OPINION: Regulating America’s Tech Companies Is A Dangerous Idea

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Wayne Brough President, Innovation Defense Foundation
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America’s technology companies have created huge gains for consumers, developing networks and products that connect us to the world in ways that were inconceivable just 20 years ago. These benefits have transformed almost every facet of our lives, from the way we communicate to shopping, dating, and even how we engage in political discourse.

It is hard to deny the benefits from the online world and new technologies, but as the internet matures, a host of issues — privacy, fake news, and political censorship, among others — have led to bipartisan calls for greater government oversight.

Yet calls to regulate or break up America’s tech companies, the largest firms in the United States based on market capitalization, are premature and may do more harm than good, destroying the ecosystem of permissionless innovation that created the benefits providing so much value to consumers.

In light of the concerns raised about the big tech platforms, the Federal Trade Commission has launched a round of hearings to collect the public’s feedback on what to do about big tech.

While there is sure to be a populist outcry demanding the government do more to control these large companies, that would mark a significant shift in U.S. policy, creating a new industrial policy with the government playing a significant role in shaping markets and picking winners and losers. This is much more akin to the antitrust approach adopted in Europe and elsewhere, but it by no means ensures better outcomes.

Indeed, the United States has been a world leader in technology primarily because of the light touch it has applied in the technology sector, allowing entrepreneurs and innovators to fashion a digital world that connects consumers around the globe.

Europe has taken a more interventionist stance, often trying to prop up local companies at the expense of their American counterparts. Billion dollar judgments against American companies are commonplace, despite the fact that there is no demonstration of consumer harm.

And that is the critical difference, and one worth protecting. In the United States, a clear demonstration of consumer harm is required before the government intervenes in the marketplace. It is not the government’s role to shape markets and determine which firms have what market share.

As long as consumer welfare is increasing — greater choice, better quality, and falling prices — there is no need for intervention. Consumer welfare is central and responsive to all forms of competition, making it the ideal guide for government intervention.

Abbot B. Lipsky, Jr. recently testified before Congress, saying, “No alternative criterion comes close to being a plausible candidate to be the guiding principle for construction and application of antitrust law.”

But many argue the technology sector is different: networks and network effects require new approaches to antitrust policy. The dominance of large platforms has led to concerns about the harmful effects of lock-in and path dependency.

Some view these issues as anticompetitive practices that limit market competition to the detriment of consumers. Yet demonstrating these adverse outcomes is difficult in practice.  In fact, network effects can be pro-competitive and yield demonstrable consumer benefits.

And while network effects and lock-in have drawn the attention of economists and antitrust practitioners, the evidence of adverse impact has been limited.  Consumers have demonstrated their willingness to abandon “path dependent” technologies for superior alternatives time and again.

Consider, for example, the transition from analog to digital music, VHS to DVD, or the many dominant platforms that no longer exist, including MySpace, AOL, and Blackberry, to name a few. Markets are dynamic and competition remains fierce, even in the face of a dominant platform as consumers search for the product that best serves their needs. Absent consumer harm, there is little evidence for more interventionist policies.

Much of the attack on America’s technology companies has been driven by economic populism and a fear over the political power they may wield.  But calling on antitrust regulators to right these perceived wrongs can prove costly. Antitrust is a tool to promote competition and economic growth.

It is not a tool for addressing income inequality, the political influence of large corporations, or a host of other social issues. Nobel economist Friedrich Hayek and others have warned about the dangers of government planning, and the challenges faced by regulators when trying to shape market outcomes. Economic outcomes become political outcomes, with political influence rather than economic efficiency driving results.

Ultimately, permissionless innovation suffers, reducing innovation and entrepreneurship. Given these potential problems, any calls for increased regulation should proceed with caution, and focus on clearly demonstrable consumer harm.

Wayne T. Brough is president of the Innovation Defense Foundation.

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.