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Reactions to the Platform Competition and Opportunity Act

Earlier this month, Senators Amy Klobuchar (D-MN) and Tom Cotton (R-AR) introduced the Platform Competition and Opportunity Act of 2021, which says its intent is to “promote competition and economic opportunity in digital markets by establishing that certain acquisitions by dominant online platforms are unlawful.” The introduction of the legislation in the Senate follows the approval of similar language by the House Judiciary Committee that was introduced alongside other proposals related to competition in June.

In a joint statement at the bill’s release, Klobuchar said the “bipartisan legislation will put an end to those anticompetitive acquisitions by making it more difficult for dominant digital platforms to eliminate their competitors and enhance the platform’s market power,” while Cotton said “the largest tech monopolies will have the burden of proving that further acquisitions are lawful and good for the American people.”

But how has the legislation been received? In short, similarly to the June legislation in the House- reactions to which hinged on perceptions of what counts as a monopoly, and what counts as economic harm.

If you assess that Big Tech firms are exploiting dominant positions to crush competition– creating a variety of social harms and negatively impacting consumer welfare along the way– you are for this Act. If you do not, then you regard the language as government overreach that may in fact crush competition and harm the sector and the economic benefits it brings to consumers.

Proponents of the Act focus on the dominance of the platforms and the network effects that fortify their positions:

  • “Coupled with nondiscrimination, interoperability, and structural separation, stricter limitations on mergers like those in the Platform Competition and Opportunity Act will be a powerful tool to diminish the power of Big Tech and open up the internet,” wrote Charlotte Slaiman, Competition Policy Director at Public Knowledge.
  • Open Markets Institute Executive Director Barry Lynn extended his organization’s support to the Senate proposal: “This bill is an important step toward ensuring that Big Tech platforms cannot continue to fortify and expand their dominance through acquisition, or to eliminate competitive threats simply by buying them,” he wrote in a statement.

Opponents highlight its challenge to the antitrust orthodoxy and existing industry dynamics:

  • In a letter from Neil Bradley, its Executive Vice President and Chief Policy Officer, the US Chamber of Commerce urged opposition to the legislation, which it said “would overturn longstanding antitrust law in order to empower the federal government to pick winners and losers in the technology sector.”
  • “While developers believe in a robust FTC and antitrust provisions and the need to enforce them, this bill shows there is a fundamental misunderstanding of the beneficial role acquisition plays in a thriving, dynamic, and highly competitive tech ecosystem,” Sarah Richard, Policy Counsel & Head of US Policy at the Developer’s Alliance, “a global network of more than 70,000 developers.”

The detractors include the Bloomberg Editorial Board, which wrote in opposition to the Act by arguing tech firms aren’t monopolies and that the Act would ‘ban mergers’:

“Perversely, it would actually make it harder for new entrants to disrupt existing markets. By placing the burden of proof in merger reviews on companies rather than the government, it would shift the balance of power away from the courts and toward politically appointed bureaucrats. Its very purpose is to dethrone the consumer-welfare standard that has guided U.S. antitrust policy for decades — and has helped make America’s tech sector the envy of the world.

Similarly, in Reason, Robby Soave says the Act is based on a false premise:

Whatever the problems with social media, it can hardly be said that Facebook’s acquisitions of Instagram and WhatsApp have hurt consumers or put the company in some sort of monopoly position: The company competes for social media engagement with Twitter, for political advertising with Google, and for people’s attention in general with a million different things. Moreover, the dominance of firms like Apple and Amazon has not harmed consumers; these companies are widely beloved because they efficiently meet market demand.

But that read of the situation is counter to the assessment by Public Knowledge’s Gene Kimmelman and Charlotte Slaiman, who wrote about the dangers of platform dominance and the nature of network effects in Fortune in July:

Here’s what we know about the economics of digital platforms: Companies like Amazon and Facebook benefit from “network effects,” meaning that as the number of users goes up, so do the benefits of users being on the service in the first place. In other words, all else equal, you benefit more by joining the social media platform your friends are on than you do by joining a newer or smaller social network without your friends. 

Digital platforms benefit from economies of scale because their software has almost no marginal cost for adding users. Digital platforms benefit from economies of scope because data is much more valuable when aggregated and analyzed as a group instead of viewed as single pieces of information. If Google provides my email and my maps, including traffic data, then Google can tell me when to leave for my flight so I arrive on time. By contrast, a competitor’s maps app that doesn’t have access to my email doesn’t even know that I have a flight to catch.

Kimmelman and Slaiman see the effect as “less consumer choice and limited opportunity for entrepreneurs.” Similarly, in a Wall Street Journal op-ed last month, Representative Hakeem Jeffries (D-NY) defended the proposed legislation by the same name in the House, arguing it is not in fact a ban on mergers and acquisitions and that it should incentivize entrepreneurship.

Over the past decade, a handful of dominant online platforms kill competition by buying out businesses and startups that pose a threat to their death grip on the market. Some experts say we may already be entering a “startup winter” in which “entrepreneurs dream of being bought, not of building something of their own.” If that predatory, monopoly behavior continues unchecked, the economic consequences could be severe.

But the critics aren’t wrong to point out obvious problems with how the Act is drafted. Techdirt‘s Karl Bode, Reason‘s Soave and the Bloomberg Editorial Board all point out the valuation threshold for a company to be considered a “covered platform”– language that is present in both the House and Senate versions of the proposed Act, which reads as follows:

In June, Bode wrote about where this line is drawn when reflecting on the House version:

But just looking at the $600 billion valuation threshold gives a sense of just how this line-drawing happened. Under this definition (including the number of US users), it looks like the law only applies to Apple, Microsoft, Amazon, Google (Alphabet) and Facebook. That’s it. It seems notable that companies which are also kinda powerful and dominant, but happen to fall just somewhat beneath the threshold, include Visa, Mastercard, JP Morgan Chase, Bank of America, Walmart, Disney… and Comcast, AT&T, and Verizon.

Similarly, Soave points out that “under the Klobuchar/Cotton law, it wouldn’t matter if Target and Walmart overtake Amazon—they would be immune from this new antitrust action, as long as they are small enough on the day the bill is signed.”

So what’s next? Such incongruities should certainly be addressed. But bipartisan sponsorship for the proposed legislation in both its House and Senate iterations suggests the Act has potential to move ahead, and that years of “incisive research on digital harms” and an understanding of platform network effects has laid the groundwork for Congress to Act.

Ultimately, the defenders of the status quo may need only to succeed in delay- no doubt the lobbyists for Big Tech firms have their marching orders. And whether Republicans will ultimately support the bill remains to be seen. As Bode points out:

The press and much of the discourse can’t admit it, but the GOP doesn’t genuinely care about monopolization or unchecked corporate power. There are 40 years of documented evidence showing how a primary party platform has been to enable and protect monopolies in the telecom, banking, and energy sectors.

Proponents of the Act will have to step up their game if they wish to see the legislation reach the President’s desk.

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