Reforming Antitrust Regulation for Big Data: A Fine Line Between Good Business and Bad Behaviors

Pragmatic, Progressive Capitalism Applied to Net Neutrality

By: Mark Cooper, CFA Director of Research & Amina Abdu, CFA Antitrust Advocacy Associate

As the nation continues to examine regulations around ‘Big Tech,’ reforming the nation’s century-old antitrust legislation has become a critical component to ensuring a fair marketplace that limits the harm market power abuse can have on American consumers. To assist policymakers in their examination of these issues, CFA released a new report late last month. Titled Pragmatic, Progressive Capitalism, it provides a comprehensive review of the successes and failures of previous antitrust efforts.

“In examining the size and scope of ‘Big Tech’ we are at a critical junction. The steps we take today can either further inhibit free market competition or open the door for more pro-consumer competitive products and services,” said CFA Director of Research and report author, Mark Cooper.

Putting the current situation in historical context, the report concludes that the policy principles needed today to prevent big data platforms and big broadband networks from strangling and distorting the development of the digital communications sector are the same principles applied a century ago to ensure the success of the 2nd Industrial Revolution in the U.S.

While the report notes that the details must be worked out through antitrust and regulatory practice, Cooper offers some clear goals, reforms of process, and other factors, consistent with the Brandeis-Stiglitz model of pragmatic capitalism, that would speed and direct the development of oversight to protect consumers, while preserving the dynamic, digital economy. They include the following principles:

• Common law is the basis for antitrust; it should be the basis for regulation.

• Clear obligations should be imposed, e.g. a duty to deal (nondiscrimination).

• Statutory and precedential obstacles to vigorous enforcement by antitrust and regulatory agencies should be removed.

• Statutory mandates should be avoided, but oversight authorities should be allowed to impose strict prohibitions where evidence justifies such actions.

• As a starting point, utility-like regulation is too restrictive on entrepreneurial activity, while horse-and-buggy competition misunderstands the nature of the technology and minimum efficient scale.

• The discussion of regulation also suggests a new form of participatory governance, to enhance the involvement of citizens in rule-making, an update in the mold of Brandeis’ support for industrial democracy.

“By articulating the logic of progressive capitalism and demonstrating its success over the course of a century, this paper endeavors to give the electorate confidence in understanding that we do not need to reinvent or re-imagine capitalism,” Cooper explained. “We need to get back to what worked so well for so long in the past. The long history shows that the model of pragmatic, progressive capitalism has not only been remarkably successful over a century and a half, it is as American as apple pie.”

Cooper recently applied this framework to the broadband industry, and specifically net neutrality, in a follow-up report titled Pragmatic, Progressive Capitalism at Its Best: Network Neutrality. The report outlines the historical, legal, and economic underpinnings of regulation and oversight of communications networks in the U.S. that made possible the nation’s success and leadership in the development and deployment of the digital communications sector. The report demonstrates that the recent rollbacks of net neutrality protections threaten to undermine a long record of American entrepreneurial success online.

“The past century of nondiscrimination policy has shown us the key ingredients for success are strong, before-the-fact regulation, antitrust, and flexible, ongoing oversight,” said Cooper. “These principles should be restored in the broadband industry and guide policy moving forward in the emerging digital platform market,” he added.

The report identifies the failure of “Free Market Fundamentalism,” which advocates lax antitrust enforcement and little or no oversight of the Big Broadband Network market. In doing so, it demonstrates why abandoning oversight to the Federal Trade Commission (FTC) will be disastrous for consumers.

“The…FTC has a remarkable record of failure in the digital age,” said Amina Abdu, CFA Antitrust Advocacy Associate, “starting with the Microsoft case in the early 1990s and ending with a complete failure to adopt effective protection for consumer privacy from the mid-1990s until today.”

“After two decades of debate over Title I and Title II authority to ensure nondiscriminatory access to consumers, a debate in which both Democrat and Republican Federal Communications Commission members recognized the need for that oversight, in 2016, the courts upheld a light-handed Title II approach,” Cooper noted.

The Trump FCC however, instantaneously did a complete “flip-flop”, seeking to repeal the Communications Act by taking a “Title ‘0’” approach.

However, by analyzing four decades governed by the principles of net neutrality, the report also charts a path forward.

First and foremost, this path forward involves restoring the guarantee of nondiscriminatory access to communications net before the fact (ex ante), in other words placing the burden of proof on service providers to show that their rates, terms, and conditions are just, reasonable, and nondiscriminatory before they go into effect. Cooper argues that an ex post oversight regime, in which injured parties have to prove they were harmed, will not provide the guarantee of access that experimental entrepreneurship at the edges demands. Preventing the mere threat of the exercise of that market power was the essence of public policy in the first three decades of the Internet’s success and should be re-implemented.

“The communications sector has historically been a site of major innovation, but to make sure that it stays that way, the government must intervene to protect both competition and consumers,” said Abdu. “Part of that solution involves reinvigorated antitrust enforcement, but the government should use all the tools at its disposal, starting with strong ex ante rules, like net neutrality, that stop a few key players from abusing their enormous market power over critical infrastructure in the digital sector,” Abdu concluded.