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When Facebook and its other services disappeared from the internet on Monday night, it seemed to confirm many people’s worst fears about the company. The outage, some said, demonstrated how indispensable Facebook had made itself to our lives – and hence, they argued, how important it was to regulate it or break it up.

Read the full piece here.

Introduction

Economist Ronald Coase devoted an article in the 1974 edition of the American Economic Review to an idea he had observed to be common among his academic colleagues:

(I)n the market for goods, government regulation is desirable whereas, in the market for ideas, government regulation is undesirable and should be strictly limited.

He found the idea strange because, as he argued in the paper, the two markets are not relevantly different. The case for regulation is no weaker in the market for ideas than in the market for goods. After all, it is usually easier for a consumer to know when ordinary goods are faulty than when ideas are bogus. Anyone can tell when a television doesn’t work. It takes unusual dedication to figure out, for example, that Hegel was wrong when he said that “absolute form and absolute content [are] identical — substance is in itself identical with knowledge.”

Coase hoped that devotion to consistency would inspire his peers to adopt a more skeptical attitude toward regulation of the market for goods. He got half of what he hoped for. Academics arguably have become more consistent, but rather than favor laissez-faire in the market for goods, they favor regulation in the market for ideas. This goes to show that consistency is not always something you should seek in your opponents.

Many professors are now keen to restrict the ideas their students hear; or, at least, they are willing to go along quietly with the enthusiasts for such restrictions. They do not seek to protect their students from the incoherent abstractions of 19^th century German philosophers or from any other kind of intellectual error. Rather, they seek to protect them from encountering ideas that will offend them or otherwise make them feel uncomfortable, especially when the topics concern race, sex, sexuality, or some other aspect of “identity.”

Universities are not national or state governments, of course. Their regulatory powers stop at the campus gates. But that doesn’t change the point, which is that many academics appear no longer to believe that the benefits of a free market in ideas are worth the harms that accompany it.

Some outside of universities take the same view, not always drawing the line at private organizations being able to constrain the speech of those with whom they have voluntarily entered contracts. Rather, they want governments to protect consumers of ideas by restricting what can be said. Just as government regulation ensures that only cars meeting certain safety standards are offered for sale, so too should government regulation ensure that only ideas meeting certain safety standards are expressed.

Of course, the market for ideas is already constrained by some safety regulations. For example, an American may not advocate violence or other illegal activity when directed at “producing imminent lawless action.” But beyond this and a few other constraints established by legislation and the courts—such as those entailed by defamation law—the First Amendment to the U.S. Constitution guarantees Americans the freedom to say all manner of harmful things. Some see this as a problem. For example, Richard Stengel, a former managing editor of Time magazine, argued in a 2019 Washington Post op-ed that the United States should follow the lead of other developed nations and develop a hate-speech law. Harvard University law professor Cass Sunstein proposed in his 2021 book Liars that speech deemed by the government to be false and harmful should lose its constitutional protection.

Section 230 of the Communications Decency Act of 1996, which protects “interactive computer services” from being treated as publishers or speakers of the content they host, is also becoming unpopular among those who worry about excessive freedom in the market for ideas. Some of its critics, usually from the political right, think it gives social media firms such as Facebook and Twitter too much freedom to indulge their political biases when moderating content. Other critics, usually from the political left, think it gives such firms too much freedom to host harmful content. Both President Joe Biden and former President Donald Trump have been critical of Section 230, if for very different reasons.

The fashion for private-sector speech prohibitions and proposals for more restrictive legal regimes agitate those who prize freedom of speech. It’s a hot topic in newspaper columns and on talk radio shows. Organizations have even been established to defend free speech, such as the Free Speech Project at Georgetown University and the U.K.’s Free Speech Union.

But defenders of free speech are generally doing their job poorly. Too many merely assert that “you should not have a right not to be offended,” when this is precisely what is at issue. Others follow the 19^th century English philosopher John Stuart Mill and claim that being offended, or suffering hurt feelings more generally, does not count as harm. Again, most seem to simply take this for granted, offering no reason why the offended are unharmed.

The right way to understand harm is economic. Something harms someone if he would pay to avoid it. Since offense and other hurt feelings can pass this test, they can be genuine harm (Section 1). And since speech can cause this harm—and most people believe that legal restrictions on causing harm are generally justified—we have a prima facie case for the regulation of speech.

Indeed, standard economics seems to provide more reason to regulate speech than ordinary goods. If a new car is defective and harms its drivers, people will be reluctant to buy it and its producer will suffer losses. Because the same goes for most goods, regulations that impose product standards are arguably unnecessary (at least, for this reason). Suppliers already have good reason to make their products safe. Speakers, by contrast, often do not bear the cost of the hurt feelings they cause. In other words, hurt feelings are an “external cost” of offensive speech. When someone doesn’t bear all the costs of an action, he tends to do it too much. That is to say, he does it even when the total social cost exceeds the total social benefit.

In his famous 1960 paper “The Problem of Social Cost,” Coase showed that one party holding a legal right not to suffer the external cost of some activity—such as being disturbed by noisy neighbors—needn’t stop it from happening. Nor would giving the neighbors the right to make noise guarantee that the noise continued. This is because, when certain conditions are met, the legally disfavored party will pay the favored party not to enforce his right (Section 2). When this happens, the outcome is efficient: in other words, it maximizes social welfare. Alas, the conditions for such rights trading are rarely met. When they are not, the initial allocation of rights determines the outcome. Which party’s interests should be protected by law therefore depends on who can avoid the harm at the lower cost. The efficient outcome will be produced by giving legal protection to the party facing the higher cost.

Coase’s conditions for trading rights aren’t met in the case of offensive speech (Section 2). We must therefore consider the costs faced by the offenders and by the offended when trying to avoid the offense. This appears to favor speech restrictions. After all, being offended is expensive, keeping your mouth shut is cheap, and each offensive speaker usually offends many hearers. For these reasons, Coasean analysis would seem on first impression to favor revisions to Section 230 that oblige social media platforms to be more assiduous in their moderation of offensive content. A post that would offend millions of the platform’s users can be removed at a low cost to the platform.

But that is merely a first impression. In this paper, I argue that the Coasean case for legal restrictions on offensive speech collapses when confronted with three facts: that being offended is often a masochistic pleasure; that most of the offensive speech that concerns would-be censors occurs on privately owned platforms; and that the proposed restrictions would impose large costs on society. Neither the First Amendment nor Section 230 of the Communications Decency Act should be weakened to remove protection for offensive speech.

Before answering the prima facie Coasean case for restrictions on offensive speech, however, we need to appreciate its force, which begins with recognizing that offense can be a real harm.

Read the full white paper here.

In recent years, a diverse cross-section of advocates and politicians have leveled criticisms at Section 230 of the Communications Decency Act and its grant of legal immunity to interactive computer services. Proposed legislative changes to the law have been put forward by both Republicans and Democrats.

It remains unclear whether Congress (or the courts) will amend Section 230, but any changes are bound to expand the scope, uncertainty, and expense of content risks. That’s why it’s important that such changes be developed and implemented in ways that minimize their potential to significantly disrupt and harm online activity. This piece focuses on those insurable content risks that most frequently result in litigation and considers the effect of the direct and indirect costs caused by frivolous suits and lawfare, not just the ultimate potential for a court to find liability. The experience of the 1980s asbestos-litigation crisis offers a warning of what could go wrong.

Read the full piece here.

Democratic leadership of the House Judiciary Committee have leaked the approach they plan to take to revise U.S. antitrust law and enforcement, with a particular focus on digital platforms.

Broadly speaking, the bills would: raise fees for larger mergers and increase appropriations to the FTC and DOJ; require data portability and interoperability; declare that large platforms can’t own businesses that compete with other businesses that use the platform; effectively ban large platforms from making any acquisitions; and generally declare that large platforms cannot preference their own products or services.

All of these are ideas that have been discussed before. They are very much in line with the EU’s approach to competition, which places more regulation-like burdens on big businesses, and which is introducing a Digital Markets Act that mirrors the Democrats’ proposals. Some Republicans are reportedly supportive of the proposals, which is surprising since they mean giving broad, discretionary powers to antitrust authorities that are controlled by Democrats who take an expansive view of antitrust enforcement as a way to achieve their other social and political goals. The proposals may also be unpopular with consumers if, for example, they would mean that popular features like integrating Maps into relevant Google Search results becomes prohibited.

The multi-bill approach here suggests that the committee is trying to throw as much at the wall as possible to see what sticks. It may reflect a lack of confidence among the proposers in their ability to get their proposals through wholesale, especially given that Amy Klobuchar’s CALERA bill in the Senate creates an alternative that, while still highly interventionist, does not create ex ante regulation of the Internet the same way these proposals do.

In general, the bills are misguided for three main reasons.

One, they seek to make digital platforms into narrow conduits for other firms to operate on, ignoring the value created by platforms curating their own services by, for example, creating quality controls on entry (as Apple does on its App Store) or by integrating their services with related products (like, say, Google adding events from Gmail to users’ Google Calendars).

Two, they ignore the procompetitive effects of digital platforms extending into each other’s markets and competing with each other there, in ways that often lead to far more intense competition—and better outcomes for consumers—than if the only firms that could compete with the incumbent platform were small startups.

Three, they ignore the importance of incentives for innovation. Platforms invest in new and better products when they can make money from doing so, and limiting their ability to do that means weakened incentives to innovate. Startups and their founders and investors are driven, in part, by the prospect of being acquired, often by the platforms themselves. Making those acquisitions more difficult, or even impossible, means removing one of the key ways startup founders can exit their firms, and hence one of the key rewards and incentives for starting an innovative new business.

For more, our “Joint Submission of Antitrust Economists, Legal Scholars, and Practitioners” set out why many of the House Democrats’ assumptions about the state of the economy and antitrust enforcement were mistaken. And my post, “Buck’s “Third Way”: A Different Road to the Same Destination”, argued that House Republicans like Ken Buck were misguided in believing they could support some of the proposals and avoid the massive regulatory oversight that they said they rejected.

Platform Anti-Monopoly Act 

The flagship bill, introduced by Antitrust Subcommittee Chairman David Cicilline (D-R.I.), establishes a definition of “covered platform” used by several of the other bills. The measures would apply to platforms with at least 500,000 U.S.-based users, a market capitalization of more than $600 billion, and that is deemed a “critical trading partner” with the ability to restrict or impede the access that a “dependent business” has to its users or customers.

Cicilline’s bill would bar these covered platforms from being able to promote their own products and services over the products and services of competitors who use the platform. It also defines a number of other practices that would be regarded as discriminatory, including:

• Restricting or impeding “dependent businesses” from being able to access the platform or its software on the same terms as the platform’s own lines of business;
• Conditioning access or status on purchasing other products or services from the platform;
• Using user data to support the platform’s own products in ways not extended to competitors;
• Restricting the platform’s commercial users from using or accessing data generated on the platform from their own customers;
• Restricting platform users from uninstalling software pre-installed on the platform;
• Restricting platform users from providing links to facilitate business off of the platform;
• Preferencing the platform’s own products or services in search results or rankings;
• Interfering with how a dependent business prices its products;
• Impeding a dependent business’ users from connecting to services or products that compete with those offered by the platform; and
• Retaliating against users who raise concerns with law enforcement about potential violations of the act.

On a basic level, these would prohibit lots of behavior that is benign and that can improve the quality of digital services for users. Apple pre-installing a Weather app on the iPhone would, for example, run afoul of these rules, and the rules as proposed could prohibit iPhones from coming with pre-installed apps at all. Instead, users would have to manually download each app themselves, if indeed Apple was allowed to include the App Store itself pre-installed on the iPhone, given that this competes with other would-be app stores.

Apart from the obvious reduction in the quality of services and convenience for users that this would involve, this kind of conduct (known as “self-preferencing”) is usually procompetitive. For example, self-preferencing allows platforms to compete with one another by using their strength in one market to enter a different one; Google’s Shopping results in the Search page increase the competition that Amazon faces, because it presents consumers with a convenient alternative when they’re shopping online for products. Similarly, Amazon’s purchase of the video-game streaming service Twitch, and the self-preferencing it does to encourage Amazon customers to use Twitch and support content creators on that platform, strengthens the competition that rivals like YouTube face.

It also helps innovation, because it gives firms a reason to invest in services that would otherwise be unprofitable for them. Google invests in Android, and gives much of it away for free, because it can bundle Google Search into the OS, and make money from that. If Google could not self-preference Google Search on Android, the open source business model simply wouldn’t work—it wouldn’t be able to make money from Android, and would have to charge for it in other ways that may be less profitable and hence give it less reason to invest in the operating system.

This behavior can also increase innovation by the competitors of these companies, both by prompting them to improve their products (as, for example, Google Android did with Microsoft’s mobile operating system offerings) and by growing the size of the customer base for products of this kind. For example, video games published by console manufacturers (like Nintendo’s Zelda and Mario games) are often blockbusters that grow the overall size of the user base for the consoles, increasing demand for third-party titles as well.

For more, check out “Against the Vertical Discrimination Presumption” by Geoffrey Manne and Dirk Auer’s piece “On the Origin of Platforms: An Evolutionary Perspective”.

Ending Platform Monopolies Act 

Sponsored by Rep. Pramila Jayapal (D-Wash.), this bill would make it illegal for covered platforms to control lines of business that pose “irreconcilable conflicts of interest,” enforced through civil litigation powers granted to the Federal Trade Commission (FTC) and the U.S. Justice Department (DOJ).

Specifically, the bill targets lines of business that create “a substantial incentive” for the platform to advantage its own products or services over those of competitors that use the platform, or to exclude or disadvantage competing businesses from using the platform. The FTC and DOJ could potentially order that platforms divest lines of business that violate the act.

This targets similar conduct as the previous bill, but involves the forced separation of different lines of business. It also appears to go even further, seemingly implying that companies like Google could not even develop services like Google Maps or Chrome because their existence would create such “substantial incentives” to self-preference them over the products of their competitors.

Apart from the straightforward loss of innovation and product developments this would involve, requiring every tech company to be narrowly focused on a single line of business would substantially entrench Big Tech incumbents, because it would make it impossible for them to extend into adjacent markets to compete with one another. For example, Apple could not develop a search engine to compete with Google under these rules, and Amazon would be forced to sell its video-streaming services that compete with Netflix and Youtube.

For more, check out Geoffrey Manne’s written testimony to the House Antitrust Subcommittee and “Platform Self-Preferencing Can Be Good for Consumers and Even Competitors” by Geoffrey and me.

Platform Competition and Opportunity Act

Introduced by Rep. Hakeem Jeffries (D-N.Y.), this bill would bar covered platforms from making essentially any acquisitions at all. To be excluded from the ban on acquisitions, the platform would have to present “clear and convincing evidence” that the acquired business does not compete with the platform for any product or service, does not pose a potential competitive threat to the platform, and would not in any way enhance or help maintain the acquiring platform’s market position.

The two main ways that founders and investors can make a return on a successful startup are to float the company at IPO or to be acquired by another business. The latter of these, acquisitions, is extremely important. Between 2008 and 2019, 90 percent of U.S. start-up exits happened through acquisition. In a recent survey, half of current startup executives said they aimed to be acquired. One study found that countries that made it easier for firms to be taken over saw a 40-50 percent increase in VC activity, and that U.S. states that made acquisitions harder saw a 27 percent decrease in VC investment deals.

So this proposal would probably reduce investment in U.S. startups, since it makes it more difficult for them to be acquired. It would therefore reduce innovation as a result. It would also reduce inter-platform competition by banning deals that allow firms to move into new markets, like the acquisition of Beats that helped Apple to build a Spotify competitor, or the deals that helped Google, Microsoft, and Amazon build cloud-computing services that all compete with each other. It could also reduce competition faced by old industries, by preventing tech companies from buying firms that enable it to move into new markets—like Amazon’s acquisitions of health-care companies that it has used to build a health-care offering. Even Walmart’s acquisition of Jet.com, which it has used to build an Amazon competitor, could have been banned under this law if Walmart had had a higher market cap at the time.

For more, check out Dirk Auer’s piece “Facebook and the Pros and Cons of Ex Post Merger Reviews” and my piece “Cracking down on mergers would leave us all worse off”.

ACCESS Act

The Augmenting Compatibility and Competition by Enabling Service Switching (ACCESS) Act, sponsored by Rep. Mary Gay Scanlon (D-Pa.), would establish data portability and interoperability requirements for platforms.

Under terms of the legislation, covered platforms would be required to allow third parties to transfer data to their users or, with the user’s consent, to a competing business. It also would require platforms to facilitate compatible and interoperable communications with competing businesses. The law directs the FTC to establish technical committees to promulgate the standards for portability and interoperability.

Data portability and interoperability involve trade-offs in terms of security and usability, and overseeing them can be extremely costly and difficult. In security terms, interoperability requirements prevent companies from using closed systems to protect users from hostile third parties. Mandatory openness means increasing—sometimes, substantially so—the risk of data breaches and leaks. In practice, that could mean users’ private messages or photos being leaked more frequently, or activity on a social media page that a user considers to be “their” private data, but that “belongs” to another user under the terms of use, can be exported and publicized as such.

It can also make digital services more buggy and unreliable, by requiring that they are built in a more “open” way that may be more prone to unanticipated software mismatches. A good example is that of Windows vs iOS; Windows is far more interoperable with third-party software than iOS is, but tends to be less stable as a result, and users often prefer the closed, stable system.

Interoperability requirements also entail ongoing regulatory oversight, to make sure data is being provided to third parties reliably. It’s difficult to build an app around another company’s data without assurance that the data will be available when users want it. For a requirement as broad as this bill’s, that could mean setting up quite a large new de facto regulator.

In the UK, Open Banking (an interoperability requirement imposed on British retail banks) has suffered from significant service outages, and targets a level of uptime that many developers complain is too low for them to build products around. Nor has Open Banking yet led to any obvious competition benefits.

For more, check out Gus Hurwitz’s piece “Portable Social Media Aren’t Like Portable Phone Numbers” and my piece “Why Data Interoperability Is Harder Than It Looks: The Open Banking Experience”.

Merger Filing Fee Modernization Act

A bill that mirrors language in the Endless Frontier Act recently passed by the U.S. Senate, would significantly raise filing fees for the largest mergers. Rather than the current cap of $280,000 for mergers valued at more than $500 million, the bill—sponsored by Rep. Joe Neguse (D-Colo.)–the new schedule would assess fees of $2.25 million for mergers valued at more than $5 billion; $800,000 for those valued at between $2 billion and $5 billion; and $400,000 for those between $1 billion and $2 billion.

Smaller mergers would actually see their filing fees cut: from $280,000 to $250,000 for those between $500 million and $1 billion; from $125,000 to $100,000 for those between $161.5 million and $500 million; and from $45,000 to $30,000 for those less than $161.5 million.

In addition, the bill would appropriate $418 million to the FTC and $252 million to the DOJ’s Antitrust Division for Fiscal Year 2022. Most people in the antitrust world are generally supportive of more funding for the FTC and DOJ, although whether this is actually good or not depends both on how it’s spent at those places.

It’s hard to object if it goes towards deepening the agencies’ capacities and knowledge, by hiring and retaining higher quality staff with salaries that are more competitive with those offered by the private sector, and on greater efforts to study the effects of the antitrust laws and past cases on the economy. If it goes toward broadening the activities of the agencies, by doing more and enabling them to pursue a more aggressive enforcement agenda, and supporting whatever of the above proposals make it into law, then it could be very harmful.

For more, check out my post “Buck’s “Third Way”: A Different Road to the Same Destination” and Thom Lambert’s post “Bad Blood at the FTC”.

[This briefing paper was a joint publication of The Entrepreneurs Network and the International Center for Law & Economics.]

At the end of 2020, the UK government announced plans to create a Digital Markets Unit (DMU) charged with implementing an ex ante regulatory regime for certain digital platforms. Following the recommendations of the Digital Markets Taskforce, led by the Competition and Markets Authority (CMA), this DMU would serve as the de facto regulator of large tech companies that had been designated as having “strategic market status” (SMS). Accordingly, the DMU was formally established within the CMA in April 2021, although Parliament will need to legislate to give it the powers proposed by the Digital Markets Taskforce. That authorization is likely to come in 2022. Until then, the DMU will prepare draft codes of conduct, and potentially conduct further analysis to add more firms to its remit (so far, only Google and Facebook have been proposed as firms to be regulated, following the CMA’s Digital Advertising Market Study).

This announcement followed several official reviews claiming that some digital markets are not working properly because of the dominance of a few platforms. Based on these reports, the DMU would be given powers to designate dominant platforms as having “substantial, entrenched market power in at least one digital activity, providing the firm with a strategic position”, which would lead to their being given the SMS designation. This would make platforms subject to a bespoke code of conduct, potential procompetitive interventions (PCIs), and increased scrutiny of their merger and product expansion decisions.

At first glance, none of these powers may appear novel. Codes of conduct have been used in other sectors, such as groceries and energy markets, and PCIs were part of the package of remedies in the CMA’s 2015 retail banking market review.

But these interventions were limited to a small number of clearly delineated sectors, firms, activities, or products. By contrast, the DMU’s remit will cover all “digital markets”. This is an already large and growing proportion of the UK economy that comprises many different activities, from digital advertising and e-commerce to online search, social media, and news publishing (among others). And it increasingly encompasses markets like taxis, groceries, entertainment, and other sectors that are becoming significantly “digitalised”. What may seem to be a focused mandate now is, over the coming decades, likely to grow to encompass more and more of the economy.

The DMU will thus combine the powers and operating structure of a narrow sector regulator with a cross-sector purview that is much closer to the CMA’s economy-wide reach. And it will do so for one of the most vitally important parts of the economy, where entrepreneurialism is central and where misguided regulation of incumbents may have systemic effects. The implications of this—creating a de facto regulator with goals that are often conflicting, with powers that lack many of the checks and balances that the CMA usually faces, and with a remit that could be as broad as the economy itself have been given little scrutiny so far, with some assuming the DMU’s scope is much narrower and more focused than it really is.

Proponents might view this level of ambition as fit for the challenge presented by digital markets, where strong competition is vital and where markets may naturally gravitate toward a small number of large competitors. And given the broad variety of activities undertaken by digital platforms and the rapidity of technological change, they may argue that an effective regulator needs both a broad remit and extensive powers to act quickly. But there are also clear costs and risks in creating such a powerful new agency, and these have not yet been widely appreciated by many with an interest in economic policy in Britain.

To get the measure of those costs and risks, this paper evaluates the challenges that the DMU will face as a novel regulator tackling firms with complex and highly differentiated business models, whose actions have distinct effects in several markets and startup ecosystems. It focuses on the structure and goals of the DMU, the first pillar of its powers—the codes of conduct it is expected to write and enforce—and the checks and balances that the CMA’s proposals lack. The other two pillars of its powers—procompetitive interventions and changes to the mergers regime—are just as important substantively, but require further consideration in a future paper. We do discuss one element of the mergers proposals below, however, given its importance to startups.

Section 1 sets out the main findings of several official reviews that preceded the announcement of the DMU.

Section 2 summarises the duty and powers that the Digital Markets Taskforce proposes to give to this new regulator.

Section 3 considers the problems of operationalising the DMU’s primary duty, given its vague objectives and different constituencies. Without a clear vision for what success looks like and how to manage the trade-offs involved, the DMU could easily become a hindrance to competition and innovation, instead of a positive force. The number of firms subject to SMS designation, and the consequent interventions, could steadily increase without improving consumer outcomes, because there would be no straightforward way to decide whether regulation worked.

Further, because the determinants of innovation for any given firm or in any given market are so poorly understood, the heightened scrutiny of SMS firms contemplated by the Digital Markets Taskforce’s recommendations could inadvertently chill innovation, both by SMS firms themselves, as well as by small firms and startups, whose venture capital may depend in part on their prospects of being acquired by an incumbent.

Moreover, in its current proposed form, the DMU could influence the activities of companies beyond those found to have market power. This could create major barriers to inter-platform competition — a key part of competition in platform markets, as platforms vie with each other to keep users within their ecosystem and attract new ones. And, if it makes it harder for smaller firms to be acquired, it could reduce both the founding of, and investment in startups in the UK.

Because SMS firms will only be able to contest designations and the associated interventions via judicial review, there is also a bias in favour of intervention built in to the DMU’s design. Lacking meaningful checks and balances, the DMU’s mistakes could go uncorrected for years, further weakening innovation, competition, and startup formation in the UK to the detriment of consumers and the British economy itself.

All of these could combine to create significant unseen costs for British consumers, which go ignored and uncorrected even as they worsen consumer welfare and weaken competition and innovation in the markets the DMU is supposed to be working to improve.

Section 4 evaluates the Taskforce’s proposed participative approach. We consider existing models of conduct-based regulation in the UK, finding that these precedents have generally had much narrower goals and remits than those of the DMU, and that they therefore constitute a poor template for the new regulator. Where existing conduct-based regulation has had a broader remit, such as with the Financial Conduct Authority, it has been criticised by firms as unclear and unpredictable and by other stakeholders as ineffective. We also consider in this section whether co-regulation—mixing statutory objectives with private governance—might best achieve the government’s purpose for the DMU, given the need to optimise across many different margins and the difficulty of doing so from the top.

Section 5 concludes with high-level recommendations to help ensure that the DMU actually serves to promote competition and innovation in UK digital markets. Before moving forward, the government should focus the DMU on the CMA’s core objective, which is to promote competition for the benefit of British consumers. And it should be clear that the codes of conduct it is charged with drafting and enforcing should be done only to promote competition, not to regulate the conduct of incumbents for the purpose of promoting other social goals that may conflict with the goal of promoting competition.

The government should also narrow the scope and extent of the DMU’s powers so that it promotes competition in the specific markets in which it has determined a firm has “strategic market status”, and does not grow into a bloated regulator of these companies’ other activities in competitive markets, or of the wider economy wherever “digitalisation” is taking place. The DMU should be genuinely participative, allowing stakeholders to actively assist in decision-making instead of just offering advice. It should give special consideration to startups, and to the effects of its behaviour on entrepreneurs’ and venture capitalists’ incentives to start and fund a business. Finally, it should allow for appeals on the merits to allow the DMU to be held accountable by courts for its decisions.

Read the full briefing paper here.

The European Commission recently issued a formal Statement of Objections (SO) in which it charges Apple with antitrust breach. In a nutshell, the commission argues that Apple prevents app developers—in this case, Spotify—from using alternative in-app purchase systems (IAPs) other than Apple’s own, or steering them towards other, cheaper payment methods on another site. This, the commission says, results in higher prices for consumers in the audio streaming and ebook/audiobook markets.

Read the full piece here.

In his recent concurrence in Biden v. Knight, Justice Clarence Thomas sketched a roadmap for how to regulate social-media platforms. The animating factor for Thomas, much like for other conservatives, appears to be a sense that Big Tech has exhibited anti-conservative bias in its moderation decisions, most prominently by excluding former President Donald Trump from Twitter and Facebook. The opinion has predictably been greeted warmly by conservative champions of social-media regulation, who believe it shows how states and the federal government can proceed on this front.

Read the full piece here. 

 

Fresh off his second-place finish — behind only former President Donald Trump — in the presidential straw poll at the Conservative Political Action Conference in Orlando, Gov. Ron DeSantis’ top priority heading into this year’s legislative session is custom-fit to appeal to the CPAC crowd: going after Big Tech social-media companies for their alleged anti-conservative bias.

Read the full piece here.