Digital Platforms Primer: Big Tech and Competition Policy (Part 4)
The rise of platforms and digitization has raised questions about current antitrust laws and the adequacy of current competition policy. The previous blogs (see parts 1, part 2, and part 3) looked at the platform business model, the effects of digitization, and competition. This final blog in the series will look at the regulation of digital platforms from a competition perspective. The blog will examine the debate around competition policy and the policy options currently being discussed.
Government’s Role in Regulating Digital Platforms and Some Existing Reports
The government plays an important role in promoting competitive markets through regulation and antitrust enforcement. Policymakers face challenges finding the right tools to promote competition and must strike the right balance between over and under-enforcement. The rise of digital platforms has provided an opportunity to reevaluate existing antitrust and competition policies to help determine whether or how policymakers should update them.
Government entities around the world have been scrutinizing large digital platforms from a competition perspective. The United Kingdom created an expert panel to study digital competition, and the panel issued a report in 2019. Similarly, the European Commission requested three experts to write a report on competition in the digital era, and these experts also published their report in 2019. In 2020, the House Judiciary Committee’s Democrats and Republicans issued separate reports on digital market competition. These reports have been the source of major debate with critics and supporters.
Policymakers on Capitol Hill and the antitrust enforcement agencies are currently considering several options for modifying competition policy in the digital era. There are several broad questions to be considered before looking at a particular policy: are there specific qualities of digital platforms that existing policy is not well suited for? What problem or problems are policymakers trying to address with digital platforms, and are competition policy and antitrust appropriate tools for addressing them? What potential tradeoffs or unintended consequences could arise?
An evidence-based approach to competition policy is critical and requires gathering data. Last year, the FTC released data they collected about certain acquisitions made by some of the largest digital platforms. Policymakers should encourage activities like these and further identify any data gaps and ways to best fill them.
Policymakers should decide whether they want antitrust laws and competition policy to differentiate between digital platforms (or whatever term they use) and other firms. If they decide to differentiate, they should define the term and decide whether to differentiate between digital platforms based on criteria such as size. Several bills in the House create a new “covered platforms” designation that targets the largest digital platforms.
Policymakers are also considering whether to mandate data portability and interoperability standards and how to potentially design them. Data portability and interoperability are tools used for transferring data for moving data across platforms easily and regularly. Supporters argue mandating these tools can boost competition by lowering switching costs to consumers and making data more accessible to non-incumbent firms. Critics, however, disagree and highlight technical challenges to implementation and privacy and security concerns. The Access Act is a bill that mandates data portability and interoperability, while the Data Transfer Project is an industry effort that takes a voluntary approach.
The large digital platforms’ merger and acquisition (M&A) activity has come under heavy scrutiny and has been the source of intense debate. Critics have accused large tech platforms of engaging in anticompetitive merger and acquisition activity, a claim the companies deny. Government officials are looking into whether they should toughen standards for reviewing M&A activity and Congress has been considering several bills on this matter.
Among the most hotly debated issues in antitrust is the consumer welfare standard, which has both strong supporters and critics. The consumer welfare standard is used by courts to evaluate business conduct, mergers, and acquisitions on antitrust grounds. Scholars, policymakers, economists, judges, and other stakeholders should continue to debate whether the consumer welfare standard should be replaced, clarified, or left alone in the digital era.
Furthermore, critics of digital platforms have accused them of engaging in online practices they argue are anticompetitive, such as self-preferencing in digital search. Digital platforms and their supporters deny these allegations or argue they are not anticompetitive. Policymakers should better understand the various tools and practices in digital markets (see part 2 of this series), especially in comparison to analogous activity in the physical world, when possible, to determine their competitive effects and appropriate policy. They should then determine whether the government needs to further regulate or even ban these activities. The American Innovation and Choice Online Act, which recently passed through the Senate Judiciary Committee, is a bill that focuses on these matters.
Finally, a question that garners much attention is whether digital platforms need major structural reforms, such as separating certain businesses from each other and breaking up the companies. Structural reforms are among the most controversial and contentious remedies policymakers are currently debating. The House’s Ending Platform Monopolies Act focuses on major structural reforms.
Policymakers are correct to review our existing competition policies, given digital platforms’ rise and economic importance. They should take a nuanced approach that appreciates the various characteristics of digital platforms and their implications. Policymakers should ask questions about what problem they are trying to solve, whether current competition policies are the appropriate framework, and what tradeoffs might exist. Several options for modifying competition policy exist that may or may not be appropriate in the context of digital platforms. We encourage further analysis and rigorous debate around these topics to help identify the appropriate challenges and remedies to promote competition in the digital era.
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