted at “big business” – indeed, at so-called “Big Tech” and “monopolies” – but small businesses would wind up paying a heavy price if that agenda were to become reality. This has happened time and time again, as lawmakers fail to recognize that the U.S. economy is a small business economy, with enterprises of all types and sizes, and industries across the economy, being deeply intertwined.

Therefore, it should surprise no one to learn that assorted recent studies find that the “American Innovation and Choice Online Act” (AICOA), an antitrust-rooted attack on “Big Tech” pushed by U.S. Senator Amy Klobuchar (D-MN), would inflict significant harm on small business and innovation.

CRS Report: “Difficult Questions” Arise

Let’s start with a Congressional Research Service (CRS) report published at the end of August, which attempts to provide an overview of versions of the AICOA in the Senate. The vagueness and broad language of the legislation presents significant uncertainty for businesses and investors. The CRS concludes that the AICOA “implicates difficult questions involving innovation, privacy, data security, and online speech.” In other words, no one knows how this would play out in the hands of regulators and the courts, including businesses and investors.

Study: Government Using the Wrong Lens

Next, we have a study titled “A New Economic Lens For Exploring the Negative Effects of Digital Platform Antitrust Legislation on American Small Businesses,” authored by Cameron D. Miller, Syracuse University, and Richard D. Wang, Babson College, and published in May. The authors explain that antitrust activists in the administration and Congress are looking at so-called “Big Tech” through the wrong lens. The authors explain that the perspective of these activists “discounts the role of market forces, presumes that ‘big is bad,’ and frames the actions of digital platforms as anticompetitive and harmful to consumer welfare.”

The authors point to a different view:

“From the platform governance perspective, platforms grow rapidly in order to create more value for participants on both sides of the platform (e.g., small business sellers and consumers, app publishers and app downloaders, etc.), and not to reduce competition on their platform. Once they become large, the platforms may not benefit much by restricting access and raising prices, but rather by enlarging the size of the overall market so that value increases for the ecosystem as a whole, which results in increasing value (or profits) for the vast majority of participating consumers, business users (e.g., small business sellers, small app publishers, etc.) and the platform owner itself.”

This more realistic perspective on how the market actually works points to significant costs being imposed on smaller businesses due to antitrust activism taking shape in legislation such as the AICOA. The authors look at two kinds of platforms – “Innovation Platforms that host tools and services for technological creation (e.g., a mobile app platform), and Transaction Platforms that host counterparties that conduct commerce with each other (e.g., an online marketplace for third-party sellers).”

And they found the following in terms of legislation harming Innovation Platforms:

● Increased cost and uncertainty for independent publishers that develop apps

● Constrained performance of apps

● Degradation of the consumer experience, which will reduce demand for and willingness to pay for apps

And as for Transaction Platforms:

● More “bad apple” sellers that harm other sellers by, for example, offering low quality products at cutthroat prices that squeeze others’ profits

● More “unhealthy” competition in which sellers generate sales but earn no profits

● Less platform support services and higher costs for sellers

Indeed, none of that would be good for small businesses.

Yet Another Study: SMBs and the “Myriad of Unintended Consequences”

And then we have another study by John T. Scott, emeritus professor of economics at Dartmouth College, which builds on the above-mentioned study by Miller and Wang. In his study, titled “Estimates of Potential Harm to U.S. Small and Medium Sized Businesses from Proposed Antitrust Legislation Aimed at Large Digital Platforms,” Scott looks at the impact of passing the AICOA on small and medium-sized businesses (SMBs). He found that SMBs would lose $500 billion in the first five years after the legislation was passed. And he calls that a “conservative” estimate.

Scott points out, “If antitrust legislation directed at large digital platforms (particularly S. 2992 and H.R. 3816) becomes law as written today, there would be myriad unintended consequences for smaller businesses that use these platforms and the tools they provide, and also for the consumers who shop at these SMBs… Miller and Wang describe how SMB Sellers and their customers would lose access to high-value and low-cost platform services, and their only options would be to forgo these services or use more costly and less effective substitutes. As a result, SMB Sellers would have more difficulty and expense reaching prospective customers, and consumers would find it more difficult and expensive to access SMB Sellers’ products. Sales would decrease as a result.”

Scott summarizes his findings this way: “AICOA (if passed) would informally amount to a ‘regulatory tax’ on SMB Sellers of 5.2% of their sales, or an average of $1,712 per SMB Seller per month. These losses would be secondary effects of the legislative proposals’ direct impacts on, primarily, Amazon, Alphabet (Google), and Meta (Facebook, Instagram), as these firms provide fundamental advertising, marketing, and commerce services to several million SMB Sellers.”

The current attack on so-called “Big Tech,” including in the form of the AICOA, is another dangerous and costly example of what I have come to call “Completely Foreseeable Negative Consequences for Small Business When Politicians Attack Big Business.” It doesn’t lend itself to a tidy acronym, but it serves as an accurate summation of progressive and populist attacks on “big business” turning out to be attacks on small business.

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

 

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