The Bipartisan Antitrust Bill Is a Dangerous Mistake

T his summer, the U.S. Senate faces a momentous choice. It will likely vote on the American Innovation and Choice Online Act (AICOA), a sweeping piece of “antitrust” legislation sponsored by Democratic senator Amy Klobuchar and supported by a bipartisan coalition, including prominent Republicans such as Ted Cruz. Regrettably, AICOA is full of bad economics, misconceptions about the tech sector, and shockingly vague language.

The AICOA attempts to prohibit massive tech companies — the bill’s user and revenue-thresholds were intentionally set to target Amazon, Apple, Facebook, Google, and Microsoft — from engaging in supposedly anti-competitive behaviors. Chief among these new sins is “self-preferencing,” the act of using one’s power as a platform owner to promote one’s own products or services. But this prohibition ignores the fact that self-preferencing is a common business practice, widely engaged in by marketplace owners both on and offline. What’s more, the practice is widely beneficial, providing platform owners with increased revenue and traffic, consumers with cheap products from a trustworthy source, and — once the public gets a taste for a good or service initially popularized on a large platform — smaller competitors with an increased demand for their products.

A ban on self-preferencing would also make the online experience more confusing and inconvenient. Google Search, for example, would be prevented from prominently displaying Google Maps in search results, forcing users to navigate through numerous second-rate mapping services just to find directions to dinner. Worse, the AICOA regime would put the kibosh on popular and cost-saving services such as Amazon Prime’s two-day free shipping guarantee.

The AICOA is also full of landmines for Americans’ digital privacy and security. In an effort to bust up the gatekeeper status of Apple and Google in the app market, the AICOA would require operating systems to allow — or even endorse — the risky process of “sideloading,” meaning the downloading of apps from unvetted third-party sources, as opposed to established app stores such as the App Store and Google Play. Users shouldn’t be barred from engaging in such behaviors (that would be nanny-statism), but neither should they be forced to buy devices that are inherently insecure.

The AICOA mandates in § 3(a)(7) that covered platforms hand over customer information to “business users” that utilize their services to sell goods; e.g., Amazon could be required to disclose customers’ billing information to its third-party sellers. The manner in which such data would be stored and disposed of would be left unregulated. Therefore, after obtaining sensitive customer data, third-party sellers would be free to perpetually hoard it in unsecured databases, ripe for hacking, or even sell it to shady actors.

Besides being a disaster for consumers, the AICOA would also retard innovation. It forbids covered platforms from “materially” restricting the capacity of competitors’ products to “interoperate” with their own. This means that covered platforms would be banned from creating products that can only be fully utilized in conjunction with the platform’s other goods and services. For example, Apple may be required to re-code its app suite, which is designed to be used as a cohesive unit, to make each program more compatible with apps from other developers. This measure would drive product homogeneity and create compliance costs for existing players and new startups alike.

Such technocratic market asphyxiation is what has left Europe stagnant and outpaced, particularly in the tech sector. Continental regulators have widely stifled growth and innovation, most recently moving to make the USB-C the only legal charger for most electronic devices. This move and similar policies are antithetical to the climate of innovation that created the USB-C cable in the first place.

Before proceeding, it must be noted that innovators — of both physical and digital goods — rely on the benefits of selling on established platforms. A garage-based app developer, for example, knows that if he can get his product on the App Store or Google Play, he is assured access to a large customer base. And the unknown developer also benefits from customers’ existing trust in those platforms, for users can reasonably assume that apps on their favorite app store have been vetted for security defects and malware. Lastly, by utilizing the existing infrastructure of large platforms — such as secure payment systems — innovators save time and money.

Economic research reinforces concerns over the AICOA’s market interferences. A recent study by National Economics Research Associates (NERA) found that the AICOA, along with other antitrust bills currently shuffling their way through Congress, will likely raise costs on platforms covered by AICOA to the tune of over $300 billion. These costs will certainly be passed on to consumers and the very third-party competitors that such bills are meant to be helping. According to NERA’s research, Amazon Prime members alone would lose $22 billion on a yearly basis — $148 per user. At any time, such an imposition of costs would be indefensible, but to set it in motion with inflation running high beggars belief.

To make matters worse, the AICOA’s intentional vagueness gives sweeping, arbitrary authority to the administrative state. Even the most fair-minded bureaucrats and judges are unqualified to define exactly what conduct should be classified as “narrowly tailored, nonpretextual, and reasonably necessary” to preserve user security or the “core functionality” of the platform. The current FTC, fronted by Lina Khan, clearly favors using antitrust as a device to achieve progressive ends, and is sure to fully exploit such nebulous phrases as “material harm to competition” to the detriment of the targeted platforms and ultimately the American consumer.

What a choice the Senate faces, indeed.