The paper describes a comprehensive framework for evaluating competition policy, which has been previously published by CFA.^[3]   The framework is based on the works of Louis Brandeis, Joseph Stiglitz and the structure-conduct-performance paradigm that produced the uniquely successful American political economy of the quarter century after World War II.

The paper adds a contemporary updating of that framework by Neo-Brandeisians (Tim Wu and Lina Kahn).  It shows that the 2023 Revision is a return to traditional values in antitrust, values that seek to ensure that the 21^st-century economy returns to the path of competition that produced the remarkable success of the past.

The paper reviews the clear evidence of the failure of lax antitrust and weak competition policy under a 40-reign of ill-considered precedent driven by a misguided economic theory of market fundamentalism that dominated the period from the first revision of the Merger Guidelines in 1982.  The analysis of that failure is described in three chapters that cover three different, but harmful merger waves.

• Mergers in “traditional” sectors that led to excessive concentration in hospitals, airlines, railroads, retail, and the economy in general.
• Mergers that squelched competition in communications, including Business Data Service on which many businesses have come to rely in the digital economy, Broadband Access Service, Wireless, and Cable services.
• The tsunami of mergers involving Big Data Platforms (Google, Amazon, Facebook, and Apple) has resulted in dominant firms abusing bundles of services that lock consumers in and competitors out.

The important changes in the 2023 Revisions to the Merger Guidelines respond to this long record of inadequate antitrust enforcement in two primary ways.

First, with respect to traditional horizontal mergers, where merging firms are in direct, head-to-head competition,

• The guidelines return to the pre-2010 thresholds on mergers that raise anticompetitive concern (Guidelines 1, 2, and 3).
• The Guidelines emphasize the risk of coordination (Guideline 3) and the importance of potential competition (Guideline 4)
• There is a strong indication that the agencies will, in fact, be stricter about the impact of mergers. The 2023 Revisions use stronger and very traditional language throughout the Revision in describing the procompetitive purpose of merger review, particularly in how “relevant markets” will be defined for purposes of merger review (Section II).
• The 2023 Revisions also go to great lengths to identify the heavy burden that the merging parties will bear in bringing forward excuses and explanations, like efficiency gains, to rebut the obvious negative impact of an increase in concentration that the merger creates. The agencies will be appropriately skeptical of these rebuttable presumptions.  (Section III on rebuttable presumptions)

Here it is important to keep in mind that this Guideline merely triggers scrutiny.  Every merger that is scrutinized, however, is not challenged.  Most challenges involve mergers that involve much higher levels of concentration.  Hopefully, the antitrust authorities will take their own Guidelines more seriously.

Second, and of equal, if not greater, importance, the Guidelines take on the unique challenge that excessive concentration and abuse of monopoly power that the new, digital economy poses.  Critics of lax enforcement have raised many of these concerns in the past.

• The Revision directly addresses vertical and conglomerate mergers where bundles create a barrier to entry for competitors or exit for consumers (Guidelines 5, 6 and 7).
• They explicitly raise concerns about multisided platforms and monopsony (buyer market power) (Guidelines 10 and 11).
• They encourage the agencies to address trends, insisting that they should no longer be blinded by that failure to “see the forest for the trees: (Guideline 8, 9).

The Guidelines make it clear that the antitrust authorities will not allow the merger wave that has swept the Big Data Platforms into dominance to continue.  They could do not less.  However, the Guidelines are also an indicator of how the agencies will attempt to reverse past mistakes.

• They recognize the new sources of market power in vertical and conglomerate mergers that have thrived on the bundling around a core of “must have” services that have enabled each Big Data Platform to achieve dominance in their specialized area.
• They also note that the key to that dominance has not been the simple “economics” of digital platforms, it has relied on anticompetitive conduct that has raised switching costs, locking consumers in and competitors out.

It has been clear for over two decades that it is plain old anti-competitive practices that are the glue that holds the dominance together.  As we concluded in response to the first major antitrust case of the digital age, the complaint against Microsoft^[4]:

Because the nature of the industry was not sufficient to entrench its monopoly, Microsoft resorted to repeated, well-documented and protracted campaigns of anti-competitive behaviors to squash its competition… foreclosing the market to competing products… making sure that the dominant browser was explorer, not Navigator… Microsoft should never have threatened to or actually withheld access to interfaces or jolted non-Microsoft products… Microsoft illegally eliminated competition to defend and extend its monopoly and imposed a heavy price on the public.  Consequently, the application of traditional antitrust rules will achieve exactly the reverse of what Microsoft claimed it would – it will promote innovation by allowing potential competitors, who would otherwise be quickly eliminated by the giant’s anti-competitive behaviors, to have a fair chance to enter and eventually discipline the price and quality of Microsoft’s products^[5]

Unfortunately, this 20-year-old precedent was never taken up by the courts or the antitrust authorities who took an extremely pro-business approach and put antitrust enforcement into a “deep freeze.”^[6]  This citation underscores the fact that the proposed Guidelines support every one of their recommended changes with a citation to prior cases. Almost all of these citations antedate the virtual administrative repeal of the antitrust laws by the courts in the last 40 years.  In this sense, the proposed 2023 Revisions of the Merger Guidelines are well within the tradition of antitrust enforcement and a return to the successful model competition on which the success of the American economy was built.

Beyond the technicalities of the proposed Revision of the Guidelines, the comments offer practical advice for enforcement based on the extensive review of the merger waves of the past 40 years.

• Complexity is an inevitable part of the analysis, so clear indications of how key issues, like rebuttable presumptions, will be viewed is called for and helps clarify the process.
• Anti-competitive practices have always been the core concern of procompetitive antitrust. They are more, not less, important in dynamic digital industries.
• Diversity of impacts, by location and consumer characteristics is important. Significant numbers of captives should be protected.
• The standard for how big an impact is a concern must be adjusted to reflect the harm that important groups may suffer, i.e., the average price increase is less important than the price increases for specific subgroups.
• The problem of lock in and switching costs, defined by geography in traditional industries and bundling in digital industries deserves a great deal of attention.
• Recognizing behavioral economics and its implications for manipulation and exploitation of consumers, antitrust and competition authorities must rethink their assumptions about the market. They need to build in greater protective mechanisms for consumers. This does not mean abandoning consumer sovereignty; it means insisting on stronger structures to support consumer sovereignty.
• Potential, nascent, and possible competition is critically important in digital industries. The job and burden of antitrust is not to predict future competition, but to identify and protect the possibilities for competition.
• Innovation that is transformative, not incremental, deserves much greater attention, even though it is difficult to predict. Buying up nascent competition that is innovative should be of great concern.
• Premature deregulation – the assumption the potential competitors can overcome the advantage of incumbents is mistaken. Antitrust and competition authorities should lean the other way, valuing and promoting competition, at the expense of the incumbents.
• Procompetitive, pre-emptive regulation – regulation that strives to increase the possibility of competition – is preferable.
• Recognize the importance and need for dual jurisdiction.
• Recognize that severe market failure is a key aspect of digital communications and build systems that give experts the flexibility and power to restore the balance between benefits and costs.
• Simplistic extremes like utility-style regulation or no regulation are not the answer.

[1] U.S. Department of Justice and Federal Trade Commission, 2023, Merger Guidelines, Draft of Public Comment, July 19.

[2] The tight oligopoly in communications involves high concentration, multimarket contact, technological specialization, and product segmentation, while the steroid involves their history and grounding in geographic franchise monopolies.  The tight oligopoly in the case of Big Data Platforms, involves high concentration, multimarket contact, technological specialization, and product segmentation, while the steroids are the bundle of services that they offer which are wrapped around a “must have” core.

[3] July 12, 2022: Rebooting and Recalibrating Competition Policy

September 14, 2020: Big Data Platforms, a New Chokepoint in the Digital Communications Sector

September 3, 2020: Business Data Services

August 26, 2020: Pragmatic, Progressive Capitalism At Its Best: Network Neutrality

August 13, 2020: Pragmatic, Progressive Capitalism

[4] The Guidelines invoke this case in precisely this way (Guideline 7) in connection with the entrenchment of a dominant position with anti-competitive tactics, United States v. Microsoft Corp., 253 F.3d 34, 79 (D.C. Cir. 2001) (en banc) (per curiam) (“[I]t would be inimical to the purpose of the Sherman Act to allow monopolists free reign to squash nascent, albeit unproven, competitors at will[.]”)

[5] Antitrust As Consumer Protection in The New Economy: Lessons from The Microsoft Case, Hastings Law Journal, 52: 4, April 2001, first presented at Conference on Antitrust Law in the 21st Century Hasting Law School, February 10, 2000

[6] Tim Wu, The Curse of Bigness, p.

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CFA urged the Commission to seize the opportunity to make it clear that this an instance where intellectual property and antitrust law converge so there is no conflict between the two legal standards. In doing so, it would strike a blow for competition, the best form of consumer protection, and the superior approach to defending and promoting the public interest

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“This is a vitally important piece of legislation,” said Rachel Weintraub, CFA’s Legislative Director and General Counsel, “that addresses the most important competitive problem in the digital communications sector, the abuse of market power by Big Data Platforms, which are precisely defined as “covered entities.”

“This bill seeks to reduce or eliminate abuses of market power in digital services that are widely used by consumers but have become riddled with anticompetitive practices that raise consumer costs, lower quality, deny them effective choice to meet their needs, and slow innovation,” Weintraub added. “But, it takes a balanced and cautious approach, which ensures that the platforms will continue to be able to innovate and deliver services if they can effectively compete on the merits with independent developers of applications.”

The Issue Brief is entitled Rebooting and Recalibrating Competition Policy: S. 2992, American Innovation and Choice Online Act, an Important First Step to Apply Brandeis’ Antitrust Principles to Rebuild the Uniquely Successful American Economic Model. It evaluates the legislation from the perspective of four lengthy analyses prepared by CFA of the challenges facing competition policy in the 21^st-century economy, as well as CFA’s previous testimony and Hill communications on related issues.

CFA’s analysis identifies six features of S. 2992 that embody the values expressed in over a century of competition policy in America. The 1) long history of competition policy, 2) the legislative intent of antitrust is critical to ensuring that policymakers and the public know where reformers are coming from, 3) the nature of the political economy for which reformers advocate, 4) the empirical record of the performance of the political economy is important because it shows policymakers and the public where the reformers want to go, 5) rebooting, and 6)  recalibrating competition policy (antitrust and regulation) are both important so that policymakers and the public understand what it takes to achieve the reforms that are the goal.

“We find that S. 2992 is a balanced and careful approach to an area of immense consumer activity that has not been overseen effectively since its inception by handling eight policy issues in a reasonable manner,” said Mark Cooper, Senior Fellow at CFA, and author of the underlying documents.

The report identifies the key elements of effective “recalibration,” that are needed, and which S. 2992 supplies:

• The broad agenda for legislative changes that remains within the antitrust tradition that led the economy to great heights in the “Golden Age of Capitalism.”
• Recapturing the goals of competition policy to prevent excessive concentration, which has the benefit of controlling the potential for abuse of political power and influence.
• Thresholds for review and scrutiny that are lowered and address key challenges confronted by those charged with executing competition policy.
• Allowing defendants to show that they merit an exception subject to very stringent conditions.
• Conflicts of interest and self-preferencing, which are central to the abuse of market power must be controlled. This can be accomplished without undermining the incentive of platforms to innovate and offer higher quality services to the public.
• Enhance agency oversight by providing the tools and resources necessary to effectively oversee competition and undertake new responsibilities.
• Restore effective consumer sovereignty by requiring transparency and ex ante conditions for true consumer choice.
• Dual Jurisdiction including antitrust and regulation has been successfully applied to the communications network for over a century.

“While there are other issues that need to be addressed, like privacy, data abuses and resources,” Weintraub added, “S. 2992 is an ideal starting point because it takes exactly the approach that legislating (recalibrating) competition policy should take. And, it reinforces the other “rebooting” activities being undertaken by the executive branch, independent agencies, state Attorneys General, and even private parties.”

“S. 2992 is the right approach to an important part of the problem,” Weintraub concluded. “It deserves a vote and passage in the Senate, so that the House can vote on and pass the legislation later this month.”

Contacts:
Mark Cooper, 301-384-2204
Rachel Weintraub, 202-904-4953

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Earlier, we called on Congress to take steps to end practices that block entry by independent application developers, lower consumer prices, increase consumer choice, and stimulate innovation.[1]  We based this call on an extensive analysis of the terrain of competition policy that we described in four lengthy historical papers.[2]

Based on that broad, general research, this analysis examines S. 2992, The American Innovation and Choice Online Act.  We conclude that it is a vital step toward promoting competition in the digital communications sector.  We see it as an important, cautious law to revitalize competition policy in general and antitrust in particular, after a long period of lax enforcement that put the nation’s competition laws into a “deep freeze.”

Overview of the Analysis

This analysis focuses on six lessons that are extremely important for the current debate.

• The history of the moment, and
• legislative intent of antitrust are critical to ensuring that policymakers and the public know where reformers are coming from.
• The nature of the political economy for which reformers advocate, and
• the empirical record of the performance of the political economy is important because it shows policymakers and the public where the reformers want to go.
• Rebooting, and
• recalibrating competition policy (antitrust and regulation) are both important so that policymakers and the public understand what it takes to achieve the reforms that are the goal.

The earlier analysis draws a direct link between Louis Brandeis, a leading and highly influential advocate in the formative years of pragmatic, progressive capitalism, and Joseph Stiglitz, a contemporary advocate of that approach to political economy.  It argues that the remarkably successful, uniquely American approach should be the model for the future.  The struggle to implement this model in the four decades before the Depression (1890-1930) is linked to the success of the economy during the “Golden Age of Capitalism” (1948-1972).  The Neo-Brandeisian approach to antitrust plays a key role and is very much the approach needed to revitalize competition policy at present.  Our analysis turned to the challenges of the digital economy by reviewing a number of academic studies and the ongoing activities of antitrust practitioners.  Table 1 summarizes the findings of that earlier analysis.

Actions to Revitalize Competition Policy in the 21^st Century Economy

Here we apply the general framework we developed to analyze S.2992, which should be voted on as soon as possible in the Senate.  In order to appreciate the important role that S.2992, which recalibrates the antitrust laws, can play, it is important to be cognizant of the ongoing efforts to revitalize antitrust practice.

The “rebooting” of competition policy is well underway with the Executive Order entitled “Promoting Competition in the American Economy.” The Biden Administration signaled its intention to revitalize competition policy by listing 72 specific steps that can be taken by Federal agencies to “reboot” competition policy after a long period of lax enforcement that has put antitrust into a “deep freeze.”

For example, during the Biden administration, the Department of Justice (DOJ) has challenged well over a dozen mergers, with half resulting in divestitures, several withdrawn, and the remainder pending trial.  Some of these involved “cutting edge,” challenges.  DOJ challenged a merger between the number 4 and 5 publishing firms (Penguin Random House’s Acquisition of Rival Publisher Simon & Schuster), since the Merger Guidelines clearly indicate that four is too few.  The challenge is also a pure monopsony/harm theory (never litigated as the sole basis for a merger challenge).  The United Health/Health Change merger is being challenged as an aggregation of data resulting in market power for various health insurance analytics.  The American Airlines/JetBlue merger “agreement to share slots and revenue” is being challenged as a back-door merger— in an effort to prevent more direct and indirect coordination in the airline market.  This is in addition to vigorous enforcement of existing antitrust laws in price-fixing, bid rigging, money laundering, and labor market abuses.

The Federal Trade Commission (FTC) has challenged two dozen mergers, more than half of which resulted in the withdrawal of the proposed acquisitions, in sectors that were a particular public concern, health care, pharmaceuticals, and energy.  It challenged two vertical mergers, one in key digital technologies, and one in aerospace technology.  Such challenges were almost unheard of in the prior 40 years.  Perhaps the most aggressive example is the FTC’s proposal of a series of rulemakings under authority that had been dormant for a long period of time.

State Attorneys General also pursued complaints against Facebook and Google, and many other entities for violations of antitrust laws.

A private antitrust lawsuit, important in earlier antitrust practice, but also chilled by the “deep freeze,” has challenged Apple’s practices in restricting the behavior of application developers.  The Consumer Federation of America filed an amicus brief in that case.

Senator Amy Klobuchar, Chair of the Competition, Policy, Antitrust, and Consumer Rights Subcommittee of the Senate Judiciary Committee has not only shepherded bipartisan legislation through Committee, but has also written a lengthy text that analyzes the history of and lays out an agenda for revitalizing antitrust.  She cites Brandeis a dozen times, more than any other advocate of progressive capitalism, echoing his belief in competitive markets as the key to economic success and political democracy.

Indeed, to maintain a healthy economy, it turns out we need both sensible regulation and antitrust enforcement to protect against abuses of power… It is now crystal clear that the antitrust laws must be updated and made relevant again as part of a reinvigorated American competition policy.  We need to incentivize more competition and more innovation, not less, and need to make sure that American capitalism allows all to compete.  Everyone in America deserves a fair shot – and an honest opportunity – when it comes to realizing the American Dream… [T]here must be – at all times – an appropriate balance between antitrust and regulation.[3]

The American Innovation and Choice Online Act, S. 2992, addresses the key issues in a sector of the digital economy that has not been addressed by competition policy and antitrust law.  It targets Big Data Platforms, which can abuse their market power as gatekeepers and vertically integrated firms, using self-preferencing and data to block competition from independent developers of applications.  Harming competition in this sector can raise consumer prices, restrict consumer choice, and slow innovation.  Our framework shows that the approach taken in S. 2992 is balanced, allowing platforms to develop services, without undermining competition.

1. The broad agenda for legislative changes can remain within the antitrust tradition that led the economy to great heights in the “Golden Age of Capitalism.” Congress needs to set these goals and parameters without drawing too many hard lines in a dynamic economy, which we have had and want.
2. Recapturing the goals of competition policy is also important. 2992 uses a broad economic concept to prevent concentration, which has the benefit of controlling the potential for abuse of political power and influence.  Short-term price effects on consumer welfare remain important, but in the broader long-term evaluation of the living standard of all citizens is as, if not more, important.
3. Thresholds for review and scrutiny should be lowered and address key challenges. These include: defining relevant markets rigorously and narrowly to make the thresholds more effective; defining suspect behaviors broadly to cover the problem of oligopoly and behavioral manipulation and exploitation based on the immense and recent increase in the ability to gather, analyze, and weaponize data: and ensuring competition policy has the old tools (and some new ones) to address abuse of market power.
4. Presumptions should be shifted in favor of competition. Defendants can show that they merit an exception subject to stringent conditions.
5. Conflicts of interest and self-preferencing must be controlled in a networked society dominated by digital technology, where access to the core network is essential. Where conflicts of interest are too profound to be effectively regulated, structural separations or bans are called for.
6. Enhance agency oversight by providing new tools and the resources necessary to effectively oversee competition and undertake new responsibilities.
7. Restore effective consumer sovereignty by requiring transparency and ex ante conditions for true consumer choice. The design of the consumer choice regime must reflect and address the full range of behavioral challenges that have been exploited by dominant Big Data Platforms.
8. Antitrust addresses some, but not all challenges, so structural remedies should be preferred but not required. Where behavioral remedies are necessary, regulatory agencies should take on the task of oversight.  The dual jurisdiction of antitrust and regulation has been successfully applied to the communications network for over a century.  However, the update must make it clear that the regulatory authority has the obligation to promote competition, where it is possible.

This is an ideal moment for Congress to play its important role in reinvigorating competition policy.  Addressing key aspects of Big Data Platforms is a good place to start, since this is an area of new and important economic activity and new challenges that have not been easily tackled by traditional oversight.

The American innovation and Choice Online Act, S. 2992, targets the sector with specificity, while ensuring a balance that invites innovation and practices by the incumbents that are not anticompetitive.  It sweeps in the traditional aspect of antitrust that practitioners have already begun to rebuild.  There are other areas of the digital economy that may also need Congressional action, like privacy, data use and abuse, and resources for responsible agencies.  However, the principle of tailoring the specific oversight to the specific challenges with a balanced approach is consistent with a century-long history of filling gaps in competition policy.  S. 2992 is the right approach to an important part of the problem.  It deserves a vote and passage in the Senate, so that the House can vote on and pass the bill later this month.

[1]  “Issue Brief: Rebooting and Recalibrating Competition Policy” (January 19, 2022); Amicus Brief of Consumer Federation of America, et al., in Epic Games v. Apple (United States District Court Northern District Of California, Oakland Division, 2022),  letter to the House urging an “Overhaul of Antitrust Oversight to Recalibrate Regulations for a Digital Age (June 14, 2021),; Senate Testimony (Testimony of Dr. Mark Cooper, on Antitrust Applied: Examining Competition in App Stores Senate Committee on the Judiciary, Subcommittee on Competition Policy, Antitrust, and Consumer Rights (April 21, 2021).  

[2] Big Data Platforms, a New Chokepoint in the Digital Communications Sector Meeting New Challenges with Successful Progressive Principles, September 14, 2020; Business Data Services: Another Failure of Free Market Fundamentalism to Promote Competition or Prevent Abuse of Market Power, September 3, 2020; Pragmatic, Progressive Capitalism At Its Best: Network Neutrality: How an Entrepreneurial State Used Public Policy to Foster Experimental Entrepreneurialism and Create the Internet, August 26, 2020; Pragmatic, Progressive Capitalism, Roadmap to a Remarkably Successful, Uniquely American Political Economy From Brandeis to Stiglitz & Beyond the 2020 Election, August 13, 2020

[3] Amy Klobuchar, 2021, Antitrust: Taking on Market Power form the Gilded Age to the Digital Age, pp. 353…355

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 “CFA believes that the bill strikes the right balance in the effort to restore decentralized, competitive markets in the digital sector and throughout the economy,” Dr. Mark Cooper, CFA’s director of research, and author of the Issue Brief, said.  “The dynamic economy that the uniquely American commitment to guardrails and guidance provided by antitrust and regulation requires aggressive, but disciplined action to reverse the mistakes of the past four decades.”

“A great deal of “unsound” precedent must be overcome, and that is where legislation may be necessary to recalibrate the practice of competition policy,” Cooper added, “but the practitioners of competition policy (federal and state antitrust and regulatory agencies, and private actors) have moved swiftly to challenge those erroneous precedents.

“Above all,” Cooper said, “it is possible to rebalance competition policy without abandoning the fundamental principles that served the U.S. economy well.” The rebalancing that enjoys widespread support among the analyses reviewed includes:

• shifting burdens of proof,
• adopting narrow definitions of relevant markets,
• adopting broad definitions of harm,
• focusing on competition and inequality,
• resurrecting structural solutions,
• putting efficiency and consumer welfare in its proper, long-term place by including quality, consumer choice, and innovation, and
• directing courts to place competition at the center of antitrust policy,
  • to stop giving dominant firms the “benefit of the doubt,” and
  • to treat anticompetitive conduct as the serious threat to consumer interests that it is.

The Issue Brief builds on five background analyses published in 2020, as well as a dozen and half peer-reviewed articles published from 2000 to 2016.

The forthcoming analyses summarized in the Issue Brief begins with the work of Louis Brandeis and concludes with Amy Klobuchar’s book Antitrust. In between the series looks at the Neo-Brandeisians, updates before broadband, the Golden Age of Capitalism, the challenges of digital technology, contemporary federal antitrust practice, other antitrust practitioners (state attorneys general and private antitrust activities), and legislative proposals for recalibrating competition policy.

• The analysis identifies 20 specific concerns about lax enforcement or the recent near total neglect of competition policy, organized in five broad categories (I. Lax Enforcement, II. Traditional Challenges, III. Long Standing Issues, IV. Magnified Old Abuses, V. New Challenges).
• It then outlines over two dozen proposed responses, organized in seven categories ( Purpose & Need for Reform, VII. Recalibration, VIII. Regulation, IX, Measuring Value, X. Rebooting, XI. Political Action: Collective, XII. Political Action: Individual).

The key principles to guide reform that appear in a straight line from Brandeis to Klobuchar, and almost all the analysts in between, include the following elements.

• Regulated competition (Brandeis’ term) is very much a capitalist undertaking with the goal of restoring and promoting a decentralized market economy.
• Efficiency is important (as Brandeis emphasized in his support for scientific management), because it yields economic progress for all involved in the production process.
• But, only if economic market power is not abused and political power does not multiply the advantage of dominant firms, their owners and highly skilled labor (as argued by Shepherd).
• Competition is the disciplining force, but it is not likely to occur or endure on its own. The capitalist solution strikes a balance between innovation and entrepreneurship, on the one hand, and the guardrails and guidance of antitrust and regulation, on the other.
• The key constraints require checks and balances to prevent barriers to entry and abuse of economic and political power, horizontally (across the branches of government), vertically (across the levels of government, i.e., federalism), and internally (through industrial democracy within productive enterprises).

“The big digital platforms are rightly the central focus at present because they have become so important and because they have been allowed to get away with so much consumer harm,” Cooper concluded, “but ultimately the entire economy is afflicted by a market power problem that should be addressed.”

Contact: Mark Cooper, 301-384-2204

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In addition to taking a broad view of competition and consumer protection, the Consumer Federation of America (CFA) believes the bill strikes the right balance.  It will significantly benefit consumers by restoring competition on big data platforms because it addresses one of the critical problems that has emerged in the digital sector, anticompetitive conflicts of interest, but it will not stifle innovation by being overly prescriptive.

Everyone, except the big data platforms, seems to agree that the Klobuchar/Grassley bill is a good start on defining competition policy in a manner that reforms antitrust practice.  The Consumer Federation of America believes it is more than that.  It is a roadmap to effective competition policy in the digital economy.

First and foremost, it will restore and ensure that competition from products that use the platform to reach consumers will be decided on the merits and no longer be victimized by the self-preferencing behavior of dominant platform providers.  Choice and innovation will be unleashed so that consumers are restored to a position of sovereignty and can choose the combination of services and suppliers that best meets their needs. This bill does enough to make a big difference.

Second, and of great importance, it does so within the framework of the competition policy of traditional antitrust law.  The recent economic theory that put competition policy into a “deep freeze” was a radical narrowing and misinterpretation of the principles of that guided the political economy to a remarkably successful, pragmatic, progressive, decentralized competitive market in the 20^th century. This bill changes that in a manner that is faithful to the long tradition of competition policy.

Third, it adopts a lower standard of proof, a preponderance of evidence that gives both sides an opportunity to make their case on a level playing field (i.e., where precedent is not a barrier to enforcement). This bill provides essential relief in a new and challenging area by going back to what worked, not trying to invent a new theory of competitive market and antitrust.

Fourth, while it focuses on the traditional antitrust approach of dealing with anticompetitive conduct under the antitrust laws after the abuse has occurred (ex post), it contains elements of “before-the-fact” (ex ante) rulemaking by defining a violation of the law as a potentially “unfair method of competition.”  The bill makes any such conduct a violation (rather than demanding a case-by-case demonstration of abuse), for this kind of conduct in this sector.

Fifth, the bill identifies and addresses the structural problem (the market power of large dominant platforms) that give rise to the significant avenues of abuse of power (leverage, grounded in vertical integration, foreclosure and exclusion, grounded in gatekeeping, and undermining potential competition, grounded in the exploitation and abuse of data).

Finally, as a practical matter, the bicameral, bipartisan support for this legislation that defines competition policy actually has a good chance of passing.  Because it is solid on policy grounds and feasible on political grounds, it is a clear signal of how to reform competition policy and antitrust in the digital age.

It would be possible to tweak this bill to make it stronger and remain within the parameter of the above principles, and other legislation may be necessary to address competition problems more broadly (above all increasing the resources of those with responsibility for enforcing competition policy, e.g., Competition and Antitrust Law Enforcement Reform Act.  However, it also seems clear that vigorous enforcement of the new authority and power in this bill will address the key problem in the digital communications sector in an effective and balanced manner.

For this reason, we view this bill as more than a first step. It is an important template. Those who want to do less to reboot competition policy are likely to fail to meet the new challenges to competition.  Those who wish to alter the underlying nature of competition policy (expressed in antitrust law) may be seeking unnecessary changes that could do more harm than good and may fail to garner the necessary support in Congress.  Thus, those who want to do too little or too much are likely to leave consumers and the economy much worse off.

Contact: Mark Cooper, 301-384-2204

[1] CFA took this view over two decades ago in the Microsoft case and reiterated it last year in the case of big data platforms: Mark Cooper, Monopoly Power, Anticompetitive Business Practices and Consumer Harm in the Microsoft Case (Consumer Federation of America), December 1999, Mark Cooper, “Antitrust as Consumer Protection In The New Economy: Lessons From The Microsoft Case, Hastings Law Journal, 52: 4, April 2001, first presented at Conference On Antitrust Law In The 21^st Century Hasting Law School, February 10, 2000; Mark Cooper, Amina Abdu, Big Data Platforms, A New Chokepoint in the Digital Communications Sector Meeting New Challenges with Successful Progressive Principles, Working Papers on Pragmatic, Progressive Capitalism, WP # 4, September 2020. Senator Amy Klobuchar, Chair of the United States Senate Judiciary Subcommittee on Competition Policy, Antitrust and Consumer Rights, argues for this view of policy in Antitrust: Taking on Monopoly Power from the Guilded Age to the Digital Age (Alfred A. Knopf, 2012),Top 25 policies,  #24, pp. 347-348.  

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“This withdrawal by the Department of Justice is good news for consumers for two reasons: first, the proposed settlement would not have significantly advanced price competition in a marketplace with high, fairly uniform commissions; and second, the settlement threatened to undercut several class-action lawsuits that seek to remove the most important barrier to price competition,” stated Stephen Brobeck, a senior fellow at the Consumer Federation of America (CFA).

The key elements of the proposed settlement were that (1) brokers were to make the commission offered to buyer agents on multiple listing services (MLS) publicly available, and (2) buyer agents were prohibited from representing their services as free to consumers.  “Although the proposed settlement would have given buyers more information about buy-side commissions, it would not have given these home purchasers adequate opportunity to negotiate these fees,” noted CFA’s Brobeck.  “This opportunity would only occur if buyer and seller commissions were uncoupled, the main goal of class-action lawsuits that have advanced in the courts,” he added.

Proposed Settlement Would Not Have Created Price Competition

The key barrier to price competition is the NAR’s buyer broker commission rule that requires all brokers to make a blanket, non-negotiable offer of buyer broker compensation to participants in the MLS.  This rule institutionalizes a very strange and anti-competitive method of broker compensation.  Sellers and their listing agents decide the commission to be paid to the buyer broker working with the home purchaser.  Buyers not only cannot negotiate this commission but usually are not aware of its level because buyer brokers either do not discuss it with them or inform them that it is paid by the seller.

On the other hand, sellers have little ability to negotiate the commission rate down.  If asked, their agents will correctly inform sellers that if they offer a low buyer broker commission, buyer agents may steer prospective buyers away from their property.  While sellers ostensibly have the ability to negotiate the commission they pay to their own agent, research by CFA shows that when home sellers ask agents whether they would lower this commission, three-quarters refused to do so.

“Real estate agents compete vigorously for clients but not by offering lower commissions,” said CFA’s Brobeck.  “As a result, commissions remain high and fairly uniform,” he added.  A large majority of commissions range from five to six percent and are the same in a particular area.  Listing agents, though, will sometimes cut one-half or one percent off their commission if the home is expensive, they are the sole agent involved in the sale, or if they help a consumer sell their home and purchase a new one.  Even then, the agent usually receives at least $20,000 in commission on the sale of a $400,000 home.  In England, by comparison, real estate agents typically receive less than two percent for facilitating the sale of a home.

The proposed settlement would, depending on the effectiveness of the buyer agent commission disclosures, have discouraged steering.  But it would not have given buyers the ability to negotiate these commissions.  A CFA analysis of the proposed settlement noted several ways that agents could easily thwart the intention of the fee disclosure.

Proposed Settlement Would Have Undercut Class Action Antitrust Lawsuits

Several class-action lawsuits seek remedies for lack of price competition by requiring an uncoupling of listing broker and buyer broker commissions.  Both buyers and sellers would negotiate and pay their own commissions.  Buyers would then have the ability to negotiate down buyer agent commissions that are usually 2.5 to 3 percent.  More sellers would be likely to seek a lower commission from their listing agent.  Discount brokers using MLSs, now hamstrung by coupled commissions forcing them to offer buyer brokers the going commission rate, would be free to offer real discounts.  The practice of newly licensed, unskilled agents charging the same commission as highly competent, experienced agents would no longer be supported by industry rules.

In the first two lawsuits – Moehrl v. NAR and Sitzer v. NAR – the courts have already rejected the request of the NAR for dismissal of the cases.  The 25-page decision of the court hearing on Moehrl found:  “In sum Plaintiffs allegations plausibly show that the Buyer-Broker Commission Rules prevent effective negotiation over commission rates and cause an artificial inflation of buyer-broker commission rates.”  The court noted that it’s decision was “in accord with conclusions reached by a district court addressing the same issues in Sitzer v. NAR.”

The proposed settlement would have undercut these class action lawsuits.  An opinion piece written by a real estate broker and published in Inman News (Michael Lissack, November 23, 2020) asserted that “the Moehrl lawsuit has thus been rendered moot.  The DOJ has taken action on the two claims at issue, and it disagreed with Moehrl’s proposed remedy.”  The author added: “The DOJ-NAR settlement works to pre-empt alternative resolutions of the issues common to all three lawsuits: disclosure and rules.”  Noted CFA’s Brobeck: “While it may be an exaggeration to say that the lawsuit was ‘rendered moot,’ the proposed settlement would certainly have been used by the NAR in its defense and possibly to great effect.”

Did the NAR Cut a Deal With Trump Officials to Undermine the Lawsuits? 

There is no disputing that the proposed settlement would have posed challenges to plaintiffs in the class action lawsuits.  And there is some circumstantial evidence to suggest that the NAR cut a deal with Trump officials to undermine the lawsuit.

• As noted above, the proposed settlement would have weakened and possibly devastated the claims of plaintiffs in the class action lawsuits against the NAR and other industry groups.
• The settlement would have limited DOJ’s pursuit of other antitrust claims against the NAR.
• The NAR appears to have readily assented to the proposed settlement even though it had previously defended NAR Rules that forbid MLSs from making buyer broker commissions public.
• The proposed settlement was announced in November 2020 just after the election.
• The Assistant Attorney-General heading the Antitrust Division and the Division Deputy Assistant Attorney-General who signed the original complaint both joined the Department of Justice and received these appointments during the Trump Administration. Both left DOJ after the election in early 2021.
• The Biden administration appointed a career DOJ official to the position of Assistant Attorney-General heading antitrust. The Deputy Assistant-General position is now vacant.
• It is very unusual for DOJ to withdraw a proposed antitrust settlement. The NAR called it a “complete, unprecedented breach of agreement.”

Noted CFA’s Brobeck:  “One can speculate that the proposed settlement received strong pushback from some career officials strongly committed to impartial antitrust enforcement.  After the election, these officials were able to delay a final settlement until after the departure of the Trump appointees and their replacement by career officials.  There ensued a months-long negotiation with the NAR to give the DOJ greater ability to continue pursuing anti-competitive practices by the industry.  When the NAR refused to budge, or budged only a little, the DOJ decided to withdraw the proposed settlement.”

Contact: Stephen Brobeck, sbrobeck@consumerfed.org

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“The industry has taken the position that any constraint on its actions will end the digital revolution and dramatically increase costs for consumers. The Consumer Federation of America emphatically disagrees,” said Mark Cooper, CFA’s Director of Research.

“The House Judiciary Committee and Antitrust Subcommittee is doing exactly what Congress should do to reboot needed oversight of the dominant incumbent digital platforms. The Committees have identified general practices that must be reformed, given concrete recommendations, and provided increased resources for implementing these needed actions,” Cooper added.

Finally, said Cooper, “We also support and recognize that the recommendations keep Congress out of the business of trying to pick winners, when they are just as likely to pick losers. Instead, all the remedies on the table empower antitrust and regulatory experts to use their judgement, based on the clear goals defined by Congress, to build adequate consumer protections in the world of big data.”

Contacts:
Mark Cooper, 301-384-2204
Amina Abdu, 202-656-1282

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“This is exciting news from the FTC,” said Amina Abdu, CFA’s Antitrust Advocacy Associate. “The new group sends a clear signal that the FTC intends to use all the tools at its disposal to curb anti-consumer and anti-competitive practices. We are hopeful that rulemaking will allow the agency to act more efficiently to promote competition than enforcement alone. That’s key in digital markets where things move quickly.”

CFA has advocated in the past for agency rules to increase consumer protections, make the marketplace fairer, and supplement antitrust law in promoting competition, ranging from interoperability and nondiscrimination to banning deceptive terms and conditions. CFA has long supported strengthening the FTC’s Funeral Rule, first adopted in 1984. CFA has also advocated for increased resources for the FTC, which will be crucial as it undertakes new rulemaking.

“This is a very promising first step,” said Susan Grant, CFA’s Director of Consumer Protection and Privacy. “We now know that all solutions are on the table when it comes to the FTC’s mandate to protect consumers from unfair and deceptive practices. We look forward to working with Chairwoman Slaughter and the FTC in its efforts to promote consumer interests and corporate accountability.”

Contact: Amina Abdu, 202-656-1282

The post FTC’s New Rulemaking Group Will Strengthen Desperately Needed Rules to Prohibit Unfair or Deceptive Marketplace Practices appeared first on Consumer Federation of America.

“Senator Klobuchar’s bill is an important step in the right direction,” said Amina Abdu, CFA’s Antitrust Advocacy Associate. “For decades, market power has been allowed to grow unchecked, with little scrutiny given to blatantly anticompetitive mergers or conduct. This bill is a long overdue effort to redress these harms and protect consumers from rampant market power abuse.”

“Enforcement has always been the cornerstone of antitrust. We are excited to see a bill that recognizes this and takes steps to strengthen oversight, while refusing to have Congress try to make decisions that are better left to the expert agencies,” said Mark Cooper, CFA’s Director of Research.  “Klobuchar recognizes what Congress should and should not do.  Her bill reaffirms and clarifies goals, encourages and supports enforcement, and weeds out practices and defenses that should never have been allowed but have become embedded in antitrust practice. Importantly, it does all of this without setting specific limits or picking winners and losers among companies.”

In a recent article in Competition International, we have outlined the steps necessary for “Rebooting Antitrust and Regulation for Digital Communications.”

After the Trump administration’s effort to essentially repeal the Communications Act of 1934 and abandon the Federal Communications Commission’s (FCC) authority to other agencies, the U.S. must restore effective oversight and pull the strands of policy into a coherent overall approach. This effort will require a mix of regulatory and legislative actions including:

1. Reversing the theory of “sufficient” competition and the deregulation to which it gave rise
2. Asserting full Title II authority over nondiscrimination and universal service
3. Bringing the full weight of Title II authority to bear on achieving universal service to broadband
4. Restoring full dual jurisdiction by repealing the Trinko decision that quashes antitrust even when there is only a whiff of regulation present

The principles of antitrust and regulation must also be adapted to new industries given the enormous power wielded by dominant players in emerging industries such as Big Data Platforms. While the principles on which antitrust and regulation rest remain the same, these practices must be adapted to the new techno-economic relationships in the economy[i]. Antitrust and regulation need to be rebooted, after a long period of inactivity and explicitly redefined to meet the challenges of the new economy.

“We commend Senator Klobuchar for proposing a balanced and thoughtful approach to rebooting antitrust.  Congress needs to enact this legislation and let the agencies do their job before it tries to micromanage the structure of this vital sector,” concluded Cooper.

[i] Other recent CFA papers provide the historical grounding of this approach;  From Brandeis To Stiglitz: Into & Beyond The 2020 Election: The Brandeis Protocol and the Stiglitz Model Create a  Framework for Pragmatic, Progressive Capitalism, especially Chapter 4, https://consumerfed.org/wp-content/uploads/2020/08/Pragmatic-Progressive-Capitalism-Report-8-13-20.pdf, and a detailed discussion of Big Data Platforms, A New Chokepoint in the Digital Communications Sector Meeting New Challenges with Successful Progressive Principles, especially, Chapter 5. https://consumerfed.org/reports/big-data-platforms-a-new-chokepoint-in-the-digital-communications-sector/

Contacts:
Mark Cooper, 301-384-2204
Amina Abdu, 202-656-1282

[i] Other recent CFA papers provide the historical grounding of this approach;  From Brandeis To Stiglitz: Into & Beyond The 2020 Election: The Brandeis Protocol and the Stiglitz Model Create a  Framework for Pragmatic, Progressive Capitalism, especially Chapter 4, https://consumerfed.org/wp-content/uploads/2020/08/Pragmatic-Progressive-Capitalism-Report-8-13-20.pdf, and a detailed discussion of Big Data Platforms, A New Chokepoint in the Digital Communications Sector Meeting New Challenges with Successful Progressive Principles, especially, Chapter 5. https://consumerfed.org/reports/big-data-platforms-a-new-chokepoint-in-the-digital-communications-sector/

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The groups released a joint statement raising three key issues that regulators must prioritize during their ongoing merger review: Google’s ability to limit interoperability between their Android smartphone operating system and competitors’ wearables, Google’s potential limiting rival’s access to wearables data, and Google further entrenching their well-established dominance in the digital advertising market, which relies heavily on data access.

“A Google takeover of Fitbit would give Google a significant foothold in both the wearables and digital health markets overnight, potentially with long-term privacy implications in these sensitive markets,” said Amina Abdu, an Antitrust Advocate at CFA. “On top of that, Google would extend its ability to exploit its already massive market power in digital advertising.”

This is not the first time consumer groups have expressed concerns about this very takeover. In July, CFA and a coalition of 20 consumer groups called on regulators to scrutinize the deal, and in April CFA partnered with Public Knowledge on a letter to the Department of Justice about the merger’s potential harms.

Recent reports, however, suggest that regulators are seeking commitments from Google to allow them to clear this deal. The latest statement focuses on the critical safeguards that must be in place to protect consumers if the merger is allowed to go through: “(1) continued complete wearables interoperability with Android, (2) that digital health markets remain competitive and innovative with high levels of data security and privacy protection, (3) that Google is prevented from further increasing its dominance in online advertising, and (4) include safeguards to ensure the effects of the commitments are not neutralized in practice.”

“It is not enough to just accept Google’s word on these commitments, which have serious implications in multiple markets from wearables, to health, to digital advertising,” said Abdu. “Google has backed out of its promises in the past. After claiming they would not combine Google’s personally identifiable information with DoubleClick’s advertising data, they changed their policies with little regard for consumer privacy.”

“Whatever decision regulators make, they should take a hard look at the implications, both now and in the future,” added Abdu. “If a remedy remains in place only as long as it is convenient for Google, it is not really a remedy at all.”

Contact: Amina Abdu, 202-656-1282

The post Google Takeover of Fitbit Will Severely Limit Competition appeared first on Consumer Federation of America.

The letter raised three key issues that regulators must prioritize during their ongoing merger review: Google’s ability to limit interoperability between their Android smartphone operating system and competitors’ wearables, Google’s potential limiting rivals access to wearables data, and Google further entrenching their well-established dominance in the digital advertising market, which relies heavily on data access.

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“We fully expect the U.S. to witness a similar debate and adopt policy to end the abuses of these dominant digital platforms,” said CFA’s Director of Research Mark Cooper.

To that end, CFA is releasing the fourth in a series of working papers that provides detailed historical and economic analysis of the abuses in the two most important segments of the digital communication sector — Big Broadband Networks and Big Data Platforms. The report, entitled Big Data Platforms, a New Chokepoint in the Digital Communications Sector: Meeting New Challenges with Successful Progressive Principles, outlines the primary challenge facing regulators today: harnessing the benefits of emerging technology, while ensuring that consumers, rather than a select few companies, are able to reap the benefits of innovation today and in the future.

The new paper addresses the structural features of digital markets that have given the largest tech companies outsized influence over the economy and over communications.  The paper puts big data platforms in the larger context of structurally similar markets, like big broadband networks, internet service providers, and business data services, to understand the progressive policies that have been successful in the past and can be adapted for the digital age.

“Network effects and economies of scope and of scale — structural characteristics that are particularly strong in these infrastructure industries — can make promoting competition a tricky task,” said Cooper. “But it’s a task we’ve faced before in other industries with pragmatic steps like sector-specific expert agencies and simple bright lines to prevent the worst abuses.”

Of particular concern are “gatekeepers,” companies that control access to customers or key infrastructure. In the absence of regulation and oversight, gatekeepers have every incentive to abuse their status in order to harm competitors, who rely on these gatekeepers to access the market.

As part of its investigation into a new competition tool, the European Commission is looking into a number of structural challenges, including gatekeeper control. CFA is hopeful that, if done well, the European Commission’s new tool can itself become a global model for competition policy.

“We applaud the European Commission for taking an important first step to acknowledge and address the existing gaps in competition regulation and enforcement,” said Amina Abdu, an Antitrust Advocate at CFA. “But these issues extend beyond Europe. The difficulty of protecting consumer welfare while promoting efficiency and innovation is a problem with which many governments are grappling. The solution will require re-envisioning the status quo and developing new and creative pro-competitive, pro-consumer regulation.”

Contacts:
Mark Cooper, 301-384-2204
Amina Abdu, 202-656-1282

The post U.S. Way Behind in Protecting Competition Among Big Data and Big Broadband — Costing Consumers appeared first on Consumer Federation of America.

This report addresses the structural features of digital markets that have given the largest tech companies outsized influence over the economy and over communications.  The paper puts big data platforms in the larger context of structurally similar markets, like big broadband networks, internet service providers, and business data services, to understand the progressive policies that have been successful in the past and can be adapted for the digital age.

The post Big Data Platforms, a New Chokepoint in the Digital Communications Sector appeared first on Consumer Federation of America.

“The policy failures and lack of competition we’ve seen in Business Data Services epitomize the challenges of building a dynamic, competitive communications sector in the digital age,” said Dr. Mark Cooper, CFA’s Director of Research. “While the growth of BDS embodies the immense progress that has taken place during the digital revolution, these services exhibit ongoing problems in market structure, conduct and performance that have made BDS a key chokepoint in the communications sector.”

The report, entitled Business Data Services: Another Failure of Free Market Fundamentalism to Promote Competition or Prevent Abuse of Market Power, proposes a conceptual and empirical framework to analyze core concerns about market power both for Business Data Services and beyond. It shows that the early deregulation of the BDS industry was based on erroneous theories of contestable markets and sufficient competition that did not play out in reality. These theories continue to drive free market fundamentalism to this day, culminating in the Federal Communications Commission (FCC)’s “Flip-Flop” order in 2017, which reversed the 1996 Communications Act’s emphasis on competition in favor of abandoning federal oversight.

The report argues that this decision was an enormous policy failure that will have disastrous effects for consumers, deregulating the key chokepoint where the ocean of data flowing through the digital communications sector becomes a stream delivered to individual customers.  The sector is dominated by a “tight oligopoly on steroids” where the market power that results in high levels of concentration is magnified by strategies of geographic separation, technological specialization, and product segmentation that all of the dominant firms use to diminish rivalry by avoiding head-to-head competition.

“The evidence is clear that two firms are not enough to ensure competition. Sometimes six firms is not enough to ensure competition,” said Amina Abdu, CFA’s Antitrust Advocacy Associate. “And yet, we’ve allowed a handful of companies to control this crucial bottleneck in the digital economy because of a notion of potential competition that never materialized. That’s a problem.”

“Local phone companies used their control of the network inherited from the franchise monopoly period to raise prices, increase profits and undermine competition,” concluded Cooper. “Antitrust and regulatory oversight must be restored in the communications sector. This is not just a problem with Business Data Services, but a larger problem of abuse of market power in tight oligopolies across digital markets.”

Contacts:

Mark Cooper, 301-384-2204

Amina Abdu, 202-656-1282

The post Federal Oversight Must Be Restored to the Communications Sector appeared first on Consumer Federation of America.

The report reviews evidence from the extensive antitrust literature to conclude that allowing the dominant BDS players’ market power to persist unchecked is not an option. This a problem that requires reinvigorated regulation and antitrust in the BDS market and beyond, at other crucial chokepoints in the digital communications sector.

The post Business Data Services appeared first on Consumer Federation of America.

The Consumer Federation of America is quite convinced that the antitrust and regulatory oversight of the digital communications sector is in desperate need of a reinvigoration after decades of extremely lax enforcement that has failed to promote competition and protect consumers.  We also believe that immunity from liability is a serious and important issue that should be addressed as antitrust and regulatory oversight are recalibrated to deal with the digital economy.

However, we believe it would be a mistake to deal with these challenging issues in a piecemeal, “siloed” approach.  A much more comprehensive review of antitrust and a new regulatory agency are necessary to address the many harms that have been visited on consumers by the dominant players in the digital communications sector.

To ensure that policymakers address the problems of the digital communications sector, we have launched a series of reports entitled “The Quarterlife Crisis of the Digital Revolution: Great Potential, Benefits and Harms that Can Only be Addressed by Pragmatic, Progressive Capitalist Policy.” The working papers examine two industries that are directly relevant to this proceeding, big broadband networks and big data platforms.

While the immunity that dominant big data platforms claim based on Section 230 has anticompetitive impact, this impact is a very small part of the anti-competitive structure of the big data market.  Moreover, it is a very small part of the anticompetitive conduct that permeates the big data platforms market.

We seriously doubt that a section 230 proceeding instigated by a blatantly politically-driven goal can come to any good.  This is particularly the case when that proceeding is being conducted by an agency, the Federal Communications Commission (FCC), which has sought to deregulate the core sectors of the digital communications ecology, failing to ensure nondiscrimination in the carrying of internet traffic or prevent abuse of the control of the Business Data chokepoint.

Section 230 liability raises many issues that are not simply economic in areas like privacy and universal service where the FCC has been entirely ineffective. Over-broad immunity also has implications beyond the communications sector in product safety, where platforms use section 230 to avoid liability under safety laws. The FCC, acting on its current authority, is likely to be severely constrained by limitations on its power, even if it was inclined to do something meaningful.  Given its recent decisions to abandon oversight over anticompetitive conduct, we are dubious of its intentions.  Moreover, its own deregulatory words are certain to be thrown into its face.

While commenters may recognize the weak positions that the FCC has taken on issues that are in its jurisdiction, by choice, it is also extremely important to recognize that the FCC is likely to take very weak action when it comes to issues that fall outside of its jurisdiction.  Because of CFA’s very broad coverage of consumer issues, we recognize the importance of safety implications since platforms can use 230 as a liability shield and an explanation for why they do not need to comply with safety laws; but the FCC should not have anything to do with that.

Serious rebooting of antitrust and regulation of the digital communications sector is in order, but this proceeding and this agency are neither the time nor the place for such an important challenge.

Contacts:

Mark Cooper, 301-384-2204

Amina Abdu, 202-656-1282

The post FCC Must Step In To Protect and Promote Competition in the Communications Industry appeared first on Consumer Federation of America.

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“The past century of nondiscrimination policy has shown us the key ingredients for success are strong, before-the-fact regulation, antitrust, and flexible, ongoing oversight,” said Dr. Mark Cooper, CFA’s Director of Research and author of the report. “These principles should be restored in the broadband industry and guide policy moving forward in the emerging digital platform market,” added Cooper.

The report is entitled: Pragmatic, Progressive Capitalism at Its Best: Network Neutrality, How an Entrepreneurial State Used Public Policy to Foster Experimental Entrepreneurialism and Create the Internet. It outlines the historical, legal, and economic underpinnings of regulation and oversight of communications networks in the U.S. that created its success and leadership in the development and deployment of the digital communications sector. The report demonstrates that the recent rollbacks of net neutrality protections threaten to undermine a long record of American entrepreneurial success online.

CFA’s new report identifies the failure of “Free Market Fundamentalism,” which advocates lax antitrust enforcement and little or no oversight of the market of the Big Broadband Network owners. The report demonstrates that abandoning oversight to the Federal Trade Commission (FTC) will be disastrous for consumers. By analyzing four decades governed by the principle of network neutrality, the report charts a path forward.

“The report shows the FTC has a remarkable record of failure in the digital age,” said Amina Abdu, CFA’s Antitrust Advocacy Associate, “starting with the Microsoft case in the early 1990s and ending with a complete failure to adopt effective protection for consumer privacy from the mid-1990s until today.”

“After two decades of debate over Title I and Title II authority to ensure nondiscriminatory access to consumers, a debate in which both Democrat and Republican Federal Communications Commission members recognized the need for that oversight, in 2016, the courts upheld a light-handed Title II approach,” Cooper noted. The Trump FCC instantaneously did a complete “flip-flop”, seeking to repeal the Communications Act by taking a “Title ‘0’,” approach.”

The report points out that the majority of the court that reviewed the recent FCC “flip-flop” order felt the FCC had totally botched the empirical analysis, but they felt bound by the “deference” the Supreme Court would give to the agency. Even the third member of the court admitted that the FCC could use Title I or Title II authority to endeavor to protect competition and promote universal service.

“The extreme deference given the agency, the history of abuse of market power, the overwhelming evidence in the record, and the clear evidence that the FCC action violates the intent of the legislation, guarantees that this decision will be revisited and reversed in the future,” Cooper concluded.

Contacts:

Mark Cooper, 301-384-2204

Amina Abdu, 202-656-1282

The post Market Domination of Business Data Services Must Be Checked appeared first on Consumer Federation of America.

It outlines the historical, legal, and economic underpinnings of regulation and oversight of communications networks in the U.S. that created its success and leadership in the development and deployment of the digital communications sector. The report demonstrates that the recent rollbacks of net neutrality protections threaten to undermine a long record of American entrepreneurial success online.

The post Pragmatic, Progressive Capitalism At Its Best: Network Neutrality appeared first on Consumer Federation of America.

Last week, the CEOs of Amazon, Apple, Facebook, and Google testified before the House Judiciary Committee’s Antitrust Subcommittee as a part of the committee’s ongoing investigation into competition in the digital marketplace. The biggest takeaway from this hearing was a turning of the tides away from unchecked power for the tech titans. Committee members on both sides of the aisle took aim at the tech industry and a number of representatives demonstrated a strong grasp of the issues at hand, a far cry from some of the CEOs’ previous appearances before Congress.

We also got some of idea of the committee’s findings from the past 13 months. Rep. David Cicilline (D-RI), the chairman for the panel, opened by outlining the major patterns the committee observed among the four companies present: first, these companies exploit their status as gatekeepers — of information, and of markets — to punish rivals and hurt consumers; second, they abuse their control over critical online infrastructure to surveil their competitors; and finally, they leverage their power in key markets to extend their power in other verticals through self-preferencing, predatory pricing, and other anticompetitive tactics.

With the CEOs answering a combined 217 questions and the committee revealing previously unseen documents, we have a clearer picture today than we did a month ago about the future of competition and policy in digital markets. Several questions, however, remain unanswered — let’s take a look at a few.

What’s the market?

Market definition is a central question in any antitrust investigation. The big tech companies continue to expand into many facets of the economy, blurring the lines of what the relevant market might be. This is to the companies’ benefit: it’s in their best interest to define the market as broadly as possible, so that they occupy a relatively smaller market share. We saw this play out at the hearing, with both Facebook and Amazon in particular claiming they compete in enormous and nebulous markets. Facebook CEO Mark Zuckerberg referred to Facebook’s market as “the space of people connecting with other people,” a market that includes talking to a friend in person, sending a letter, direct messaging, and any other form of communication under the sun. Amazon CEO Jeff Bezos, meanwhile, argued that Amazon made up only 1% of global retail, a market which includes gas stations and restaurants.

To think about whether these claims are reasonable, we should think about substitutability. A market should be made up of only close substitutes. It seems intuitive that face-to-face communication, direct messaging, and social media are not the same thing. If I want to send a photo to a family member, I might be deciding between sending a message on WhatsApp, which is owned by Facebook, and sending a text message. If, on the other hand, I want to check in to see what an old friend with whom I’ve lost touch is up to or make an announcement to everyone in my network, text messages and face-to-face communication are pretty poor substitutes for a social media platform like Facebook. It’s an even poorer substitute for advertisers, where Facebook makes the bulk of its profit. Even if we consider Facebook’s core market to be social media, there are questions about substitutability: almost all Twitter users also use Facebook, but the converse is not true. Does that mean that Twitter is not a competitor to Facebook? Is anyone? These are big questions that antitrust authorities will need to consider.

In the case of Amazon things get even trickier. Amazon’s claim that it competes in the “global retail” market is true to a certain extent. When buying a water bottle, consumers have the option of going to a brick-and-mortar store like Walmart instead of ordering off of Amazon. But geography factors in, too. If you live in India, where there are no Walmarts, Walmart is no longer a great substitute. Even constraining to U.S. retail, Amazon has only a 4% market share. A global pandemic, however, has shown that online commerce is not always substitutable for its brick-and-mortar counterpart. Many argue that Amazon’s market is e-commerce, where the company commands closer to 40% of the market, more than double the share of its closest nine competitors combined. But to lump Amazon’s business into one broad market that encompasses all of its activities misses the point. “Retail” is not a market in itself. Although you can buy both a laptop and a bicycle on Amazon, these goods are not substitutes and should not be lumped in to the same market. So what is Amazon’s market? A better question might be “what are Amazon’s markets?” In addition to e-commerce and cloud computing, Amazon operates in many smaller markets, from diapers to books, and its gradual elimination of competitors in these markets is a threat to small businesses and consumers alike that should not be forgotten in an overly simplistic attempt to define Amazon’s market. It’s not that Amazon’s market is everything, it’s that everything has become Amazon’s market.

Even when the answer seems obvious, defining the relevant market can be a difficult question. Apple CEO Tim Cook claimed that Apple doesn’t have “a dominant share in any market or in any product category where we do business.” Indeed Apple’s iOS, whose app store was the primary focus of representatives’ questions for Cook, has a smaller market share than Google’s Android operating system both in the U.S. (47.4% for iOS versus 51.8% for Android) and globally. However, Apple’s decision to prevent iOS users from using an alternative app store artificially restricts the market for the 47.4% of US smartphone users, effectively creating a one-player market.

Antitrust has long taken into account geography when defining a relevant market, but it faces a new challenge in understanding the geography of the digital landscape. Authorities will have their work cut out for them in determining what choices consumers have available to them and where the tech giants have become all but unavoidable.

Is there something special about digital platforms?

Although Amazon, Apple, Facebook, and Google serve different functions and have been criticized for different behaviors, several themes emerged during the hearing. Over the course of nearly six hours, the committee charted out a repeated pattern of coercion, intimidation, and abuses of power.

Rep. Lucy McBath (D-GA) said Apple’s decision to remove third-party parental control and screen time apps, many of which had been on the market for years, from the app store coincided with the introduction of Apple’s own app Screen Time. Apple claimed these apps were removed for privacy reasons, but they were allowed back into the market with no significant privacy changes only six months later. Similarly, McBath noted, Apple intimidated Random House into participating in their iBooks app by excluding Random House’s competing app for dubious reasons.

Again and again these accusations appeared of the dominant tech companies using their gatekeeper power as platform owners to threaten or harm their competitors. Rep. Ken Buck (R-CO) asked Google about content theft from song lyric website Genius, while Rep. Cicilline accused Google of stealing reviews from Yelp. When Yelp complained, Google reportedly threatened to delist Yelp from Google search. Later, Rep. Val Demings (D-FL) referenced internal email from Zuckerberg in which he said he would enforce Facebook’s policies about data access more forcefully against competitors than other companies. While Zuckerberg claimed these policies were in the past, he admitted Facebook had restricted Pinterest’s access to Facebook’s APIs because it saw Pinterest as a competitor. Amazon, too, was accused of this behavior with Rep. Hank Johnson (D-GA) bringing up the case of Popsockets where Amazon threatened to divert sales to counterfeit Popsockets products until the company agreed to spend two million dollars on Amazon advertising. All four companies were also accused of using their respective positions in the digital marketplace to spy on competitors who used their platforms — a particularly hot button issue for Amazon who, according to a Wall Street Journal investigation, uses third-party seller data to develop Amazon label products.

In all of these cases, the platform in question controls a crucial artery of communication, information, and/or trade. This artery is so crucial, in fact, that any potential competitor is all but forced to use the platform in question, enabling the dominant player to cut off nascent competition at the knees and self-preference in response (for example, Google promoting its own products ahead of competitors’ in search, or Amazon’s buy box favoring products shipped with Amazon’s fulfillment services).

On top of this, Amazon, Apple, and Google all run an important market in which they are players: Amazon sells Amazon label products on its own e-commerce platform; Apple has its own apps while running the iOS app store; Google is both a major buyer and seller in the ad exchange.

The combination of these conflicts of interest along with the gatekeeper power that these tech giants have to put their thumb on the scale appeared to be a major concern for lawmakers. Time will tell if these challenges will result in changes to the existing antitrust framework, or if Congress thinks they can be handled under existing law.

<strongWhat’s the harm?

Lawmakers were criticized for straying off topic. Indeed, topics that came up included everything from privacy and misinformation to work with law enforcement, slave labor, and political bias, issues that are not tied to traditional antitrust. While the lack of focus was apparent, these questions can still inform our understanding of the power that these companies wield and the consequences of that power.

For decades, antitrust in the U.S. has operated based around the consumer welfare standard. Monopoly power is not considered anticompetitive in itself. Rather, the goal of antitrust is to prevent dominant players from using their market power to harm consumers. Most often, harming consumers has been taken to mean “raising prices,” something that is difficult to show for the often free and/or inexpensive products that fall under the purview of big tech. If big tech isn’t using their market power to charge customers exorbitant rents, then why should we care whether they do in fact have such power? The answer may come from the consumer welfare standard, which goes beyond prices to include diminished quality, and from those off-topic questions, which outline the myriad ways in which limited competitive pressure have left consumers without a path to seek better quality alternatives.

The hearing’s hot topic of political bias on Facebook and Google matters primarily because those companies have such a chokehold on public conversation and the dissemination of information. That power is, rightfully, a source of concern. In a world with many viable social networks, or search engines, or e-commerce platforms, one company’s policy would not have such an outsized impact. Platforms could compete on the basis of their privacy policies, their content moderation policies, their labor practices, and their stances on political advertising, among other things. Consumers, advertisers, and small businesses could choose based on their particular preferences.

”Open markets are predicated on the idea that if a company harms people, consumers, workers, and business partners will choose another option. We are here today because that choice is no longer possible,” said Rep. Cicilline in his opening remarks. As it stands, users have little control over their data, little recourse for challenging big tech companies’ practices, and little way to meaningfully make choices or opt out. The committee members demonstrated that they are well aware of these harms. Exactly how such harms will ultimately be accounted for and addressed remains to be seen.

What’s next?

There is a sense of change in the air. After over a year-long investigation that yielded 1.3 million documents, multiple hearings, and hundreds of hours of interviews, the committee is expected to issue a report sometime in the next month outlining their findings and recommendations for updating federal competition rules. Meanwhile, the Justice Department’s antitrust investigation of Google is expected to end later this summer in a lawsuit.

Rep. Cicilline concluded the hearing by saying that some of the companies present would need to be broken up and all would need to be “properly regulated and held accountable.” What that will entail is still up in the air. While there appeared to be bipartisan agreement about the existence of a problem in the industry, Rep. Jim Sensenbrenner (R-WI), the top-ranking Republican on the committee, stated that he did not believe our existing antitrust framework should change. Rather, he believes there should be scrutiny toward the Justice Department and Federal Trade Commission’s enforcement history.

Even in the absence of updates to the antitrust laws, new regulations in other areas, such as comprehensive privacy legislation, could still prove useful in curbing big tech’s bad behavior. Competition policy is ultimately only one of many avenues toward a more equitable and consumer-friendly digital future.

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