Washington Shouldn't Follow Europe's Crackdown on Big Tech
Over the past year, lawmakers in the United States and Europe have turned their attention to cracking down on big tech through reforming antitrust laws. Both Democrats and Republicans have offered competing visions of reforms that would see a departure from the consumer welfare standard as the basis for antitrust law and a return to a “big is bad” mentality. Last December, the European Union Commission proposed its own slate of regulations under the Digital Markets Act (DMA) that could have wide-ranging consequences for consumers on both sides of the Atlantic. Given the desire of both parties in the United States to crack down on big tech, it is not unreasonable to presume the Congress will consider its own version of DMA, following Europe's bureaucratic and punitive approach to antitrust.
Under the DMA, tech companies could be classified as gatekeepers if "for three consecutive years [they] reach a threshold in turnover or market capitalization of $7.9 billion, provides its service in at least three E.U. countries, and has 10 percent of the E.U. population as monthly active users and at least 10,000 active annual business users." If classified as a gatekeeper, companies would be restricted from sharing data between their various platforms and comply with non-discrimination standards that would ban self-preferencing and require them to offer services equally to all users.
Unfortunately for consumers and small businesses, the passage of DMA-styled legislation in the United States could have profoundly damaging consequences that will leave everybody facing unnecessary and entirely avoidable harm.
A ban on self-preferencing would be particularly harmful to consumers as it limits their choice and ability to access cheaper products. Owing to its large size, Amazon can offer consumers access to its Amazon Basics range consisting of over 2,000 products from "batteries to puppy pee pads." Given its substantial size and ability to gain economies of scale, Amazon can offer these high-quality products at a fraction of the cost of its competitors. A ban on self-preferencing would make it illegal for Amazon to advertise these products over competitor products; this would ultimately leave consumers paying more for goods that they would otherwise be able to access at a reduced cost.
Faced with stringent regulations governing access to their platforms, it is highly likely that more prominent tech companies will limit or remove smaller businesses that depend on their platform to operate. Small businesses using Amazon, for example, have access to 126 million account holders. Access to a consumer base of this size, unimaginable for most small and medium-sized enterprises, allows them to make approximately $160,000 in revenue each year. Developers who use Apple's App store similarly have access to 113 million iPhone users in the United States, allowing developers to generate around $82,500 in revenue.
Further regulation would only disincentivize large tech platforms from providing small businesses access to such a large consumer base leaving them less profitable and consumers with less choice.
Studies have also shown that Europe's punitive approach to antitrust has hampered innovation and created a less dynamic and vibrant economy. The International Center for Law and Economics contends innovation in Europe has been irreparably harmed because DMA "preemptively bans some behavior that could be procompetitive—such as combining different digital services on a single page—without reference to its actual effects. This means that innovative and beneficial behavior may be outlawed even if its real-world effects would have improved outcomes for everyone." This approach means "Europe's economies are less innovative, less dynamic, and ultimately, significantly poorer than the United States. Europe's technology markets, in particular, are relatively stagnant."
Sean Heather of the U.S. Chamber of Commerce has warned that if the federal government follows Europe's "heavy handed approaches…innovation will be threatened," leaving the country stagnating behind competitors like South Korea and Japan.
The notion that Europe is less innovative is evident through empirical evidence. The United States, where consumer welfare is the center of antitrust decisions, currently ranks third in global innovation, while most European countries lag in the innovation rankings.
When it comes to antitrust reforms, it should be abundantly clear that following Europe's punitive, heavy-handed approach to antitrust will leave consumers with limited access to cheaper products, limited consumer access for small businesses, and a stagnant economy. For these reasons alone, lawmakers in Washington should not be looking to Brussels for guidance on future antitrust reforms. Instead, they should seek to preserve a regulatory environment that prioritizes consumers and innovation.
Edward Longe is a Policy Manager at the American Consumer Institute, a nonprofit educational and research organization. For more information about the Institute, visit www.TheAmericanConsumer.org or follow us on Twitter @ConsumerPal.