The Warren Campaign’s Antitrust Proposals

By Herbert Hovenkamp

Antitrust policy promises to be an important issue in the 2020 presidential election, and for good reason. Market power as measured by price-cost margins has been on the rise since the 1980s. Unreasonably high margins reduce output, causing higher prices for consumers and fewer jobs for labor.

Responding to concern about increasing market power, presidential candidate U.S. Senator Elizabeth Warren (D-Mass.) has recently offered two proposals directed at large tech platforms.

One proposal would designate large platform-based companies such as Amazon as “platform utilities” and prohibit them from selling their own merchandise on the platform in competition with other sellers. This “structural separation” rule would apply to platforms that exceed $25 billion in annual revenue, including Amazon, Google, and Facebook. Smaller platforms would not be required to separate structurally but would be placed under a standard of “fair, reasonable, and nondiscriminatory dealing” with third-party merchants. These rules could be enforced by both government agencies and private parties.

Senator Warren’s second proposal would reverse “illegal and anti-competitive tech mergers,” focusing on large platform acquisitions of smaller firms. Her statement identifies Amazon and Whole Foods as such a merger, as well as Facebook’s acquisition of messaging company WhatsApp.

Both Warren proposals express concerns about privacy as well as competition. The proposals are populist and resemble, in two respects, the approach taken by the Trump Administration on climate change. First, the Warren proposals largely ignore the mainstream understanding of the problem. Second, although the proposals sound simple, they mask complex issues and are likely to produce unintended results. Structural antitrust remedies are easy to articulate and they have been a feature of heavy-handed antitrust policy since the early twentieth century. For example, a 1912 antitrust decree broke the Standard Oil monopoly into 34 smaller firms. But a few years later, the Federal Trade Commission was obliged to issue a report explaining why gasoline prices rose so dramatically after the breakup.

Why would a Warren Administration focus on large tech platforms? Although monopoly is a serious problem and margins have grown rapidly since the 1980s, the increases have mainly occurred in markets for manufactured products (such as cars), breakfast cereal, steel, airlines, household goods (such as batteries), and beer. By contrast, most of Google’s products are sold at a price of zero to consumers, although businesses pay for advertising. Amazon has very low margins in comparison to other retailers. Furthermore, the firms that the Warren proposal targets have high consumer satisfaction ratings and some of them, such as Amazon, have exhibited significant growth at the expense of traditional brick-and-mortar retail.

Senator Warren’s proposal is thus similar to the Trump Administration’s strategy of protecting coal at the expense of sustainable energy sources. Both strategies favor older technologies in danger of being displaced—fossil fuel companies in the case of the Trump Administration and traditional retail firms in the Warren proposal.

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