Expanded Section 5 interpretation would codify “big is bad”

The tech industry has vastly changed the way consumers shop, read and interact with their friends and family. Despite these benefits, antitrust reformers argue that the tech industry has changed the marketplace for the worse and negatively impacted competitors. Too many of these complaints are based on the size of a firm and not on its behaviors or competitive impacts. Changes to antitrust enforcement should prioritize the traditional goal of protecting market competition and avoid being sucked into the “big is bad” mentality. 

Under the leadership of Lina Khan, the Federal Trade Commission (FTC) has taken a more expansive approach to antitrust enforcement. In July 2021, the Commission voted to rescind the existing policy when it came to enforcing Section 5 of the Federal Trade Commission Act. The principle from which the FTC is moving away involves how Section 5 is related to the other pieces of legislation that comprise federal antitrust laws — namely, the Sherman and the Clayton Acts. Under the previous guidelines, the FTC would likely only bring a complaint involving Section 5 if the company also violated the other two acts. 

The debate over Section 5 boils down to the interpretation of a core portion that prohibits ‘‘unfair or deceptive acts or practices in or affecting commerce.’’ In practice, this language was previously interpreted to grant the FTC authority to challenge behavior that may fall outside of the Sherman and Clayton Act if the behavior harmed competition or consumers. Under the new policy, the focus shifts away from competition and consumers, and has expanded to also consider the impact on a company’s competitors. 

More recently, the agency issued a statement regarding the updated Section 5 policy. The FTC’s current stance is that Section 5 goes beyond the Sherman and Clayton Act and can be a more extensive standard when deciding when to bring a complaint. For companies, this means that following the traditional standard of whether their conduct will or is likely to cause harm is insufficient. Rather, the new guidelines will consider “whether the respondent’s conduct has a tendency to generate negative consequences; for instance, raising prices, reducing output, limiting choice, lowering quality, reducing innovation, impairing other market participants, or reducing the likelihood of potential or nascent competition.” 

In the FTC’s policy statement regarding Section 5, the agency lists some of the behaviors that will be included in the expanded interpretation. Among these behaviors is the practice of self-preferencing, which involves tying or bundling goods and services together to be sold at a lower price for the consumer. 

Tying services or leveraging competitive advantages is a common practice in the competitive process. While frequently linked to larger companies that have more resources and capabilities, the practice isn’t size-specific. Amazon is one famous example. The company has not only a retail capacity, but a vast shipping infrastructure, which offers it a comparative advantage due to its ability to leverage its two-day shipping to attract customers. Amazon bundles these services for business partners by allowing them to use the shipping system through a Fulfilled by Amazon (FBA) service. 

Interpreting antitrust through this expanded lens would undermine the mechanisms that companies like Amazon use to bring consumer benefits through lower prices, ease and variety. 

These changes in the FTC are not occurring in a vacuum. They coexist with efforts on Capitol Hill that target Big Tech and are designed to only impact firms over a certain size threshold. In effect, the combined efforts would codify the idea that big is bad. 

Since the competitive process is highly complex and occurs at the intersection of multiple interests, distilling it down to “big is bad” ignores variance and will ultimately harm the process. A study in the International Small Business Journal highlights this complexity by examining the likelihood of exporting as linked to a firm’s size. What the author found was that firms vary in their competitive advantage as related to their size, which means that firm size isn’t everything. Small exporting firms can be just as competitive depending on their specific advantage.  

Expanding the interpretation of Section 5 could undermine the competitive process that the FTC is supposed to protect. The broad interpretation of “big is bad” misses key nuance and risks consumer benefits that arise from the marketplace. 

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