Markets Show the Perils of Arbitrary Antitrust Legislation

Several overzealous antitrust bills introduced this Congress take aim at America’s largest technology companies. For different and often conflicting reasons, some conservatives and progressives have supported legislation that would restrict normal business practices, ban mergers and acquisitions (M&A), or even force the break up of these companies. Many of these bills target these companies through arbitrary definitions like market cap and user size, but changing markets are demonstrating the perils of a “big is bad” approach.

FAANG is an acronym for five prominent companies Facebook (now Meta), Amazon, Apple, Netflix, and Google (Alphabet). Microsoft is often mentioned as part of this group as well. The strength and strong performance of these American companies made them appealing for investors. However, as restrictions from the COVID-19 pandemic fade and life for many Americans tracks back towards normalcy, these companies some call “monopolies” are showing the folly of current Congressional legislation.

Several antitrust bills, like the American Innovation and Choice Online Act (S. 2992) and the Platform Competition and Opportunity Act (S. 3197), target companies based on their user base size and market capitalization. The thresholds for market caps are set at $550 billion for public companies in S. 2992 and $600 billion at the time of enactment for S. 3197. These bills would radically overhaul existing antitrust laws to prevent common business practices, like selling private labels alongside competitors (referred to as “self-preferencing”) and prevent M&A for certain large companies.

However, market fluctuations are demonstrating how disastrous and untethered to consumer harm these definitions are. These supposedly unassailable monopolies are hitting speed bumps as new competitors grow and consumer habits change in response to fewer COVID-19 restrictions.

Meta’s market cap fell below $600 billion earlier this year, while other competitors like TikTok and Snap continue to grow. Netflix’s shares dropped 35 percent last week after their user base declined. Netflix has also faced competitive pressures from other streaming services like Disney+, HBO Max, and Peacock.

There is little rationale for targeting companies of an arbitrary size if the goal is to promote competition and protect consumers. If a company with a $600 billion market cap engaged in self-preferencing is supposedly bad, why would this same behavior not be similarly deemed obviously harmful with a market cap of $525 billion? Rather than removing barriers to competition and promoting innovation, some lawmakers are simply looking to prevent companies from growing. This is a misguided approach that will backfire for consumers and undermine U.S. competitiveness.

Alarmingly, the antitrust legislation is written so a “covered platform” would still be subject to these regulations regardless of whether they are usurped by competitors. The designation of a “covered platform” lasts for 7 years and 10 years respectively for S. 2992 and S.3197. Even if a company was no longer a dominant platform, they would still be burdened with excessive regulations while their competitors would not be.

The government should not be picking winners and losers, but empowering unelected bureaucrats with radical antitrust authority would do just that. Market caps are an unreliable indicator of consumer harms and using these caps as a basis for targeting certain companies undermines the consumer welfare standard. Big is not necessarily bad, and lawmakers should not make choices that are better left to consumers.