October 14, 2021

The case for fair market rules for the largest online platforms

Sumit Sharma

Sumit Sharma leads CR’s work on Tech Competition. He is an economist with experience across regulatory, finance, and competition issues in the technology and telecoms sector. He has advised both governments and companies on strategy, policy design, competition, antitrust, and investment matters.

Digital services have revolutionized the way people live, work, communicate, and shop.  As these services have become more entrenched in our daily lives, the question now is whether there is sufficient competition among online platforms in the marketplace. Given the rapidly growing market power of a handful of giant online platforms, we know this is not the case. This concentration of power limits meaningful consumer choice, allowing these platforms to shape marketplaces without care for consumers. This is at the expense of choice, innovation, and opportunity for both consumers and businesses, who increasingly depend on these platforms. Table 1 below presents some examples of this. You can also read the full report here

Table 1: Examples of consumer harms resulting from the dominance of a few large online platforms

Consumer harm Examples of harmful consequences

Consumers (and businesses) lack meaningful choices as these online platform services are ‘must haves’

Consumers and businesses must accept terms and conditions (T&Cs) that degrade privacy and disintermediate customer relationships. For example, Facebook has repeatedly changed its T&Cs to collect more intrusive data on its users. Amazon’s T&Cs restrict third party sellers’ ability to provide after-sales service to consumers.

Consumers lose diversity of competition

Targeted advertising business models dominate, and alternative business models disappear. For example, Facebook acquired WhatsApp, and then changed WhatsApp’s subscription and privacy-first based business model to one based on data collection.

Consumers lose diversity of innovation

Dominant corporations have a pattern of pursuing improvements to existing technologies and ways of doing business that they already dominate or that help them maintain their dominant position. For example, it is not possible to use Google, Amazon, and Apple’s voice assistants concurrently on smartphones or smart speakers.

Consumers are locked into closed ecosystems

The lack of interoperability means consumers face higher prices and limited choice, and higher costs of switching to an alternative. For example, Apple restricts interoperability with iOS (the iPhone’s operating system), Google with its advertising platforms, Facebook with Facebook’s APIs.

In a bipartisan effort to address these issues, Congress is considering the ACCESS Act (HR 3849), The American Choice and Innovation Online Act (HR 3816), and the Platform Competition and Opportunity Act (HR 3826). 

The bills use four common criteria to identify and designate covered platforms that the fair market rules proposed in these bills would apply to. These criteria reflect these structural market features and strategic firm behavior, which means that the proposed market rules are focused on the largest corporations and on online activities where these giant corporations have persistent and entrenched market power. 

The ACCESS Act (HR 3849) mandates portability of user data to and interoperability with competing or potentially competing services. By mandating portability and interoperability, ACCESS would incentivize users to try and switch to new services. This would reduce barriers to switching and enable more competition. And it will give consumers the tools to keep and control their own valuable content and data.

The American Choice and Innovation Online Act (HR 3816) prohibits discriminatory conduct. The Act sets out three general non-discrimination requirements that prohibit self-preferencing, exclusionary conduct, and discrimination among businesses, plus several specific non-discrimination requirements. The rules should mean covered online platforms will not be able to distort consumer choice and competition by unfairly advantaging their own services, and should make it easier for consumers to tailor services by changing default options and uninstalling software.

The Platform Competition and Opportunity Act (HR 3826) will require giant corporations that own or control a designated covered platform to justify new acquisitions over $50 million. The Act will make it more likely that consumers have access to competing diverse, innovative services that challenge the covered platform operator’s way of doing business.

The proposed fair market rules in these bills address various structural market features and strategic firm behavior which, with absent policy intervention, would mean that covered platforms’ market power and related consumer harms will persist.

Structural market features Addressed by (not an exhaustive list)

Network effects

Interoperability with competing services, under ACCESS Act

Economies of scale and scope

Interoperability with complementary services, under Choice Act

Consumer behavior/biases like default bias

Default choice does not constitute consent, under ACCESS Act

(Abusive) strategic firm behavior Addressed by (not an exhaustive list)

Building ecosystem of services to leverage and protect market position

Non-discrimination and interoperability with complementary services, under Choice Act

Barriers to switching, multihoming, and interoperability

Detailed rules and guidance on how portability and interoperability should be implemented, under ACCESS Act

Acquisitions of (nascent) competitors

Requirement that the largest firms show that big acquisitions will not harm competition, under Competition Act

Barriers to effective and informed consumer decision making

Detailed rules and guidance on disclosure and how these should be presented to consumers, in ACCESS Act

The bills also include a number of provisions to narrowly target interventions and minimize unintended consequences. These include the following:

  1. The market rules do not directly cover activities where Alphabet (Google), Facebook, Amazon, Apple, and Microsoft are entrants and potentially innovating and increasing competition.
  2. The bills provide firms the protection of an affirmative defense for activities that are covered by the proposed market rules.
  3. The bills include provisions to tailor rules to different covered platform businesses.
  4. The ACCESS Act has provisions to ensure that users always remain in control of their data and that both the covered platform and its competitor or potential competitor follow appropriate privacy and security protocols to safeguard data.

The market rules proposed by the ACCESS Act, the American Choice and Innovation Online Act, and the Platform Competition and Opportunity Act are crucial. These rules will mean that it will not be business as usual for the covered online platforms and their operators. These giant corporations will no longer set rules for activities they dominate and for the critical platform infrastructure that we have all come to depend on. This will be an adjustment for these giant corporations, but one that will ultimately benefit the marketplace by returning power and choice to consumers, and enabling more diverse innovation. This effort must be pursued and seen through to completion.

Read CR’s paper The Case For Fair Market Rules For The Largest Online Platforms,’ to learn more about fair market rules for the largest online platforms and how these bipartisan proposals would protect consumers.

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