Excerpts from an article by James C. Cooper, Douglas H. Ginsburg, Bruce H. Kobayashi, Koren W. Wong-Ervin, and Joshua D. Wright on the economics of platforms and regulation*:

  • Creating ex ante regulation prohibiting undesirable conduct by platforms risks sacrificing the benefits of platforms by imposing rules that may lack the flexibility of existing . . . competition and consumer protection laws. Indeed, a key benefit of relying on the existing laws is that they proceed primarily through fact-specific case-by-case analyses, which are more likely to maximize consumer welfare than are ex ante regulations.
  • Three “lessons” to the modern regulator:

1. First, absent a significant and identifiable market imperfection, there is no valid basis for an economic regulation.

2. Second, an identifiable market imperfection is a necessary, but not sufficient basis for economic regulation. Other solutions, including private ordering or reliance on existing and more flexible laws, may be preferred options.

3. Third, there should be a strong but rebuttable presumption against regulation favoring incumbents over new entrants or accepting invitations from disgruntled firms to have the competition agencies sue their rivals.

  • Applying these lessons, the [Global Antitrust Institute (GAI) at George Mason University School of Law] advised [the European Commission] against regulation partly because no such market imperfection appears to exist in the platform sector and existing . . . laws will more likely maximize consumer welfare. Indeed, the sector appears to be characterized by a wealth of competitive high-tech markets and platforms, with a plethora of new entry and innovation, all signs of competitive markets. Moreover, . . . the imposition of regulation is likely to make things worse.
  • A central feature of many online platforms is the collection and use of consumer data. More recently, with the rise of “big data,” algorithms also are using large and diverse datasets of consumer information to predict propensities. These practices create clear benefits for consumers: customized content, access to relevant offers, and better security. At the same time, however, they can give rise to privacy concerns. Although there are many different definitions and views of privacy, a core element of privacy as it relates to online platforms is the ability to control the amount of personal information that is available to others.
  • There is an inherent tradeoff when regulating data flows: some segments of the population may derive privacy benefits, but retarding firms’ ability to collect and use data also results in fewer transactions and a lower quality platform experience, both of which lower consumer welfare. What is more, in light of the recent advent of the “Internet of things” and of big data, restrictions on the collection and use of data can deprive society of benefits outside of the commercial sphere, such as discovering more effective medical treatments, policing strategies, or farming techniques.
  • All of this strongly suggests that regulators should employ a benefit-cost framework focused on consumer welfare, and rooted in economic analysis, to guide privacy policy.
  • A consumer welfare approach to privacy regulation — one that would focus on actual harms to consumers, and rely to the extent feasible on revealed preference as opposed to survey data, anecdotes, and hypotheticals — similarly would provide benefits to consumers.
  • Restrictions on the use of big data for differential pricing are premature. Such pricing may enhance consumer welfare, improve income distribution, and, in some circumstances, lower prices for all consumers, and there is little evidence that firms are engaging in differential pricing.

Full article available at https://www.competitionpolicyinternational.com/wp-content/uploads/2016/01/Europe-Column-January-Full1.pdf.

Full comment submitted by the GAI to the European Commission on December 29, 2015, available at http://masonlec.org/site/rte_uploads/files/GAI_Comment%20on%20EC%20Platform%20Consultation_12-29-15_FINAL.pdf.

*Professor of Law Joshua D. Wright, Ph.D. (economics), is the Executive Director of the Global Antitrust Institute (GAI) and a former U.S. Federal Trade Commissioner. Koren W. Wong-Ervin is the Director of the GAI and former Counsel for Intellectual Property and International Antitrust at the U.S. Federal Trade Commission. Professor of Law Douglas H. Ginsburg is a Senior Judge, United States Court of Appeals for the District of Columbia Circuit, Chairman of the GAI’s International Board of Advisors, and a former Assistant Attorney General in charge of the Antitrust Division of the U.S. Department of Justice. Professor of Law Bruce H. Kobayashi, Ph.D. (economics), is a GAI Senior Scholar and Founding Director. Associate Professor of Law James C. Cooper, Ph.D. (economics), is the Director of the Program on Economics and Privacy at the Law & Economics Center, George Mason University School of Law.