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Should Antitrust Policy Begin with Competition or Competitors?

· July 10, 2017

A recent Washington Post editorial criticized European regulators’ years-old Google Shopping case — previously covered here on DisCo — as “a case of punishment without crime”, and argues that regulators concerns seem “a bit dated.”  Other commentary in the WaPo has defended the EU decision, such as Jonathan Taplin’s factually incorrect June 28 op-ed.  The Post editorial board appears to disagree.

The Post’s column attributes EU regulators’ decision to Trans-Atlantic differences in first principles of antitrust theory.  In recent decades, U.S. antitrust policy has focused on encouraging competition to protect consumer welfare.  While European antitrust policy has the same objective, this particular case seems to be more about protecting competitors from one another.

The Post editorial points this out, noting “different approaches to fighting monopoly” on either side of the Atlantic.  The editorial observes that the “demise of any of [Google competitors] is specifically traceable to Google, however, is not so clear.”  Nor is it clear what is “the aggregate harm from Google’s practices to consumers, as opposed to the unlucky companies”.

By beginning from different principles, U.S. and EU enforcers have reached different conclusions on the same facts.  An antitrust approach that seeks to advance consumer welfare through aggressive competition should approve of rivals fighting vigorously for consumers’ attention.  An approach that protects competitors from one another may frown on an aggressive marketplace, lest some companies suffer. The latter situation may well be at play here, given that EU enforcers have taken issue with Google’s effort to make its Shopping product more user-friendly.  

Enforcement strategies that focus on less innovative competitors rather than the competitive process are likely to undermine consumer welfare in the long run.  A competitor-centric approach will prop up prices and suppressing the environment in which competitors are compelled to improve products and services to win over consumers.  Of course, a scrappy, rough-and-tumble marketplace may result in the failure of some firms.  If firms aren’t afraid of losing customers to opponents, however, they’re not going to innovate or invest in R&D.  Indeed, these activities are a hallmark of competitive marketplaces.  In short, enforcers cannot protect uncompetitive firms from hard-charging competitors, and consumers at the same time.

Ultimately, enforcers have to ask: what should antitrust law do?  Provide incentives for firms to innovate, or prop up those unable to compete?  As the Post suggests, the former strategy is likelier to protect consumers.

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.