To retitle the familiar song by Prince, it now appears the Federal Trade Commission (FTC) is going to “party like it’s 1914.” The well-known consumer welfare standard – the principle that has focused antitrust enforcement onto whether consumers are harmed – is getting shelved by the FTC (“FTC Votes to Broaden Enforcement Power, WSJ, July 2, 2021). It will be replaced with a much looser rule for what constitutes “unfair methods of competition,” and consistent with the Fair Trade Commission Act of 1914.
The FTC decision revokes its prior policy and runs completely counter to numerous court decisions affirming that antitrust actions can be justified when empirical evidence shows that consumers would be actually harmed. The decision opens the door to an array of potential shenanigans by the FTC, antitrust lawyers, activists, and corporations that may want to misuse our antitrust enforcement laws for reasons other than protecting consumers and market competition.
Indeed, the risks to competitive markets and consumers are high, because the new policy sets the stage for increased and potentially unnecessary government actions. These actions could be in the form of nuance investigations, the threat of litigation, legal costs from FTC lawsuits, and remedies such as breaking up businesses, blocking mergers, and ending practices and conduct – even if they benefit consumers.
Broader enforcement power will enable bureaucrats and potentially politicians to weaponize antitrust laws to target out of favor companies and organizations based on political ideology. Replacing a consumer welfare standard with whatever constitutes an unfair practice is a totally subjective matter.
The first targets of the FTC are likely to be big tech, which provide many consumer services and apps for free to consumers. For example, after its purchase of WhatsApp service, Facebook lowered the service’s fee to zero. In this example, consumer welfare, a measure of economic benefits, was improved. But now, without a focus on consumers, the FTC could suggest that the practice of not charging something would represent predatory pricing.
The decision to shelve the consumer welfare standard will now give a boost to old business models and old rivals over successful market winners. If a firm achieves great leaps in productivity through operational efficiencies, capital investment, and increased economies of scale, the result should drive down its cost and price. While a lower price would benefit buyers and represent a consumer welfare gain, the firm’s competitors could now file a complaint to the FTC about unfair practices. In effect, price competition could be subverted by government actions. In other words, antitrust could be used to protect competitors rather than protecting free competition.
Another consequence is that innovation and “first to market” advantages could become a liability as too much success could lead to market dominance and diminish the sales of rivals. While that could be misperceived by bureaucrats as “unfair methods,” the resulting shift in market share could be totally explained by consumer choice. Should it be the job of the FTC to protect old business models at the expense of consumer choice?
The FTC move is not an isolated one, as Congress considers antitrust legislation and the White House is expected to issue an Executive Order that targets big businesses. While big tech may be the focus of much of this antitrust attention, the threat may well target agriculture, shipping, communications, banking, and airlines, as well as many other industries. If antitrust remedies result in a loss of scale and scope, consumers could well be the big losers here.
It was just eight years before the Wright brothers first flight, when one of the most well-known scientists at the time, Lord Kelvin, emphatically stated that “heavier than air flying machines were impossible.” Not surprisingly, when the Fair Trade Commission Act of 1914 was signed into law, how inconceivable it would have been for policymakers to have anticipated the extent of technological advances, innovative services offerings, and new business models. For the FTC now to reach back over one hundred years to find a law that would expand their powers amounts to regulatory malpractice.
The FTC calls itself “a bipartisan federal agency with a unique dual mission to protect consumers and promote competition,” but its actions speak louder than words. Its decision to shun consumers for increased controls over commerce is the very market power that should concern us all.
This article was pushed in The Economic Standard.