The 2023 Year in Review: Barrier to Exits, Agency Overreach, and Unintended Consequences
As legislators and enforcement agency officials debate the applicability of antitrust (or competition) law to digital platforms, they are grappling with a wide range of sometimes conflicting policy objectives and concerns. In 2023, the Innovators Network Innovation (INF) fellows continued to research the regulatory dynamics of applying antitrust and competition law in the digital ecosystem.
As we head into 2024, here are a few of the highlights from the fellows in 2023.
Barriers to Exit = Barriers to Entry
In 2023, the Federal Trade Commission (FTC) and Department of Justice (DOJ) released their long-awaited merger guidelines. While the FTC designed these guidelines to clarify the landscape for merging parties, they inadvertently create barriers to exit for emerging companies. Federal agencies’ aim to regulate merger and acquisition (M&A) activity in the tech sector will harm the cycle of investment, scaling, and innovation that ensures a healthy startup ecosystem.
In an article by Jessica Melugin, she explains how the idea that a bigger firm acquiring a smaller firm justifies government intervention fails to understand the economy of scale that “Big Tech” can bring to imperfect products and ideas. Jessica asserts:
“The speed of innovation and change in tech also makes it more difficult for regulators to predict which mergers will be harmful and which beneficial. No one, not even those employed in government agencies, can predict the future. That is especially true in the fast-changing tech sector.”
The draft guidelines neglect key principles, dismissing decades of economic and legal precedents. They fail to effectively guide businesses in competitive analysis, listing unjustified barriers to pro-consumer, pro-competitive mergers. Eliminating economic analysis from the guidelines will create uncertainty and hinder success in achieving pro-competitive mergers.
Federal Enforcement Trends
From making it harder for small companies to get acquired through revised merger guidelines and changes to pre-merger notifications to the broader war against “Big Tech” companies, the FTC and DOJ have amped up their administrative activity to stifle the dynamic and rapidly innovating landscape of technology. As tech developers and entrepreneurs continue to shape the future, the agencies’ attempt to assert control and oversight has raised concerns about undermining innovation.
An article by Elyse Dorsey explores the FTC’s recent, ideology-driven enforcement and governance philosophy and how they negatively affect competitors (large and small alike) in the marketplace. She notes that recent agency actions constitute a departure from the Commission’s traditionally bipartisan approach, raising concerns about the agency’s commitment to fair competition and innovation. She highlights that the FTC’s policy statement on Section 5 unfair methods of competition (UMC) and proposed rulemaking, coupled with Commissioner Wilson’s unprecedented resignation, further underscores the internal dissent, citing concerns about leadership integrity under Chair Khan’s leadership and potential abuse of federal agency power.
The FTC’s recent steps to overhaul antitrust enforcement break away from the longstanding practices and consumer welfare standards. Elyse writes:
“The importance of clarity and consistency in enforcement cannot be overstated. It is important not only so that businesses know how to act, but also because that knowledge informs their fundamental ability (and willingness) to compete, which in turn intimately affects consumers, who are the beneficiaries of robust competition. When the rules of the road are clear and legal risks can be mitigated, more risks can be taken in terms of experimentation, innovation, and R&D—the drivers of economic growth. But increasing uncertainty by upending those rules, however well-intentioned, affects smaller and newer players just as much as (if not more than) larger players.”
The FTC Leaves a Trail of Destruction in Pursuit of its White Whale
The FTC is also pressing forward with a sweeping antitrust case against Amazon, challenging several of Amazon’s Marketplace offerings. A Fortune article by Ted Bolema breaks down how the agency’s lawsuit against Amazon sets a dangerous precedent and may result in a loss of benefits to consumers and small businesses. As Ted explains,
“Most importantly, this approach to antitrust takes the focus off how Amazon got where it is largely by being more efficient and innovative than anyone else. Instead, we should want ‘fairness,’ which, as the FTC claimed in a recent policy statement will be defined by the bureaucrats running the FTC.”
Creating a precedent that it is illegal for an online marketplace to offer bundled overhead services to sellers will effectively force small companies to distribute via the unbundled route, which will only take more time, more cost, and much more uncertainty. The agency’s agenda will inevitably lead to higher prices and slower deliveries for consumers, as well as lost opportunities for smaller companies to utilize all the services provided by curated online marketplaces (COMs).
How Do COMs Help Small Businesses?
Small companies rely on the baseline security, quality, and privacy of COMs; therefore, platforms engage in a delicate balance on how they format and curate content. As Jane Bambauer explores in her Lawfare article, platforms compete on the ability to keep users engaged with not only their efficiencies but also their reliability and assurance to utilize their service. For example, the major mobile app stores provide developer package services for app developers, including access to application programming interfaces (APIs), accessibility tools, built-in privacy and security functions, and integrated marketing algorithms through user search and relevancy tools. In turn, this means companies design these services with end consumers in mind just as much as software developers.
Weaponizing of Antitrust Laws
Driven by the recent frustrations with the size of large tech companies, discussions of antitrust have become headlines for mainstream news outlets. Antitrust scholars on both sides of the aisle have called for antitrust proposals to break up these “Big Tech” companies, but where do antitrust laws come into all this? With Republicans pointing to issues with anti-conservative censorship to Democrats alleging “fake news” and hate speech littered on social media platforms, none of these issues fall under the purview of antitrust law. A policy brief written by Ted Bolema in collaboration with Vance Ginn, Ph.D, chief economist at the Pelican Institute, explains the recent radical push to enforce these antitrust laws comes with unintended consequences. They write, “In the last few years, a much more activist group of antitrust scholars and practitioners have emerged as advocates for a radical transformation of antitrust enforcement. They largely reject the consumer welfare standard and make sweeping claims about how failing to enforce antitrust laws has led to market concentration and wealth disparities. These new radicals have been gaining in popularity and hold many influential positions in federal antitrust enforcement.” As a result, federal agencies are pursuing an agenda to expand their enforcement powers and actions into uncharted areas through expanded policy statements and administrative rulemaking. The underlying departure away from the consumer welfare standard and economic analysis signals a major fault line in the antitrust enforcement by federal antitrust agencies. This politicized enforcement may or may not affect the current big antitrust targets, but will ultimately create legal uncertainty, stifling entrepreneurs, investment, and overall innovation in the tech industry.
Other Highlights from Our Fellows
California May Be Trying to Evade the Consumer Welfare Standard in Its Antitrust Lawsuit Against Amazon, Mercatus Policy Brief, Ted Bolema
Deepening Fault Lines: Diverging Antitrust Enforcement at the DOJ and FTC, CPI article, Elyse Dorsey
What Does the New Federal Trade Commission Policy Statement Mean for Antitrust?, CGO Policy Brief, Ted Bolema
FTC Lawsuit Against Amazon’s Prime is Poor Use of Limited Resources, DC Journal Opinion, Jessica Melugin
Jessica Melugin’s Takes on FTC Against Amazon– CNBC Interview
The Big Tech Panic Attack, Law and Liberty Blog, Jessica Melugin
The Implications of the FTC’s Proposed Ban on Noncompete Agreements- Regulatory Transparency Project Webinar, Elyse Dorsey
Antitrust and State Legislatures- Where are We Headed?- CCIA Panel, Ted Bolema