How and When Regulators Should Intervene

This report proposes that as regulators contemplate weighing punitive actions on companies that they incorporate a typology based on the companies’ intent and the harm they caused.

Regulatory oversight keeps companies in check, promotes fair competition, and upholds consumer protections. However, regulators can also go too far and overzealously target companies acting in good faith. Such actions are not just unfair, but they also divert companies towards needless compliance at the expense of useful product advancements. Policymakers must get regulation right to protect competitiveness in the innovation economy. This report proposes a typology that regulators can use when evaluating which infractions should be pursued and what type of penalty should be administered based on a sliding scale of intent and resulting harm. The report argues that smaller penalties should result when consumers are not harmed and the company acts unintentionally, while larger penalties should result when consumers are harmed by a company’s actions and that company acted with intent. 

This sliding scale is represented by the following situations based on harm and intent. First, if a company makes a mistake and something happens that does not result in real consumer harm, then regulators should work to resolve the complaint, but not impose any penalties. Second, if an action is unintentional but results in real harm to consumers, then regulators should again work with the company to fix the problem but levy only a modest penalty against the company to mitigate the damage that resulted from the company’s mistake. Third, if a company intentionally commits an infraction that results in no harm, then regulators should not only work to resolve the problem, but also levy a modest penalty against the company to create an incentive against similar future infractions. Finally, if a company acts with intent, including negligence, and its actions harm consumers, then regulators should impose significant penalties. 

The report then analyzes four case studies involving past or possible Federal Trade Commission action against companies—including Amazon, Google, Path, and Uber—each corresponding to a square in the below table.