Markets

When Antitrust Is Anti-Consumer

FTC Commissioner nominee Lina M. Khan testifies during a Senate Commerce, Science, and Transportation Committee hearing on Capitol Hill in Washington, D.C., April 21, 2021. (Graeme Jennings/Pool via Reuters)
Biden’s appointment of Lina Khan to lead the FTC spells trouble for consumers.

Lina Khan, a noted proponent of expanding and altering U.S. antitrust law, was confirmed last week as a commissioner to the Federal Trade Commission. Mere hours later, President Biden promoted her to chair of the agency. Khan’s influence is already evident in the legislation introduced earlier this month in the House Judiciary Committee and will no doubt influence the work of the FTC. It’s a shame that consumers won’t benefit from her appointment.

Khan rose to prominence after writing an article in the Yale Law Journal, wherein she argued that current U.S. antitrust law is insufficient in patrolling bad actors in the new platform economy. She asserted that ownership of platforms confers an unfair advantage, as it allows such individuals to control the “essential infrastructure” on which competitors depend. Her concern is at the heart of two of the antitrust bills introduced in the House.

The “Ending Platform Monopolies Act,” sponsored by Representative Pramila Jayapal (D., Wash.), bans platform owners from competing with other companies that utilize their platform and authorizes federal agencies to break up companies that run afoul of those restrictions. Similarly, the “American Innovation and Choice Online Act,” sponsored by Representative David Cicilline (D., R.I.), outlaws firms’ preferencing their own products or services on their platform. Khan no doubt agrees that owning the platform — and competing with other firms via that platform — is problematic.

But what would instituting those restrictions mean for consumers?

In practice, preventing companies from excluding businesses from their platforms and advantaging platform owners’ other businesses would bring about a major degradation of services and conveniences. A letter from the left-leaning Chamber of Progress — which, it should be noted, benefits from Big Tech support — to Representative Cicilline offers some examples. Such instances include consumers not being able to use Alexa to order from Amazon, YouTube not being allowed to ban PornHub videos, Apple’s iPhone not being allowed to come with apps or the AppStore preinstalled, no free shipping for Prime customers on eligible products, Facebook not being able to remove Alex Jones’s Sandy Hook content, and Google being prohibited from displaying shopping results in its main search results.

This is the dead opposite of the consumer benefit that U.S. antitrust law currently aims to protect.

In her 2017 essay, Khan also pointed to platforms’ creating incentives for companies to favor growth over profits, which ostensibly makes predatory pricing rational. This, she argued, is another reason to overhaul U.S. antitrust law.

But it’s important to evaluate what that theory means for consumers in the real world.

Take, for instance, Amazon’s move into selling diapers, which many categorized as a classic example of predatory pricing. It’s worth noting that Amazon isn’t a major player in the diaper market; wholesale club prices for diapers are about the same price as Amazon’s. After Amazon bought Quidsi — the parent company to Diapers.com — it tried for several years to run it as a profitable brand, but eventually had to close it down.

So even if Amazon had deliberately driven Quidsi out of business, Amazon would still face competitive threats from BJs, Sam’s Club, Walmart, and Target, which are expanding their online offerings; they’re moving into Amazon’s home turf.

Most important for consumers, nothing Amazon did in the diaper space was harmful. In fact, this kind of competition drives progress in the marketplace — to the benefit of consumers. Why, then, should we fundamentally change antitrust law to solve a problem that doesn’t exist?

While diversity of opinion is important in academic circles, much more important are consistent and clear rules of the road when acting as a regulator. Putting in place a chairperson who is a critic of the current state of antitrust law may be setting up conflicts between the FTC and the courts. That makes regulated companies guinea pigs for Khan’s ambitions for antitrust laws.

Installed as a powerful regulator, her outspoken enthusiasm for altering and greatly expanding the role of antitrust regulation makes for an uncertain business environment. It’s likely that consumers’ best interests will be secondary to companies’ compliance with ever-changing antitrust law. Consumers need progress and improvements, not a tech industry afraid to innovate because it is looking over its collective shoulder at new regulatory threats cooked up in the Ivory Tower.

Jessica Melugin is the associate director of the Center for Technology and Innovation at the Competitive Enterprise Institute.

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