By Shane Tews

Several
bills seeking to restructure American antitrust law are moving forward in both
bodies of Congress. The bills specifically target Big Tech firms, though they
follow arbitrary metrics for “bigness,” and don’t address lawmakers’ main
concerns regarding tech platforms. With a Senate markup already completed for
two of the bills, we must ask: Is Congress really prepared to pass major
antitrust legislation?

On the
latest episode of “Explain to Shane,” I was joined by Matt
Perault and Blair Levin to discuss what consumers stand to lose if
these bills become law, along with the political forces at play in tech
antitrust.

Below is an edited and abridged transcript of our talk. You can listen to this and other episodes of “Explain to Shane” on AEI.org and subscribe via your preferred listening platform. You can also read the full transcript of our discussion here. If you enjoyed this episode, leave us a review, and tell your friends and colleagues to tune in.

Shane Tews: Can you guys walk us through
why antitrust has suddenly become a hot topic in Washington? Also, talk a bit
about the consumer welfare-oriented underpinning of antitrust law and why this
has come into question.

Matt
Perault: The consumer welfare standard is the idea that the thought process
around whether government should intervene in the market to deem certain
conduct as anticompetitive and illegal should be rooted in an analysis of
whether or not consumers are harmed. The consumer welfare standard also
includes harm to quality and innovation — essentially, whether a monopolist is
able to release worse and less innovative products over time.

The
interesting recent development is this idea that the consumer welfare standard
is insufficient and doesn’t take into account harms to labor markets, the
environment, society, and democracy. I understand why we want to be conscious
of that range of harms, but it seems like the consumer welfare standard’s
narrow focus and objective economics-based orientation is actually really
helpful in guiding how we think about harm to consumers as opposed to
competitors.

Blair Levin:
There is a sense on both the left and the right that there’s too much
concentration and market dominance. But this notion absolutely breaks down when
you discuss what to do about it. Whether you think there is too much or not,
you have to be aware of the fact that government intervention in the market has
consequences. Are they really the consequences we want?

The bipartisan American Innovation and Choice Online Act would outlaw self-preferencing, which is when a company gives its products or services an advantage over another platform’s competitive offerings. Will this really help consumers?

Matt
Perault: I think a lot of the momentum behind the nondiscrimination measures is
the result of the Francis Haugen disclosures and frustrations that people feel
toward Facebook for a variety of different reasons. But Facebook doesn’t engage
in a lot of self-preferencing. It doesn’t have vertically integrated app
stores, devices, and services like Apple and Google do, nor does it have
name-brand products like Amazon Basics. So this bill wouldn’t disrupt
Facebook’s business model as much as it would Amazon’s, Apple’s, and Google’s. But
Facebook is the reason this bill is moving.

The thing
is, consumers would really feel the bill’s effects. I don’t think it’s an
abstraction to say it would be more difficult to use Google Maps on an Android
device. You might get an iPhone with no pre-loaded Apple apps. It’s conceivable
that those things are good for consumers in the long run, but there isn’t
really a clear articulation of the consumer harm in the status quo and how this
legislation would be better for people. I think it’s actually more likely we’d
see prices rise. We’d see products that people really like, like batteries on
Amazon, no longer available.

Blair Levin:
One things that’s interesting to me is that legislation is often written with
historic metaphors in mind. I think that fundamental principle of
nondiscrimination has worked very effectively in some other situations. When
AT&T was a telephone monopoly, I think there were a lot of prohibitions on
discrimination that were very effective. Whether those are relevant for today’s
market, though, is a different question.

So I think
you have to do a pretty sophisticated analysis to see whether prohibiting a
certain kind of discrimination would actually enable greater competition. I
just don’t know whether, in this particular case, this kind of legislation
would do that, or would have a negative effect of the kind that Matt is talking
about.

It seems like there’s now a general
assumption that mergers are always bad. But Microsoft Word, for example, didn’t
create spellcheck. They bought the company that invented spellcheck and
integrated it, and a lot of these small startups are actually trying to get
acquired, rather than become some huge conglomerate. These bills are now trying
to slow that process down, and I don’t see to what positive end. What are your
thoughts?

Matt
Perault: I agree with you. There can be anticompetitive mergers, and current
law enables the government to intervene when there are. The general
economics-based assumption is that there are lots of efficiencies to be gained
from mergers. And so the government would only intervene when you can show
there’s a substantial lessening of competition. That’s a high bar — and I think
appropriately so, because most mergers are good for competition and good for
consumers. If we tighten merger restrictions, the harm is not going to just be
felt by Facebook and Google, but by a lot of startups that are trying to get
off the ground.

Blair Levin:
I’m going to offer a bit of a counter here. Yeah, it was perfectly fine for
Microsoft to acquire spellcheck. But what if the Microsoft of 1998 had bought
Google? I don’t think search would be as good. But I also don’t know how the
Department of Justice would have blocked them. There’s likewise criticism of
the government for allowing Facebook to buy Instagram. But if you go back to
when that deal was being reviewed, there’s no way the courts would’ve upheld a
blocking of it.

Still,
Microsoft was one of the beneficiaries of the IBM lawsuit years ago, which allowed
Microsoft to rise up without being crushed in the same way that lawsuits
against Microsoft may have allowed Facebook, Google, and others to grow.
There’s a lot of historical debate about whether that’s true, but I think
history suggests that creating more of an open zone in which people are not
getting acquired so quickly might be good.

Also,
Facebook’s strategy for entering the metaverse is likely an acquisition
strategy. That will be worth keeping an eye on.

The Open App Markets Act would force app store operators to allow “sideloading” — essentially making any app and any payment system permitted in e-commerce marketplaces. But this poses a huge challenge to the security ecosystem. Why is this something we’re considering?

This is a
great point, and is one we’re going to be dealing with for decades. There is no
single solution; we aren’t going to have a day of victory. We want a lot of
interoperability, but interoperability always raises security questions. It’s
sometimes used as a fake defense for anticompetitive conduct, but sometimes
it’s quite real.

There’s also
the point that, with the growing number of cyber and ransomware attacks, it’s
harder for small companies to protect themselves. Big Tech firms have these
great walls and fortresses when it comes to security, so the smaller firms
sometimes feel like the only way to be secure is to get inside of a Big Tech
firm’s castle and become beholden to them. And that’s going to have a long-term
impact on competition, unless there’s a national strategy to help smaller
companies address cyber vulnerabilities, which are increasing in number and
cost.

So what do you guys think comes next for
these bills?

Matt
Perault: I think it’s incredibly hard to predict. When the House bills made it
out of committee roughly a year ago, it seemed like there was a lot of
momentum. I would’ve thought, given the House’s composition, they would’ve hit
the floor immediately after leaving committee, but they still haven’t.

I don’t know
if that will happen with the Senate bills. Some people have said there’s more
than a 50 percent likelihood they are passed. That feels high to me, because I
think consumers are going to struggle if this legislation becomes law. I think
there’s going to be a major consumer backlash against it, because this isn’t an
abstraction, like I said. This is going to change how products feel, how your
phone feels in your hand, and the products that you can buy on Amazon.

I think
companies are going to make that very apparent, because it’s their strongest
defense. If this is really coming close to passage, I think they will make it
very apparent why they’re delivering a worse product for users. So the people
who stand behind the bills would be entering a midterm season with a lot of
pressure and backlash from consumers around the consequences of this.

I think it
doesn’t really work as a governance strategy, because the bills are really
going to affect consumers’ lives in ways they don’t like. But it’s very good
politics. It makes for good tweets. It makes for good fundraising. It riles up
the base. And so it seems to me like the ideal outcome is that it moves through
committee and doesn’t really come to a vote on the floor. Members of Congress
can then keep talking about how the powerful lobbying teams at the various
companies are stopping this from moving forward. But I think that’s actually
the right outcome for members of Congress.

Blair Levin:
I’d agree with that assessment. It’s always easier and more accurate to predict
that nothing happens, because that’s often the way it works. People like to see
politicians in Washington fighting for them against big corporations. They also
have a sense that these bills don’t apply to their corporations of choice. I think people really love Amazon
Prime and think Google Maps works really well. It’s similar to how people really
hate Congress but like their own member.

So there’s a curious dynamic that I think leads
to the situation Matt is talking about where it’s really good politics in the
short term, but not necessarily if it passes.

The post A breaking point for tech antitrust: Highlights from my conversation with Matt Perault and Blair Levin appeared first on American Enterprise Institute – AEI.