WASHINGTON—Large online marketplaces such as Amazon, having disrupted the retail sector with their scale and innovative process efficiencies, now face a groundswell of populist opposition and a raft of legislative and regulatory proposals to crack down in the name of restoring competition. But while the digital context and the players involved in this drama are new, their story is not, according to a historical study by the Information Technology and Innovation Foundation (ITIF), the leading think tank for science and technology policy.
In fact, current scrutiny of online marketplaces is the fourth major episode in a recurring cycle of disruptive innovations that have swept the U.S. retail sector in the last century and a half—and the clear pattern is consumers have always benefitted, and policy interventions on behalf of small businesses and incumbent competitors have done more harm than good.
“The impulse to regulate retail is just history repeating itself,” said Aurelien Portuese, director of ITIF’s Schumpeter Project for Competition Policy, co-author of the report. “We’ve traded brick-and-mortar department stores for online marketplaces—A&P for Walmart, and Woolworth’s for Amazon—but the cycles of creative destruction and innovation remain the same. Today’s resurgence of populist antitrust policy runs the risk of repeating historical errors that primarily focused on protecting inefficient incumbents at the expense of retail shoppers.”
The study examines the historical precedents of disruptive innovation and regulatory blowback in the U.S. retail sector, starting with the advent of department stores in the latter half of the 19th century, then chain stores in the early 20th century, big box stores from the 1960s onward, and now the spectacular growth of online marketplaces such as Amazon.
The repeating cycle has been that innovative new players disrupted the established order with new technologies and business models that attract consumers with choice, convenience, low prices, and other benefits, while eroding the market shares of previous incumbents. Those incumbents then retaliate by stirring populist support for regulatory intervention, and policymakers and competition authorities oblige.
Among the policy interventions that ITIF’s study examines is the Robinson-Patman Act of 1936, which prevents similar goods from being sold at different prices, ostensibly to protect consumers. But ITIF’s analysis concludes that the Robinson-Patman Act—which regulators now are considering revamping to take action against online marketplaces—actually slowed down the process of creative destruction for the benefit of inefficient competitors, not consumers. The report argues reviving the law will only decrease efficiency and stifle innovation in the digital economy.
In addition to newfound interest in the Robinson-Patman Act, the Federal Trade Commission’s regulatory agenda for 2022, supported by an executive order President Biden issued early in his term, includes plans for promulgating new rules for online marketplaces. Meanwhile, lawmakers in Congress have introduced at least three major pieces of legislation—the American Innovation and Choice Online Act (AICOA), the Platform Competition and Opportunity Act, and the Ending Platform Monopolies Act—underscoring how the historical pattern of disruption and blowback has again come full circle.
The report warns that attempts to stifle creative destruction in the retail sector hinders the economic efficiencies each new generation brings. It urges elected officials, enforcers, and judges not repeat the antitrust errors of the past and instead allow innovative retail that benefits consumers.
“The idea that retailers are harming consumers, distorting competition, and stifling innovation is blatantly wrong.” said Trelysa Long, a research assistant for ITIF’s Schumpeter Project, who co-authored the report. “The last 100 years in the retail sector prove the very nature of large retailers generates vast consumer benefits and represents the ideal process of dynamic competition.”
Read the report.
