Setting the Record Straight: Effective Antitrust Enforcement in the Digital Era
Q&A with Professor John W. Mayo
Academics and regulators are grappling with questions about the competitive economics of two-sided platforms and digital business models. In addressing these questions, it is important that all parties have a common understanding of the underlying issues that are the subject of debate.
To help clarify that understanding, Managing Principal Christopher Borek interviewed John W. Mayo, Professor of Economics, Business, and Public Policy and Executive Director of the Center for Business and Public Policy at Georgetown University’s McDonough School of Business. Professor Mayo, who is also an Analysis Group affiliate, and his colleague Professor Mark Whitener had contributed an article on antitrust law to The Washington Post’s “5 Myths” column in March 2020.
Q: What “myths” did you write about in your Post commentary, and why do you think it’s important to dispel them now?
John W. Mayo: Professor of Economics, Business, and Public Policy; Executive Director, Center for Business and Public Policy, McDonough School of Business, Georgetown University
Prof. Mayo: In general, we wanted to address the myths that have cropped up in much of the recent debate over the best way to handle competition issues with the GAFA companies – Google, Apple, Facebook, and Amazon. Different competition authorities around the world have been wrestling with these issues, but they all are addressing similar questions. The five myths we discuss in our article have to do with claims that the old rules of antitrust oversight don’t apply to the new digital businesses.
You certainly can make the argument that digital business models – which are built on network effects, offer products for free, and operate in markets that essentially are borderless – raise challenging questions for local and regional competition authorities. But it will be impossible to come up with effective answers to those questions if underlying assumptions about the purpose and historical application of US antitrust laws are incorrect.
Q: Which assumptions are you most concerned about?
Prof. Mayo: The five that Mark and I wrote about had to do with a series of misperceptions that we think are driving the debate down the wrong path, and perhaps even more so in the US.
The first misperception is that any and all monopolies are illegal. In the US, at any rate, that’s simply not what the law says, and is certainly not how the Supreme Court has interpreted competition law over the years. None of the seminal competition laws in the US, such as the Sherman Act and the Clayton Act, were ever intended to penalize a successful business for making a better mousetrap, or a better drug for treating patients, or even a better ketchup. The same reasoning applies to a successful company that develops a better digital product, like a search engine.
Historically, the courts have made it clear that what matters more than whether a monopoly exists is whether it developed out of the natural workings of the market, as opposed to anticompetitive behavior. This is the proper question, even when the nature of competition may be for the market in its entirety, rather than in the market itself.
Q: Some critics have also expressed concerns about the technology “giants” wielding their dominance to foreclose entry to smaller startups or entrepreneurs, including in some cases by making so-called “killer” acquisitions. What is your response to those concerns?
Prof. Mayo: That has to do with the second myth we talked about in our article, namely, the assumption that antitrust enforcement is there to protect smaller firms from much larger rivals. The rise of Uber provides a recent example, when local taxi companies went to court to prevent the new ride-sharing firm from operating in Philadelphia.
Those efforts were unsuccessful, as it turned out, because the Supreme Court also has repeatedly and consistently ruled that antitrust law is there to protect competition and, more recently, to increase economic welfare – but not protect any individual competitor, regardless of whether it is a large one or a small one. In fact, as it turns out, Uber’s arrival in Philadelphia led to greater competition and lower prices for consumers.
Q: But what about those critics who claim that the original antitrust laws are too out of date to be relevant in the digital economy?
Prof. Mayo: That is the thinking behind the third myth our article dispels. It’s true that enforcers and courts will need to continue grappling with how to apply antitrust to new kinds of businesses, but they have been doing just that for decades. If you think about it, the advent of transcontinental railroads in the 1800s introduced a new business model for antitrust considerations, as did the invention of the personal computer in the middle of the last century, the development of the internet a little while later, and even the evolution of the retail industry, first toward big-box stores and then to online retailing.
Antitrust laws are much like the US Constitution, in that both establish broad principles but purposefully are short on details. The framers fully expected those principles to be adapted to specific circumstances. It’s the federal courts’ responsibility, and ultimately the Supreme Court’s, to interpret the laws and apply them to new circumstances.
In my view, the deliberations of the antitrust enforcers and the courts to date do indeed show that the “old” tools can still remain relevant today. Those tools were designed to help regulators evaluate whether markets are working the way they are supposed to, regardless of the workings of any particular market.
Q: So you believe that today’s enforcers are up to the task?
Prof. Mayo: I do believe they are, which is why we consider the fourth myth to be the insistence that more aggressive enforcement and tougher antitrust legislation aimed solely at digital companies is the only remedy.
Different researchers and journalists have come to different conclusions about the relative strength or laxity of enforcement in various jurisdictions. Understanding the evolution of competition in the US economy over time is undeniably a complex issue that will require more study. But if we look at merger enforcement, I believe we do have some empirical evidence that enforcement remains strong.
A study I conducted (with Jeffrey Macher at Georgetown) found that regulators grew increasingly likely to challenge proposed mergers, looking at the period from 1979 to 2017. Although you can always point to particular mergers that you can argue should have been decided differently, overall the data do not support the claim that antitrust merger enforcement has declined. In addition, the FTC, as well as some agencies in other countries, have recently announced that they will look back at past technology deals for problematic ones that may have escaped notice.
Q: Some of the most visible concerns with technology companies these days focus on privacy, data security, and the credibility of online content. Do such worries, along with the size and power of the companies, make antitrust an obvious solution?
Prof. Mayo: This brings us to the fifth and final myth, namely, that antitrust enforcement is a panacea for all the technology industry’s ills. As I’ve noted, antitrust is narrowly focused on protecting consumers from business conduct that harms the competitive process itself. The relationship between that goal and these other concerns has not been very clearly defined as yet.
Are the highly publicized lapses in data security, and the resulting privacy concerns, attributable to any diminution in competition, or do the controversial practices and data breaches stem from business decisions arrived at independently by the companies’ management? If the same problems would arise if the market had three or five or a dozen competitors, instead of a single dominant one, then it may not be a competition problem after all. In which case, other regulatory and legislative approaches may be more effective in dealing with these kinds of issues than antitrust law, which would have to be twisted around to achieve ends different from those for which it was originally designed.