Importing hipster antitrust laws threatens our prosperity

Canada’s Competition Bureau has recently gone after Amazon even though — by its own admission — there is no conclusion of any wrongdoing yet. Could this fishing expedition be an attempt to import to Canada a new doctrine dubbed “hipster antitrust” that has been hailed by progressives in the U.S.? Such a shift could drastically reduce consumer welfare and hamper our economic prospects.

Though imperfect, antitrust or competition laws have historically been relatively stable and have sought to uphold a consumer welfare standard. Seeking to expand the scope of company probes, as the hipster antitrust movement does, could make any business a potential target, as is already the case for the GAFA companies (Google, Apple, Facebook and Amazon). Ultimately, it is the very concept of customer sovereignty that is under siege, for it is consumers — not producers, however big — who steer the ship of commerce, innovation and growth.

There are two contrary approaches to competition: Either it is a process, whereby new and better products and services appear regularly to replace the old and obsolete, or it is a static situation, which satisfies some preconceived notion of what a market should look like. Many economists take the former view; antitrust advocates and regulators, the latter.

Hipster antitrust proponents think they can design and enforce the structure of any market better than the interplay of consumers and producers does. They believe producers and consumers, when left alone to make voluntary trades, do not bring about “healthy” market structures. Their priority is to protect a certain conception of a competitive environment, and they are willing to sacrifice consumer welfare to do so. They aim to use antitrust laws (and the threat these represent to businesses under probe) to advance a social agenda, such as labour rights or sustainable production, or to cure social ills like inequality. Ultimately, this approach amounts to virtue-signalling and has little to do with consumer welfare.

Antitrust prosecutors’ means are limited and so they must choose their targets accordingly. Going after the biggest, richest players in the economy ensures media coverage and increases the odds of collecting hefty fines. The GAFA companies are today’s target of choice. Their size and market shares make them automatically suspect to many. Their financial success leads some to imagine that they could and should be called upon to do more, including pay more taxes or settle antitrust probes for astronomical fines, all without endangering their business. In the U.S., congressional hearings about the Digital Big Four are broadcast live and industry captains find themselves trying to explain their business models to sometimes clueless politicians, commissioners and antitrust judges. There has even been talk, especially in this U.S. election year, of breaking up companies like Facebook, Google and Amazon.

We all need to stop and take a deep breath. Reinventing the justification for antitrust laws in order to align them with the popular social issues of the moment would harm not just the biggest firms, but the entire business community, which depends on the predictability of our legal system.

The persistent concern for the supposed powerlessness of consumers in the digital age is not grounded in reality. Big companies have never been so vulnerable to customers’ well-informed and volatile opinions. There is zero tolerance nowadays for even mildly defective products, which get immediately recalled at great cost for fear of the potential damage to brand reputation. (In Canada so far this year there have been more than 850 such recalls.) Similarly, consumers impose their ethical beliefs on companies by choosing to support or boycott them, inducing the development of strategies and behaviours that integrate ethical concerns into product designs and professional practices.

Ironically, dismantling very large businesses like the GAFA companies would in practice amount to creating and enforcing a legal cartel of smaller companies whose market shares and profitability will have to be fixed and monitored by regulators. Once this supposedly “optimal” market structure is in place, it becomes much more difficult for newcomers to overtake any established player. When rewards are capped in this way, incentives to compete and innovate are significantly reduced.

Regulators should instead level the playing field by removing legal barriers to entry, and simply let smaller competitors challenge incumbents. Dethroning the sovereign consumer in favour of a set of ever-changing rules and regulations, as the hipster antitrust movement wants, would undermine consumer power and welfare, hindering investment and innovation and thus restraining productivity and standards of living. In a post-pandemic world where growth is crucial, such changes in antitrust doctrine are most unwelcome.

Gaël Campan is Senior Economist at the MEI. The views reflected in this op-ed are his own.