Mar 21, 2019

Does the FTC Need a New Big Tech Task Force?

How to Give the Task Force the Best Chance of Succeeding
Andrea O'Sullivan Feature Writer , Michael Kotrous Program Coordinator

This month, Senator and presidential hopeful Elizabeth Warren (D-MA) made waves in the tech world with her proposal to break up companies like Amazon, Facebook, and Google.

While her plan may be among the most extreme so far, the aversion to “bigness” is quite mainstream. New books like The Curse of Bigness: Antitrust in the New Gilded Age by Columbia law professor Tim Wu implore us to be afraid of vertical integration—Wu has blamed weak antitrust enforcement for the rise of Nazi Germany (a claim questioned by economist Tyler Cowen).

It has also caught the attention of the Federal Trade Commission (FTC), which recently announced the formation of a new task force specifically dedicated to scrutinizing competition (or presumably, the lack thereof) in the technology industry. The announcement follows dozens of FTC hearings exploring avenues for reforming the agency’s consumer protection and competition rules. Online networks, big data, and e-commerce platforms have all been prominent in those hearings.

We don’t know exactly what the task force will look like quite yet. The FTC announcement says the body will be comprised of over a dozen FTC attorneys with expertise in internet and technology matters. They will be empowered to review proposed and previous mergers between firms with a technology focus as well as “coordinate and consult with [FTC staff] on technology-related matters.”

This ambiguity of authority has generated a range of reactions among anti-“bigness” critics. Some, like the Free and Fair Markets Initiative and the Open Markets Institute, have welcomed the development, which could be a strong step towards a modified or even overturned consumer welfare standard of enforcement. Others, like the Electronic Privacy Information Center, think the task force does not go far enough, and “is no substitute for meaningful enforcement.”

As Adam Thierer pointed out on Marketplace, there are good reasons to be wary of a specific-purpose antitrust task force. The FTC already has potent tools to counter anti-consumer behavior by any company, including those developing social media platforms or other consumer technologies. Creating a special body to scrutinize a nebulous, hard-to-define industry could invite prosecutory excess that ultimately harms consumers. Also, an enforcement crusade against Amazon, Google, and Facebook could capture a lot of other businesses in its wake. We will discuss a few of the ways that the new technology task force could miss the mark, along with an alternative approach that could better serve consumers.

The Task Force Could Target “Technology” Because of Politics

“Technology companies” have developed bad reputations following privacy scandals and accusations of political bias. Support for the regulation of big tech is equal among Democrats and Republicans, with 46 percent of each agreeing that the federal government should regulate tech companies more.

However, vague calls for “regulation” are not a mandate for trust-busting. Competition policy is neither privacy policy nor communications policy. The FTC task force should uphold the agency’s commitment to intervening in marketplaces only when consumer harms are clearly demonstrated. Ultimately what matters in competition policy is how consumers fare, and sometimes they are best served by big companies that wisely apply technologies.

For decades, antitrust policy has been guided by what is called the “consumer welfare standard.” This is an economics-driven approach that studies prices to determine market health. If a company buys up its competition and raises prices on consumers, for example, that is destructive to the economy and should be stopped. But if a company buys another one to enhance its products or services and ultimately lower or maintain prices, that is a good thing for consumers. This metric brought rationality and objectivity to an antitrust process that had previously been marked by capricious political maneuvering.

We have written before about a not-so-new idea creeping up in antitrust circles: that the consumer welfare standard in antitrust should be replaced by a vaguer “public interest” standard. Because this old Gilded Age idea has been made new again, it is sometimes called the “hipster antitrust” approach.

The goals of this new-yet-old approach can vary, but they generally reject price effects on consumers as a primary guide in favor of their own pet concerns. Maybe the FTC and the courts should consider the broader competitive environment, as the European Union does. Some believe that other businesses should be stakeholders in the antitrust process as well, and that they should be shielded from “excess competition” by the government. Others go so far as to argue that social concerns—like environmental effects and socio-economic demographics—should also play a role in antitrust analysis.

Not only are these goals much more subjective than measuring consumer price effects, they can contradict each other. What if a mandate to protect competition for small business is at odds with a charge to promote innovation? Should the smaller but less innovative firms be protected, or the larger but more creative firm? The FTC would be forced to make a value judgment, which generates uncertainty and the potential for politically motivated enforcement.

Sometimes, as advocates of these views admit, consumers may actually be harmed by these antitrust interventions, particularly in the short term. Bigger businesses generally increase in scale because they create value for their customers. If the FTC were empowered to strike down these firms in favor of amorphous notions of what a perfectly competitive market should look like, consumers could be forced to pay higher prices for fewer or lower-quality products and services.

Advocates might argue that their preferred conception of a competitive market sets the stage for better consumer outcomes in the future. What if these future benefits fail to materialize? We would have imposed great costs on ourselves for naught.

The fact is that consumers are quite choosy and know what’s better for themselves than antitrust regulators. Oftentimes, the seemingly untouchable titans of today are taken down by the market forces of changing consumer taste well before antitrust commentators have formulated a defined solution. Recall that regulators wrung their hands over the AOL-Time Warner behemoth in 2001, only to see the merged entity fall apart by the end of the decade.

All antitrust enforcers, including the FTC’s new technology task force, should keep consumer welfare as the key consideration for interventions. It is imperative that evidence-based policymaking, and not broad platitudes guide antitrust decisions. Sometimes bigness is good for the consumer, sometimes it is harmful. But regulators should primarily focus on consumer outcomes and not the inputs that produce them.

The Task Force Has an Ambiguous Target

The name and mission of the task force could indicate problems. Technology analyst Ben Thompson points out that “‘tech’ is not simply another category, like railroads or telecom.” By definition, technologies are means, not ends.

Think about the so-called FAANGs: Facebook is a social media company, Apple sells a hardware ecosystem, Amazon is an online retailer, Netflix is an entertainment firm, and Google operates search. These companies have acquired core competencies in related areas, like advertising and cloud computing, and provide those services to consumers and other businesses. But the fact that they have utilized “technology” to achieve these ends is incidental to whether their activities are ultimately good or bad for consumers.

The FTC task force targeting the FAANGs or Big Tech would present serious challenges. For one, it’s unclear how the FTC would pin down a clear definition of the “US technology market.” This ambiguity is welcomed by advocates of the “public interest” standard, but making an economic case that consumers are being harmed is difficult.

Second, any enforcement actions against big American tech companies would risk restricting business practices that, when done by other firms, are considered benign.

Consider Amazon, a constant candidate for trust-busting. Sen. Warren and other critics argue that Amazon should not be allowed to offer its own branded products on its platform. Under Warren’s proposal to break up big tech, Amazon and other firms that offer “online marketplaces” can be either an e-commerce platform or a consumer product company—never both.

But Warren’s proposed $25-billion annual revenue cutoff for “platform utility” classification would not only restrict the business practices of Amazon and Google but also brick-and-mortar retailers like Walmart, Kroger, Costco, and the Home Depot, not exactly popular targets for antitrust intervention in this decade. No one insists an FTC task force investigate competitive or consumer harms from Big Brick-and-Mortar selling in-house brands. Shoppers benefit from a lower price alternative, and other branded items still do well. But Amazon’s combination of bigness and technology sets it apart from other retailers, so it seems like something should be done to stop it.

Further, anti-vertical integration rules that would require Google to separate search from its digital advertising business, endorsed by Sen. Warren, would, if applied consistently, require Microsoft to separate ownership of its search engine Bing and its advertising network. Breaking up Bing, the sympathetic underdog, likely defeats the purpose of breaking up the Google search “monopoly.”

In general, many of the activities for which “big tech” are criticized are not necessarily anti-consumer behaviors that must be stopped. Rather, they can be very good for consumers, but people get taken in by the fact that a disruptive technology firm is undertaking them.

A Better Path Forward

We sympathize with the challenges facing the FTC. Technology companies have shaken up the traditional ways of doing business, and their business models may not immediately fit into the pre-digital buckets to which regulators are accustomed.

Here is where the technology task force could be a force for good. It can position itself as a research and educational body for antitrust enforcers; a kind of internal “think tank” that identifies areas of unclear legal scholarship to shed light on possible paths forward. Retrospective analyses of Facebook’s acquisitions of Instagram and WhatsApp and Google’s acquisitions of Waze and DoubleClick are valuable exercises that can offer guidance for the agency’s direction going forward.

There is much work to be done in refining the consumer welfare standard for the digital age. By focusing on these questions, the technology task force could help bring the FTC up to speed on the best ways to apply their antitrust enforcement to protect consumers.

Still, there is much anti-technology and anti-bigness public animus today. Current or future leaders could lean on this task force to abandon the consumer welfare standard and adopt ill-fated “public interest” policies. The FTC could insure against this mission creep by more formally defining the role of the task force to educate and strengthen FTC enforcement of the consumer welfare standard.

There are a lot of ways that the FTC technology task force could go awry. If it acts now, the FTC could ensure that this body is directed to serve consumers instead.

Photo credit: Public Citizen/Flickr

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