layout: post title: “Revisiting the Origins of Competition Law in the Digital Age” date: 2022-02-23 11:17:11 +0000 categories: [Tech, Personal] featured: true image: https://pin.it/3PLLj86Sx

—Revisiting the Origins of Competition Law in the Digital Age

23/3/2022

By Isha Ahlawat

The arrival of the digital era has left antitrust enforcement agencies around the world grappling with novel challenges thrown by platforms, aggregators, and other enterprises of the internet age. At such a time, it is perhaps prudent to go back in time and reflect on the circumstances, people and philosophies that laid the foundation of antitrust law, in the hope that it might afford some wisdom for the present and the future. More importantly, it may help us understand what today, the primary objective of competition law is, and if we have been successful enough in safeguarding it.

​Beginnings The world’s first antitrust legislation, The Sherman Act, was introduced in 1890 at a time when deep inequalities pervaded American society. Known as the “Gilded Age”, it was a time when on one hand, the agriculture sector was going through a period of depression and causing rural distress, while on the other hand, business owners such as John Rockefeller of Standard Oil were amassing huge wealth by using industrial “trusts” to consolidate competition, bypass corporate regulations and avoid paying state taxes. Partly to reign in concentrated economic power that could be used to sway political outcomes, and partly to contain monopolistic business practices, legislators criminalized combinations that could influence prices and adversely impact consumers.

There are however sceptics who question the popular wisdom that the Sherman Act was enacted only in response to widespread public outcry for federal action to restore a balance in the marketplace between “big business” and consumers, farmers, and small companies. Some scholars have argued that the focus was on large and small groups of rivals who were able to raise the prices at which they sold their output (or cut the prices at which they bought their inputs) to a level that was deemed harmful to public interest. Antitrust regulations were enacted in response to the increased establishment of horizontal combinations, large and small, throughout the economy in the aftermath of the major economic changes and changes in communication and transportation post the Civil War. Congressional debates have revealed that as opposed to today’s overdetermined focus on consumers, Senator Sherman and his colleagues were also concerned about the erosion of political and industrial liberty which saw the general population as both competitors and employees of the enormous new capital conglomerates, whose power rendered “the citizen’s vaunted liberty a fantasy”.

The road taken since Since the passing of the Sherman Act, antitrust law, has not stayed frozen in time and various stakeholders have adapted their approach to it to accommodate economic shocks, changing economic wisdom and technological developments. Over the years, the “consumer welfare standard”, which favors lowest consumer prices as a signal of allocative efficiency, has gradually superseded the traditional political goals of antitrust law, such as safeguarding independent owners or preventing wealth transfers from consumers to producers. Even in India, the Competition Act, 2002 largely serves to “protect and promote consumer interests”. Other scholars have argued that the ultimate purpose of antitrust law has now become the protection of consumers against activity that denies them access to the benefits of competition, not to raise society’s total wealth or enhance economic efficiency. In recent years, no court has chosen efficiency over consumer protection when action creates a contradiction between protecting consumers and boosting the economy’s efficiency (e.g., a merger that raises prices while lowering expenses).

In 2003, an OECD paper identified three objectives- public interest, securing basic competition, and a so-called grey zone that have steered antitrust law at various times. Public-interest objectives refer mostly to non-economic concerns, such as social protection or the safeguarding of particular vital economic sectors and “essential facilities”. Core- competition objectives include consumer and economic welfare. Those objectives that fall in the “grey zone” include ensuring fair competition and protection of small and medium-sized enterprises.

Back to the future More recently, a group of progressive, politically engaged antitrust reformers have urged for resurrecting antitrust enforcement against dominating businesses, notably those in the digital economy. This group has been bestowed with the appellation, New Brandeisians, because of its goals of reducing market concentration and reviving democratic political involvement. The intellectual forerunner of this new trend was US Supreme Court Justice Louis Brandeis, who served from 1916 to 1939. Brandeis was a staunch supporter of Madisonian traditions in the United States— which aims for a democratic power distribution and opportunity in the political economy. Among other things, the New Brandeisians have pushed for antitrust intervention against giants like Amazon.com Inc., the world’s largest e-commerce retailer, by arguing that online platforms like Amazon use predatory pricing techniques to gain market share, expand into new industries, and establish market dominance. In the US’s Investigation of Competition in Digital Markets report, it was revealed that Amazon has traditionally prioritized long-term expansion over short-term profitability as part of its business strategy. The report highlighted how Amazon did not make its first full-year profit until 2003, more than a decade after its founding. Moreover, it detailed how Amazon’s acquisition strategy has mostly focused on acquiring competitors and companies operating in related markets, giving it access to more valuable user data. Amazon’s market strength in e-commerce has been efficiently safeguarded and expanded as a result of this strategy, and Amazon has been able to extend that influence on other markets. It is therefore not surprising that in just the last two decades, Amazon has purchased at least 100 companies.

The New Brandeisians contend that because dominant digital platforms, such as Google, the most used and recognized internet search engine, and WhatsApp, on which countless businesses conduct their daily operations, provide critical facilities for their commercial rivals, regulators must monitor their competitive tactics, treating them as “public utilities”. This philosophy seeks to reintroduce the old political logic of antitrust regulation into current regulation, while criticizing the economic rationale adopted by the previous generation of antitrust researchers which comprised a motely bunch of Chicago School antitrust advocates, progressives, new deal veterans and so on. This approach would mean that antitrust actions would be broadened beyond concerns of consumer welfare and economic efficiency to include the goal of “total welfare”.

From here to where? The New Brandeisian approach certainly offers a breath of fresh air to anyone concerned about lax antitrust enforcement or growing market concentration. Would legislators and institutions tasked with antitrust enforcement be willing to incorporate it into law or would they discard this approach deeming it utopian and too broad in scope? If recent events are indicative of anything, then the former seems more likely to be true. The last few years have seen a flurry of antitrust legislations being introduced in the US Congress. The most radical among them, the Competition and Antitrust Law Enforcement Reform Act (CALERA), proposed by democratic senator Amy Klobuchar in February 2021, promises to increase funding for Department of Justice’s Antitrust Division and Federal Trade Commission (FTC), introduces stringent regulations for exclusionary conduct and lowers the threshold for merger review by creating a presumption of illegality for some transactions and prohibiting those mergers and acquisitions that “create an appreciable risk of materially lessening competition”, as opposed to Clayton Act’s existing Section 7 that only prohibits combinations where the effect “may be substantially to lessen competition, or to tend to create a monopoly”.

The most interesting part of the Bill is perhaps contained not so much in the provisions, as the findings that precede them. The Bill recognizes that the utility of antitrust law lies far beyond merely protecting the consumer and that “competition fosters small business growth, reduces economic inequality, and spurs innovation and job creation”. Additionally, it notes that “the presence and exercise of market power . . . [has] particularly damaging effects on historically disadvantaged communities;” and that “market power and undue market concentration contribute to the consolidation of political power, undermining the health of democracy in the United States”.

Some may scoff at having such idealistic expectations from antitrust law. However, it is the need of the hour, not just in the US but globally. Social media platforms like Meta (previously “Facebook”) have for long been accused of subverting democratic outcomes and being used by nefarious elements to propagate xenophobia, separatism and fascism. It has now been well-documented how the rise of market power online has seen a consequent fall in the availability of news sources that are trustworthy. The Investigation of Competition in Digital Markets report outlined how by “dominating both digital advertising and key communication platforms, Google and Facebook have outsized power over the distribution and monetization of trustworthy sources of news online, creating an uneven playing field in which news publishers are beholden to their decisions.”

For a long time, public interest concerns were a central part of antitrust law, the world over before the narrow construction of “consumer welfare” as the singular goal of competition law took hold. Post the second world war, the Competition Commission in the UK took cognizance of ‘public interest’ while evaluating the repercussions of mergers, including, whether a combination would result in large scale unemployment. In the present era which is riddled with misinformation, widening economic disparity and a loss of trust in political establishments, it is important to revive such approaches, for competition law does not exist in a vacuum and the abuse of monopolistic power has wide- ranging effects on the health of democracies, small businesses and eventually on each one of us.