Category Archives: Economics

Observations from the Tech Antitrust Hearing

Posted on July 30, 2020 | Comments Off on Observations from the Tech Antitrust Hearing

This post collects some observations from yesterday’s lengthy House Judiciary Committee Subcommittee on Antitrust, Commercial, and Administrative Law hearing with the chief executives of Amazon, Apple, Facebook, and Google.

  • The parties had different conversations, as they often do. The Republicans mostly talked about political bias. Democrats mostly talked about concentrated power. Despite the different charges, their verdict was the same: guilty.
  • On net, the hearing likely hurt any future antitrust case. For example, as Mike Masnick pointed out, Rep. David Cicilline (D-RI) demanded that Facebook take down certain content—minutes after Rep. Matt Gaetz (R-FL) demanded that the same content be kept up. Judges tend not to look kindly on such incoherence.
  • The hearing had limited fact-finding value. The CEOs’ answers to questions were often interrupted after just a few seconds. The committee members appeared more interested in getting tough questions on camera than in building a case. Alternatively, since many antitrust cases tend not to survive careful scrutiny, perhaps the members knew a proper dialogue would not be in their interest, and avoided one intentionally. Neither possibility reflects well on the legislators.
  • Republicans have forgotten a basic rule of politics: Never give yourself powers you don’t want the other side to have. Reps. Jim Jordan (R-OH), Matt Gaetz (R-FL), and Greg Steube (R-FL) all argued for the federal government to regulate political speech in their party’s favor. If they succeed, Democrats will almost inevitably use that same power in their party’s favor when they are in power. The GOP’s Trump wing’s shortsightedness is quietly making some of their opponents very happy. As the saying goes, never interrupt your opponent when he is making a mistake.
  • There were no gaffes on the level of an 83-year old Sen. Ted Stevens’ (R-AK) 2006 description of the Internet as “a series of tubes” or Mark Zuckerberg’s “Senator, we run ads” response in 2018 to former Sen. Orrin Hatch (R-UT), then 84, on how Facebook makes money despite not charging its users.
  • In fact, yesterday’s oldest member, 77-year old Rep. Jim Sensenbrenner (R-WI), who is retiring after this term, came off comparatively well. He briefly defended the consumer welfare standard in his opening remarks, stated his belief that current antitrust laws do not need to be changed, then mostly stayed out of the fray.
  • The lack of meme-worthy gaffes does not mean the committee members are well versed in technology. The Committee’s average Democrat is age 57, the average Republican is 52, and frankly, it shows. For example, Rep. Lucy McBath (D-MD), 60, seemed to not know how cookies work. On at least one occasion, an angry Republican confused Twitter and Facebook, requiring Zuckerberg to point out the difference.
  • Members, who typically spend most of their careers in government, apparently know little about how retail works. Amazon came under fire for selling self-branded products at cheaper prices than name-brand equivalents, and placing them prominently in searches. Nearly every grocery store and retail chain in the country does the same thing. House brands with low prices and guaranteed shelf space have been standard practice in groceries and retail since the pre-World War II heyday of A&P—which was itself the target of dubious antitrust cases.
  • There was little, if any, discussion of regulatory capture or rent-seeking. This is an important unintended consequence of antitrust enforcement. Many established companies would be happy to comply with adverse antitrust judgments if it meant putting up barriers to entry against competitors. In the long run, cartels can only survive with government help.
  • My colleague Jessica Melugin writes, “Surely, politicians can find a better use of their time than harassing the companies that have helped so many Americans make 2020 a little more bearable.” Antitrust enforcement requires proof of consumer harm, yet this was rarely discussed at the hearing. Search engines make it easier to keep up with the latest news about the virus. Social networks help people stay in touch. Online retail and delivery services help keep people fed and supplied while social distancing. Other tech companies provide entertainment, access to medical care, and make it easier to work or learn from home. We will likely never know how many lives have been saved by these services, many of which are free of charge.
  • A running theme of the hearing was that the current big tech companies have enough market power to squash competitors—and then presumably raise their prices. But Zoom, which was not represented at the hearing, shows that the tech industry is still engaging in creative destruction. Six months ago, almost nobody had heard of it. Now, giants such as Microsoft-owned Skype are already essentially legacy services. The Committee’s own technical troubles with its older video conferencing software, which required the Committee to take a recess, underlined the point. Other tech companies are well aware of creative destruction. Facebook’s once-hip user base now has an average age of 46. More than two thirds of TikTok users, by contrast, are between ages 13 and 25.
  • Language matters. And some congressmen are slippery with it. For example, Rep. Cicilline stated that Amazon controls 70 percent of “online marketplaces.” This is a non-standard term that Rep. Cicilline did not define. It almost certainly has a much narrower definition than most people would assume when thinking of a company’s market share. Cicilline’s 70 percent of “online marketplaces” is equivalent to about 4 or 5 percent of retail sales. If people were not listening carefully to Rep. Cicilline’s boutique phrasing, they would get the impression that Amazon has a larger share of its relevant market than it actually holds—by more than an order of magnitude. Does Rep. Cicilline’s terminology include Amazon’s major competitors, such as Walmart, Target, grocery stores, electronics stores, book stores, and more? For more on this type of error, see Patrick Hedger’s recent post and my earlier one on the relevant market fallacy.
  • Rep. Cicilline argued that Google controls 85 percent of Internet searches. This is also misleading. Google does not power many common Internet searches people perform daily. Netflix famously hosted an open competition for developers to design a new search algorithm for its searches that would deliver results tailored to each viewer’s likes and dislikes. Other streaming services also use their own search technology, not Google’s. Amazon product searches use an in-house algorithm. Internet dating sites use proprietary search algorithms as selling points. Internal searches in Word documents or PDF files do not use Google. Were these included in Rep. Cicilline’s statistic? Or is this another example of the relevant market fallacy?
  • Though the hearing lasted for six hours, members missed some opportunities to score valid points. For example, Rep. Mary Scanlon (D-PA) briefly discussed price gouging. She did not bring up, as I recently did, that Amazon’s support of federal price gouging legislation has a potential anti-competitive rent-seeking component. The extensive tax breaks Amazon is receiving for its new second headquarters are another example of anti-competitive corporate welfare. Of course, the blame for these is on politicians as well as companies. This may be why they were downplayed.
  • Facebook CEO Mark Zuckerberg’s public support for heavier regulations for his company has a similar rent-seeking dynamic. Regulations often favor incumbents and lock out potential competitors. Facebook can afford expensive content moderation and privacy regulations; its startup competitors often cannot, or would be discouraged from even trying. Regulations, which Facebook would likely help to write, would likely lock in its leading position in a way that consumers would never allow.
  • Google’s sometimes-accommodating behavior to the Chinese government’s censorship and human rights policies is questionable. At the very least, the company should do more to stand up against illiberal governments. This, however, is not an antitrust issue.

In short, committee members addressed a lot of things they shouldn’t have, and did not address some things they perhaps should have. If this hearing has a part seven (yesterday was actually part six), it should have fewer threats to regulate political speech and fewer common analytical mistakes. And it should focus on how tech companies affect consumers, for both good and bad, and on likely consequences of antitrust enforcement, such as regulatory capture.

For a broader view of antitrust regulation, see Wayne Crews’s and my paper. A new #NeverNeeded paper on tech regulation during COVID-19 by my colleagues Jessica Melugin, Patrick Hedger, Michelle Minton, and John Berlau is here. Jessica’s thoughts on the hearing are here. More resources are at antitrust.cei.org.

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Posted in Antitrust, Competition, Economics, Public Choice, Uncategorized

New #NeverNeeded Paper: Price Gouging

Posted on July 23, 2020 | Comments Off on New #NeverNeeded Paper: Price Gouging

Massive shortages happened almost instantly when it became clear that the coronavirus would require a nationwide lockdown. Grocery stores almost instantly cleared out of frozen foods, non-perishables, hand sanitizer, and, bizarrely, toilet paper. Stores dealt with the shortages in different ways. But one of those ways, raising prices, is almost universally unpopular. In fact, 36 states have anti-price gouging legislation on the books. Both Commerce Secretary Wilbur Ross and an Amazon vice president have called for federal price gouging legislation.

In a new paper, I explain that price gouging legislation is a bad idea, regardless of one’s feelings about price gouging. The main reasons are:

  • Private companies have their own anti-price gouging responses. Moreover, they can evolve in ways regulation cannot, and more quickly. For example, Amazon’s artificial intelligence (AI) algorithms for policing price gouging among its third-party sellers turned out to have unintended consequences. But unlike Congress, they don’t have to wait until the political winds blow just right before doing something about it. Part of trial is error, and that’s okay. Without mistakes, there is no learning.
  • Price controls make shortages worse.
  • Rent-seeking. Big companies such as Amazon have already invested in AI algorithms and other anti-price gouging measures to prevent their third-party sellers from price gouging. Their smaller competitors have not. Amazon’s call for federal legislation likely has a bit more than good PR behind it.
  • Anti-price gouging measures don’t actually reduce prices. They reduce money prices at a tradeoff: non-money prices go up even more. These non-money price increases include worse shortages, longer searches, waiting lines, longer shipping times, lower quality, and in some cases, more black market activity.
  • There is no objectively correct mix of money- and non-money prices during a crisis. Different people have different needs and different preferences. Legislation, by imposing one single standard, does no favors to people’s diverse situations.

The whole paper is here. I touched on a few other price gouging tradeoffs here. CEI’s #NeverNeeded website is here.

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Posted in #NeverNeeded, Economics, Price and Wage Controls, Price Gouging, Publications, regulation

In the News: Lowering Tariffs

Posted on July 16, 2020 | Comments Off on In the News: Lowering Tariffs

Bloomberg’s Ana Monteiro was kind enough to quote from my tariff relief paper in a recent piece:

While some duties have been relaxed to help with importing inputs needed for the coronavirus response, repealing tariffs related to health care altogether is something that Ryan Young, a senior fellow at the Competitive Enterprise Institute, in a July 8 paper said would have the immediate benefit of lowering costs for equipment and medical treatments. He argued that removing all duties imposed since 2017 would “aid economic recovery by reducing businesses’ supply costs,” and provide them some regulatory certainty.

The CEI’s Young also called for tariff-making authority to be moved back to Congress. That would mean repealing:

  • Section 232 of the 1962 Trade Expansion Act, which allows for tariffs without a vote by Congress if imports are deemed a national-security threat;

  • Sections 201 of the 1974 Trade Act, which gives the president authority to impose trade restrictions;

  • Section 301 of the 1974 Trade Act, which President Donald Trump has used to impose tariffs on French and Chinese goods.

Read the whole article here. The paper is here.

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Posted in #NeverNeeded, Economics, Media Appearances, Trade, Uncategorized

In the News: Tariff Reform in the CBC

Posted on July 16, 2020 | Comments Off on In the News: Tariff Reform in the CBC

It’s not often that phrases such as “institution-level reforms” and “never needed” appear in state-run media at all, let alone favorably. I am pleased this happened in a recent article on trade policy in Canada’s CBC:

In a report issued Wednesday, the U.S.-based Competitive Enterprise Institute, a conservative think tank, urged the Trump administration to get rid of all tariffs.

“Tariff reform should have been a priority before the coronavirus hit, but now it’s even more urgent to lift trade barriers, in particular for health care supplies and treatments,” said Ryan Young, CEI senior fellow and author of the report, in a statement.

“Tariffs were never needed in the first place, and they are causing harm during a potentially Depression-level economy. The time to act is now.”

Among other things, the report calls on Congress to “make big-picture, institution-level reforms to U.S. trade policy” — including the repeal of Section 232 of the Trade Expansion Act of 1962 and Sections 201 and 301 of the Trade Act of 1974 — to “restore tax authority to the legislature and make trade policy less subject to presidential whim.”

CEI is misidentified as conservative rather than liberal, in the correct sense of the word. But there are bigger battles to fight. The full article is here; my recent paper on tariff relief is here.

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Posted in #NeverNeeded, Economics, Media Appearances, Trade, Uncategorized

In the News: Tariff Relief

Posted on July 16, 2020 | Comments Off on In the News: Tariff Relief

Reason‘s Eric Boehm was kind enough to draw on my recent paper on tariff reform in a piece urging the inclusion of tariff relief in the next coronavirus stimulus bill. The article is here; the paper is here.

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Posted in #NeverNeeded, Economics, Media Appearances, Trade, Uncategorized

New #NeverNeeded Paper: Remove or Reduce Tariffs

Posted on July 8, 2020 | Comments Off on New #NeverNeeded Paper: Remove or Reduce Tariffs

Trade barriers are an obvious #NeverNeeded candidate for removal during a pandemic and a recession. They make medical supplies scarcer and more expensive. They raise consumer prices at a time when millions of people are losing their jobs and wondering how to make ends meet. And because other countries retaliate every time President Trump raises a tariff, U.S. businesses find shrunken markets for their goods through no fault of their own. Tariffs are a self-harming policy. They must go.

In a new paper for CEI’s #NeverNeeded series, I lay out a plan for making that happen. But simply getting rid of the Trump-era tariffs is not enough. Reformers need to make sure they do not come back. That means, as with so many areas, that institution-level reform is necessary. In this case, that reform involves the separation of powers.

The backstory is that Congress originally delegated away some of its tariff-making power in the 1960s and 1970s to the president because it found itself incapable of reducing tariffs the way it wanted to in the early postwar era. Vote-trading and favor exchanges that are a common part of congressional operating procedure weakened trade liberalization attempts. The thinking was that the president, with a national constituency, would be less prone to giving narrow favors to a single congressional district at the expense of the whole country.

This worked until an ideologically protectionist White House more than doubled U.S. tariff rates in just three years. Those tariffs and the retaliations they inspired are costing roughly a half percentage point of growth. The country might be able afford this kind of ideological luxury good during a boom, but not during COVID.

The tariffs must go, and Congress must reclaim its authority. Fortunately, the reform is pretty simple. Congress can repeal three sections from two different trade bills to reclaim its proper taxing authority from an executive branch that will not use it responsibly.

Those sections are Section 232 of the Trade Expansion Act of 1962 and Sections 201 and 301 of the Trade Act of 1974.

The whole paper is here.

A brader agenda for reducing trade barriers is in Iain Murray’s and my paper Traders of the Lost Ark.

CEI’s #NeverNeeded website is here.

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Posted in #NeverNeeded, Economics, Trade

Managed Trade: USMCA Comes into Effect Today

Posted on July 1, 2020 | Comments Off on Managed Trade: USMCA Comes into Effect Today

The United States-Mexico-Canada Agreement (USMCA) comes into effect today. It replaces the North American Free Trade Agreement (NAFTA) of 1994. USMCA’s policy changes are modest, and its economic impact will be small. But it sets a negative precedent for future trade agreements that could have far larger long-term impacts than USMCA itself. Most of its changes also attempt to manage trade, rather than free it. These factors led CEI to oppose USMCA in December 2019.

Some USMCA policy changes are positive, such as a partial liberalization of Canada’s dairy markets. More than half of USMCA’s text is drawn verbatim from the Trans-Pacific Partnership (TPP) that the Trump administration unwisely withdrew from early in its term. My colleague Patrick Hedger wrote about Section 230-style language that will benefit free speech while making all three member countries’ tech industries more competitive.

Other changes are negative. The U.S. essentially dictated to Mexico what some of its labor policies shall be. Not only is this disrespectful to Mexico’s sovereignty, but it is essentially a gift to U.S. labor union interests, and will make autos more expensive for consumers. Auto parts makers’ supply networks, which have built up over decades, will have to be reconfigured to meet USMCA’s requirements for what percentage of parts must come from which countries. But those are smaller potatoes. There are larger ones.

USMCA’s name does not contain the words “free” or “trade.” This is symbolism, but also important. President Trump is a longstanding critic of free trade, and hired his policy advisers accordingly. Their removal of the F from NAFTA accurately reflects their policy goals. They would rather manage trade than free it.

Nor is their planners’ ethos confined to USMCA. The China Phase One deal goes so far as to outline minimum dollar amounts for how much agricultural exports U.S. farmers are to send to China, for example. Of course, the administration’s economic planners could not foresee the COVID crisis. Their quotas are now unlikely to be met even in a best-case scenario, which is causing avoidable diplomatic tensions; the best-laid plans and all that. Some USMCA plans have similarly been thrown off by the pandemic. Supply networks were already rushing to meet USMCA’s country-of-origin requirements. The last few months of lockdown have made the adjustments even more difficult.

USMCA’s missing T, which in NAFTA stood for Trade, is also significant. It belies mission creep. Trade agreements should stick to trade. USMCA emphatically does not.  USMCA’s trade-unrelated provisions include environmental policies, labor policies, intellectual property rules, currency policy, pharmaceutical regulations, and more. Trade-unrelated provisions inflate page counts, create unnecessary areas of contention, prolong negotiations, distract from the matter at hand, and create new rent-seeking opportunities.

The original NAFTA was the first major trade agreement to contain significant trade-unrelated provisions, and deserves criticism on that front. But at least they were shunted off into a side agreement. USMCA bakes its trade-unrelated provisions into the main agreement. The U.S., Canada, and Mexico already enjoy a near-zero tariff relationship, and relatively low non-tariff barriers. Without much left for USMCA to accomplish on trade, non-trade issues are no longer a sideshow. They are the show.

While USMCA is comparatively low stakes and will have minimum economic impact, it sets a negative precedent for upcoming agreements with the, European Union, and China. Relations with the EU have been tense for some time, especially over Boeing and Airbus subsidies. Any further China agreements will be delicate, both because of the COVID lockdown affecting Phase One compliance and President Trump’s reelection concerns apparently influencing his negotiations.

Haggling over non-core trade issues could potentially torpedo those agreements, or dilute liberalization victories for tariffs and other trade barriers. USMCA itself is not particularly harmful. But the precedent it sets might be.

For a more constructive approach to trade policy, see Iain Murray’s and my paper “Traders of the Lost Ark.” For a better approach to trade agreements, see “The Ideal U.S.-U.K Free Trade Agreement,” put together by consortium of groups in the U.S. and U.K., headed by the Cato Institute’s Dan Ikenson and Simon Lester, and the Initiative for Free Trade’s Daniel Hannan.

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Posted in Economics, Trade

Supreme Court Declines to Hear Steel Tariff Case: Time for Congress to Act

Posted on June 23, 2020 | Comments Off on Supreme Court Declines to Hear Steel Tariff Case: Time for Congress to Act

President Trump’s steel tariffs were intended to boost U.S. manufacturing. They backfired to the point where a group of steel-using industries sued to stop the tariffs. The case wound its way up to the Supreme Court, which this week announced it would not hear it. The tariffs will remain in place.

Although the Court will not act, Congress has the power to rescind the tariffs at any time. However, as the Cato Institute’s Dan Ikenson told Politico’s Morning Trade newsletter, “Congress is quite content with its abdication of trade authority, frankly.” President Trump is getting all of the blame for the trade war’s failures. This is fine with much of Congress—even many Republicans, who mostly did not favor Trump-style trade protectionism until changing their minds around January of 2017.

Sen. Chuck Grassley (R-IA) has proposed reclaiming some of Congress’ abdicated tariff authority, but his proposal’s political prospects are dim.

The Supreme Court case on the steel tariffs would have hinged in part on the separation of powers. Only Congress has the power to tax. Tariffs are taxes. That means only Congress, not the president, can enact tariffs. But there is a wrinkle. Back in the 1960s and 1970s, Congress delegated away some of its tariff-making power to the president. The steel tariffs were enacted under Section 232 of the Trade Expansion Act of 1962, which empowers the president to impose tariffs without congressional consent, provided they are imposed on national security grounds.

It is hard to tell which way the Court would have decided that question, since separation of powers arguments cut both ways. While the president does not have taxing power, Congress did delegate Section 232 powers to him. But how far does that delegation authority extend? How far do the powers reach? These questions will remain unanswered for now.

While frustrating, this may be for the better. The Supreme Court, whose members are presidentially appointed and Senate-approved, in part for that reason, tends to be permissive of executive power, and deferential to Congress.

The merits of the case are less ambiguous, though that is often of less importance in legal matters. The Section 232 steel tariffs, which originally targeted allies such as Canada and Mexico, do not pass any reasonable national security test. In a phone call with Canadian Prime Minister Justin Trudeau, for example, President Trump claimed that the tariffs were justified because Canada burned down the White House during the War of 1812.

This claim, while weak, is also inaccurate. The White House was burned by British soldiers. Those soldiers were stationed in Canada, but since Canada’s government did not gain independence until 1867, it can hardly be blamed. This also leaves aside Canada being one of America’s strongest allies through multiple wars and other national security threats, as well its largest trading partner.

#NeverNeeded steel tariffs are harming not just the steel industry, but steel-using industries such as construction and automobiles. In all, just the tariffs that President Trump alone has enacted are costing the economy roughly a half percentage point of economic growth, according to the Congressional Budget Office. While the country might have been able to afford such ideological luxury goods during a boom, it simply cannot during the COVID-19 recovery.

In CEI’s most recent Agenda for Congress, we argued that Congress should repeal not just Section 232 tariff authority, but also Sections 201 and 301 of the Trade Act of 1974, which allow presidential tariff-making to address foreign competition and treaty violations. Iain Murray and I also outlined a larger positive agenda for trade policy in our paper “Traders of the Lost Ark.”

The Trump tariffs have to go. Since the Court will not step up, Congress must act.

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Posted in #NeverNeeded, Economics, International, Trade

Unintended Consequences of Price Gouging

Posted on June 12, 2020 | Comments Off on Unintended Consequences of Price Gouging

Price gouging legislation, though popular, routinely backfires. Price controls make shortages worse. In a crisis, this is especially harmful. And even if price gouging legislation were to tamp down money prices, it worsens increases in non-money prices such as greater scarcity, more difficult searches, longer queues and waiting lines, longer shipping times, and, sometimes, increases in black market activity.

There are private responses to price gouging, though. Amazon, for example, uses artificial intelligence to find price gouging among its third-party sellers. But even this non-legislative effort has had unintended consequences. Bloomberg’s Spencer Soper reports:

But consultants who help merchants avoid suspensions say they were inundated with calls from clients during the price-gouging crackdown. One of them, a former Amazonian named Chris McCabe, says he heard from hundreds of merchants and advised dozens of them to stop selling products because the rules were unclear.

“Amazon just did a giant sweep and they really scared a lot of people away from selling wipes and toilet paper,” he says.

Many sellers believe Amazon’s algorithm is prone to false positives, and its penalties are too harsh. The resulting chilling effect helps no one at a time when just about everyone needs help.

Fortunately, unlike legislation, Amazon is able to react in real-time and improve its price gouging policies. This process will almost certainly take less time than it would for Congress or a state legislature to pass a new law. Part of trial is error. And good institutional design makes it easy to learn from errors and fix them as they happen. These things should not have to wait until the political winds are just right.

There is also a rent-seeking component to price gouging legislation. Economists Steve Horwitz and Michael Munger, in separate interviews with The Counter’s Jessica MacKenzie, make some underappreciated points about price gouging.

Steven Horwitz, an economist from Ball State University, says the cases in California are unusual in that they target large chains, when it is more common to see cases against smaller brick-and-mortar stores. This is in part because smaller stores have fewer resources and are more likely to settle than to fight a lawsuit.

A national seller can react to regional disaster by simply redirecting supply. They can also afford expensive counsel. Smaller companies have neither of these advantages, so legislation makes them more vulnerable. Price gouging legislation can actually be a rent-seeking weapon big companies can use to gain unfair advantage over smaller companies.

Of course, COVID 19 is global, so even the biggest sellers cannot redirect supplies. Hence the recent California lawsuit against Whole Foods, Walmart, Trader Joe’s and Costco, and other large sellers over egg prices.

Duke University’s Michael Munger argues that some price gouging laws lack clear thresholds, which creates uncertainty. Some states have set thresholds, such as a maximum profit margin of 20 percent. But other laws operate essentially by feel:

Munger points out that the law in North Carolina bans price increases that are “unreasonably excessive under the circumstances.”

Price gouging laws are meant to protect consumers from being taken advantage of during crises.

“If I’m a store owner, how do I know if I’m violating the law in North Carolina?” Munger says. “In practice, what this means is, ‘If someone complains….’ That’s not a very good law. If I can’t tell what the law means, it’s too vague.”

I will have more to say on price gouging in an upcoming paper. But these points are good to keep in mind.

Even private price gouging responses have unintended consequences, such as sellers deciding not sell at all right when people need their wares the most.

Price gouging legislation can unfairly favor larger businesses, and they know this.

And many of the laws are vague enough to have the same chilling effect Amazon’s algorithm has had—but will be much more difficult to fix.

Price gouging laws are #NeverNeeded.

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Posted in #NeverNeeded, Economics, Price and Wage Controls, Price Gouging

Time for a Federal Price Gouging Law?

Posted on May 15, 2020 | Comments Off on Time for a Federal Price Gouging Law?

Amazon’s vice president of public policy, Brian Huseman, calls for a federal price gouging law in a recent post over at Amazon’s in-house blog. This is a bad idea for several reasons.

One is that there are already effective ways to reduce price gouging without regulation. At Amazon, Huseman writes, “We deploy dynamic automated technology to proactively seek out and pull down unreasonably priced offers, and we have a dedicated team focused on identifying and investigating unfairly priced products that are now in high demand, such as protective masks and hand sanitizer.”

This should be a competitive selling point for Amazon, not a call for more regulation. Regulations, remember, are made by the government we have, not the government we want. Amazon’s technology and in-house policies are almost certainly more effective than what Donald Trump, Nancy Pelosi, or Mitch McConnell would enact during an election year and a pandemic. Company-level policies are also more adaptable than federal-level policies as technology and circumstances change.​

In fact, if Amazon isn’t already doing so, it could license or sell its anti-price gouging technology to competitors for a profit. Price gouging is unpopular, and companies that fight against it look good to customers. Amazon does not need federal regulations to force this business opportunity into being.

Looking at price gouging legislation from Amazon’s perspective, but without the public relations filter, they stand to gain three things from a federal price gouging law:

  1. Regulatory certainty. One federal standard is easier to follow than dozens of state standards.
  2. Liability protection. Amazon will face fewer price gouging lawsuits if the company is cooperative with legislators, or even has a hand in crafting the rules.
  3. Rent-seeking, which is economists’ term for using government for unfair advantage. Price gouging legislation is a way for Amazon to raise rivals’ costs without having to improve its own offerings. Amazon has already invested in artificial intelligence algorithms (AI) and in enforcing guidelines for its third-party sellers. Many of Amazon’s competitors have not, especially the smaller ones.

There is something to be said for the first two items, though there are also arguments against them. But the third item, rent-seeking, is anti-competitive behavior at its worst. One of the primary reasons CEI opposes antitrust regulation, for example, is that antitrust regulations themselves are a major rent-seeking opportunity. Big companies routinely game the rules to thwart competition. Price gouging legislation is another example of the same rent-seeking process. These initiatives happen when companies compete in Washington, rather than the marketplace.

Other Factors

Amazon’s call for a price gouging bill might be part of a larger effort to get itself out of antitrust crosshairs. Ironically, such a bill would make retail less competitive. Not only would Amazon raise rivals’ costs, legislation would prevent companies from competing with each other to offer price gouging policies their customers most prefer.

The timing is as bad as the idea itself. Retail sales declined by 16.4 percent in the month of April, the worst ever recorded—for the second month in a row. Retailers have enough to deal with without having to spend resources complying with new rules their competitor helped to write.

There is a federalism angle, as well. A federal rule would impose standards on more than a dozen states that intentionally refuse them.

Prices Are More than Money

As any good economist will tell you, money isn’t everything. Prices are a lot more than money. Every good has a mix of both money and non-money prices. Price gouging legislation is ultimately ineffective because it only reduces ­money prices during a crisis. Tamping down on those means more severe non-money price increases. These cannot be legislated away.

A high money price causes people who don’t urgently need toilet paper or hand sanitizer to hold off until later, when the price goes back down. That leaves more left over for people who need it now. This matters a great deal during an emergency. On the other side of the equation, that same money price increase also induces producers and distributors to go the extra mile, often literally.

What about non-money prices? One example of a non-money price is when a good becomes harder to find. You might have to drive to a store further away or do some deep digging online for some potentially shady sources. Queuing and waiting lists emerge or shipping times might take longer. These things don’t cost money, but they still have a price. They are not measured in dollars, but in wasted time, extra hassle and stress, and lost opportunities. These non-money price increases leave people with less time left over for other things such as job searches, home schooling, or even taking some time for self-care.

Shortages will happen during a crisis. That is unavoidable. The question is how to deal with them. Just as pushing on a balloon doesn’t change how much air is in it, squeezing down on money prices with a price gouging regulation doesn’t actually do anything to stop price increases. It mostly just redirects them to non-money areas.

What is the correct mix of money- and non-money prices? That is a subjective value judgment. There is no truly right or wrong answer, which is another reason why federal price gouging legislation is bad policy.

Public opinion is pretty well set against price gouging. Importantly, though, most anti-price gouging activists have likely not considered the tradeoffs they would pay in steeper non-money prices. Some of them would likely change their mind if they did. Pollsters should find out. Corporate PR departments would likely change their tune quite a bit based on the results.

Federal price gouging legislation would not stop price increases or alleviate shortages. It would sharply increase non-money prices during emergencies and drive some economic activity into black markets. Companies can set their own price gouging policies without regulation, as Amazon has proven with a mix of AI and sanctions against violating sellers. The rent-seeking aspect of potential price gouging legislation is worth considering for people concerned about business ethics and about large companies gaining an unfair advantage over smaller rivals.

In short, a price gouging bill is #NeverNeeded. Congress has already passed enough harmful flash policy. There’s no need for still more.

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Posted in #NeverNeeded, Antitrust, Competition, Economics, Price and Wage Controls, The Market Process