In policy discussions about the digital economy, a background assumption that frequently underlies the discourse is that intermediaries and centralization always and only serve as a cost to consumers, and to society more generally. Thus, one commonly sees arguments that consumers would be better off if they could freely combine products from different trading partners. According to this logic, bundled goods, walled gardens, and other intermediaries are always to be regarded with suspicion, while interoperability, open source, and decentralization are laudable features of any market.

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Antitrust policymakers around the world have taken a page out of the Silicon Valley playbook and decided to “move fast and break things.” While the slogan is certainly catchy, applying it to the policymaking world is unfortunate and, ultimately, threatens to harm consumers.

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The European Commission and its supporters were quick to claim victory following last week’s long-awaited General Court of the European Union ruling in the Google Shopping case. It’s hard to fault them. The judgment is ostensibly an unmitigated win for the Commission, with the court upholding nearly every aspect of its decision.

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Why do digital industries routinely lead to one company having a very large share of the market (at least if one defines markets narrowly)? To anyone familiar with competition policy discussions, the answer might seem obvious: network effects, scale-related economies, and other barriers to entry lead to winner-take-all dynamics in platform industries. Accordingly, it is that believed the first platform to successfully unlock a given online market enjoys a determining first-mover advantage.

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Sens. Amy Klobuchar (D-Minn.) and Chuck Grassley (R-Iowa) have just unveiled their long-awaited draft American Innovation and Choice Online Act. If passed into law, the bill would effectively outlaw a wide array of common tech industry practices in which platforms favor their own products. This despite scant evidence that such practices are detrimental to consumers, that they prevent rivals from entering online markets, or that they harm innovation.

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Recent commentary on the proposed merger between WarnerMedia and Discovery, as well as Amazon’s acquisition of MGM, often has included the suggestion that the online content-creation and video-streaming markets are excessively consolidated, or that they will become so absent regulatory intervention. For example, in a recent letter to the U.S. Justice Department (DOJ), the American Antitrust Institute and Public Knowledge opine that…

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Background…

All around the world, policymakers are proposing legislative changes that would drastically alter the ways that online platforms can operate. Motivating these initiatives have been fears that, absent explicit regulation, digital markets would suffer from failures that could not later be remediated.

But…

These putative reforms are not rooted in a rigorous assessment of the costs and benefits of regulatory intervention. In lieu of empirical evidence, lawmakers are relying on highly abstracted theories of potential harm whose bearing on real-world markets is uncertain. Policymakers should instead rely on the tried-and-tested Consumer Welfare Standard that has successfully guided U.S. antitrust enforcement for the better part of a century.

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Interrogations concerning the role that economic theory should play in policy decisions are nothing new. Milton Friedman famously drew a distinction between “positive” and “normative” economics, notably arguing that theoretical models were valuable, despite their unrealistic assumptions. Kenneth Arrow and Gerard Debreu’s highly theoretical work on General Equilibrium Theory is widely acknowledged as one of the most important achievements of modern economics.

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ICLE Senior Fellow of Law & Economics Dirk Auer joined the Institute for Internet & the Just Society’s Just Talking series for a discussion of competition policy and the digital economy. Video of the full event is embedded below.