Category Archives: Antitrust

FTC Merger Guidelines Update

All proposed corporate mergers above a certain size have to go through review by antitrust regulators. The Federal Trade Commission (FTC) and the Justice Department have written guidelines for that review process to help their officials decide which mergers to allow, and which to block. Those guidelines are currently being updated for the first time in more than a decade.

The guidelines are not binding, and are not always followed to the letter, but they heavily influence agency actions, and companies plan their mergers—or decline to merge—based on those guidelines. This round of revisions lacks transparency. Revisions usually have publicly available advance drafts, open hearings, input from panels of outside experts, and other accountability measures. This round of revisions has had almost none of that. About the only transparency measure current FTC Chair Lina Khan has permitted so far has been a public comment period.

While it is difficult to comment on something when the agency is not allowing anyone outside the agency to read it, my colleague Jessica Melugin and I weighed in with some principles for effective merger guidelines (footnote omitted):

• First, the process requires more transparency than the FTC is currently providing.

• Second, vertical mergers should be presumed to be competitive.

• Third, if the FTC’s policy goal is to have fewer mergers, then the policy solution lies outside antitrust enforcement. Not everything is an antitrust issue.

Our policy recommendations for improving transparency include adopting a set procedure for guideline revisions. An off-the-shelf option is to follow the Administrative Procedure Act’s (APA) notice-and-comment rulemaking process. Another option is an in-house version of the APA process that includes public drafts, open hearings, an expert panel, and a public comment period. Additionally, all merger cases should take place in independent Article III courts, not in the FTC’s in-house administrative courts, where the agency pays the judges’ salaries and sets the procedures.

Vertical mergers should be presumed competitive. They are a form of the old make-it-or-buy-it decision that every company, household, and individual faces daily. The answer to these decisions, whether at the individual or the firm level, often depends on which option has lower transaction costs. The FTC’s merger guidelines should require the agency to consider potential transaction cost savings in proposed deals.

The FTC, when reviewing vertical mergers, should also consider the potential elimination of double marginalization (EDM), which results in lower consumer prices. Every company in a vertical supply chain marks up the price to earn a profit. Vertical mergers eliminate some of these multiple-markup opportunities. The evidence shows that these EDM savings typically result in lower consumer prices.

In merger reviews where the FTC can prove that a vertical merger would raise rivals’ costs, this should be measured against consumer benefits due to EDM. The FTC’s list of risks arising from mergers should be equally applied to risks of denying mergers—namely, whether blocking a merger “can lead to higher prices, fewer or lower-quality goods or services, or less innovation.” If consumers benefit on net, the deal should be presumed competitive.Antitrust policy is supposed to protect the competitive process, not this or that competitor.

Finally, if the FTC’s policy goal is to reduce the number of mergers, the answers often lie outside of antitrust. The FTC’s guidelines should require it to consider less intrusive policy alternatives. For example, post-Sarbanes-Oxley and Dodd-Frank financial regulations make raising capital and initial public offerings (IPOs) costly and difficult. By comparison, a firm in the process of scaling up may find it easier to be acquired than to run through the gamut of financial regulations to go public.

That said, the FTC should adopt an agnostic approach regarding the number and size of mergers. Mergers are neither inherently good nor bad; they are part of the ongoing competitive process.

Our full comments are posted here. The full FTC docket, including more than 400 other public comments, is here.

See also the recent CEI paper by former FTC chair Timothy J. Muris and former FTC Bureau of Economics director Bruce H. Kobayashi on the stalled Illumina-GRAIL merger, which would lead to improved early cancer detection tests. CEI’s dedicated antitrust site is here.

The FTC’s public comment period is open to the public, and is open until April 21. If you would like to add your own comments, you can submit them here.

Antitrust Triangulation

Sometimes it’s useful to introduce useless bills. The Prohibiting Anti-Competitive Mergers Act , sponsored by Sen. Elizabeth Warren (D-MA) and Rep. Mondaire Jones (D-NY), is a case in point. It bans mergers larger than $5 billion, not indexed for inflation. It has a near-zero chance of passing, and top antitrust hawks like Sen. Amy Klobuchar (D-MN) and Rep. David Cicilline (D-RI) did not cosponsor it. And yet, this doomed bill can be politically useful. The reason lies in an old political strategy called triangulation, made famous by former President Bill Clinton.

Triangulation is a rhetorical technique that can make yourself appear moderate, even if you aren’t. For nearly every policy position, it’s possible to point to other proposals to both your right and your left, and paint those as radical. Your proposal will always be the middle point of that triangle. That relative center position makes a position look moderate, even if in absolute terms, it isn’t.

The Warren-Jones merger bill’s usefulness is that it can serve as that left flank to Klobuchar and Cicilline’s own antirust bill, the American Innovation and Choice Online Act (AICOA, S. 2992). On the right flank, populist Republicans are in full culture-warrior mode against Big Tech, adding their special mix of tragedy and comedy to the drama. Together, they make the radical AICOA appear moderate in comparison. It’s classic triangulation.

Don’t fall for the trap. Sen. Klobuchar and the bill’s other sponsors seem to know their bill is ideologically loaded. That may be one reason why they never held a formal committee hearing for it. Instead, they held a markup session behind closed doors. Even there, many of the “yes” votes came with reservations about voting for the final bill when it reaches the Senate floor.

One reason for such reservations is that AICOA’s ban on self-preferencing by online sellers would create countless aggravations for consumers. If voters find out who is responsible, there will likely be significant backlash. As my colleague Jessica Melugin pointed out recently:

Consider just a few possible consequences: Amazon would not be able to offer free-shipping services on certain items; Google would not be able to display its map at the top of search results for local businesses; Facebook would be prevented from showing you a friend’s Instagram story at the top of your news feed; and Apple’s App Store wouldn’t suggest the apps that might be the best fit for users. Microsoft would even be swept up by the bill’s prohibitions, too, by no longer being allowed to integrate LinkedIn contact info with Microsoft Office 365.

For context, self-preferencing has been standard practice in physical retail for decades. Costco’s Kirkland brand is the most famous example. Walmart and Target have their own house brands, as does nearly every grocery store chain. Self-preferencing has helped those companies’ markets remain competitive and innovative. Doing the same thing, but online, is no different. Klobuchar and her cosponsors’ legislation does not change that.Just because AICOA appears moderate in comparison to the Warren-Jones merger bill on the left and the culture warriors on the populist right, that doesn’t mean it is actually moderate. Whatever its relative position, an absolutely bad idea is an absolutely bad idea.

Amazon Antitrust Lawsuit Dismissed

Last year, District of Columbia Attorney General Karl Racine filed an antitrust lawsuit against Amazon over its third-party seller program. On Friday, a judge dismissed it. When it was first filed, my colleague Jessica Melugin and I argued that the lawsuit stood on shaky legal ground and would harm consumers if it succeeded.

One reason for the case’s weakness is the amount of competition that Amazon faces in convincing third-party sellers to use its platform:

Other retailers such as Walmart now have their own third-party seller programs that compete with Amazon’s. This is on top of existing online options small sellers can use, such as eBay, Etsy, and Shopify, as well as numerous niche markets, such as Reverb for musical equipment and Newegg for computer products.

Every other state attorney general in the country must have agreed with us, because none of them joined Racine’s lawsuit. That fact that it was a solo act was itself telling about the case’s prospects, as I told Law360.

Despite the dismissal, this isn’t over yet. Reuters reports that Racine’s office is “considering its legal options.” Amazon will likely face other antitrust cases at both the state and federal level. These too will have a tough time in court, but a mix of political ambition and populist ideology means that regulators will likely continue to try.

There are two common legal tests for determining if a company is harming consumers. Can it: a) raise prices or b) restrict supply? Amazon is capable of neither, in part because it commands just 9.2 percent of the total retail market (both brick-and-mortar and online), compared to 9.5 percent for Walmart.

Even in the narrower online commerce market definition, where estimates of Amazon’s market share mostly range from 40 to 50 percent, Walmart and Target are both beefing up their online presence. Most traditional grocery stores now offer online ordering, pickup, and delivery. Smaller local shops are can offer online ordering and delivery through Instacart, Uber, and other platforms. And many producers give customers the option of foregoing retailers altogether by selling direct.

In order to argue that Amazon has a monopoly of any kind, prosecutors would almost certainly have to commit the relevant market fallacy. This is a language game, played by defining a company’s market so narrowly that it appears more dominant on paper than it is in real life. Any market is a monopoly if you define it narrowly enough; the challenge is doing it with a straight face. That is why the original Facebook antitrust complaint was dismissed, and why the revised complaint will also have a tough time in court.

Another tactic is to try to change the rules of the game, as five-year olds often do when they get frustrated. The American Innovation and Choice Online Act, for example, would end the need for prosecutors to define relevant markets at all. There is also a larger push from conservative and progressive populists to end the consumer welfare standard, which holds that big isn’t automatically bad; big must behave badly before it can be punished. If populists get their way, they could win cases in which the defendants have not harmed anyone.

Attorney General Racine’s legal defeat was expected; the only surprise was that it took so long. But this was a minor skirmish in a much larger battle that goes far beyond the big tech bogeymen of the moment.

For more about what is at stake, see Wayne Crews’s and my paper, “The Case against Antitrust Law.”

New Anti-Merger Bill Not Indexed for Inflation

Yesterday, I wrote about four problems with Sen. Elizabeth Warren (D-MA) and Rep. Mondaire Jones (D-NY)’s new antitrust bill, the Prohibiting Anti-Competitive Mergers Act. There is a fifth problem: Its $5 billion threshold for automatically rejecting mergers is not indexed for inflation.

That is important. If inflation continues at its current 7.9 percent annual rate, the $5 billion threshold would fall to $4.6 billion in current dollars after just one year. Even if inflation gets back under control relatively quickly, this “bracket creep” effect would, after a few years, increasingly affect mergers outside of Sen. Warren and Rep. James’ big tech targets. Maybe this is by design, and maybe it isn’t. Either way, it’s bad policy.

Mission creep is a serious problem in antitrust policy, as I also pointed out earlier this week in a letter to a conservative state attorney general who wants to use antitrust enforcement to punish progressive political advocacy. Antitrust policy is supposed to be about competition.

The neo-Brandeisian movement that inspired the Warren-Jones bill also wants to expand antitrust regulation. Its advocates see it as a way to address economic inequality, democracy, and climate change, among other competition-unrelated issues.

This new bill, advertised at targeting big tech companies, would, after a few years of even moderate inflation, make that kind of mission creep inevitable. It would affect industries with low levels of market concentration and little to do with today’s tech bugbears. And it would have a chilling effect across the economy on new innovations and new ways to find lower prices for consumers.

New Antitrust Merger Bill Is Fatally Flawed

There is yet another antitrust bill in Congress. The Prohibiting Anticompetitive Mergers Act, sponsored by Sen. Elizabeth Warren (D-MA) and Rep. Mondaire Jones (D-NY), seeks to prevent big tech mergers larger than $5 billion. While companies could appeal this automatic denial in court, they would have to prove the Federal Trade Commission, the Justice Department, or both acted in an “arbitrary and capricious” manner in denying a merger. That is an uphill climb that stacks the deck against companies, and may dissuade many from even trying.

Additionally, it would empower regulators to retroactively undo completed mergers if they result in the merged entity having a market share over 50 percent at some point in the future.

There are several problems with the bill. First, it might not stay on the books for long if it passes, because the U.S. Constitution prohibits ex post facto laws. Unwinding past mergers that were legal at the time they were approved almost certainly qualifies as ex post facto, and courts are unlikely to look favorably on any unwinding attempts if they are met with legal challenges.

Second, the 50 percent market share threshold for enforcement is arbitrary. Fifty percent of which market? Regulators are free to define that as narrowly as they choose. As I’ve noted before, any market can be a monopoly if you define it narrowly enough. The relevant market fallacy is already too common in antitrust. This bill would be an open invitation for regulators to abuse it even further. This is another area where regulators frequently run into trouble in court.

Third, good policy is predictable and stable. The Prohibiting Anticompetitive Mergers Act would be neither. Companies and investors need to be able to plan ahead to bring new innovations or pursue new ways to lower prices. If they try something only to have it undone by regulators after the fact, why even bother? This chilling effect is one of antitrust policy’s most significant costs, and it is often unseen.

Fourth, not everything is an antitrust issue. There is a reason so many startups seek to be acquired by big tech companies: overly burdensome financial regulations. The Sarbanes-Oxley and Dodd-Frank laws make it difficult for growing companies to raise capital on their own or go public. It is often easier for a startup to sell out to a bigger company that already has those resources in-house. If Sen. Warren and Rep. Jones want fewer big tech acquisitions, they should make financial regulations more reasonable, so smaller firms can get the capital they need while staying independent.

Those are just the start of the Prohibiting Anticompetitive Mergers Act’s problems. It is unlikely to pass, since Sen. Amy Klobuchar (D-MN) and Rep. David Cicilline (D-RI), two of Congress’ most powerful antitrust voices, conspicuously declined to support it. Even if it is more of a statement bill than a serious proposal, it is still important to nip it in the bud. There are better ways to make the economy more competitive.

Antitrust Is Political

Antitrust regulation is just as politicized as other forms of regulation. Arizona attorney general Mark Brnovich’s just-announced investigation into investors whose politics he doesn’t like is just the latest example, as I point out in a letter that ran in yesterday’s Wall Street Journal:

Arizona Attorney General Mark Brnovich has opened an antitrust investigation into investment funds centered around environmental, social and governance (ESG) goals. He argues that they are financing a coordinated political agenda (“ESG May Be an Antitrust Violation,” op-ed, March 7). First Amendment concerns and the heavy legal lift of proving collusion aside, this investigation is wrongheaded for two reasons.

First, two wrongs don’t make a right. Mr. Brnovich is right that many ESG funds are politicized. But the remedy is not antitrust enforcement, which itself is politicized—not to mention slow, ineffective, and prone to regulatory capture.

Second, it is unwise to give new ideas to the Federal Trade Commission’s Lina Khan, Sens. Josh Hawley and Amy Klobuchar, and others looking to expand antitrust regulation. Antitrust mission creep has already crept too far.

Ryan Young

Competitive Enterprise Institute

Washington

The letter is here. Brnovich’s original column is here.

Review of Michael Munger, The Sharing Economy: Its Pitfalls and Promises (Institute of Economic Affairs, 2021)

Transaction costs are one of the most overlooked ideas in economics. They are also one of the most important. The lowering of transaction costs is an engine of modernity itself and key to understanding where future progress might take us. That is Duke University economist Michael Munger’s argument in his new book, The Sharing Economy: Its Pitfalls and Promises (free download from the Institute of Economic Affairs). It follows up his 2018 book, Tomorrow 3.0.

What are transaction costs? As the name implies, they are things that get in the way of making transactions. Think of them as economic friction. Things like waiting in line, searching for a product, comparing prices, driving to and from a store, or resetting another forgotten website password. Transaction costs often cannot be measured in money, but they are still part of the price of everything we buy. A good economist knows, money is not everything.

Countless beneficial transactions never happen because the time and hassle required outweigh the benefits. Successful entrepreneurs can make these lost transactions come to life just by lowering their attendant transaction costs. In a way, they succeed by making the invisible visible. Along the way, they can create new industries, revolutionize existing industries, and topple old ones. Transaction costs are the hidden engine of Joseph Schumpeter’s creative destruction.

Munger’s dissertation advisor was the Nobel laureate Douglass North, one of the pioneers of transaction cost economics, along with other laureates such as Ronald Coase and Oliver Williamson. Munger likes to tell a story about North explaining that, while there are endless questions to ask in economics, many of them have the same answer: transaction costs. Over the years, North’s advice has proved useful to countless graduate students in search of thesis topics. As The Sharing Economy shows, there remains plenty of uncharted territory. Today’s graduate students should take note—as should experienced scholars.

How do transaction costs apply to the new sharing economy? Broken down to fundamentals, Uber doesn’t sell taxi rides or food delivery. It sells access to a platform that drastically lowers transaction costs for some services. The product is the platform. Yes, people use it to buy and sell taxi rides and food delivery, but they could use that type of platform for almost anything.

This is why a lot of sharing economy startups describe themselves as the Uber or the Airbnb for this or that service. They’re selling transaction cost savings, not whatever product or service appears in their marketing materials.

Every transaction requires what Munger calls the three Ts: triangulation, transfer, and trust. Sharing platforms can solve the three Ts quickly and cheaply:

  • Triangulation means coordinating everyone involved in the transaction. In a food delivery transaction, those are the customer, the restaurant, and the delivery driver. Until recently, solving this coordination problem was so difficult that most restaurants did not offer delivery at all. And the ones that did had to hire their own drivers to work exclusively for them. Unless business was both brisk and consistent, this was a risky proposition. Today, sharing platforms can solve triangulation problems in seconds. As a result, restaurants that might not be able to afford full-time delivery staff can now share drivers with other businesses and earn additional sales, while customers gain additional choices.
  • Transfer means making sure everyone gets paid. Uber, for example, has all parties’ payment info stored in the app. It automatically charges customers the right amount, pays restaurants and drivers, and handles tips. That is far easier than in the old days of cash, checks, or reading out your credit card number over the phone.
  • Trust is all parties having confidence that everything will go as it should. This is what ratings systems contribute. Riders can avoid drivers with low ratings and drivers can avoid problem customers. They can do this in seconds just by glancing at their ratings. On the other side of the coin, high ratings can be lucrative for vendors, giving them a greater incentive to keep customers happy than a traditional cab driver. And keeping that five-star rating can encourage more civil behavior from customers. It doesn’t pay to be a Karen.

Sharing economy platforms solve the three Ts so quickly and easily that millions of transactions that would never have happened a decade ago are now routine. This, for Munger, is a reason for optimism. Similar platforms could emerge for all kinds of goods. In fact, they probably are doing so right now in a dorm room or a garage somewhere.

Tools that spend nearly all of their time in storage could be rented out, for example. Other possibilities include office equipment, professional-grade audio and video equipment, and designer clothing. Some of these ideas might be successful. Others might be duds. People will likely find out soon enough.

Munger believes the low-transaction cost sharing economy could transform manufacturing as we know it. Factories would make far fewer goods, and what they do make would tend to be professional grade and more durable. A drill that spends 30 years in someone’s garage might get a couple hours of use over its entire lifespan, but if it’s shared, it will get far more use on a wider variety of tasks. It will need to be more solidly built and easily repaired.

That is one reason why the sharing economy has costs, as well as benefits. Both words in the phrase “creative destruction” are important. Just because the benefits outweigh the costs doesn’t mean costs do not exist. Manufacturing jobs have already declined by about a third since their 1979 peak, from about 18 million workers to about 12 million. If sharing platforms become popular for a lot of goods, that decline will be deeper and steeper. At the same time, the higher-grade goods still being made might require more skills or more automation to make, displacing less skilled workers.

Other jobs would open up in warehousing and delivery, and likely in other sectors. Munger doesn’t know what these might be, and neither does anyone else. Some of these jobs might not be appealing, might not pay as well, or may not work with some workers’ family responsibilities or other personal situations.

On the other hand, the size of the labor force has stayed remarkably consistent relative to population  throughout America’s transition from agriculture to industry, and from industry to services. While the inability to predict the future is scary, that’s no reason to keep things as they are. As Munger says on page 89, “Platforms are disruptive, but outlawing disruption has never worked.”

Transaction Costs and a Policy Revolution

As transaction cost reductions transform the economy, they also transform public policy. The problem is that public policy usually takes long to catch up. Regulations classify many workers as either employees or contractors, and treat them differently. Employee status comes with certain rules for minimum wages, benefits, and working conditions, while the rules for contractors are generally looser. It is also a false dichotomy that poorly fits workers’ needs.

If an accountant uses a platform like Taskrabbit to work for several clients, is she an employee of any of them? Does she count as Taskrabbit’s employee because it handles her payments or is she a customer who pays to access its platform? Does it matter if she commutes to an office or works from home? What if she’d rather choose her own health insurance or retirement plan? My colleague Iain Murray explored this question in his 2016 CEI paper “Punching the Clock on a Smartphone App.”

Current regulations don’t have good answers to these questions. And laws like California’s AB5 gig worker law and the proposed PRO Act at the federal level would entrench the legacy labor law model even further. All this is because some entrepreneurs thought of a way to use smartphone apps to reduce transaction costs.

In the age of COVID, sharing platforms have made it easier for workers to avoid public transportation and crowded offices. When COVID subsides, many workers will still prefer to avoid commutes and offices in favor of more pleasant surroundings like home offices, coffee shops, or smaller shared offices—which some sharing platforms offer. Regulators should think carefully before they take those options away.

Antitrust policy is in the middle of its own revolution, thanks in part to transaction costs. Sharing platforms are just another version of the old make-or-buy decision. If a company needs legal help, does it use in-house counsel or hire an outside attorney? Should a firm employ its own custodian or hire a cleaning service? The answer depends on transaction costs. If it’s cheaper to do something yourself, do that. If transacting with someone else costs less, do that. The answer is different for every company—and can change over time within a company. Sharing platforms and their lower transaction costs provide new possible answers to this age-old problem.

As of this writing, the leading food delivery platforms are DoorDash, UberEats, and GrubHub. They could buy out smaller competitors or merge with each other in the coming years, which might result in antitrust action. It shouldn’t, and transaction costs explain why.

A restaurant that wants to offer delivery has a make-or-buy decision to make. Does it hire its own driver or outsource to a sharing platform? It will go with whichever has lower transaction costs. This provides a built-in competitive check on sharing platforms that will never go away—even if one sharing platform monopolizes the entire market. If its fees cost more than the restaurant hiring its own drivers, then restaurants will opt for the latter. Several restaurants in the same city could even band together and jointly hire a driver—if regulations allow them.

The reason people use sharing platforms in the first place is because their transaction costs are lower than the alternatives. And the alternative of doing something in-house will never go away. Sharing platforms do not have market power, and never will.

Sharing platforms also do not restrain trade, which is another threshold for antitrust enforcement. They enable new trades that would never have happened otherwise, because they lower transaction costs. Before sharing apps, food delivery options in most places were limited to pizza and Chinese. Now, everyone from McDonald’s to mom-and-pop diners offer delivery. Some restaurants, such as Panda Express, are even attempting to undercut sharing platforms by creating their own app-based ordering services to avoid platforms’ fees.

Transaction Costs and the Moral Economy

Contrary to popular belief, morals are an integral part of economics. One of the discipline’s founding works, after all, is Adam Smith’s Theory of Moral Sentiments. Man is an animal that trades, to paraphrase from Smith’s other great work, The Wealth of Nations. People want to exchange, cooperate, and compete. It is our nature. But transaction costs get in the way of our nature, because they get in the way of trade.

Economists Virgil Storr and Ginni Choi, of the Mercatus Center at George Mason University, argue in their book Do Markets Corrupt Our Morals? that markets are moral playgrounds. When people enter those playgrounds, they learn how to trust and earn trust. They learn to keep their word and be polite—the late, great Steve Horwitz delighted in the “double thank you” that accompanies most transactions. People on the playground learn that the best way to get something you value is to give others things they value even more.

These are skills that take practice and repetition to develop. Transaction costs raise the cost of this moral practice. And when something costs more, people consume less of it.

If the goal is an open, civil society, then transaction cost reduction should be an important priority. Sharing economy platforms have the potential to do exactly that on a massive scale. At the same time, they are just another chapter in a long story, and hardly the final one.

Munger, by taking Douglass North’s advice, has used an old and overlooked tool to better understand new technologies and emerging economic changes. Sharing platforms have already changed the way people take cab rides, order food, and go on vacation. In the coming years, they could reshape the manufacturing sector, office culture, and even urban design, if traditional offices and downtowns continue to fall out of favor.

Transaction costs can also lead to fresh insights about labor regulations, antitrust, and other areas of public policy, as well as the overlooked symbiosis of markets and morality. Though The Sharing Economy is geared to a British audience, American readers will still get far more value from this freely downloadable book than they spend in transaction costs. While this admittedly sets a low bar, I intend it as high praise. I could not recommend this book more highly.

Download The Sharing Economy for free from IEA’s website here.

Sen. Klobuchar’s Half-Baked Antitrust Bill

famous scene in the 1990s comedy movie Half Baked has a young Jon Stewart musing about how different everyday activities can be while one is high on cannabis. “I love Al Pacino, man. You ever see Scent of a Woman?” “Yup,” his dealer says. “You ever seen Scent of a Woman—ON WEED? That’s the way to see it, man!” Stewart continues: “You ever see the back of a $20 bill, man?” “No, I don’t know you,” says the now-wary dealer. “You ever see the back of a $20 bill—ON WEED?! There’s some weird shit in there, man!”

This scene may well have inspired Sen. Amy Klobuchar’s (D-MN) new antitrust bill, the American Innovation and Choice Online Act. The Senate version, to be introduced next week, joins an already-introduced House version (H.R. 3816), which would ban online retailers from giving preferential treatment to their private brand products.

Sure, you buy store brand products all the time at the grocery store and from Costco, but have you ever bought store brand products—ONLINE?! The distinction between in-person commerce and online commerce is silly. It’s 2021. Nearly every business, big or small, has at least some online presence, and they have for a while.

Sellers sell and buyers buy. Whether in person, by phone, by mail, or online, all are just different means to the same end. People tend to use whichever method has the lowest transaction costs to get together and make transactions. That’s it. The rest is details, like the man in the bushes on the back of Jon Stewart’s $20 bill, who may or may not have a gun.

Klobuchar and her eight Senate cosponsors have an average age of 66, so most of them may not get even my own dated cultural reference to Half Baked. In fact, the only two sponsors under age 60 are Josh Hawley (R-MO), 41, and Cory Booker (D-NJ), 52. No wonder nearly every congressional hearing on tech issues has at least one “series of tubes” or “Senator, we run ads” moment. Whatever one’s feelings about the tech industry, one should think carefully before giving politicians the power to regulate what they do not understand.

For more tech-savvy members, maybe they are grasping at straws for reasons to regulate companies they dislike, and this was the best they could find.

Whatever the case, the online-offline distinction does not matter for consumers, and it gets blurrier every year. Amazon is opening more brick-and-mortar stores, while Walmart and Target are expanding their online offerings. Sen. Klobuchar’s bill would freeze in time a false dichotomy, and cause consumer harm right in the middle of a difficult economic recovery.

How would the bill work in practice? It would not ban online companies from selling their private brand products, but it would ban them from giving their own products special treatment. Google, for example, would probably not be able to show Google Maps in its search engine, or at least not as a leading search result, which could lead to a lot of frustrated drivers. Amazon’s Prime program might go away entirely. At the very least, Amazon’s house brands would become harder to find and might not qualify for free shipping. There would be plenty of consumer aggravation, and no consumer benefits.

Meanwhile, house brands at physical stores would remain untouched. For decades, store brands such as Costco’s Kirkland have benefited from discounted prices, preferential marketing, and prominent shelf space. Those markets have remained highly competitive, but now that this same business practice is happening online, it is somehow different?

Nobody has yet offered a convincing explanation of why that is the case, let alone why commerce at a physical store is fundamentally different from commerce on a website or app, and therefore should be regulated differently.

The American Innovation and Choice Online Act is clearly not about consumer protection. For progressives, it allows them to express an ideological distaste for big businesses and pursue antitrust-unrelated issues like income inequality. For conservatives, it gives them a way to express their culture war grievances against tech companies—which is about as antitrust-unrelated as it gets.

The bill is also a golden opportunity for rent-seekers. For traditional retailers, it is a way for government to hobble their competitors. That might not be what antitrust advocates intend, but that is how antitrust works in in the real world. The American Innovation and Choice Online Act is only the latest instance of a long tradition of regulatory capture in antitrust policy.

For antitrust policy ideas that are more than half-baked, see CEI’s dedicated antitrust website and Wayne Crews’ and my paper “The Case against Antitrust Law.”

Senate Judiciary Antitrust Hearing on Big Data Based on Flawed Premises

This press release was originally posted at cei.org.

WASHINGTON – The Senate Judiciary Committee’s Subcommittee on Antitrust will hold a hearing today on the implications of data on competition. Subcommittee Chair Senator Amy Klobuchar (D-MN) told POLITICO, “Big data is at the core of our modern economy, powering targeted advertising, driving artificial intelligence. It’s a really intense competition issue at its core.”

Competitive Enterprise Institute Senior Fellow Ryan Young said:

“Sen. Klobuchar and her colleagues are arguing that the sheer scale of Big Data makes it difficult for smaller companies to compete in areas such as targeted advertising and algorithm development. There are several problems with this argument.

“One is that new companies are still entering the market and succeeding. TikTok is now garnering more viewing time than Google’s YouTube, and was the most-downloaded app of 2020, surpassing established giants such as Facebook. Zoom, which nobody had heard of two years ago, almost instantly overtook established competitors from Microsoft and other tech giants, and its brand has even become a verb.

“Two, simply having data and established networks of users did not stop Amazon from failing with its Fire phone, Google failing with its social Network Google+, or the anemic performance of Facebook’s Portal devices.

“Three, if the ad market was anti-competitive, the big companies would be able to get away with raising their prices. Instead, ad prices fell by half over the period 2009-2019, even as print ad prices doubled in some cases. Google, Facebook, Apple, and other incumbents spend billions of dollars on research and development. Companies that feel safe from competition do not do this.

“Sens. Klobuchar, Hawley, and others want to write new, expanded antitrust laws. All this would accomplish is give incumbent companies another set of regulations they can game in their own favor; regulatory capture is real. A greater threat of being sued would also have a chilling effect on innovations that regulators might not understand or approve of. The economy needs room to recover, not more central direction from Washington.”

Read more:

Not Always an Antitrust Issue: Airline Edition

The Justice Department is gearing up to file an antitrust case against JetBlue and American Airlines over an alliance they recently formed. The Wall Street Journal reports:

The lawsuit, which could come as soon as Tuesday, is expected to argue that the recently forged alliance threatens competition and higher fares, the people said.

American and JetBlue announced their alliance in July 2020, saying boosting their offerings in the Northeast by marketing one another’s flights on certain routes would allow them to become more formidable competitors at the three New York area airports and in Boston.

Assume, for the sake of argument, that the American-JetBlue pact is anti-competitive (the airlines dispute this, and I have not yet reached a conclusion). Is antitrust enforcement the right tool for increasing competition? Probably not. Antitrust regulation has a number of built-in flaws that cannot be reformed.

Market conditions can change in a lot less time than it takes to conduct a trial, which is why the case over big IBM’s dominance in mainframe computing, filed in 1969, was eventually dropped—in 1982, when personal computers were taking over the market.

Competing in the courtroom takes resources away from competing in the market, and can have a chilling effect on efficiency-enhancing innovations and business practices.

And then there is regulatory capture, where businesses coopt regulators for their own purposes. It wouldn’t be surprising to see other airlines try to influence this case, just as rival software companies did during the Microsoft case in the late 1990s. Oracle went as far as attempting to bribe rivals’ office janitors to hand over trash that might have contained sensitive documents.

A better solution would be to repeal existing regulations that bar international airlines from operating domestic flights in the U.S.—which is essentially a Jones Act for airlines. That reform alone would expose American’s and JetBlue’s joint flights to hundreds of potential new competitors. It would require no new spending, no court costs, and no lawyer fees. The airlines could compete in the marketplace, not the courtroom, and those worried about increasing concentration in the airline industry would have far less to worry about.

Antitrust is trendy right now. Its high visibility is one reason why activists are calling for using antitrust enforcement everywhere from airlines to health care to live events—and not just against the Big Tech companies that garner most of the headlines.

When you have a hammer, everything looks like a nail. But sometimes the correct tool for the job is a screwdriver or a saw. This is one case where the right tool is regulatory reform, not an antitrust prosecution.

For more CEI research on antitrust, see our dedicated antitrust website, as well as Wayne Crews’s and my paper “The Case against Antitrust Law.”