I believe that three additional indicators of consumer welfare deserve greater attention in analyzing competitive effects in digital markets: innovation, choice, and quality. The Supreme Court and other courts, in describing antitrust as “a comprehensive charter of economic liberty,” often invoke these three concepts and note that innovation, consumer choice, and product quality constitute competitive effects that merit consideration in an antitrust analysis. Because these factors can be difficult to quantify, they often play a subsidiary role to price and output measures.
Given the challenges in defining and measuring output in platform markets, innovation, choice, and quality can serve as valuable metrics for competitive effects. They are all consistent with the Sherman Act’s overarching consumer welfare prescription.
As I explained in Chicago, a careful, evidence-based approach is necessary to evaluating these claims, in order to minimize the risk of false positives. Fresh thinking, including theoretical and empirical work in this area, is warranted. A key question that enforcers should answer is whether the presence of network effects can dilute the ability of new competitors to emerge or whether they pose a significant competitive challenge to entrenched incumbents. Network effects may work in different ways in different markets, but in certain markets, they may operate such that there is a higher risk—or an increased probability—of recoupment following a period of below-cost pricing.
As enforcers, we must be very careful in our enforcement actions to ensure that we don’t punish the very competitors who have won the race we have encouraged them to compete in. At the same time, we must be vigilant in utilizing the tools provided to us within a sound antitrust and economic framework. In particular, we should not hesitate to bring an action where there is evidence of harm to competition manifested through higher prices, lower output, reduced innovation, undue restrictions in consumer choice, or a serious deterioration in quality. Failure to enforce the antitrust laws in a timely manner may result in heavy-handed government regulation later. Rarely a preferred result to free market competition.
Tuesday, May 22, 2018
See Delrahim's speech All Roads Lead to Rome: Enforcing the Consumer Welfare Standard in Digital Media Markets here.