Last Friday, the Biden administration unveiled a new Executive Decree designed to promote competition in the US economy. Some of its initiatives, such as the reform of professional licensing, are both welcome and long overdue. For example, in his wordsBiden noted that a barber moving to a new state may need to go through a six-month apprenticeship to get a license, even if they’ve been in the trade for decades. Reducing these artificial government-imposed barriers to competition will undoubtedly help consumers.
But many reforms of the private sector of the order reflect a misconception of competition. At the root of these initiatives is the populist notion – which has gained ground among progressives in recent years – that big is inherently bad. The ordinance targets “dominant” Internet platforms and denounces “excessive” market concentration, and complains that Americans are paying “too much” for broadband or cable service. But the order is long in rhetoric and short in proof. This never explains why the White House feels the prices are too high, nor how it would calculate an “appropriate” price. And that does not show why the concentration is “excessive” or how “dominant” firms harm consumers. Just assuming big is bad, this approach ignores many of the pro-competitive practices it has put on the chopping block.
Take, for example, the provisions of the decree on net neutrality. The order calls on the Federal Communications Commission to reinstate public transportation obligations on broadband providers that existed during part of the Obama administration. On the surface, these rules promote competition by requiring broadband providers to treat all Internet traffic the same and preventing them from charging a “toll” for prioritizing certain content over others. . At first glance, these rules seem to level the playing field among Internet-based businesses by preventing deep-pocketed competitors from buying their place in a broadband “fast lane”.
But to look closer shows that net neutrality rules can actually hurt competition on the Internet. Prioritization helps reduce congestion (when more packets of information arrive at a network node than that node can handle). Different applications have different sensitivities to congestion. A small delay in delivering packages may be unnoticeable to someone browsing the web, but can erode the quality of a video stream or telemedicine application. Prioritizing congestion-sensitive packets could improve the experience for Netflix users or rural doctors without harming the internet user. But net neutrality limits this type of optimization of pro-consumer traffic for fear of abuse.
Even the post office – the quintessential public transport service – is allowed to offer different levels of delivery at different rates, as we recognize that some shippers need priority delivery and others can get by at the rate. wholesale. But broadband providers are prohibited from offering similar levels of service, making it harder to compete on the public Internet for companies offering congestion-sensitive services. Netflix solved this problem by creating a private alternative to public internet delivery, but less capitalized video competitors couldn’t do the same.
Net neutrality also inhibits competition between broadband providers. For example, wireless companies may exempt certain content from a customer’s monthly data limit, a practice known as “tax exemption. “Famous T-Mobile target music-loving customers by exempting streaming services. And until recently, AT&T downgraded video content from sister company HBO Max, effectively launching HBO for free as a way to earn shares in Verizon. But net neutrality rules would likely reduce the zero rate. Public transport imposes uniform rules on broadband providers, limiting competition plans and reducing consumer choice.
These rules are particularly problematic because in the history of the Internet, there are few cases in which a company has caused real harm through non-neutral behavior. In other words, net neutrality rules are prophylactic. Paid prioritization, zero-rating and other traffic management practices can be pro-competitive. But the rules would strictly limit these practices because of the potential for abuse.
Much of the decree is in the same vein, strictly regulating business or conduct for fear of future misconduct. This is a departure from traditional antitrust doctrine, which typically examines conduct on a case-by-case basis and only blocks actions when the actual anti-competitive harm outweighs any pro-competitive justification. Consumers are likely to lose from the Biden administration’s “throw out the baby with the bathwater” approach in the form of lower growth and reduced innovation.
In law school, we often joke that lawyers fear math; students in our profile who love math went to business school. In this sense, the decree is a lawyer’s dream: antitrust without math. But this prophylactic regulatory approach has a significant drawback, as it ignores the potential benefits that size can bring.
Contrary to the White House’s suggestion, big is not inherently bad. What matters is not whether a business is large, but whether it has abused its size in some way to harm consumers.
Daniel Lyons is a Non-Resident Senior Fellow at the American Enterprise Institute and Professor and Associate Dean for Academic Affairs at Boston College Law School.