OpenMarket: Antitrust and Competition

Every time a major corporate merger is announced, pundits predictably warn of impending doom if regulators allow it to happen. Yet, pundits and regulators don’t know any better than you or I how a merger will turn out. And unlike investors and entrepreneurs, they don’t have their own money at stake, so they don’t have any incentive to innovate or react to changing conditions.

When an American company wishes to merge with or acquire another company, reaching an agreement that satisfies both firms’ owners and managers is not always enough. For most mergers and acquisitions valued at over roughly $80 million, companies must submit tons of paperwork and pay a sizable fee to the Federal Trade Commission and the Department of Justice before they can finalize any deal. Once these filings are complete, the companies can’t finalize their transaction until a waiting period of up to 30 days has elapsed.

The future has arrived, and it is a radically different economy. Havas Media’s Tom Goodwin pointed out in 2015, “Uber, the world’s largest taxi company, owns no vehicles. Facebook, the world’s most popular media owner, creates no content. Alibaba, the most valuable retailer, has no inventory. And Airbnb, the world’s largest accommodation provider, owns no real estate. Something interesting is happening.” 

Much of the political class in Washington, D.C. is currently holding its breath for the big event of the week: Facebook CEO Mark Zuckerberg’s long-awaited Capitol Hill testimony, starting tomorrow morning before a joint session of the Senate Judiciary and Commerce Committees and continuing the next day before the House Energy and Commerce Committee. 

Anti-technology hysteria continues to build in the European Union. Margrethe Vestager, the European Commissioner for Competition, confirmed today that she is still considering breaking up Google into smaller companies, ostensibly to protect online competition. This follows the Commission’s proposals for “Fair Taxation of the Digital Economy” that appeared on March 21^st, which seek to redefine where profits for digital companies are registered and subject to corporate taxation, as well as introducing a new “interim tax” on revenues to generate more money for the Commission’s coffers.

Automation has become somewhat of a dirty word recently. Fear of mass unemployment and widening inequality has led to calls for greater regulations of technology companies, expanded programs of redistribution, and even a “robot tax” to discourage adoption of labor-saving technologies. These fears, however, focus too much on the short-term disruption that creative destruction brings, ignoring the long-term opportunities for human advancement that comes along with it. 

The Wall Street Journal editorial board was entirely correct yesterday when they said, “Republicans have spent the last year cutting taxes and regulations, which hasn’t been easy. But now some Members of Congress want to blunt their handiwork by passing an online sales tax. Yes, they actually believe this would be good policy and politics.”

As more and more services move into platform business models as the lower transaction costs they facilitate increase consumer welfare, platform firms need assurance that the law understands how they operate, and does not unfairly hinder their development. While much more needs to be done to improve the regulatory environment for these companies, acknowledging the competitive structure of two sided markets is a significant step in the right direction.

Laws about competition should be restricted to laws preventing government from playing favorites. Government-erected barriers against competition or innovation need to be torn down. As current antitrust law is itself a barrier to innovation, it should be one of the first targets.

Regulation in the technology sector (beyond the absolute minimum necessary) is worse than government merely picking winners and losers—not just because government picks only losers, but because it fosters stagnation in the entire tech ecosystem.

Antitrust in particular (the original “...