As lawmakers continue to address the myriad issues with current antitrust proposals, legislating by market cap should be the first thing off the table.
Paper valuations based on Wall Street speculation make no sense as criteria for legislation.
O n February 3, Meta’s shares dropped 26 percent and the company lost $230 billion in value, the largest ever one-day loss by an American company.
In June 2021, Meta (then known as Facebook) hit $1 trillion in market capitalization for the first time. Now, the company’s market cap stands around $565 billion, approximately 60 percent of what it did just seven months ago.
This example ought to be a teachable moment for those antitrust crusaders in Congress who want to break up companies larger than a government-determined size. Instead of legislating based on market cap, lawmakers should focus on ensuring antitrust law remains narrowly tailored to the interests of American consumers.
Market cap may sound complicated, but it is simply the price at which a company’s stock trades multiplied by the number of outstanding shares. It is a paper valuation based on Wall Street speculation and is a small indicator of a company’s overall worth.
There is often a wide gap between the current importance of a company to American consumers and its market cap. Take a look at another famous example — on January 28, 2021, Reddit traders sent GameStop’s total market cap soaring to $33.7 billion, over 33 times bigger than its market cap of $1 billion two months earlier. This meant that the troubled video game retailer was worth roughly the same on paper as Tyson Foods, 7-Eleven, and Hyundai.
The Senate Judiciary Committee recently marked up S. 2992, the American Innovation and Choice Online Act (AICOA). S. 2992 applies to publicly traded companies with a market cap of $550 billion and 50 million monthly American users. You read that right – if Meta’s market cap continues to trend below $600 billion, it will be exempt from this bill.
This legislation bans companies over a government-determined size from selling or providing private-label products on their own platforms, a practice beneficial to consumers but negatively branded as “self-preferencing.” Grocery stores do this all the time when they sell store-brand products that are cheaper than the name brands. As written, the bill targets America’s four or five top technology companies. However, the “manager’s amendment” goes far beyond Big Tech by capturing privately-held companies with annual revenue of over $30 billion.
Given how wildly market cap fluctuates, it is foolish to write laws based on this Wall Street-driven metric. The phrase “market capitalization” appears in a grand total of five federal statutes, none of which restrict routine business opportunity based on this paper valuation. If an unelected bureaucrat determines that a company has violated S. 2992, the company could face a steep 15 percent fine of total revenues for a year. For companies that operate with razor-thin margins, like retailers, this fine could be more than double its annual profits.
Legislating this way makes little sense. If a business practice is bad, it should be illegal for every business, not just businesses with high stock prices. Another antitrust bill sponsored by Senator Amy Klobuchar (D., Minn.), the “Platform Competition and Opportunity Act,” only applies to companies with a $550 billion market cap at the time of enactment. This bill would effectively ban all new mergers and acquisitions for companies above this government-determined size.
This means that if Target, Minnesota’s largest company with a $97 billion market cap, hits the threshold somewhere down the line, it will be exempt from these new regulations — how convenient.
The Senate Judiciary markup of S. 2992 was completely chaotic. Even cosponsors, like Senator John Kennedy (R., La.), made it clear that the bill needed serious work before it heads to the full Senate for a vote. Members offered a staggering 117 amendments, making it crystal clear that the bill is not even close to ready for prime time.
As lawmakers continue to address the myriad issues with current antitrust proposals, legislating by market cap should be the first thing off the table. Doing so makes little sense for consumers and opens the door for further crony capitalism and corporate welfare.