ANTITRUST ENFORCEMENT, REGULATION, AND DIGITAL PLATFORMS.

• Date: 01 June 2020
• Author: Rogerson, William P.

INTRODUCTION 1912 I. GOING BEYOND ADJUDICATION FOR ANTITRUST ENFORCEMENT 1917 A. Case-by-Case, Fact-Specific Approach 1917 B. Slow, Usually Predictable Doctrinal Development 1918 C. Market-Driven Case Selection 1919 D. Generalists versus Industry Experts 1920 E. Tradeoffs Inherent in the Adjudicatory Approach to Antitrust 1921 F. A Regulatory Alternative 1924 II. LIGHT HANDED PRO-COMPETITIVE (LHPC) REGULATION 1924 A. Introduction 1924 B. Potential Types of Regulation 1927 1. Interconnection/Interoperability Requirements and Common Standards 1927 2. Limits on Discrimination 1930 3. Data Portability 1933 4. Line-of-Business Restrictions 1934 5. Additional Restrictions on Business Practices Currently Subject to Rule of Reason Analysis under Antitrust Statutes 1936 C. Applying General Antitrust Statutes with a "Sliding Scale" vs. Creating Stricter Industry Specific Standards 1939 CONCLUSION 1940 INTRODUCTION

There is widespread concern that levels of concentration and market power may be rising across economic sectors in the United States. (1) One area of particular focus has been on markets served by digital platforms. Firms in such markets can exhibit network effects and economies of scale. (2) While these characteristics may be the source of significant consumer benefits, they can also lead these markets to "tip," at least for a time, to a single provider. (3) Under certain conditions, market position can be quite durable once attained; the same factors that cause the market to tip to a single provider might also increase barriers to entry for potential competitors. (4) Furthermore, when a wide range of firms in the same or related industries use the services of digital platforms as inputs into their own businesses or produce complementary products for the platform, the platform's management and access policies can affect those third-party developers. Concerns over the effects of such policies have led, as examples, to advocacy to break up Amazon, government investigations and private lawsuits against Google, Facebook, and Apple. (5) While we take no position on the merits of specific cases or investigations, such actions illustrate how concerns about competition and innovation have contributed to enhanced antitrust attention to the activities of digital platforms.

This Article describes how regulation could usefully supplement general-purpose antitrust laws to address the competition policy challenges of digital platforms. Antitrust scrutiny and enforcement against digital platforms have been the subject of several prominent studies and government reports around the world, including from the United Kingdom, (6) European Commission, (7) Australian Competition and Consumer Commission (ACCC), (8) French Competition Authority, (9) and the United States. (10) In addition to calling for stronger application within existing enforcement frameworks, these reports also consider new regulatory approaches that go beyond the existing institutional and statutory confines of antitrust enforcement. Federal Trade Commission (FTC) Commissioner Rohit Chopra, among others, has expressly advocated a more regulatory approach to antitrust enforcement in recent writings. (11) The United Kingdom has already begun to increase the regulatory authority of Ofcom over Internet-related businesses,

(12) and the ACCC report expressly recommends a greater role for other Australian regulatory agencies in governing digital platforms. (13)

Both authors come to the topic of this Article with experience in regulatory agencies and with practical understanding of the difficulties and potential drawbacks of regulation. We nonetheless find three main reasons why, despite the challenges in getting regulation right, limited regulation might have advantages over traditional antitrust adjudication in the context of large-scale industries with network effects. First, and at the broadest level, the adjudicative model for antitrust enforcement and doctrinal development has been met with well-founded criticism. This does not mean that regulation is the right alternative, but it does provide a good reason to ask whether under some circumstances a different approach might lead to better outcomes. Second, traditional antitrust remedies might not effectively address the competitive challenges of digital platform markets. Neither structural remedies like break-up or divestiture, nor the limited kinds of conduct remedies that antitrust courts and agencies have been willing or able to implement, can effectively reduce barriers to competition without diminishing network benefits for consumers. In contrast, an expert agency can potentially bring the experience and resources required to make more granular, detailed decisions about the costs and benefits of certain types of commercial behavior. Third, because of network effects, conduct that courts ordinarily judge under antitrust law's general rule of reason might have different presumptive effects, and therefore be better governed by a more specific set of standards, in digital platform industries. An expert agency might be particularly suited to determine when "outer-boundary" theories of harm that courts rightly disfavor for general application--theories of harm like predation, refusals-to-deal, or acquisition of nascent competitors--should apply in specific contexts.

Below, we discuss why certain forms of what we call "light handed pro-competitive" (LHPC) regulation could increase levels of competition in markets served by digital platforms while helping to clarify the platforms' obligations with respect to interrelated policy objectives, notably privacy and data security. Key categories of LHPC regulation could include interconnection/interoperability requirements (such as access to application programming interfaces (APIs)), limits on discrimination, both user-side and third-party-side data portability rules, and perhaps additional restrictions on certain business practices subject to rule of reason analysis under general antitrust statutes. These types of regulations would limit the ability of dominant digital platforms to leverage their market power into related markets or insulate their installed base from competition. In so doing, they would preserve incentives for innovation by firms in related markets, increase the competitive impact of existing competitors, and reduce barriers to entry for nascent firms.

The regulation we propose is "light handed" in that it largely avoids the burdens and difficulties of a regime--such as that found in public utility regulation--that regulates access terms and revenues based on firms' costs, which the regulatory agency must in turn track and monitor. Although our proposed regulatory scheme would require a dominant digital platform to provide a baseline level of access (interconnection/interoperability) that the regulator determines is necessary to promote actual and potential competition, we believe that this could avoid most of the information and oversight costs of full-blown cost-based regulation, for reasons we will discuss below. (14) The primary regulation applied to price or non-price access terms would be a nondiscrimination condition, which would require a dominant digital platform to offer the same terms to all users. Such regulation would not, like traditional rate regulation, attempt to tie the level or terms of access to a platform's underlying costs, to regulate the company's terms of service to end users, or to limit the incumbent platform's profits or lines of business. Instead of imposing monopoly controls, LHPC regulation aims to protect and promote competitive access to the marketplace as the means of governing firms' behavior. In other words, its primary goal is to increase the viability and incentives of actual and potential competitors. As we will discuss, the Federal Communication Commission's (FCC) successful use of similar sorts of requirements on various telecommunications providers provides one model for this type of regulation. (15)

There are several possible sources for digital platform regulation. Congress could enact new legislation that creates an entirely new regulatory agency for digital platforms or could give new statutory authority to an existing agency. Alternatively, the FTC could promulgate competition rules under authority that it arguably already has under the FTC Act of 1914. Several commentators have argued that the FTC could use its existing statutory authority under the FTC Act to issue broad, antitrust rules that apply generally, to all industries. (16) A much more limited, and perhaps less controversial, manner in which the FTC could begin to use this authority would be to pass narrower rules that apply only to specific kinds of conduct and only to digital platform industries. Calls to regulate digital platforms involve several issues that do not centrally fall within the purview of antitrust, notably privacy and control over certain kinds of harmful content. (17) To the extent there could be trade-offs among regulatory goals--for example between a platform's interconnecting with rivals but limiting those rivals' access to user data, or between providing nondiscriminatory access to third-parties but blocking those that spread harmful content--there could be economies of scope to having a single agency address those issues, or at least mandating that agencies coordinate inter-related rulemaking.

Part I of this Article discusses why potential shortcomings of the evolution and application of antitrust doctrine through the courts should lead policy makers to consider supplementing the traditional adjudicative model of U.S. antitrust enforcement in limited circumstances. That Section will then set out some basic principles for the choice of regulatory tools for enforcing competition. Part II discusses the rationale for LHPC regulation in markets served by digital platforms and describes the form these regulations...