“I worry a lot about the broad scope and the vague language that [AICOA] contains that I believe would lead to an untold number of unintended and unforeseen consequences, like harming many of the very same consumers that we are trying to protect,” was the then wise, and still relevant statement of Sen. Mike Lee (R- UT) the first time the American Innovation and Choice Online Act (AICOA) was introduced in Congress. The bill is expected to be soon reintroduced, and lawmakers should remember these concerns this second time around.
AICOA would hurt consumers, introduce degraded security and privacy for users, and, ironically, diminish the ability of U.S. tech companies, both large and small, to compete.
Rather than imagine what all of that would look like, we need only look to the European Union which instituted their Digital Markets Act (DMA) and ran the experiment for us. The DMA and AICOA are not exactly alike, but they have many of the same regulatory obligations and prohibitions.
The DMA, like AICOA, bans self-preferencing for platforms above a certain size. EU citizens have experienced that prohibition as less convenient search results and more time spent getting to the helpful information they’re looking for. That’s been a boon for certain competitors in the market, like flight and hotel aggregators, but consumers and some small businesses have been harmed. According to a 5,000-person, 20-country survey, roughly 40 percent of those polled said they would even pay to get back the pre-DMA online experience.
For fear of violating the often-vague DMA regulations, U.S. platforms have delayed tech rollouts on the continent, depriving EU citizens and small businesses of the latest innovations, conveniences, and services. While the EU is focused on protecting its lesser domestic firms from American innovation and competition, U.S. antitrust law aims to protect consumers. Our approach prevents regulators from favoring certain players in the marketplace at the expense of consumer welfare. The United States shouldn’t change course to follow the EU’s slower tech rollouts by adopting regulatory schemes similar to the EU’s DMA.
Under AICOA, American consumers might also suffer from not having products like Amazon’s Basics offerings. These generics are often priced lower than name brands but would be suppressed or eliminated under anti-self-preferencing laws. Reducing lower-priced offerings is not a goal consistent with the U.S. consumer welfare standard. Countless other offerings would also be degraded or banned under AICOA. In fact, these considerations figured significantly in the California Senate Committee on Privacy, Digital Technologies, and Consumer Protection’s recent vote rejecting its version of AICOA, the Blocking Anticompetitive Self-preferencing by Entrenched Dominant (BASED) Platforms Act (SB 1074). If the left-leaning California Senate sees the extreme costs of expanding antitrust law to benefit competitor interests over those of consumers, so should the U.S. Senate Judiciary Committee.
Some of the most serious costs resulting from AICOA-style interventions are to safety and privacy, arising mainly from the interoperability requirements. A similar requirement in the DMA is already proving problematic for users in Europe. Reuters reports that, “Apple said this has led to a ‘riskier, less intuitive’ app experience for EU users, with sideloading and alternative marketplaces introducing threats such as scams, malware, and pornography apps that were previously banned on its store.” If interoperability measures, like those in the DMA and AICOA, were passed here, American consumers would also experience increased privacy and security risks.
That mandated interoperability is also how AICOA would hurt some small tech businesses. Nascent app developers currently benefit from a “seal of approval” of being featured in major app stores. When a user finds a new app that has passed the testing and vetting to be offered in a trusted app store, they know the app can be trusted too. Just as small third-party sellers on Amazon Marketplace benefit from the platform’s logistics, reach, and good reputation for customer service, small app developers benefit from the trust consumers have in Google and Apple’s app stores. AICOA would break this benefit for consumers and startup developers.
Platforms being discerning about with whom they interoperate and offering their own integrated services isn’t “anti-competitive,” it’s largely driven by efforts to best serve consumers. In the process, small tech benefits from the larger scope and trust consumers have in the large platforms. This American-born digital platform model is one of the most successful business innovations of all time. The EU’s AICOA-like DMA has produced nearly the dead opposite results. American policymakers should take this as a cautionary tale. Rather than adopting similar DMA-like legislation, the U.S. should pursue policies that seek to protect and elevate domestic startups, not regulations that would hamstring them.
Jessica Melugin:
Jessica is an antitrust and competition fellow at Innovators Network and the director of the Center for Technology & Innovation at the Competitive Enterprise Institute. Her research focuses on technology issues, including antitrust, online privacy, artificial intelligence, telecommunications, social media content regulation, and Federal Trade Commission oversight. Her writings have appeared in The New York Times, Financial Times, The Wall Street Journal, USA Today, Bloomberg Law, National Review, and Los Angeles Times. She has been cited in The Washington Post, Politico, U.S. News and World Report, and Variety, among other publications. Ms. Melugin has appeared on Bloomberg Television, CSPAN’s Washington Journal, CNBC’s Power Lunch, Fox News, and Fox Business Network. She’s been featured on NPR’s Marketplace, The David Webb Show on SiriusXM, and is regularly interviewed on terrestrial radio programs.
