Antitrust’s Uncertain Future Roundup: The Minority Report - International Center for Law & Economics
Focus Areas:    EU | FTC | Internet Search | Platforms | Self-Preferencing & Vertical Integration | Sherman Act

Antitrust’s Uncertain Future Roundup: The Minority Report

Truth on the Market View Original

[The following is part of a digital symposium by Truth on The Market guests and authors on Antitrust’s Uncertain Future: Visions of Competition in the New Regulatory Landscape. Information on the authors and the entire series of posts is available here.]

Philip K Dick’s novella “The Minority Report” describes a futuristic world without crime. This state of the world is achieved thanks to the visions of three mutants—so-called “precogs”—who predict crimes before they occur, thereby enabling law enforcement to incarcerate people for crimes they were going to commit.

This utopia unravels when the protagonist—the head of the police Precrime division, who is himself predicted to commit a murder—learns that the precogs often produce “minority reports”: i.e., visions of the future that differ from one another. The existence of these alternate potential futures undermine the very foundations of Precrime. For every crime that is averted, an innocent person may be convicted of a crime they were not going to commit.

You might be wondering what any of this has to do with antitrust and last week’s Truth on the Market symposium on Antitrust’s Uncertain Future. Given the recent adoption of the European Union’s Digital Markets Act (DMA) and the prospect that Congress could soon vote on the American Innovation and Choice Online Act (AICOA), we asked contributors to write short pieces describing what the future might look like—for better or worse—under these digital-market regulations, or in their absence.

The resulting blog posts offer a “minority report” of sorts. Together, they dispel the myth that these regulations would necessarily give rise to a brighter future of intensified competition, innovation, and improved online services. To the contrary, our contributors cautioned—albeit with varying degrees of severity—that these regulations create risks that policymakers should not ignore.

The Majority Report

If policymakers like European Commissioner for Competition Margrethe Vestager, Federal Trade Commission Chair Lina Khan, and Sen. Amy Klobuchar (D-Minn.) are to be believed, a combination of tougher regulations and heightened antitrust enforcement is the only way to revitalize competition in digital markets. As Klobuchar argues on her website:

To ensure our future economic prosperity, America must confront its monopoly power problem and restore competitive markets. … [W]e must update our antitrust laws for the twenty-first century to protect the competitive markets that are the lifeblood of our economy.

Speaking of the recently passed DMA, Vestager suggested the regulation could spark an economic boom, drawing parallels with the Renaissance:

The work we put into preserving and strengthening our Single Market will equip us with the means to show the world that our path based on open trade and fair competition is truly better. After all, Bruges did not become great by conquest and ruthless occupation. It became great through commerce and industry.

Several antitrust scholars have been similarly bullish about the likely benefits of such regulations. For instance, Fiona Scott Morton, Steven Salop, and David Dinielli write that:

It is an appropriate expression of democracy for Congress to enact pro-competitive statutes to maintain the vibrancy of the online economy and allow for continued innovation that benefits non-platform businesses as well as end users.

In short, there is a widespread belief that such regulations would make the online world more competitive and innovative, to the benefit of consumers.

The Minority Reports

To varying degrees, the responses to our symposium suggest proponents of such regulations may be falling prey to what Harold Demsetz called “the nirvana fallacy.” In other words, it is wrong to assume that the resulting enforcement would be costless and painless for consumers.

Even the symposium’s pieces belonging to the literary realms of sci-fi and poetry shed a powerful light on the deep-seated problems that underlie contemporary efforts to make online industries “more contestable and fair.” As several scholars highlighted, such regulations may prevent firms from designing new and improved products, or from maintaining existing ones. Among my favorite passages was this excerpt from Daniel Crane’s fictional piece about a software engineer in Helsinki trying to integrate restaurant and hotel ratings into a vertical search engine:

“We’ve been watching how you’re coding the new walking tour search vertical. It seems that you are designing it to give preference to restaurants, cafès, and hotels that have been highly rated by the Tourism Board.”

“Yes, that’s right. Restaurants, cafès, and hotels that have been rated by the Tourism Board are cleaner, safer, and more convenient. That’s why they have been rated.”

“But you are forgetting that the Tourism Board is one of our investors. This will be considered self-preferencing.”

Along similar lines, Thom Lambert observed that:

Even if a covered platform could establish that a challenged practice would maintain or substantially enhance the platform’s core functionality, it would also have to prove that the conduct was “narrowly tailored” and “reasonably necessary” to achieve the desired end, and, for many behaviors, the “le[ast] discriminatory means” of doing so. That is a remarkably heavy burden…. It is likely, then, that AICOA would break existing products and services and discourage future innovation.

Several of our contributors voiced fears that bans on self-preferencing would prevent platforms from acquiring startups that complement their core businesses, thus making it harder to launch new services and deterring startup investment. For instance, in my alternate history post, I argued that such bans might have prevented Google’s purchase of Android, thus reducing competition in the mobile phone industry.

A second important objection was that self-preferencing bans are hard to apply consistently. Policymakers would notably have to draw lines between the different components that make up an economic good. As Ramsi Woodcock wrote in a poem:

You: The meaning of component,
We can always redefine.
From batteries to molecules,
We can draw most any line.

This lack of legal certainty will prove hard to resolve. Geoffrey Manne noted that regulatory guidelines were unlikely to be helpful in this regard:

Indeed, while laws are sometimes purposefully vague—operating as standards rather than prescriptive rules—to allow for more flexibility, the concepts introduced by AICOA don’t even offer any cognizable standards suitable for fine-tuning.

Alden Abbott was similarly concerned about the vague language that underpins AICOA:

There is, however, one inescapable reality—as night follows day, passage of AICOA would usher in an extended period of costly litigation over the meaning of a host of AICOA terms. … The history of antitrust illustrates the difficulties inherent in clarifying the meaning of novel federal statutory language. It was not until 21 years after passage of the Sherman Antitrust Act that the Supreme Court held that Section 1 of the act’s prohibition on contracts, combinations, and conspiracies “in restraint of trade” only covered unreasonable restraints of trade.

Our contributors also argued that bans on self-preferencing and interoperability mandates might be detrimental to users’ online experience. Lazar Radic and Friso Bostoen both wrote pieces taking readers through a typical day in worlds where self-preferencing is prohibited. Neither was particularly utopian. In his satirical piece, Lazar Radic imagined an online shopping experience where all products are given equal display:

“Time to do my part,” I sigh. My eyes—trained by years of practice—dart from left to right and from right to left, carefully scrutinizing each coffee capsule on offer for an equal number of seconds. … After 13 brands and at least as many flavors, I select the platforms own brand, “Basic”… and then answer a series of questions to make sure I have actually given competitors’ products fair consideration.

Closer to the world we live in, Friso Bostoen described how going through a succession of choice screens—a likely outcome of regulations such as AICOA and the DMA—would be tiresome for consumers:

A new fee structure… God, save me from having to tap ‘learn more’ to find out what that means. I’ve had to learn more about the app ecosystem than is good for me already.

Finally, our symposium highlighted several other ways in which poorly designed online regulations may harm consumers. Stephen Dnes concluded that mandatory data-sharing regimes will deter companies from producing valuable data in the first place. Julie Carlson argued that prohibiting platforms from preferencing their own goods would disproportionately harm low-income consumers. And Aurelien Portuese surmised that, if passed into law, AICOA would dampen firms’ incentives to invest in new services. Last, but not least, in a co-authored piece, Filip Lubinski and Lazar Radic joked that self-preferencing bans could be extended to the offline world:

The success of AICOA has opened our eyes to an even more ancient and perverse evil: self-preferencing in offline markets. It revealed to us that—for centuries, if not millennia—companies in various industries—from togas to wine, from cosmetics to insurance—had, in fact, always preferred their own initiatives over those of their rivals!

The Problems of Online Precrime

Online regulations like AICOA and the DMA mark a radical shift from existing antitrust laws. They move competition policy from a paradigm of ex post enforcement, based upon a detailed case-by-case analysis of effects, to one of ex ante prohibitions.

Despite obvious and superficial differences, there are clear parallels between this new paradigm and the world of “The Minority Report: firms would be punished for behavior that has not yet transpired or is not proven to harm consumers.

This might be fine if we knew for certain that the prohibited conduct would harm consumers (i.e., if there were no “minority reports,” to use our previous analogy). But every entry in our symposium suggests things are not that simple. There are a wide range of outcomes and potential harms associated with the regulation of digital markets. This calls for a more calibrated approach to digital-competition policy, as opposed to the precrime of AICOA and the DMA.