Stifling “Platformization” Would Harm Consumers and the Economy, Report Finds

WASHINGTON—Digital market platforms are the new economic paradigm, and the history of antitrust responses to corporate evolution suggests that stifling them would do more harm than good, according to a new report from the Information Technology and Innovation Foundation (ITIF).

“As new organizational models emerge and become dominant, policymakers and segments of the public often decry them. But the reality of economic history is these new business models have been enormously positive,” said ITIF President Robert D. Atkinson, who co-authored the report. “The last two major transitions were the rise of corporations in the early 1900s, then ‘managerial corporations’ after World War II. Now we have IT-enabled platforms, which may make sense in a wide variety of industries and functions, including banking, travel, education, law, and medicine. Disruption like this naturally stirs opposition. But antitrust must recognize the benefits platforms deliver to consumers, and scrutinize firms’ anticompetitive behavior, not their size.”

The report reveals that historical opposition to the rise of industrial corporations led Congress to pass antitrust legislation like the Sherman Act. But far from breaking up large firms, the Sherman Act in some ways encouraged mergers and outlawed trusts. These post-war antitrust enforcers created real damage on U.S. firms and industries, setting the economy back and creating a standard antitrust approach that continues today.

But as our economy shifts towards digital platforms, the historical approach to antitrust proves futile.

Rather than calling for a complete overhaul of current antitrust doctrines, the report instead calls for modest reform. It identifies three issues that are paramount to guiding these reforms:

• The need to move away from maximizing the number of competitors to maximizing innovation.
• The potential for Schumpeterian disruption.
• The need to demonstrate anticompetitive conduct before regulating.

Digital platforms have the potential to transform many industries for the better: raising productivity, improving quality and consumer choice, and reducing prices. But just as there was opposition during the transition to the corporate economy, today there is significant opposition to the platform economy.

“Policymakers should be extremely cautious in their efforts to limit the transition to the platformization of the economy,” said Aurelien Portuese, co-director of the Schumpeter Project on Competition Policy and co-author of the report. “Organizational changes to the platform economy reflect technological changes and superior business models, but these changes remain in constant flux in a dynamic economy. We can only hope that legislators and administration officials don’t get swept up in the anticorporate, Neo-Brandeisian wave and enact the kind of laws and regulations that would slow this needed transition.”

Read the report.