Crushing David on the Way to Fight Goliath: How the Federal Trade Commission’s War on Bigness Will Also Hurt Small Businesses


By: Jessica Melugin

The current leadership of the Federal Trade Commission (FTC) has aggressively targeted “bigness” in the U.S. economy, focusing on industries dominated by large firms. FTC Chair Lina Khan emphasized this stance in 2021, marking the beginning of intensified regulatory scrutiny. This paper explores the adverse impacts of these FTC actions, particularly on smaller firms. The new FTC merger guidelines and stricter Hart-Scott-Rodino (HSR) pre-merger notification rules are poised to disrupt the innovation ecosystem by hindering small firms from securing capital and investment through acquisitions. Additionally, the FTC’s case against Amazon could harm small sellers who rely on the platform for reach and logistics.

Executive Summary

 The FTC’s new enforcement postures on mergers and acquisitions (M&As) are poised to stifle innovation by making it more difficult for smaller firms to be acquired, a crucial exit strategy that provides funding and return on investment. The increased regulatory burden disproportionately affects small businesses, deterring potential acquisitions and reducing opportunities for venture capital investment. This could lead to fewer innovations and reduced benefits for consumers. Empirical data supports the view that acquisitions drive venture capital investments and market entry, fostering competition and innovation. Studies show a positive association between M&A activity and venture capital investments, with no systemic negative effects on startup funding. The prospect of being acquired encourages new firms to enter the market, contributing to a dynamic and competitive landscape.

The regulatory burdens and market distortions only add a layer of uncertainty for smaller firms looking for growth or capital. These changes may also lead to unintended market concentration, such as the emergence of “Big VC,” where only a few large venture capital firms can navigate the complex regulatory environment.

The FTC’s lawsuit against Amazon, alleging monopolistic practices, could harm small and medium-sized businesses (SMBs) that rely on the platform. Amazon’s scale and logistics services provide critical support to these sellers, enabling them to reach a wide customer base and manage distribution efficiently. The lawsuit’s potential remedies, such as breaking apart Amazon’s services, could disrupt this beneficial relationship, leading to increased costs and reduced market access for SMBs.

While the FTC’s regulatory actions aim to curb the power of large firms, they pose significant risks to smaller businesses and the overall innovation ecosystem. The increased regulatory burdens and litigation against major firms like Amazon may stifle entrepreneurial efforts, reduce market dynamism, and ultimately harm the very entities the regulations intend to protect. Policymakers must carefully consider these unintended consequences to avoid detrimental impacts on small businesses and innovation.

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