Antitrust Alone Is Not Enough to Combat the Problems Associated With Digital Platforms

Digital platforms present an enforcement challenge sufficiently daunting that it requires major reforms to antitrust law. But in order to restore lost competition, we need more than antitrust reform; we need better regulators. And for both, we need Congress to act.

 

 

Fiona Scott Morton

When it comes to digital platforms, antitrust enforcement is rife with difficulties. Digital platform market structures tend to be concentrated due to network effects and very strong economies of scale and scope, made even stronger than in the past by the role of data.

 

This challenge to enforcement—a challenge that requires all the resources and commitment of both agencies and courts—arises after 40 years of the United States effectively walking backwards on antitrust enforcement. The share of GDP spent on enforcement has been declining steadily; agency activity has been falling; the ideology that less enforcement is better has been marketed to the judiciary as good; measured markups charged by companies have been rising; the share of profits in GDP has been rising, while the labor share has been falling.

 

So even before the rise of digital platforms, we already had a competition problem in ordinary industries where enforcement tools are well developed. Now, in order to catch up with our own economy, we need to develop tools and standards for a new area while we are on the back foot.

 

The white paper by the market structure subcommittee of the Stigler Center’s Digital Platforms Project contains specific changes to both antitrust tools and standards that would help with effective enforcement. In addition, it is probably necessary for Congress to pass a new antitrust law—one that is very close in spirit to the current law, but explains to courts more exactly how Congress thinks decisions over the last few decades have failed to protect competition and directs courts how to do better. A specialist Competition Court would also likely speed up the adjustment to enforcing a new law consistently as well as vigorously. But despite proposing all of these reforms, the report makes clear that there are many social and economic harms attached to digital platforms that require action beyond antitrust laws.

 

Simply put, even effective antitrust enforcement can only fix some of the problems caused by digital platforms. The problems generated by addictive content, exploitative content, the loss of privacy attached to using any of these platforms, and fundamental issues such as the existence of news and democracy, will have to be solved by either Congress directly, or by a regulator. In addition, there are economic issues that law enforcement is not best positioned to address, such as establishing baseline conditions that promote competition and monitoring compliance with those conditions. As a result, my committee came out in favor of a regulator that would also help with our charge, competition.

 

A regulator could enforce conditions that enhance competition such as data portability (should consumers ever obtain a right to control their own data, for example) or the creation of open standards, such as for the Internet of Things or micropayments. A regulator could also carry out any remedy chosen by the antitrust authority to restore lost competition after a determination of an antitrust violation. Such remedies might include sharing data (e.g., a detailed map of Wi-Fi hotspots and commercial locations), interoperability, or firewalls between platforms and their content.

 

A regulator that was also charged with enforcing the antitrust laws might be able to move faster in cases of antitrust violations, such as acquisitions of small competitors or foreclosure of content that threatens the market power of the platform. So much economic activity now takes place on platforms that many businesses, as well as consumers, depend on those marketplaces also being competitive—a specialist regulator might be able to deliver on that demand. The acquisition of nascent threats to platforms, before those threats are large enough to attract the attention of the government, is widely believed to be a strategy used by dominant platforms. Yet such small transactions are not filed with the authorities in advance, and even if they were, the nascent competition they represent has not been highly valued in recent antitrust thought and jurisprudence. These small entrants may be an important source of competition, one that a regulator could protect.

 

While these types of laws and regulations are complex, no doubt, and must reflect the tradeoff between slowing innovation and creating broad benefits for users and society, I believe US institutions, including the platforms themselves, are up to the task. Certainly, if digital platforms can create autonomous vehicles and extend human life, they can manage to both adhere to current laws and help develop some better ones.

 

Fiona M. Scott Morton is the Theodore Nierenberg Professor of Economics at the Yale University School of Management. Her area of academic research is empirical industrial organization, with a focus on empirical studies of competition in areas such as pricing, entry, and product differentiation. Read the full report of the economics and market structure subcommittee of the Stigler Center’s Digital Platforms Project here

 

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