California’s BASED Act: Flawed Antitrust Economics
TL;DR
Background: California Senate Bill 1074, known as the BASED Act, seeks to stop large digital platforms from favoring their own products over those of competitors. Sen. Scott Wiener (D-San Francisco) introduced the bill. It applies to platforms with at least 100 million monthly active U.S. users and a market value above $1 trillion, targeting practices such as search ranking, use of third-party data, and limits on data portability.
But… The bill replaces the consumer-welfare standard with a framework that protects specific competitors. It broadly restricts platforms from integrating or prioritizing their own services, treating harm to a rival as evidence of harm to competition—even when those practices benefit consumers.
Moreover…SB 1074 flips the burden of proof, requiring platforms to justify challenged conduct as narrowly tailored and necessary for procompetitive purposes. That stringent standard, combined with significant legal risk, creates strong incentives to remove integrated features, reduce functionality, and avoid litigation.
KEY TAKEAWAYS
Rivals ≠ Competition
Antitrust law protects consumers and the competitive process, not individual firms. SB 1074 instead shields specific competitors by restricting how platforms design and integrate products.
Proponents—including Y Combinator CEO Garry Tan and Economic Security California Action Vice President Teri Olle—argue the bill will help startups succeed without platform interference.
That view misreads antitrust economics. It assumes that harm to a rival signals harm to competition. Conduct that harms a class of rival firms is not anticompetitive unless it distorts the competitive process and leaves consumers worse off.
When platforms integrate features—such as embedding a native map in search results—they may disadvantage standalone rivals. That often reflects normal competition. As ICLE scholars note, removing integrated features does not restore competition; it benefits competitors by denying consumers a superior option.
The bill also lowers the bar for plaintiffs, allowing private antitrust claims without showing harm to competition or consumers. Combined with a presumption that broad categories of conduct are unlawful, this shifts antitrust away from evidence-based analysis toward categorical condemnation.
Integration Works
SB 1074 rests on an unproven assumption: that self-preferencing and vertical integration inherently harm markets. The evidence points the other way.
Reviews of the literature find that vertical integration is typically efficient and benefits consumers. A meta-analysis by Francine Lafontaine and Margaret Slade finds that integration’s efficiency gains usually outweigh its anticompetitive risks.
Evidence from digital markets reinforces that conclusion. Platform integration often expands output and increases engagement. Facebook’s integration of Instagram boosted demand across photography apps. Google’s entry into the Android photography-app market increased user attention, benefiting independent developers.
Evidence from e-commerce also aligns. A 2023 study of Amazon’s private-label products found that removing these offerings would reduce consumer surplus by nearly 4%. SB 1074 ignores this evidence and treats standard integration—often used to eliminate double markups—as unlawful discrimination.
Design by Lawsuit
To evaluate a law, lawmakers must ask how firms will respond.
SB 1074 flips the legal burden of proof. It requires platforms to show that challenged conduct is narrowly tailored, nonpretextual, and reasonably necessary to achieve a procompetitive purpose—and that benefits outweigh harms.
In complex digital markets, that standard is nearly impossible to meet. It gives courts an effective veto over product design and would create a de facto guilty-until-proven-innocent regime.
Faced with steep penalties and private lawsuits under California’s Cartwright Act—including treble damages—platforms will act defensively. They will remove integrated features, scale back quality controls, and unbundle services, forcing users to rely on third-party tools.
The risk to platforms stems not just from the law’s penalties, but from its vague terms. Concepts like “manipulation” of rankings or “neutral methodology” lack clear benchmarks in systems built on constant iteration. That ambiguity invites opportunistic litigation and makes compliance unpredictable.
Evidence from the European Union shows the result. One-third of consumers report less seamless and more confusing digital experiences under similar rules. SB 1074’s regime would similarly push firms to prioritize legal risk over user-friendly innovation.
Not Just ‘Self-Preferencing’
The bill’s focus on “self-preferencing” sounds narrow. It is not. SB 1074 covers a broad, nonexhaustive set of conduct, including vertical-integration practices that are often benign or procompetitive.
It also imposes sweeping interoperability and data-access mandates that constrain how platforms collect data, structure systems, and design products. These operate as affirmative obligations, not just prohibitions.
Key terms remain vague. Requirements like “useful” data portability or restrictions on sharing data lack clear limits. In complex systems, making data “useful” to all users may be costly, infeasible, or in tension with privacy and security.
The bill also applies to artificial intelligence systems defined in extremely broad terms. A limited safe harbor for “neutral methodology” leaves that concept undefined and places the burden on platforms, creating further uncertainty.
Arbitrary Targets
SB 1074 applies only to platforms with at least 100 million monthly U.S. users and a market value above $1 trillion. These thresholds abandon neutral enforcement and target a small set of firms.
This approach contradicts the analysis of the California Law Revision Commission, which found that exclusionary conduct can arise in any industry and advised applying any new statute across sectors. It also warned against arbitrary market-power thresholds.
The bill’s thresholds produce odd results. A firm like Walmart could qualify based on overall valuation and website traffic, regardless of market power in any relevant market. The $1 trillion cutoff is also not indexed to inflation, ensuring more and more firms will fall within scope over time.
For further analysis, see ICLE’s “Comments on California SB 1074” and the Truth on the Market post “California Dreamin’ or an Antitrust Nightmare?” by Daniel J. Gilman.