Thank you, Victoria, for the invitation to respond to Mr. Coscelli and his proposal for a legislatively founded Digital Markets Unit. Mr. Coscelli is one of the most talented, successful, and creative heads a competition agency has ever had. In the case of the DMU [ed., Digital Markets Unit], however, I think he has let hope triumph over experience and prudence. This is often the case with proposals for governmental reform: Indeed, it has a name, the Nirvana Fallacy, which comes from comparing the imperfectly functioning marketplace with the perfectly functioning government agency. Everything we know about the regulation of competition tells us the unintended consequences may dwarf the intended benefits and the result may be a less, not more, competitive economy. The precautionary principle counsels skepticism about such a major and inherently risky intervention.

Read the full piece here.

Background…

Policymakers in the United States, the United Kingdom, and the European Union recently have pursued legislative and regulatory changes to make it more difficult for large companies, especially digital platforms, to acquire other firms. 

Most recently, Sens. Amy Klobuchar (D-Minn.) and Tom Cotton (R-Ark.) have introduced S. 3197, which would virtually outlaw all acquisitions by the largest online platforms.

But…

Startup formation and venture capital investment are extremely sensitive to the availability of exits, most of which occur through acquisitions. Making it more difficult (or impossible) for start-ups to be acquired by the world’s largest tech firms would imperil the incentive for investors to fund innovative new products and services, and limit competition between digital platforms. The measure also raises significant constitutional questions, due both to the extremely small number of firms it would target and to changes it would make to judicial review that imperil separation of powers.

Read the full explainer here.

Last month, a bipartisan group led by Senators Amy Klobuchar of Minnesota and Chuck Grassley of Iowa announced a bill that would, in many cases, ban one of the most common practices of large tech platforms like Google, Amazon, Apple, Microsoft, and Facebook (which now wishes to be known as Meta). The bill is being touted as a way to protect consumers from the power of Big Tech, but it would actually make things worse for users. It would undermine the trial-and-error process that has built the Internet we know today.

Read the full piece here.

There has been a rapid proliferation of proposals in recent years to closely regulate competition among large digital platforms. The European Union’s Digital Markets Act (DMA, which will become effective in 2023) imposes a variety of data-use, interoperability, and non-self-preferencing obligations on digital “gatekeeper” firms. A host of other regulatory schemes are being considered in Australia, France, Germany, and Japan, among other countries (for example, see here). The United Kingdom has established a Digital Markets Unit “to operationalise the future pro-competition regime for digital markets.” Recently introduced U.S. Senate and House Bills—although touted as “antitrust reform” legislation—effectively amount to “regulation in disguise” of disfavored business activities by very large companies,  including the major digital platforms (see here and here).

Read the full piece here.

Abstract

The current debate about antitrust divestitures has focused on how com­bining business units under the same corporate umbrella can allow digital platforms to favor their own services over those provided by third par­ties. To the extent that these debates have framed the issues in economic terms, they have overlooked the enduring importance of Conway’s Law and the Mirroring Hypothesis, which assert that a firm’s organizational structure must reflect the underlying technology of its products. These principles suggest that enforcement officials should not mandate the structural separation of an existing firm without taking into account the task interdependencies that determine the natural modular structure of a platform industry. Proper analysis of any proposed divestiture will also require antitrust law to shed the reluctance to engage in detailed balancing of technical considerations reflected in its technological tying precedents.

Read at SSRN.

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.

Read the full piece here.

The Federal Trade Commission (FTC) has taken another step away from case-specific evaluation of proposed mergers and toward an ex ante regulatory approach in its Oct. 25 “Statement of the Commission on Use of Prior Approval Provisions in Merger Orders.” Though not unexpected, this unfortunate initiative once again manifests the current FTC leadership’s disdain for long-accepted economically sound antitrust-enforcement principles.

Read the full piece here.

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.

Read the full piece here.

Background…

Four months after a similar antitrust measure was advanced to the floor of the U.S. House, a bipartisan group of senators, led by Sens. Amy Klobuchar (D-Minn.) and Chuck Grassley (R-Iowa), announced that they will introduce legislation designed to drastically reduce the ability of digital platforms to favor their own goods and services. Dubbed the American Innovation and Choice Online Act, the bill presumes that the practice of “self-preferencing” is inherently harmful to competition.

But…

While the draft Senate bill does make certain improvements over its House counterpart, the legislation fundamentally misunderstands the nature of platform competition and the benefits that accrue to consumers from many self-preferencing practices. The bills also would delegate enormous power and discretion to antitrust regulators, who may use that power to achieve fundamentally political ends.

Read the full explainer here.