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Furman Report on Digital Competition Urges Adoption of Pro-Competition Policies

· March 25, 2019

Early this month, Harvard professor and former Democratic White House official Jason Furman released his review of United Kingdom competition policy in regards to digital markets, titled “Unlocking digital competition.” This review was made at the request of the UK government, and included a panel of experts tasked to “consider the potential opportunities and challenges the emerging digital economy may pose for competition and pro-competition policy, and to make recommendations on any changes that may be needed.”

Exercises in policy introspection like the Furman Report are not particularly uncommon throughout the world. The report of the Antitrust Modernization Commission gave competition policy recommendations during the George W. Bush administration. One member of that commission, Makan Delrahim, currently leads the Antitrust Division of the DOJ. In this administration, the FTC is undergoing a series of hearings on a wide range of competition policy topics and is expected to release a report on the hearings’ findings. In the EU, the Digital Single Market Task Force was formed to lead an e-commerce sector inquiry. Their work has led to the consumer electronics RPM case.

The Furman Report recommends the creation of a digital markets unit, either as an independent body or a function of the Competition and Markets Authority or The Office of Communications, with three major tasks:

  1. Establish a code of conduct for companies with strategic market status;
  2. Pursue data mobility and open standards so that users can easily change platforms; and
  3. Consider ways to make data available as an input to promote competition.

The report also makes a number of other recommendations related to the governance of the digital markets unit. These include recommendations like giving it powers to monitor markets and respond to changing market conditions, hiring the right experts, and recommending it cooperate with stakeholders. Finally, the report recommends strengthening current competition enforcement tools, especially regarding merger review. The report also suggests another study, this one into the digital advertising market.

The report has adopted a pair of interesting policies. First, the panel is convinced that the consumer welfare standard remains the appropriate standard for antitrust enforcement. The panel’s assessment is that the consumer welfare standard is dynamic enough to deal with new challenges, including zero-price markets and privacy-based competition. The panel also points out that there is a strong body of economic theory and evidence that is useful in antitrust enforcement, and can be applied to digital markets with some enhancements.

Second, the underlying philosophy behind the panel’s recommendations is that a pro-competition framework is the most appropriate policy for digital markets. This choice is significant. Some have suggested using strong utility-style regulations, but the panel believes that this policy would unnecessarily entrench current players. The panel also believes this framework is better than another suggestion, using antitrust to drive breakups and structural separation of dominant companies. The panel believes a structural approach “would risk hindering economic activity that is broadly beneficial to consumers and innovation, and it is anyway not sufficiently well developed to permit application to many of the questions that competition authorities have to deal with.”

Also helpful is the detailed research and analysis the report provides. The 150-page report goes a long way towards showing its work, starting with a catalog of the perceived benefits and challenges of digital markets. This foundation helps explain which features the panel wants to keep, and which behaviors the panel wants to discourage. The report also explains the rationale behind each of its policy choices and recommendations, while explaining why some other suggestions were not selected. This kind of detail is helpful for the debate, because it provides a way for other experts to engage with the findings.

This report will likely be important outside of the UK & EU due to its scope and the experience of its lead author. Professor Furman was the top economic adviser to President Obama for eight years, including when he served as the Chairman of the Council of Economic Advisors. Furman also worked in the Clinton administration at both the Council of Economic Advisers and the National Economic Council.

The Furman Report is one among several policy recommendations for the tech industry. What sets it apart from most is that contains much in the way of supporting documentation. This level of detail allows for a more robust discussion on the merits of the recommendations, whether they are necessary, or whether something else would be more effective. These types of reports are useful as the tech policy debate continues.

Competition

Some, if not all of society’s most useful innovations are the byproduct of competition. In fact, although it may sound counterintuitive, innovation often flourishes when an incumbent is threatened by a new entrant because the threat of losing users to the competition drives product improvement. The Internet and the products and companies it has enabled are no exception; companies need to constantly stay on their toes, as the next startup is ready to knock them down with a better product.