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FTC Rulemaking for Online Marketplaces Would Be Déjà Vu All Over Again

FTC Rulemaking for Online Marketplaces Would Be Déjà Vu All Over Again

December 15, 2022

In the 1930s, following the Great Depression, chain stores offering low prices were extremely popular as consumers looked for the best deals. As chain stores were mushrooming, small and less efficient retailers were harmed, resulting in a successful lobbying campaign from small grocers and retailers to bend the outcomes of consumer preferences towards the most efficient market players. This resulted in the 1936 passage of the Robinson-Patman Act, later dubbed “antitrust’s least glorious hour”, because it brought increases in consumer prices solely to protect small retailers from innovative chain stores.

As the Robinson-Patman Act amended one of the main U.S. antitrust laws, the Clayton Act, antitrust departed from its objective of protecting consumers to instead directly harming them. As the main advocates for consumers, courts and agencies were well-aware of the nefarious consequences of enforcing Robinson-Patman. For example, as early as 1951, the Supreme Court in its Standard Oil decision rejected enforcement of the Robinson-Patman Act in such a way that prevented Standard Oil from offering lower prices to wholesalers, compared to independent retailers. For example, motorists would have experienced an increase in gas prices at the benefit of the least efficient independent retailer, not at the motorists’ benefit. What followed are decades of antitrust agencies’ unwillingness to enforce the Robinson-Patman Act and unwillingness to end the price competition that everyday benefits consumers.

Our research reveals that taxation, regulation, and most importantly, antitrust legislation and lawsuits, all contributed to thwarting the inevitable process of creative destruction which takes place in the retail industry. Indeed, displaced retailers and upset voters seldom coalesce to vigorously call for fighting supermarkets and other big box stores. Yesterday they were chain stores; today, they are “online marketplaces.” Because competition is just one click away, online marketplaces represent the latest stage of innovative retailing which benefits consumers and, again, displaces inefficient retailers.

Unfortunately for consumers, regulatory history repeats itself. The Biden administration has passed an Executive Order on Competition which laments, among other things, that, “too many small businesses across the economy depend on…a few online marketplaces for their survival.” It also mandates Lina Khan, the Chair of the Federal Trade Commission, regulate, “unfair competition in major Internet marketplaces.” Our report shows that “unfair competition” in the retail industry has historically often been confused with healthy, legitimate price competition that benefits consumers.

Unsurprisingly, Chair Lina Khan, who has written against Amazon’s low prices, has enthusiastically identified regulating “unfair competition in online marketplaces” as one of the key areas for the FTC to engage in rulemaking. Together with the chorus of advocates calling for reinvigorating the Robinson-Patman Act, the forthcoming FTC rulemaking on online marketplaces will have no other purpose but to force agencies and courts to enforce the Robinson-Patman Act and deliver on its detrimental consequences for consumers. This is not a bug but a feature of the Biden administration; As the consumer welfare standard no longer is the North Star of antitrust, consumer harm becomes acceptable in the name of protecting less efficient competitors.

Our report demonstrates that regulators’ efforts to curb the power of creative destruction that innovative retailing brings about will irremediably result in either unenforced regulations for the sake of consumers or enforced regulations with consumer harm. Given the Biden administration’s aggressive enforcement of any antitrust laws and regulations irrespective of consumer harm, one can predict that the antitrust populists in charge of the FTC will prioritize enforcement over consumer welfare.

Case in point: The last-appointed FTC Commissioner, Alvaro Bedoya, made clear in September that the new FTC not only wants to vigorously enforce the Robinson-Patman Act, but also that the FTC is entitled to regulate “unfair competition.” Today’s antitrust populists are reminiscent of yesterday’s populism which led to the passage of the Robinson-Patman Act in 1936. In 2022, regulating online marketplaces in the name of “unfair competition’ is déjà vu. It aims at taming the beneficial process of creative destruction in the retail industry at the expense of innovation and consumers.

Either FTC rulemaking fails and consumers will win, or the FTC rulemaking wins and consumers will lose. In a collision course between consumers’ interests and enforcers’ interests, the forthcoming FTC rulemaking on online marketplaces cannot benefit these two conflicting interests. It’s not too late for the FTC to prioritize consumers over an ideological agenda at war with them.

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