Digital Regulation Requires Fresh Thinking - Multichannel

Digital Regulation Requires Fresh Thinking

New solutions needed for competition problem of Google, Amazon and Facebook
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"[L]ax FTC enforcement of Internet platforms has helped enable a gaping hole in preventing economy-wide 'unfair methods of competition and unfair or deceptive acts or practices' by assuming that consumer welfare is determined only by the end result of lower consumer prices." —Scott Cleland, NetCompetition chairman

Scott Cleland

Last month, Justice Department antitrust chief Makan Delrahim said U.S. antitrust enforcers “should encourage fresh thinking on how our legal tools apply to new digital platforms. We need more thinking — diverse thinking — about these questions.”

Given that invitation, my purpose here is to show how the FTC’s evident lax antitrust enforcement of internet platforms over the last five years has enabled three internet intermediary bottlenecks, Google, Amazon and Facebook (GAF), to present an extraordinary challenge to the Federal Trade Commission’s vision statement — “a vibrant economy characterized by vigorous competition and consumer access to accurate information” — and unique mission statement: “to protect consumers by preventing anticompetitive, deceptive, and unfair business practices.”

In myopically focusing on whether a specific company is an illegal monopoly that has harmed consumer welfare, it is evident the FTC has neglected a central part of its statutory mission, i.e., protecting the nation’s overall process of competition for a wide swath of America’s consumer demand and business supply to consumers.

First, U.S. consumers must depend on unaccountable, monopsony-bottleneck, internet intermediary platforms — Google, Amazon and Facebook, which have aggregated about 90% of online access to consumer demand — for their continuous “access to accurate [discovery] information” for much of America’s consumer economy involving: information access, click-to-door e-commerce and social sharing of content. (Note: A “monopsony” is effectively a market with one buyer, like a “monopoly” is effectively a market with one seller.) This de facto monopsony market structure evidently is an overall unfair and deceptive competition process.

These three economic function bottlenecks evidently neither fairly represent the conflicts of interest of their multisided business models to consumers, nor do they have significant competition, independent accountability or governmental vigilance to ensure these Internet monopsony bottlenecks are honest brokers of information and fair intermediaries of economy-wide interactions. That is in stark contrast to similar economy-wide intermediaries like financial and commodity exchanges and brokerages, which are required by the government to be honest brokers of information and fair intermediaries, because absent government accountability, they would have the market power and incentive to front-run, self-deal or abuse sensitive fiduciary information.

FTC building

Federal Trade Commission

Apparently, lax FTC enforcement of internet platforms has helped enable a gaping hole in consumer protection from “unfair methods of competition and unfair or deceptive acts or practices” in American “consumer access to accurate information.”

Second is the mirror image of the consumer problem above. U.S. suppliers and potential competitors to Google, Amazon and Facebook must depend on unaccountable and conflicted monopsony bottleneck Internet platforms for fair and honest brokering of their economy-wide, business interactions with their customers, and for providing fair, honest, and continuous “access to accurate [discovery] information” about their disintermediated customer relationships.

It is the FTC’s fair competition responsibility to ensure the unaccountable and conflicted bottleneck platforms do not abuse their monopsony power to unfairly or deceptively front-run, self-deal or abuse the sensitive business/fiduciary information of their platform-dependent competition.

The GAF intermediary platforms have become the de facto online, consumer market makers in between most U.S. consumer demand for most U.S. consumer business supply, with the evident bottleneck monopsony power to:

  • Interrupt competitive market forces and economic value creation;
  • Intercept inside information, trade secrets, competitive intelligence, and personal data;
  • Interject discrimination, front-running and self-dealing; and
  • Interfere with the direct supplier-customer relationship, selling, marketing and branding, because mass disintermediation of consumers and suppliers means that suppliers effectively must negotiate price, terms and conditions with the platform and not the ultimate customer.

Apparently, lax FTC enforcement of Internet platforms also has helped enable a gaping hole in preventing economy-wide “unfair methods of competition and unfair or deceptive acts or practices” by assuming that consumer welfare is determined only by the end result of lower consumer prices, and not also by the means of competition (or unfair competition) that provides (or prevents) competitive business models for the market (e.g. advertising vs. subscription) and competitive choices in the market to meet American consumers’ dynamic various needs, wants and means.

Deterrence Is Key

In sum, any fair and honest intermediation of economy-wide online consumer demand and business consumer supply will naturally trend, via human nature, toward economy-wide unfair and deceptive disintermediation of consumer demand and business consumer supply, if there is no feared enforcement deterrent from the FTC, DOJ or state attorney general cops policing the markets to keep them fair and honest.

If new FTC chairman Joseph Simon’s pledged agency review of its past antitrust non-enforcement determines that existing authority is insufficient to address the evident “unfair and deceptive acts or practices” above, then the FTC should request new authority from Congress to address them urgently.

Forewarned is forearmed.

Scott Cleland served as deputy U.S. coordinator for international communications & information policy in the George H. W. Bush Administration. He is president of Precursor LLC and chairman of NetCompetition, a pro-competition e-forum supported by broadband interests.

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