American Choice & Innovation Online Act is a Net Negative for Competition

There’s broad agreement across the political spectrum that competition is usually the best regulation. Indeed, the entire field of antitrust law wouldn’t make much sense otherwise. This is also why most of the antitrust reforms gaining traction on Capitol Hill these days don’t make much sense either.

Case-in-point is the American Choice & Innovation Online Act. This bill, which has emerged from the House Judiciary Committee, seeks to turn the largest online services in the United States from the ever-evolving firms they are today into ossified infrastructure, no more innovative than the local water utility. Right off the bat, the bill is anticompetitive, not to mention ahistorical.

The various nondiscrimination provisions of the bill, both broad and specific, presume Apple, Google, Facebook, and Amazon will always be market-leaders in certain, respective segments and thus their behavior must be significantly constrained to very basic, passive functions. Google is to revert back to a basic search engine, Amazon to an open marketplace for third parties, Facebook to an online bulletin board, and Apple to a manufacturer of blank hardware devices.

Yet these firms currently provide countless additional services, usually in competition with one another and many other major firms not caught under the bill’s arbitrary thresholds. In short, the bill would immediately remove strong competitors from multiple markets. To argue that such a policy is pro-competitive is equivalent to suggesting forcing Tom Brady into retirement will make the rest of the NFL better.

Another glaring problem with the intended outcome of this legislation is that it assumes that no other firm will ever reach the kind of scale of the covered firms in their respective core markets ever again. Yet, in 1998, Yahoo was declared winner of the search engine wars, not Google; Walmart was the largest retailer, not Amazon; Compaq was the largest provider of personal computer hardware; not Apple; and Facebook didn’t exist. Even today, the market continues to evolve, as TikTok is the most downloaded social media app.

The idea that the firms covered by the American Choice & Innovation Online Act are the end all, be all in their respective core services is the definition of ignorance. The only way this is even conceivable is if some legislation, such this act, locks them in by decimating the incentives and avenues to creating rival services at a similar scale.

Of course there are also the various unintended, yet predictable outcomes of this legislation that are equally harmful to competition. For example, the structure of the legislation presumes the covered services would dramatically open their platforms to third parties. Yet Amazon has already indicated that this assumption is mistaken, warning their thousands of small business partners that if the company is forced to choose between their traditional retail business and their third party sales program the latter is at risk. This means countless small businesses of today and tomorrow would lose access to Amazon’s customer base, leaving them to fend for themselves against existing retail giants such as Walmart. Such would be decidedly harmful to competition and consumer choice.

Even assuming the platforms relent and open up to the extent intended by the legislation, the nondiscrimination provisions are so incredibly broad as to invite harmful, anticompetitive behavior from third parties themselves. Speaking of Walmart for example, the legislation as written would allow them to simply demand access to Amazon’s systems via the interoperability requirements while the legislation’s arbitrary size thresholds would preclude Amazon from access to Walmart’s rapidly-growing e-commerce platform.

Another alarming provision would prevent covered platforms from restricting or impeding third parties’ ability to communicate with their customers on the platform. The potential for fraud and abuse here, from posting fake reviews to phishing scams, is endless.

In general, the bill is so broad that third parties could bring cases against platforms for the slightest perceptions of disfavored treatment. Yet search results and content across these platforms has to appear in some kind of order. Not all can come first, but that’s exactly what this legislation attempts to do, turning competition policy into handing out participation trophies for all-but the largest firms.

What’s more, the law puts the onus on the covered platforms with a presumption of guilt until proven innocent. This would dramatically discourage platforms from policing or otherwise refining their services on behalf of consumers, while simultaneously encouraging third parties to bring complaints against the platforms in the hope of getting a leg-up on other third party competitors.

In effect, on a number of levels this competition bill discourages competition in the marketplace while encouraging competition in Washington, attempting to make everyone winners besides America’s most successful technology firms and American consumers themselves.

Patrick Hedger is Vice President of Policy at Taxpayers Protection Alliance.