Archives For self-preferncing

The practice of so-called “self-preferencing” has come to embody the zeitgeist of competition policy for digital markets, as legislative initiatives are undertaken in jurisdictions around the world that to seek, in various ways, to constrain large digital platforms from granting favorable treatment to their own goods and services. The core concern cited by policymakers is that gatekeepers may abuse their dual role—as both an intermediary and a trader operating on the platform—to pursue a strategy of biased intermediation that entrenches their power in core markets (defensive leveraging) and extends it to associated markets (offensive leveraging).

In addition to active interventions by lawmakers, self-preferencing has also emerged as a new theory of harm before European courts and antitrust authorities. Should antitrust enforcers be allowed to pursue such a theory, they would gain significant leeway to bypass the legal standards and evidentiary burdens traditionally required to prove that a given business practice is anticompetitive. This should be of particular concern, given the broad range of practices and types of exclusionary behavior that could be characterized as self-preferencing—only some of which may, in some specific contexts, include exploitative or anticompetitive elements.

In a new working paper for the International Center for Law & Economics (ICLE), I provide an overview of the relevant traditional antitrust theories of harm, as well as the emerging case law, to analyze whether and to what extent self-preferencing should be considered a new standalone offense under EU competition law. The experience to date in European case law suggests that courts have been able to address platforms’ self-preferencing practices under existing theories of harm, and that it may not be sufficiently novel to constitute a standalone theory of harm.

European Case Law on Self-Preferencing

Practices by digital platforms that might be deemed self-preferencing first garnered significant attention from European competition enforcers with the European Commission’s Google Shopping investigation, which examined whether the search engine’s results pages positioned and displayed its own comparison-shopping service more favorably than the websites of rival comparison-shopping services. According to the Commission’s findings, Google’s conduct fell outside the scope of competition on the merits and could have the effect of extending Google’s dominant position in the national markets for general Internet search into adjacent national markets for comparison-shopping services, in addition to protecting Google’s dominance in its core search market.

Rather than explicitly posit that self-preferencing (a term the Commission did not use) constituted a new theory of harm, the Google Shopping ruling described the conduct as belonging to the well-known category of “leveraging.” The Commission therefore did not need to propagate a new legal test, as it held that the conduct fell under a well-established form of abuse. The case did, however, spur debate over whether the legal tests the Commission did apply effectively imposed on Google a principle of equal treatment of rival comparison-shopping services.

But it should be noted that conduct similar to that alleged in the Google Shopping investigation actually came before the High Court of England and Wales several months earlier, this time in a dispute between Google and Streetmap. At issue in that case was favorable search results Google granted to its own maps, rather than to competing online maps. The UK Court held, however, that the complaint should have been appropriately characterized as an allegation of discrimination; it further found that Google’s conduct did not constitute anticompetitive foreclosure. A similar result was reached in May 2020 by the Amsterdam Court of Appeal in the Funda case.  

Conversely, in June 2021, the French Competition Authority (AdlC) followed the European Commission into investigating Google’s practices in the digital-advertising sector. Like the Commission, the AdlC did not explicitly refer to self-preferencing, instead describing the conduct as “favoring.”

Given this background and the proliferation of approaches taken by courts and enforcers to address similar conduct, there was significant anticipation for the judgment that the European General Court would ultimately render in the appeal of the Google Shopping ruling. While the General Court upheld the Commission’s decision, it framed self-preferencing as a discriminatory abuse. Further, the Court outlined four criteria that differentiated Google’s self-preferencing from competition on the merits.

Specifically, the Court highlighted the “universal vocation” of Google’s search engine—that it is open to all users and designed to index results containing any possible content; the “superdominant” position that Google holds in the market for general Internet search; the high barriers to entry in the market for general search services; and what the Court deemed Google’s “abnormal” conduct—behaving in a way that defied expectations, given a search engine’s business model, and that changed after the company launched its comparison-shopping service.

While the precise contours of what the Court might consider discriminatory abuse aren’t yet clear, the decision’s listed criteria appear to be narrow in scope. This stands at odds with the much broader application of self-preferencing as a standalone abuse, both by the European Commission itself and by some national competition authorities (NCAs).

Indeed, just a few weeks after the General Court’s ruling, the Italian Competition Authority (AGCM) handed down a mammoth fine against Amazon over preferential treatment granted to third-party sellers who use the company’s own logistics and delivery services. Rather than reflecting the qualified set of criteria laid out by the General Court, the Italian decision was clearly inspired by the Commission’s approach in Google Shopping. Where the Commission described self-preferencing as a new form of leveraging abuse, AGCM characterized Amazon’s practices as tying.

Self-preferencing has also been raised as a potential abuse in the context of data and information practices. In November 2020, the European Commission sent Amazon a statement of objections detailing its preliminary view that the company had infringed antitrust rules by making systematic use of non-public business data, gathered from independent retailers who sell on Amazon’s marketplace, to advantage the company’s own retail business. (Amazon responded with a set of commitments currently under review by the Commission.)

Both the Commission and the U.K. Competition and Markets Authority have lodged similar allegations against Facebook over data gathered from advertisers and then used to compete with those advertisers in markets in which Facebook is active, such as classified ads. The Commission’s antitrust proceeding against Apple over its App Store rules likewise highlights concerns that the company may use its platform position to obtain valuable data about the activities and offers of its competitors, while competing developers may be denied access to important customer data.

These enforcement actions brought by NCAs and the Commission appear at odds with the more bounded criteria set out by the General Court in Google Shopping, and raise tremendous uncertainty regarding the scope and definition of the alleged new theory of harm.

Self-Preferencing, Platform Neutrality, and the Limits of Antitrust Law

The growing tendency to invoke self-preferencing as a standalone theory of antitrust harm could serve two significant goals for European competition enforcers. As mentioned earlier, it offers a convenient shortcut that could allow enforcers to skip the legal standards and evidentiary burdens traditionally required to prove anticompetitive behavior. Moreover, it can function, in practice, as a means to impose a neutrality regime on digital gatekeepers, with the aims of both ensuring a level playing field among competitors and neutralizing the potential conflicts of interests implicated by dual-mode intermediation.

The dual roles performed by some platforms continue to fuel the never-ending debate over vertical integration, as well as related concerns that, by giving preferential treatment to its own products and services, an integrated provider may leverage its dominance in one market to related markets. From this perspective, self-preferencing is an inevitable byproduct of the emergence of ecosystems.

However, as the Australian Competition and Consumer Commission has recognized, self-preferencing conduct is “often benign.” Furthermore, the total value generated by an ecosystem depends on the activities of independent complementors. Those activities are not completely under the platform’s control, although the platform is required to establish and maintain the governance structures regulating access to and interactions around that ecosystem.

Given this reality, a complete ban on self-preferencing may call the very existence of ecosystems into question, challenging their design and monetization strategies. Preferential treatment can take many different forms with many different potential effects, all stemming from platforms’ many different business models. This counsels for a differentiated, case-by-case, and effects-based approach to assessing the alleged competitive harms of self-preferencing.

Antitrust law does not impose on platforms a general duty to ensure neutrality by sharing their competitive advantages with rivals. Moreover, possessing a competitive advantage does not automatically equal an anticompetitive effect. As the European Court of Justice recently stated in Servizio Elettrico Nazionale, competition law is not intended to protect the competitive structure of the market, but rather to protect consumer welfare. Accordingly, not every exclusionary effect is detrimental to competition. Distinctions must be drawn between foreclosure and anticompetitive foreclosure, as only the latter may be penalized under antitrust.

[TOTM: The following is part of a digital symposium by TOTM 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.

[TOTM: The following is part of a digital symposium by TOTM 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.]

Things are heating up in the antitrust world. There is considerable pressure to pass the American Innovation and Choice Online Act (AICOA) before the congressional recess in August—a short legislative window before members of Congress shift their focus almost entirely to campaigning for the mid-term elections. While it would not be impossible to advance the bill after the August recess, it would be a steep uphill climb.

But whether it passes or not, some of the damage from AICOA may already be done. The bill has moved the antitrust dialogue that will harm innovation and consumers. In this post, I will first explain AICOA’s fundamental flaws. Next, I discuss the negative impact that the legislation is likely to have if passed, even if courts and agencies do not aggressively enforce its provisions. Finally, I show how AICOA has already provided an intellectual victory for the approach articulated in the European Union (EU)’s Digital Markets Act (DMA). It has built momentum for a dystopian regulatory framework to break up and break into U.S. superstar firms designated as “gatekeepers” at the expense of innovation and consumers.

The Unseen of AICOA

AICOA’s drafters argue that, once passed, it will deliver numerous economic benefits. Sen. Amy Klobuchar (D-Minn.)—the bill’s main sponsor—has stated that it will “ensure small businesses and entrepreneurs still have the opportunity to succeed in the digital marketplace. This bill will do just that while also providing consumers with the benefit of greater choice online.”

Section 3 of the bill would provide “business users” of the designated “covered platforms” with a wide range of entitlements. This includes preventing the covered platform from offering any services or products that a business user could provide (the so-called “self-preferencing” prohibition); allowing a business user access to the covered platform’s proprietary data; and an entitlement for business users to have “preferred placement” on a covered platform without having to use any of that platform’s services.

These entitlements would provide non-platform businesses what are effectively claims on the platform’s proprietary assets, notwithstanding the covered platform’s own investments to collect data, create services, and invent products—in short, the platform’s innovative efforts. As such, AICOA is redistributive legislation that creates the conditions for unfair competition in the name of “fair” and “open” competition. It treats the behavior of “covered platforms” differently than identical behavior by their competitors, without considering the deterrent effect such a framework will have on consumers and innovation. Thus, AICOA offers rent-seeking rivals a formidable avenue to reap considerable benefits at the expense of the innovators thanks to the weaponization of antitrust to subvert, not improve, competition.

In mandating that covered platforms make their data and proprietary assets freely available to “business users” and rivals, AICOA undermines the underpinning of free markets to pursue the misguided goal of “open markets.” The inevitable result will be the tragedy of the commons. Absent the covered platforms having the ability to benefit from their entrepreneurial endeavors, the law no longer encourages innovation. As Joseph Schumpeter seminally predicted: “perfect competition implies free entry into every industry … But perfectly free entry into a new field may make it impossible to enter it at all.”

To illustrate, if business users can freely access, say, a special status on the covered platforms’ ancillary services without having to use any of the covered platform’s services (as required under Section 3(a)(5)), then platforms are disincentivized from inventing zero-priced services, since they cannot cross-monetize these services with existing services. Similarly, if, under Section 3(a)(1) of the bill, business users can stop covered platforms from pre-installing or preferencing an app whenever they happen to offer a similar app, then covered platforms will be discouraged from investing in or creating new apps. Thus, the bill would generate a considerable deterrent effect for covered platforms to invest, invent, and innovate.

AICOA’s most detrimental consequences may not be immediately apparent; they could instead manifest in larger and broader downstream impacts that will be difficult to undo. As the 19th century French economist Frederic Bastiat wrote: “a law gives birth not only to an effect but to a series of effects. Of these effects, the first only is immediate; it manifests itself simultaneously with its cause—it is seen. The others unfold in succession—they are not seen it is well for, if they are foreseen … it follows that the bad economist pursues a small present good, which will be followed by a great evil to come, while the true economist pursues a great good to come,—at the risk of a small present evil.”

To paraphrase Bastiat, AICOA offers ill-intentioned rivals a “small present good”–i.e., unconditional access to the platforms’ proprietary assets–while society suffers the loss of a greater good–i.e., incentives to innovate and welfare gains to consumers. The logic is akin to those who advocate the abolition of intellectual-property rights: The immediate (and seen) gain is obvious, concerning the dissemination of innovation and a reduction of the price of innovation, while the subsequent (and unseen) evil remains opaque, as the destruction of the institutional premises for innovation will generate considerable long-term innovation costs.

Fundamentally, AICOA weakens the benefits of scale by pursuing vertical disintegration of the covered platforms to the benefit of short-term static competition. In the long term, however, the bill would dampen dynamic competition, ultimately harming consumer welfare and the capacity for innovation. The measure’s opportunity costs will prevent covered platforms’ innovations from benefiting other business users or consumers. They personify the “unseen,” as Bastiat put it: “[they are] always in the shadow, and who, personifying what is not seen, [are] an essential element of the problem. [They make] us understand how absurd it is to see a profit in destruction.”

The costs could well amount to hundreds of billions of dollars for the U.S. economy, even before accounting for the costs of deterred innovation. The unseen is costly, the seen is cheap.

A New Robinson-Patman Act?

Most antitrust laws are terse, vague, and old: The Sherman Act of 1890, the Federal Trade Commission Act, and the Clayton Act of 1914 deal largely in generalities, with considerable deference for courts to elaborate in a common-law tradition on the specificities of what “restraints of trade,” “monopolization,” or “unfair methods of competition” mean.

In 1936, Congress passed the Robinson-Patman Act, designed to protect competitors from the then-disruptive competition of large firms who—thanks to scale and practices such as price differentiation—upended traditional incumbents to the benefit of consumers. Passed after “Congress made no factual investigation of its own, and ignored evidence that conflicted with accepted rhetoric,” the law prohibits price differentials that would benefit buyers, and ultimately consumers, in the name of less vigorous competition from more efficient, more productive firms. Indeed, under the Robinson-Patman Act, manufacturers cannot give a bigger discount to a distributor who would pass these savings onto consumers, even if the distributor performs extra services relative to others.

Former President Gerald Ford declared in 1975 that the Robinson-Patman Act “is a leading example of [a law] which restrain[s] competition and den[ies] buyers’ substantial savings…It discourages both large and small firms from cutting prices, making it harder for them to expand into new markets and pass on to customers the cost-savings on large orders.” Despite this, calls to amend or repeal the Robinson-Patman Act—supported by, among others, competition scholars like Herbert Hovenkamp and Robert Bork—have failed.

In the 1983 Abbott decision, Justice Lewis Powell wrote: “The Robinson-Patman Act has been widely criticized, both for its effects and for the policies that it seeks to promote. Although Congress is aware of these criticisms, the Act has remained in effect for almost half a century.”

Nonetheless, the act’s enforcement dwindled, thanks to wise reactions from antitrust agencies and the courts. While it is seldom enforced today, the act continues to create considerable legal uncertainty, as it raises regulatory risks for companies who engage in behavior that may conflict with its provisions. Indeed, many of the same so-called “neo-Brandeisians” who support passage of AICOA also advocate reinvigorating Robinson-Patman. More specifically, the new FTC majority has expressed that it is eager to revitalize Robinson-Patman, even as the law protects less efficient competitors. In other words, the Robinson-Patman Act is a zombie law: dead, but still moving.

Even if the antitrust agencies and courts ultimately follow the same path of regulatory and judicial restraint on AICOA that they have on Robinson-Patman, the legal uncertainty its existence will engender will act as a powerful deterrent on disruptive competition that dynamically benefits consumers and innovation. In short, like the Robinson-Patman Act, antitrust agencies and courts will either enforce AICOA–thus, generating the law’s adverse effects on consumers and innovation–or they will refrain from enforcing AICOA–but then, the legal uncertainty shall lead to unseen, harmful effects on innovation and consumers.

For instance, the bill’s prohibition on “self-preferencing” in Section 3(a)(1) will prevent covered platforms from offering consumers new products and services that happen to compete with incumbents’ products and services. Self-preferencing often is a pro-competitive, pro-efficiency practice that companies widely adopt—a reality that AICOA seems to ignore.

Would AICOA prevent, e.g., Apple from offering a bundled subscription to Apple One, which includes Apple Music, so that the company can effectively compete with incumbents like Spotify? As with Robinson-Patman, antitrust agencies and courts will have to choose whether to enforce a productivity-decreasing law, or to ignore congressional intent but, in the process, generate significant legal uncertainties.

Judge Bork once wrote that Robinson-Patman was “antitrust’s least glorious hour” because, rather than improving competition and innovation, it reduced competition from firms who happen to be more productive, innovative, and efficient than their rivals. The law infamously protected inefficient competitors rather than competition. But from the perspective of legislative history perspective, AICOA may be antitrust’s new “least glorious hour.” If adopted, it will adversely affect innovation and consumers, as opportunistic rivals will be able to prevent cost-saving practices by the covered platforms.

As with Robinson-Patman, calls to amend or repeal AICOA may follow its passage. But Robinson-Patman Act illustrates the path dependency of bad antitrust laws. However costly and damaging, AICOA would likely stay in place, with regular calls for either stronger or weaker enforcement, depending on whether the momentum shifts from populist antitrust or antitrust more consistent with dynamic competition.

Victory of the Brussels Effect

The future of AICOA does not bode well for markets, either from a historical perspective or from a comparative-law perspective. The EU’s DMA similarly targets a few large tech platforms but it is broader, harsher, and swifter. In the competition between these two examples of self-inflicted techlash, AICOA will pale in comparison with the DMA. Covered platforms will be forced to align with the DMA’s obligations and prohibitions.

Consequently, AICOA is a victory of the DMA and of the Brussels effect in general. AICOA effectively crowns the DMA as the all-encompassing regulatory assault on digital gatekeepers. While members of Congress have introduced numerous antitrust bills aimed at targeting gatekeepers, the DMA is the one-stop-shop regulation that encompasses multiple antitrust bills and imposes broader prohibitions and stronger obligations on gatekeepers. In other words, the DMA outcompetes AICOA.

Commentators seldom lament the extraterritorial impact of European regulations. Regarding regulating digital gatekeepers, U.S. officials should have pushed back against the innovation-stifling, welfare-decreasing effects of the DMA on U.S. tech companies, in particular, and on U.S. technological innovation, in general. To be fair, a few U.S. officials, such as Commerce Secretary Gina Raimundo, did voice opposition to the DMA. Indeed, well-aware of the DMA’s protectionist intent and its potential to break up and break into tech platforms, Raimundo expressed concerns that antitrust should not be about protecting competitors and deterring innovation but rather about protecting the process of competition, however disruptive may be.

The influential neo-Brandeisians and radical antitrust reformers, however, lashed out at Raimundo and effectively shamed the Biden administration into embracing the DMA (and its sister regulation, AICOA). Brussels did not have to exert its regulatory overreach; the U.S. administration happily imports and emulates European overregulation. There is no better way for European officials to see their dreams come true: a techlash against U.S. digital platforms that enjoys the support of local officials.

In that regard, AICOA has already played a significant role in shaping the intellectual mood in Washington and in altering the course of U.S. antitrust. Members of Congress designed AICOA along the lines pioneered by the DMA. Sen. Klobuchar has argued that America should emulate European competition policy regarding tech platforms. Lina Khan, now chair of the FTC, co-authored the U.S. House Antitrust Subcommittee report, which recommended adopting the European concept of “abuse of dominant position” in U.S. antitrust. In her current position, Khan now praises the DMA. Tim Wu, competition counsel for the White House, has praised European competition policy and officials. Indeed, the neo-Brandeisians’ have not only praised the European Commission’s fines against U.S. tech platforms (despite early criticisms from former President Barack Obama) but have more dramatically called for the United States to imitate the European regulatory framework.

In this regulatory race to inefficiency, the standard is set in Brussels with the blessings of U.S. officials. Not even the precedent set by the EU’s General Data Protection Regulation (GDPR) fully captures the effects the DMA will have. Privacy laws passed by U.S. states’ privacy have mostly reacted to the reality of the GDPR. With AICOA, Congress is proactively anticipating, emulating, and welcoming the DMA before it has even been adopted. The intellectual and policy shift is historical, and so is the policy error.

AICOA and the Boulevard of Broken Dreams

AICOA is a failure similar to the Robinson-Patman Act and a victory for the Brussels effect and the DMA. Consumers will be the collateral damages, and the unseen effects on innovation will take years before they materialize. Calls for amendments and repeals of AICOA are likely to fail, so that the inevitable costs will forever bear upon consumers and innovation dynamics.

AICOA illustrates the neo-Brandeisian opposition to large innovative companies. Joseph Schumpeter warned against such hostility and its effect on disincentivizing entrepreneurs to innovate when he wrote:

Faced by the increasing hostility of the environment and by the legislative, administrative, and judicial practice born of that hostility, entrepreneurs and capitalists—in fact the whole stratum that accepts the bourgeois scheme of life—will eventually cease to function. Their standard aims are rapidly becoming unattainable, their efforts futile.

President William Howard Taft once said, “the world is not going to be saved by legislation.” AICOA will not save antitrust, nor will consumers. To paraphrase Schumpeter, the bill’s drafters “walked into our future as we walked into the war, blindfolded.” AICOA’s intentions to deliver greater competition, a fairer marketplace, greater consumer choice, and more consumer benefits will ultimately scatter across the boulevard of broken dreams.

The Baron de Montesquieu once wrote that legislators should only change laws with a “trembling hand”:

It is sometimes necessary to change certain laws. But the case is rare, and when it happens, they should be touched only with a trembling hand: such solemnities should be observed, and such precautions are taken that the people will naturally conclude that the laws are indeed sacred since it takes so many formalities to abrogate them.

AICOA’s drafters had a clumsy hand, coupled with what Friedrich Hayek would call “a pretense of knowledge.” They were certain to do social good and incapable of thinking of doing social harm. The future will remember AICOA as the new antitrust’s least glorious hour, where consumers and innovation were sacrificed on the altar of a revitalized populist view of antitrust.

[TOTM: The following is part of a digital symposium by TOTM 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.]

Brrring! “Gee, this iPhone alarm is the worst—I should really change that sometime. Let’s see what’s in my calendar for today…”

In accordance with new regulatory requirements, Apple is providing you with a choice of app stores. Please select an option from the menu below. Going forward, iOS applications will download via the selected store by default. To read additional information about an app store, tap “learn more”; to confirm your selection, tap “install.” Beware: outside of the App Store, Apple is not responsible for the privacy and security of applications and transactions.

“Wait, didn’t I have to make this choice last year already—or did that concern browsers? What do ‘new regulatory requirements’ even mean? And how is there no ‘remind me later’ button like there is for iOS updates? They really shouldn’t push this upon people before their morning coffee. Guess I’ll just stick with the devil I know and select the App Store like last time?

“Then again, if I’m to believe those targeted ads, that’s costing me serious money. And didn’t Steve say he saves like $3 on his Tinder subscription every month with whatever store he’s using? That could add up, especially if it also applies for Spotify and Netflix. But I don’t want some dodgy app from some obscure store to brick my phone either. Well, I suppose it can’t hurt to look at the options.”

Appdroid – A wide choice of apps without Apple’s puritan content restrictions. Install now and discover *everything* the developer community has to offer.

“Why am I getting the feeling that this store’s focus might be … NSFW?”

Amazon AppStore – Your trusted partner in distribution. Lower fees guaranteed and Prime members get an additional 5% discount on every in-app purchase. Install now and receive a $25 welcome credit.

“Well, at least I know those guys. But they already handle my e-commerce, video streaming, game streaming, and have even started delivering my prescription medicine… I’m not sure I also want them taking over my phone—these ads are targeted enough as they are.”

Epic Store – The premium app-store experience without the premium price point. On average, users of the Epic Store save $20/year on app purchases. And all apps are subject to human review—just like in the App Store.

“Epic, that sounds familiar… Oh right, that’s the maker of Fortnite, isn’t it? Gosh, it’s been a while since I played that game. If they can create a virtual world like that, I guess they can run an app store.

“But do these alternatives even have all the apps I want? If not, where do I get them? And don’t tell me ‘the web’ because the last time I downloaded an app from a random website was… not great. I don’t want to have to make another trip to the Genius Bar. Although I suppose I have learned my lesson now: trust those pop-ups with security warnings and only download apps with a ‘notarized by Apple’ badge.

“And I guess there’s the opposite problem too: it’s not like the App Store has everything. Despite all sorts of announcements, I still can’t find xCloud in the App Store. Accessing that cloud-gaming service via the web has been a pain, although it’s gotten a bit better since I ditched Safari in that browser choice screen. Does selecting another app store mean I can finally download a cloud-gaming app?”

App Store – The most popular app store, designed especially for iOS. After more than a decade, the App Store continues to lead the industry in terms of privacy, security and user-friendliness—and now boasts an attractive new fee structure.

“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.

“Oh wait, what’s that? There is actually a ‘remind me later’ button—its clever shading escaping my bleary eyes… Guess I’ll offload this app-store selection on future me!”

[TOTM: The following is part of a digital symposium by TOTM 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.]

In Free to Choose, Milton Friedman famously noted that there are four ways to spend money[1]:

  1. Spending your own money on yourself. For example, buying groceries or lunch. There is a strong incentive to economize and to get full value.
  2. Spending your own money on someone else. For example, buying a gift for another. There is a strong incentive to economize, but perhaps less to achieve full value from the other person’s point of view. Altruism is admirable, but it differs from value maximization, since—strictly speaking—giving cash would maximize the other’s value. Perhaps the point of a gift is that it does not amount to cash and the maximization of the other person’s welfare from their point of view.
  3. Spending someone else’s money on yourself. For example, an expensed business lunch. “Pass me the filet mignon and Chateau Lafite! Do you have one of those menus without any prices?” There is a strong incentive to get maximum utility, but there is little incentive to economize.
  4. Spending someone else’s money on someone else. For example, applying the proceeds of taxes or donations. There may be an indirect desire to see utility, but incentives for quality and cost management are often diminished.

This framework can be criticized. Altruism has a role. Not all motives are selfish. There is an important role for action to help those less fortunate, which might mean, for instance, that a charity gains more utility from category (4) (assisting the needy) than from category (3) (the charity’s holiday party). It always depends on the facts and the context. However, there is certainly a grain of truth in the observation that charity begins at home and that, in the final analysis, people are best at managing their own affairs.

How would this insight apply to data interoperability? The difficult cases of assisting the needy do not arise here: there is no serious sense in which data interoperability does, or does not, result in destitution. Thus, Friedman’s observations seem to ring true: when spending data, those whose data it is seem most likely to maximize its value. This is especially so where collection of data responds to incentives—that is, the amount of data collected and processed responds to how much control over the data is possible.

The obvious exception to this would be a case of market power. If there is a monopoly with persistent barriers to entry, then the incentive may not be to maximize total utility, and therefore to limit data handling to the extent that a higher price can be charged for the lesser amount of data that does remain available. This has arguably been seen with some data-handling rules: the “Jedi Blue” agreement on advertising bidding, Apple’s Intelligent Tracking Prevention and App Tracking Transparency, and Google’s proposed Privacy Sandbox, all restrict the ability of others to handle data. Indeed, they may fail Friedman’s framework, since they amount to the platform deciding how to spend others’ data—in this case, by not allowing them to collect and process it at all.

It should be emphasized, though, that this is a special case. It depends on market power, and existing antitrust and competition laws speak to it. The courts will decide whether cases like Daily Mail v Google and Texas et al. v Google show illegal monopolization of data flows, so as to fall within this special case of market power. Outside the United States, cases like the U.K. Competition and Markets Authority’s Google Privacy Sandbox commitments and the European Union’s proposed commitments with Amazon seek to allow others to continue to handle their data and to prevent exclusivity from arising from platform dynamics, which could happen if a large platform prevents others from deciding how to account for data they are collecting. It will be recalled that even Robert Bork thought that there was risk of market power harms from the large Microsoft Windows platform a generation ago.[2] Where market power risks are proven, there is a strong case that data exclusivity raises concerns because of an artificial barrier to entry. It would only be if the benefits of centralized data control were to outweigh the deadweight loss from data restrictions that this would be untrue (though query how well the legal processes verify this).

Yet the latest proposals go well beyond this. A broad interoperability right amounts to “open season” for spending others’ data. This makes perfect sense in the European Union, where there is no large domestic technology platform, meaning that the data is essentially owned via foreign entities (mostly, the shareholders of successful U.S. and Chinese companies). It must be very tempting to run an industrial policy on the basis that “we’ll never be Google” and thus to embrace “sharing is caring” as to others’ data.

But this would transgress the warning from Friedman: would people optimize data collection if it is open to mandatory sharing even without proof of market power? It is deeply concerning that the EU’s DATA Act is accompanied by an infographic that suggests that coffee-machine data might be subject to mandatory sharing, to allow competition in services related to the data (e.g., sales of pods; spare-parts automation). There being no monopoly in coffee machines, this simply forces vertical disintegration of data collection and handling. Why put a data-collection system into a coffee maker at all, if it is to be a common resource? Friedman’s category (4) would apply: the data is taken and spent by another. There is no guarantee that there would be sensible decision making surrounding the resource.

It will be interesting to see how common-law jurisdictions approach this issue. At the risk of stating the obvious, the polity in continental Europe differs from that in the English-speaking democracies when it comes to whether the collective, or the individual, should be in the driving seat. A close read of the UK CMA’s Google commitments is interesting, in that paragraph 30 requires no self-preferencing in data collection and requires future data-handling systems to be designed with impacts on competition in mind. No doubt the CMA is seeking to prevent data-handling exclusivity on the basis that this prevents companies from using their data collection to compete. This is far from the EU DATA Act’s position in that it is certainly not a right to handle Google’s data: it is simply a right to continue to process one’s own data.

U.S. proposals are at an earlier stage. It would seem important, as a matter of principle, not to make arbitrary decisions about vertical integration in data systems, and to identify specific market-power concerns instead, in line with common-law approaches to antitrust.

It might be very attractive to the EU to spend others’ data on their behalf, but that does not make it right. Those working on the U.S. proposals would do well to ensure that there is a meaningful market-power gate to avoid unintended consequences.

Disclaimer: The author was engaged for expert advice relating to the UK CMA’s Privacy Sandbox case on behalf of the complainant Marketers for an Open Web.


[1] Milton Friedman, Free to Choose, 1980, pp.115-119

[2] Comments at the Yale Law School conference, Robert H. Bork’s influence on Antitrust Law, Sep. 27-28, 2013.

[TOTM: The following is part of a digital symposium by TOTM 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.]

Early Morning

I wake up grudgingly to the loud ring of my phone’s preset alarm sound (I swear I gave third-party alarms a fair shot). I slide my feet into the bedroom slippers and mechanically chaperone my body to the coffee machine in the living room.

“Great,” I think to myself, “Out of capsules, again.” Still in my bathrobe, I make a grumpy face and post an interoperable story on social media. “Don’t even talk to me before I’ve had my morning coffee! #HateMondays.”

I flick my thumb and get a warm, fuzzy feeling of satisfaction as I consent to a series of privacy-related pop-ups on the official incumbent’s online marketplace website (I place immense importance on my privacy) before getting ready to sit through the usual fairness presentations.

I reach for a chair, grab a notepad and crack my neck sideways as I try to focus my (still) groggy brain on the kaleidoscope of thumbnails before me. “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 (ever since the self-preferencing ban, all available products within a search category are displayed simultaneously on the screen to avoid any explicit or tacit bias that could be interpreted as giving the online marketplace incumbent’s own products an unfair advantage over competitors).

After 13 brands and at least as many flavors, I select the platforms own brand, “Basic” (it matches my coffee machine and I’ve found through trial and error that they’re the least prone to malfunctioning), and then answer a series of questions to make sure I have actually given competitors’ products fair consideration. Platforms—including the online marketplace incumbent—use sneaky and illegal ways to leverage the attention market and give a leg up to their own products, such as offering lower prices or better delivery conditions. But with enough practice you learn to see through it. Not on my watch!

Exhausted but pleased with myself, I put the notepad down and my feet up on the coffee table. Victory.

Noon

I curse as I stub my toe on the office chair. Still with a pen in my right hand, ink dripping, I whip out my phone and pick Whatsapp to answer (I’ve never felt the need to use any of the other, newer apps—since everything is interoperable now). “No, of course I didn’t forget to do the groceries,” I tell my girlfriend with a tinge of deliberate frustration. But, of course, she knows that I know that she knows that I did.

I grab my notepad and almost fall over as I try to slide into my jeans and produce a grocery itinerary (like a grocery list, but longer) at the same time. “Trader Pete’s for fruits and vegetables, Gracey’s for canned goods, HTS for HTS frozen pizza,” I scribble, nerves tense.

(Not every company has gone the way of the online marketplace incumbent and some have decided they would be better off if they just sold their own products. After all, you can’t be fined for self-preferencing if you’re only selling your own stuff. Of course, the strategy is only viable in those industries in which vertical integration hasn’t been banned).

I finish getting dressed and dash down the stairs. I instinctively glance at my phone before getting in the car and immediately regret it, as I dismiss a bunch of notifications about malware infections. “Another app store that I’m striking from the list,” I think to myself as I turn on the ignition.

Late Afternoon

My girlfriend has already ordered a soda as I sit down at the table. “Sorry I’m late,” I mumble. We talk about her day and I tell her about the capsules I ordered (she nods approvingly) before we finally decide to order. I wave to the waiter and ask about the specials. A lanky young man no older than 19 fumbles through his (empty) pad and lists a couple of dishes.

He blurts out “homemade” and immediately turns pale. I look at my girlfriend nervously, and she stares back blankly—dazed. “Do you mean to say that it was made here, in this restaurant?” I ask in disbelief, dizzy. He comes up with some sorry excuse but I’m having none of it. I make my way to the toilet—sickened—and pull out my phone with a shaky hand. I have the Federal Trade Commission on speed-dial. I call and select number one: self-preferencing. They immediately put me through with someone. Sweating, I explain that the Italian restaurant on the corner between the 5th and Madison avenues just recommended me a special dish made by them—and barely even mentioned any of the specialties offered by the kebab joint next door. I assure the voice at the other end of the line that I had nothing to do it, and that I have not ordered—let alone tasted—the dish.

I rush out of the bathroom with blinders on and pull my girlfriend by the elbow. Her coat is on and she’s clearly impatient to get the hell out of there. As I reach for my jacket by the exit, an older man with a moustache approaches us with a bowed head and literally begs us to take a bottle of wine (no doubt a bribe for my silence). He assures us that the wine is not “della casa” (made by the restaurant), and that it’s, in fact, a French wine made by a competitor. I’m not having any of it: I bid him good day and slam the door behind us.

[TOTM: The following is part of a digital symposium by TOTM 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.]

May 2007, Palo Alto

The California sun shone warmly on Eric Schmidt’s face as he stepped out of his car and made his way to have dinner at Madera, a chic Palo Alto restaurant.

Dining out was a welcome distraction from the endless succession of strategy meetings with the nitpickers of the law department, which had been Schmidt’s bread and butter for the last few months. The lawyers seemed to take issue with any new project that Google’s engineers came up with. “How would rivals compete with our maps?”; “Our placement should be no less favorable than rivals’’; etc. The objections were endless. 

This is not how things were supposed to be. When Schmidt became Google’s chief executive officer in 2001, his mission was to take the company public and grow the firm into markets other than search. But then something unexpected happened. After campaigning on an anti-monopoly platform, a freshman senator from Minnesota managed to get her anti-discrimination bill through Congress in just her first few months in office. All companies with a market cap of more than $150 billion were now prohibited from favoring their own products. Google had recently crossed that Rubicon, putting a stop to years of carefree expansion into new markets.

But today was different. The waiter led Schmidt to his table overlooking Silicon Valley. His acquaintance was already seated. 

With his tall and slender figure, Andy Rubin had garnered quite a reputation among Silicon Valley’s elite. After engineering stints at Apple and Motorola, developing various handheld devices, Rubin had set up his own shop. The idea was bold: develop the first open mobile platform—based on Linux, nonetheless. Rubin had pitched the project to Google in 2005 but given the regulatory uncertainty over the future of antitrust—the same wave of populist sentiment that would carry Klobuchar to office one year later—Schmidt and his team had passed.

“There’s no money in open source,” the company’s CFO ruled. Schmidt had initially objected, but with more pressing matters to deal with, he ultimately followed his CFO’s advice.

Schmidt and Rubin were exchanging pleasantries about Microsoft and Java when the meals arrived–sublime Wagyu short ribs and charred spring onions paired with a 1986 Chateau Margaux.

Rubin finally cut to the chase. “Our mobile operating system will rely on state-of-the-art touchscreen technology. Just like the device being developed by Apple. Buying Android today might be your only way to avoid paying monopoly prices to access Apple’s mobile users tomorrow.”

Schmidt knew this all too well: The future was mobile, and few companies were taking Apple’s upcoming iPhone seriously enough. Even better, as a firm, Android was treading water. Like many other startups, it had excellent software but no business model. And with the Klobuchar bill putting the brakes on startup investment—monetizing an ecosystem had become a delicate legal proposition, deterring established firms from acquiring startups–Schmidt was in the middle of a buyer’s market. “Android we could make us a force to reckon with” Schmidt thought to himself.

But he quickly shook that thought, remembering the words of his CFO: “There is no money in open source.” In an ideal world, Google would have used Android to promote its search engine—placing a search bar on Android users to draw users to its search engine—or maybe it could have tied a proprietary app store to the operating system, thus earning money from in-app purchases. But with the Klobuchar bill, these were no longer options. Not without endless haggling with Google’s planning committee of lawyers.

And they would have a point, of course. Google risked heavy fines and court-issued injunctions that would stop the project in its tracks. Such risks were not to be taken lightly. Schmidt needed a plan to make the Android platform profitable while accommodating Google’s rivals, but he had none.

The desserts were served, Schmidt steered the conversation to other topics, and the sun slowly set over Sand Hill Road.

Present Day, Cupertino

Apple continues to dominate the smartphone industry with little signs of significant competition on the horizon. While there are continuing rumors that Google, Facebook, or even TikTok might enter the market, these have so far failed to transpire.

Google’s failed partnership with Samsung, back in 2012, still looms large over the industry. After lengthy talks to create an open mobile platform failed to materialize, Google ultimately entered into an agreement with the longstanding mobile manufacturer. Unfortunately, the deal was mired by antitrust issues and clashing visions—Samsung was believed to favor a closed ecosystem, rather than the open platform envisioned by Google.

The sense that Apple is running away with the market is only reinforced by recent developments. Last week, Tim Cook unveiled the company’s new iPhone 11—the first ever mobile device to come with three cameras. With an eye-watering price tag of $1,199 for the top-of-the-line Pro model, it certainly is not cheap. In his presentation, Cook assured consumers Apple had solved the security issues that have been an important bugbear for the iPhone and its ecosystem of competing app stores.

Analysts expect the new range of devices will help Apple cement the iPhone’s 50% market share. This is especially likely given the important challenges that Apple’s main rivals continue to face.

The Windows Phone’s reputation for buggy software continues to undermine its competitive position, despite its comparatively low price point. Andy Rubin, the head of the Windows Phone, was reassuring in a press interview, but there is little tangible evidence he will manage to successfully rescue the flailing ship. Meanwhile, Huawei has come under increased scrutiny for the threats it may pose to U.S. national security. The Chinese manufacturer may face a U.S. sales ban, unless the company’s smartphone branch is sold to a U.S. buyer. Oracle is said to be a likely candidate.

The sorry state of mobile competition has become an increasingly prominent policy issue. President Klobuchar took to Twitter and called on mobile-device companies to refrain from acting as monopolists, intimating elsewhere that failure to do so might warrant tougher regulation than her anti-discrimination bill:

[TOTM: The following is part of a digital symposium by TOTM 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.]

About earth’s creatures great and small,
Devices clever as can be,
I see foremost a ruthless power;
You, their ingenuity.

You see the beak upon the finch;
I, the beaked skeleton.
You see the wonders that they are;
I, the things that might have been.

You see th’included batteries
I, the poor excluded ones.
You, the phone that simply works;
I, restrain’d competition.

’Twould be a better world, I say,
Were all the options to abide—
All beaks and brands of battery—
From which the public to decide.

You say that man the greatest is
Because he dominates today,
But meteor, not caveman, drove
The ancient dinosaurs away.

If they were here when we were new,
We might the age not have survived;
They say some species could outwit
The sharpest chimps today alive.

Just so, I say, ’twould better be
Replacement batteries t’allow
For sales alone can prove what brands
Deserve el’vation to the Dow.

Designing batt’ries switchable
Makes their selection fully public;
It substitutes democracy
For an engineering logic.

For only buyers should decide
Which components to inter;
Their taste alone determines worth,
Though engineers be cleverer.

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

Of cogs, thus, an infinitude;
Of time a finitude to lose.
You cannot interchange all parts,
Or each one carefully to choose.

Product choices corporate
We cannot all democratize,
At least so long as consumers
Wish to get on with their lives.

Exclusion therefore cannot we
Universally condemn;
Oft must we let the firm decide
Which components to put in.

Power, then, is everywhere—
What is is built on what is not—
And th’elimination of it
Is no cornerstone of thought.

Of components infinite
We must choose which few to free;
Th’criterion for doing that,
Abuse-of-power cannot be.

Power and oppression are,
In life and goods ubiquitous.
But value differentiates—
Build we antitrust on this.

Alone when letting buyers say
Which part into a product goes
Would make those buyers happier,
Must we interchange impose.

Batt’ry brand must matter much,
Else, we seriously delude,
To think consumers want to hear:
“We the batt’ries not include.”

The same is true for Amazon.
If it knows which seller’s best,
Let it cast the others out for us—
Give our scrolling bars a rest.

If Apple knows which app’s a dud,
Let Apple cast it out as well.
Which app’s a fraud and which a scam,
Smartphone users cannot tell.

If Google wants to show me how
To get from A to B to C,
I’d rather that she use her maps
Than search for others separately.

A rule against self-preferencing
No legal principle provides;
For what opposes power’s role
Can’t be neutrally applied.

What goes for all third-party sales
Goes for Amazon’s front-end.
Self-preferencing alone prevents
My designing a new skin.

We cannot hire its warehouse staff;
We cannot choose its motor fleet;
We cannot source its cargo planes;
Or its trucks route through our streets.

But this is all self-preferencing;
And it cannot all be banned;
Unless we choice’s value weigh,
We strike with arbitrary hand.

So say you and differ I:
’Twixt dinosaur and man must choose.
If one alone fits on this earth—
Wilt for man our power use?

These verses are based in part on arguments summarized in this blog post and this paper.

[TOTM: The following is part of a digital symposium by TOTM 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.]

When I was a kid, I trailed behind my mother in the grocery store with a notepad and a pencil adding up the cost of each item she added to our cart. This was partly my mother’s attempt to keep my math skills sharp, but it was also a necessity. As a low-income family, there was no slack in the budget for superfluous spending. The Hostess cupcakes I longed for were a luxury item that only appeared in our cart if there was an unexpected windfall. If the antitrust populists who castigate all forms of market power succeed in their crusade to radically deconcentrate the economy, life will be much harder for low-income families like the one I grew up in.

Antitrust populists like Biden White House official Tim Wu and author Matt Stoller decry the political influence of large firms. But instead of advocating for policies that tackle this political influence directly, they seek reforms to antitrust enforcement that aim to limit the economic advantages of these firms, believing that will translate into political enfeeblement. The economic advantages arising from scale benefit consumers, particularly low-income consumers, often at the expense of smaller economic rivals. But because the protection of small businesses is so paramount to their worldview, antitrust populists blithely ignore the harm that advancing their objectives would cause to low-income families.

This desire to protect small businesses, without acknowledging the economic consequences for low-income families, is plainly obvious in calls for reinvigorated Robinson-Patman Act enforcement (a law from the 1930s for which independent businesses advocated to limit the rise of chain stores) and in plans to revise the antitrust enforcement agencies’ merger guidelines. The U.S. Justice Department (DOJ) and the Federal Trade Commission (FTC) recently held a series of listening sessions to demonstrate the need for new guidelines. During the listening session on food and agriculture, independent grocer Anthony Pena described the difficulty he has competing with larger competitors like Walmart. He stated that:

Just months ago, I was buying a 59-ounce orange juice just north of $4 a unit, where we couldn’t get the supplier to sell it to us … Meanwhile, I go to the bigger box like a Walmart or a club store. Not only do they have it fully stocked, but they have it about half the price that I would buy it for at cost.

Half the price. Anthony Pena is complaining that competitors such as Walmart are selling the same product at half the price. To protect independent grocers like Anthony Pena, antitrust populists would have consumers, including low-income families, pay twice as much for groceries.

Walmart is an important food retailer for low-income families. Nearly a fifth of all spending through the Supplemental Nutrition Assistance Program (SNAP), the program formerly known as food stamps, takes place at Walmart. After housing and transportation, food is the largest expense for low-income families. The share of expenditures going toward food for low-income families (i.e., families in the lowest 20% of the income distribution) is 34% higher than for high-income families (i.e., families in the highest 20% of the income distribution). This means that higher grocery prices disproportionately burden low-income families.

In 2019, the U.S. Department of Agriculture (USDA) launched the SNAP Online Purchasing Pilot, which allows SNAP recipients to use their benefits at online food retailers. The pandemic led to an explosion in the number of SNAP recipients using their benefits online—increasing from just 35,000 households in March 2020 to nearly 770,000 households just three months later. While the pilot originally only included Walmart and Amazon, the number of eligible retailers has expanded rapidly. In order to make grocery delivery more accessible to low-income families, an important service during the pandemic, Amazon reduced its Prime membership fee (which helps pay for free delivery) by 50% for SNAP recipients.

The antitrust populists are not only targeting the advantages of large brick-and-mortar retailers, such as Walmart, but also of large online retailers like Amazon. Again, these advantages largely flow to consumers—particularly low-income ones.

The proposed American Innovation and Choice Online Act (AICOA), which was voted out of the Senate Judiciary Committee in February and may make an appearance on the Senate floor this summer, threatens those consumer benefits. AICOA would prohibit so-called “self-preferencing” by Amazon and other large technology platforms.

Should a ban on self-preferencing come to fruition, Amazon would not be able to prominently show its own products in any capacity—even when its products are a good match for a consumer’s search. In search results, Amazon will not be able to promote its private-label products, including Amazon Basics and 365 by Whole Foods, or products for which it is a first-party seller (i.e., a reseller of another company’s product). Amazon may also have to downgrade the ranking of popular products it sells, making them harder for consumers to find. Forcing Amazon to present offers that do not correspond to products consumers want to buy or are not a good value inflicts harm on all consumers but is particularly problematic for low-income consumers. All else equal, most consumers, especially low-income ones, obviously prefer cheaper products. It is important not to take that choice away from them.

Consider the case of orange juice, the product causing so much consternation for Mr. Pena. In a recent search on Amazon for a 59-ounce orange juice, as seen in the image below, the first four “organic” search results are SNAP-eligible, first-party, or private-label products sold by Amazon and ranging in price from $3.55 to $3.79. The next two results are from third-party sellers offering two 59-ounce bottles of orange juice at $38.99 and $84.54—more than five times the unit price offered by Amazon. By prohibiting self-preferencing, Amazon would be forced to promote products to consumers that are significantly more expensive and that are not SNAP-eligible. This increases costs directly for consumers who purchase more expensive products when cheaper alternatives are available but not presented. But it also increases costs indirectly by forcing consumers to search longer for better prices and SNAP-eligible products or by discouraging them from considering timesaving, online shopping altogether. Low-income families are least able to afford these increased costs.

The upshot is that antitrust populists are choosing to support (often well-off) small-business owners at the expense of vulnerable working people. Congress should not allow them to put the squeeze on low-income families. These families are already suffering due to record-high inflation—particularly for items that constitute the largest share of their expenditures, such as transportation and food. Proposed antitrust reforms such as AICOA and reinvigorated Robinson-Patman Act enforcement will only make it harder for low-income families to make ends meet.

[TOTM: The following is part of a digital symposium by TOTM 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.]

26 July, 10 A.F. (after fairness)

Dear Fellow Inquisitors,

It has been more than a decade now since the Federal Neutrality Commission, born of the ashes of the old world, ushered in the Age of Fairness. 

As you all know, the FNC was created during the Online Era, when the emergence of the largest companies in human history opened our eyes to the original sin of the competitive process: unfairness.

In the course of their evolution, digital platforms—the vanity fairs of the XXI century—had created entire ecosystems that offered integrated services that were so comfortable to use together that they led to a double-sin: sloth on the part of the consumers, and the unfair exclusion of competitors, who were barred from exercising their God-given right to participate in every market and every platform—and to prosper.

Digital stores selling their own branded goods, social-media apps with their own messaging services, search engines using search statistics to generate optimally efficient tools that surpassed the (legitimate) confines of their core functions and spilled over into the dominion of job search, flight booking, or housing apps … App stores were even using their own recognizable software to guarantee that the apps they distributed met the highest standards of security and trustworthiness!

While these things might not seem entirely unreasonable (especially to the heathens: selfish and individualistic consumers who care about nothing other than satisfying their base hedonistic desires), they in fact led to unspeakable evils that flouted the common good.

For example, they made it very, very uncomfortable for someone who wanted to start their own real-estate business to compete with such strong rival companies, who could leverage their superior efficiency in their core markets to become nigh-unbeatable in offering the cheapest, most relevant housing ads. To make matters worse, the gargantuan spending of the digital platforms on research and development built additional moats of quality and innovation around their products—both core and adjacent—that made them utterly unimpregnable to rivals specializing in just one area.

By constantly leveraging their core services to offer better and improved products on adjacent markets, digital platforms had made it unfairly difficult for other companies to join the race and deliver us to “perfect competition”—the euphoric state of blissful equilibrium foretold by the high priests of the only true belief system, Economics.

But not all was lost, and we hadn’t been forsaken. In those dark and faithless days, it was revealed to us by Sen. Amy Klobuchar—praise be her name—that the loathsome practice whereby online companies favored their own products and services over their rivals had a name, “self-preferencing,” and that it was a sin. And, most importantly, that it could be eradicated.

Fortunately, and thanks to the vigilance of the FNC, legal steps were swiftly taken to make the praxis of the Digital Economy more closely resemble its theory, as passed on to us by our forefathers.

And it worked, brothers and sisters! The prohibition of self-preferencing in digital markets made online products much more homogenous, thus validating one of the main assumptions of Economics. In addition, new competition-law Acts, with mechanisms such as forced data sharing, have eliminated all the messy experimentation that had hitherto led to varied (and risky) business models and diversified approaches. By turning competition into forced collaboration, we had finally made it stable, equal, and predictable; in one word: fair.

And what of the sinner in every one of us? Before the great revelation, blasphemous “consumers”—an anachronistic and reductive term for “socially responsible citizens”—were committing the sin of laziness: sloth. Now, choice is finally mandated, and nothing can be pre-selected or even integrated. No more arbitrary safe-browsing mechanisms, integrated malware detectors and spam filters. Where digital platforms experimented and imposed results on us, we are now coercively free to experiment by ourselves—and on ourselves! Online searches today lead to thousands of indistinguishable links hiding an infinity of surprises, requiring us to be more circumspect and informed than ever before. In one word: the prohibition of self-preferencing has improved the moral character of the human stock.

It is universally known that we owe the dawn of the Age of Fairness to the American Innovation and Choice Online Act, adopted by Congress in the year 2022; and the unwavering vigilance of the FNC. What is lesser known—and what I am here to instill in you today—is that that was just the beginning. 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!

Just as the ancient chariot constructors designed chariots to suit the build of their own thoroughbred horses (thereby foreclosing horses raised by other breeders), the XX century car producers were using spare parts delivered by a supplier organizationally related to their company.

This realization has accelerated the birth pangs of the American Innovation and Choice Offline Act, which we are here to announce today. With it, the FNC will eliminate all remnants of unfair rivalry—online and offline—so that we, as one community of faith, can finally enjoy the true benefits of competition. But we must never forget that this tenuous equilibrium hangs by a thread, and that we owe it all to the indefatigable efforts of the FNC agents patrolling the streets, supermarkets, restaurants, gyms, factories, and just about everything else every single day.

Of course, there is still a lot to be done. But every long journey must begin somewhere.

Today, I want to warn you against sin and urge you to adopt the religion of fairness[1] before the day of judgment comes.

Amen.


[1] Or any other religion that condemns self-preferencing. I want to recommend them all equally.

[TOTM: The following is part of a digital symposium by TOTM 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.]

If S.2992—the American Innovation and Choice Online Act or AICOA—were to become law, it would be, at the very least, an incomplete law. By design—and not for good reason, but for political expediency—AICOA is riddled with intentional uncertainty. In theory, the law’s glaring definitional deficiencies are meant to be rectified by “expert” agencies (i.e., the DOJ and FTC) after passage. But in actuality, no such certainty would ever emerge, and the law would stand as a testament to the crass political machinations and absence of rigor that undergird it. Among many other troubling outcomes, this is what the future under AICOA would hold.

Two months ago, the American Bar Association’s (ABA) Antitrust Section published a searing critique of AICOA in which it denounced the bill for being poorly written, vague, and departing from established antitrust-law principles. As Lazar Radic and I discussed in a previous post, what made the ABA’s letter to Congress so eye-opening was that it was penned by a typically staid group with a reputation for independence, professionalism, and ideational heterogeneity.

One of the main issues the ABA flagged in its letter is that the introduction of vague new concepts—like “materially harm competition,” which does not exist anywhere in current antitrust law—into the antitrust mainstream will risk substantial legal uncertainty and produce swathes of unintended consequences.

According to some, however, the bill’s inherent uncertainty is a feature, not a bug. It leaves enough space for specialist agencies to define the precise meaning of key terms without unduly narrowing the scope of the bill ex ante.

In particular, supporters of the bill have pointed to the prospect of agency guidelines under the law to rescue it from the starkest of the fundamental issues identified by the ABA. Section 4 of AICOA requires the DOJ and FTC to issue “agency enforcement guidelines” no later than 270 days after the date of enactment:

outlining policies and practices relating to conduct that may materially harm competition under section 3(a), agency interpretations of the affirmative defenses under section 3(b), and policies for determining the appropriate amount of a civil penalty to be sought under section 3(c).

In pointing to the prospect of guidelines, however, supporters are inadvertently admitting defeat—and proving the ABA’s point: AICOA is not ready for prime time.

This thinking is misguided for at least three reasons:

Guidelines are not rules

As section 4(d) of AICOA recognizes, guidelines are emphatically nonbinding:

The joint guidelines issued under this section do not … operate to bind the Commission, Department of Justice, or any person, State, or locality to the approach recommended in the guidelines.

As such, the value of guidelines in dispelling legal uncertainty is modest, at best.

This is even more so in today’s highly politicized atmosphere, where guidelines can be withdrawn at the tip of the ballot (we’ve just seen the FTC rescind the Vertical Merger Guidelines it put in place less than a year ago). Given how politicized the issuing agencies themselves have become, it’s a virtual certainty that the guidelines produced in response to AICOA would be steeped in partisan politics and immediately changed with a change in administration, thus providing no more lasting legal certainty than speculation by a member of Congress.

Guidelines are not the appropriate tool to define novel concepts

Regardless of this political reality, however, the mixture of vagueness and novelty inherent in the key concepts that underpin the infringements and affirmative defenses under AICOA—such as “fairness,” “preferencing,” “materiality”, or the “intrinsic” value of a product—undermine the usefulness (and legitimacy) of guidelines.

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.

The operative terms of AICOA don’t have definitive meanings under antitrust law, either because they are wholly foreign to accepted antitrust law (as in the case of “self-preferencing”) or because the courts have never agreed on an accepted definition (as in the case of “fairness”). Nor are they technical standards, which are better left to specialized agencies rather than to legislators to define, such as in the case of, e.g., pollution (by contrast: what is the technical standard for “fairness”?).

Indeed, as Elyse Dorsey has noted, the only certainty that would emerge from this state of affairs is the certainty of pervasive rent-seeking by non-altruistic players seeking to define the rules in their favor.

As we’ve pointed out elsewhere, the purpose of guidelines is to reflect the state of the art in a certain area of antitrust law and not to push the accepted scope of knowledge and practice in a new direction. This not only overreaches the FTC’s and DOJ’s powers, but also risks galvanizing opposition from the courts, thereby undermining the utility of adopting guidelines in the first place.

Guidelines can’t fix a fundamentally flawed law

Expecting guidelines to provide sensible, administrable content for the bill sets the bar overly high for guidelines, and unduly low for AICOA.

The alleged harms at the heart of AICOA are foreign to antitrust law, and even to the economic underpinnings of competition policy more broadly. Indeed, as Sean Sullivan has pointed out, the law doesn’t even purport to define “harms,” but only serves to make specific conduct illegal:

Even if the conduct has no effect, it’s made illegal, unless an affirmative defense is raised. And the affirmative defense requires that it doesn’t ‘harm competition.’ But ‘harm competition’ is undefined…. You have to prove that harm doesn’t result, but it’s not really ever made clear what the harm is in the first place.”

“Self-preferencing” is not a competitive defect, and simply declaring it to be so does not make it one. As I’ve noted elsewhere:

The notion that platform entry into competition with edge providers is harmful to innovation is entirely speculative. Moreover, it is flatly contrary to a range of studies showing that the opposite is likely true…. The theory of vertical discrimination harm is at odds not only with this platform-specific empirical evidence, it is also contrary to the long-standing evidence on the welfare effects of vertical restraints more broadly …

… [M]andating openness is not without costs, most importantly in terms of the effective operation of the platform and its own incentives for innovation.

Asking agencies with an expertise in competition policy to enact economically sensible guidelines to direct enforcement against such conduct is a fool’s errand. It is a recipe for purely political legislation adopted by competition agencies that does nothing to further their competition missions.

AICOA’s Catch-22 Is Its Own Doing, and Will Be Its Downfall

AICOA’s Catch-22 is that, by making the law so vague that it needs enforcement guidelines to flesh it out, AICOA renders both itself and those same guidelines irrelevant and misses the point of both legal instruments.

Ultimately, guidelines cannot resolve the fundamental rule-of-law issues raised by the bill and highlighted by the ABA in its letter. To the contrary, they confirm the ABA’s concerns that AICOA is a poorly written and indeterminate bill. Further, the contentious elements of the bill that need clarification are inherently legislative ones that—paradoxically—shouldn’t be left to competition-agency guidelines to elucidate.

The upshot is that any future under AICOA will be one marked by endless uncertainty and the extreme politicization of both competition policy and the agencies that enforce it.

Winter in Helsinki

Dan Crane —  25 July 2022

[TOTM: The following is part of a digital symposium by TOTM 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.]

Jouko Hiltunen gazed out the window into the midday twilight. Eight stories down, across the plaza and promenade, the Helsinki harbor was already blanketed under a dusting of snow. By Christmas, the ice would be thick enough for walking out to the castle at Suomenlinna.

Jouko turned back to his computer screen. His fingers found the keys. At once, lines of code began spilling from the keyboard.

The desk phone rang. Sanna, who occupied the adjacent cubicle, arched her eyebrows. “Legal again?”

Jouko nodded. Without answering the phone, he got up and walked down three flights of stairs. The usual group was assembled in Partanen’s office: the woman in the dour gray suit who looked like an osprey, the fat man from Brussels who made them speak in English, and Partanen, the general counsel.

By habit, Jouko entered and stood behind a chair. Partanen nodded curtly. “We have an issue, Hiltunen. Again.”

“What now?”

“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.”

“But . . .”

“Listen, Hiltunen. We aren’t here to argue about this. Maybe it will, maybe it won’t be considered self-preferencing, but our company won’t take that risk. Do you understand?”

 “No.”

 “Then let me explain it . . .”

 But Jouko had already left. When he returned to his desk, Sanna was watching him. “Everything OK?” she asked.

Jouko shrugged. He started typing again, but more slowly than before. An hour later, the phone rang again. This time, Sanna only raised an eyebrow. Jouko gave half a nod and ambled downstairs.

“You are making it worse,” said Partanen. The osprey woman scowled and raked her fingernails across the desk.

“How am I making it worse? I did what you said and eliminated search results defaulting to rated establishments.”

“Yes, but you added a toggle for users to be shown only rated establishments.”

“Only if they decide to be shown only rated establishments. I’m giving them a choice.”

“Choice? What does choice have to do with it? Everyone who uses our search engine is choosing—” Partanen made rabbit ears in the air – “but we have a responsibility not to impede competition. If you give them a suggestive choice” – again, rabbit ears – “that will be considered self-preferencing?”

“Really?”

“Well, maybe it will and maybe it won’t, but the company won’t take the risk.”

When Jouko returned to his desk, Sanna averted her eyes. As he sat motionless behind his keyboard, hands folded in his lap, she occasionally shot him concerned glances.

The darkness outside was nearly complete when the phone rang again. Jouko let it go to voicemail and waited a long time before rising and walking wearily downstairs.

“What now? I haven’t done anything.”

“We’ve been talking and have a new idea. It would be better if you blocked from the search results any restaurants or hotels that have been rated by the Board of Tourism. That way, there is no chance that we will be accused of self-preferencing.”

“Or that people will end up in a safe, clean, or convenient restaurant.”

“That’s not your problem, is it?”

Jouko returned to his cubicle. He did not sit down at his desk, but started putting on his coat.

“Where are you going?” asked Sanna.

“I’m going to walk out towards Suomenlinna.”

Sanna’s voice rose in alarm: “But the ice has barely formed. It won’t hold you.”

Jouko shrugged. “Maybe it will, maybe it won’t. I’ll take the risk.”