The Most Interesting Thing Happening In Competition Policy

The U.S. Department of Justice is set to announce its long-awaiting antitrust case against Google, and the House Antitrust Subcommittee is poised to reveal its proposals to break up some tech companies.  But new reports from the Shorenstein Center and the Center on Equitable Outcomes point to a much more promising approach to reining in the power of big tech companies and creating genuine consumer alternatives. A supervisory agency tasked with using regulatory tools like data portability, data sharing and interoperability to promote competitive alternatives in these sectors might be up to the job. 

The DOJ case would be standard antitrust fare, alleging that Google has used its monopoly in general search to harm companies seeking to compete with them in the adjacent market for vertical search.  Even if found guilty, the remedy for this would allow the harmful market structure allowing Google’s dominance in general search to persist.  The same is true of proposals to separate platforms and commerce: the dominant platform would continue as a monopolist.

This is consistent with antitrust doctrine as currently understood and practiced according to which monopolies are not the problem.  The key objective of the current antitrust approach is to stop companies from using unfair means to obtain or maintain a monopoly.  

But no matter how specific the remedies, enduring monopolies find other ways to exercise their monopoly power to harm consumers and fledgling rivals.  The point of competition policy must be to promote competitive alternatives, not to constrain the conduct of companies with durable monopoly power.   

Several years ago, long-time antitrust practitioner and government official Phil Verveer warned against dealing with the problems of tech by bringing another big antitrust case.  Over the summer, he, former Federal Communications Commissioner Tom Wheeler, and consumer advocate and former DOJ official Gene Kimmelman published a report for the Shorenstein Center repeating that warning.  The report noted that “it would be a serious mistake to rely on antitrust enforcement as the sole mechanism for securing our society’s interest in the workings of the ever more critical digital platforms.” 

The Shorenstein Center report calls for a new regulatory paradigm to protect competition and consumers in digital markets.  It proposes an innovative institutional structure consisting of a new three-person federal regulatory commission called the Digital Platform Agency and a Code Council with equal membership from the industry and the public.  The division of responsibilities – the Code Council drafts “enforceable behavioral rules for the affected companies” and the DPA approves and enforces them – is meant to provide the agility needed for regulation to keep pace with the technological and business developments in a rapidly evolving industry. 

It’s dual regulatory structure of a digital platform agency and industry-public code-writing council is focused on remedies aimed at protecting competition including “non-discrimination, access to data sets, interoperation, and similar requirements designed to lower barriers to competition with the major platforms…” 

In calling for a digital platform agency, the Shorenstein report builds on the work of Jason Furman,  Harold Feld and Fiona Scott Morton, each of whom called for a specialist regulator to deal with the competitive problems raised by digital platforms with strong network effects that seem beyond the reach of traditional antitrust approaches. 

Earlier this month, Michael Kades and Fiona Scott Morton issued a report through the Washington Center for Equitable Growth that focused on interoperability as one of the tools that such a specialist regulator might use to promote competition to digital platforms.

Interoperability would allow a user of one platform to reach the users of other platforms providing similar services.  It reduces the harmful lock-in that results from network effects by standardizing the service so that platforms compete on price or reliability or other dimensions on quality and cannot dominate the market simply because of the size of their installed customer base. 

The authors recognize the key problem is that of supervision and the ongoing need to define what services the competing platforms have to share. They propose that the Federal Trade Commission should use its rulemaking authority to establish an ex ante “default order” that would be the basis for an interoperability requirement found necessary by an antitrust court.  They recommend that the FTC set up a “technical committee” to establish the crucial details of standardization and implementation in specific cases, outside the adversarial process of an administrative adjudication. The draft order would require industry participants to have a license, which the FTC could revoke, and it would require them to protect the privacy rights of their users in addition to abiding by the interoperability standard.  

The remedy has to be triggered by an antitrust court, so the proposal doesn’t avoid the need for big cases to establish liability as the Shorenstein proposal does.  But there are similarities. It seems to me that Shorenstein’s Digital Platform Agency, not the FTC, is the natural home for implementing an interoperability requirement, and its “technical committee” does the same work as Shorenstein’s Code Council.  In any case, the work of the agency clearly crosses the line separating a generalist subject-matter agency like the Federal Trade Commission from an industry-specific agency like the Federal Communications Commission. Moreover, the agency’s mandate has to include more than promoting competition if the agency is to deal effectively with the broader privacy and free expression challenges these tech sectors present. 

Instilling competition in industries with strong network effects is swimming against the natural current of the market.  Even herculean efforts to promote competition might fail, as they did despite the generations-long work to make the telecommunications industry competitive.  But it is worth a shot and the recommendations from Shorenstein and the Center for Equitable Growth show policymakers a reasonable way forward.  It will be interesting to see if the House Antitrust Committee’s upcoming report, in addition to recommending separation of platforms and commerce, adopts this regulatory approach to promoting competition.

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