Select Page

The Consumer Welfare Standard Does More to Promote Competition Than Overzealous Antitrust Legislation

The consumer welfare standard has guided competition policy for decades and restrains the government from pursuing ideologically driven results. By tying enforcement to objective and data-driven harms to consumers, antitrust is appropriately focused on promoting competition — not bolstering individual competitors or putting the government’s thumb on the scale. However, frustration with certain technology business practices or a “big is bad” philosophy has led some lawmakers to push for an antitrust overhaul. While the antitrust debate rhetorically focuses on consumers, the legislative proposals designed to target “Big Tech” do not promote competition or protect consumers.

The House Judiciary Committee passed a package of antitrust bills earlier this year. The Senate has introduced some companion legislation, including a bill introduced by Senators Amy Klobuchar (D-MN) and Tom Cotton (R-AR) that would restrict mergers and acquisitions (M&A) for certain companies. The Platform Competition and Opportunity Act (S.3197) closely resembles the House version with some key changes. However, just like the House version, this bill mistakenly targets vertical mergers that are generally pro-competitive and benefit consumers.

Under the consumer welfare standard, M&As are evaluated on a case-by-case basis. Some M&As may be anticompetitive, and in those cases, antitrust enforcers have the necessary tools to intervene. However, M&As can also increase market efficiency and provide consumers with increased benefits or services. The key here is the focus on consumers and the innovation the M&A provides, not solely on the size of the company. By limiting M&As for companies over a certain size, lawmakers would place an artificial cap on growth, harming both innovation for consumers and restricting the ability for smaller companies, who may desire to be acquired, to access an advantageous exit ramp that can help attract investors and startup capital.

Lawmakers have honed in on supposed “killer acquisitions” by large technology companies. However, while some may argue these smaller companies that were acquired would have eventually grown into larger companies or competitors to “Big Tech,” the evidence to suggest this is true is shaky at best. For example, Instagram when it was acquired had 13 employees, was two years old, and had not turned a profit. As NTU Foundation’s Josh Withrow correctly notes, many of the prominent acquisitions by large technology companies turned relatively small startups into products that millions of consumers enjoy. Without the infrastructure in place to scale these services, these small companies could have remained small or ceased to exist. By claiming if an M&A is successful it harms competition and if the M&A is unsuccessful it isn’t, lawmakers are taking a “heads I win, tails you lose” approach to the detriment of consumers. The revisionist attempt to claim these nascent companies were destined for success ignores the numerous errors antitrust enforcers have made attempting to predict the trajectory of the economy and consumer demand.

The Platform Competition and Opportunity Act would restrict M&As for a “covered platform,” defined as having 50 million U.S.-based monthly users (or 100,000 U.S.-based active business users), a $600 million market cap, and being a “critical trading partner.” Importantly, the Senate version limits the designation to within 30 days of the bill’s passage, meaning if another company grows to meet these requirements, they would not be subject to these onerous restrictions. While proponents of this change state it limits the Federal Trade Commission’s (FTC) discretion, others have pointed out this change would conveniently benefit Minnesota-based Target and Arkansas-based Walmart, both of which are growing their online presence.

This would not be the first time legislation aimed at “Big Tech” had a carveout for a certain industry or company. Florida’s S.B 7072, billed as a pro-free speech bill, had a carveout for companies that operate a theme park or entertainment complex. Florida also just happens to be the home of Disney, a large employer in the state that would have been negatively impacted if this bill went into effect. Unfortunately, companies lobbying for additional regulations or taxes to harm competitors is all too common, and the technology sector is no exception. While one company may “win” in these types of industry battles, the consumer always loses. Some lawmakers may have valid concerns about market concentration, but arbitrary restrictions for just a handful of companies wouldn’t increase competition or benefit consumers. 

It should also be noted that the “critical trading partner” criteria still leaves the FTC with flexibility. This criteria surfaced in other technology-focused antitrust legislation like Senator Klobuchar and Representative David Cicilline’s (D-RI) self-preferencing legislation (S. 2992/H.R. 3816). A critical trading partner in S.3197 is defined as a person that owns or controls an online platform that has the ability to restrict or impede access of business users to customers or to a tool or service that a business user needs to serve its customers. This vague definition would allow the FTC to pick and choose which companies they want restrictions to apply to. Hypothetically, Company A and Company B could both meet the criteria for a “covered platform,” but the FTC could deem Company A is a “critical trading partner” and not Company B, opening the door for antitrust enforcers to pick winners and losers.

For decades, the consumer welfare standard has appropriately restrained subjective or meritless government intervention. The unintended consequences of embracing the failed “big is bad” philosophy of the past could upend a vibrant sector of the economy and leave consumers worse off. If consumer harm is appropriately demonstrated through data-driven analysis, antitrust enforcers have the tools needed to intervene. Narrowly tailored legislation to specifically target a few companies absent economic analysis undermines the consumer welfare standard and puts antitrust enforcers in a powerful position to dictate growth in the economy.

 


Will Yepez is a Policy and Government Affairs Associate for National Taxpayers Union.