The Division Tackles Digital Markets

Antitrust Division Spring Update 2019

Competition policy and its application to digital markets is a hot topic today both in the United States and worldwide. Key issues include whether existing law and policy can address challenges presented by digital markets, how antitrust enforcers should address increased prominence of large tech platforms, and issues related to “big data,” algorithms, and artificial intelligence.

While digital markets present new challenges, our antitrust laws and policies fortunately are flexible enough to rise to the occasion. At the Division, we continue to adjust and reassess our enforcement tools and priorities based on changing technology and business models, and we have encouraged experts in academia, private practice, and the public policy sphere to work with us on new approaches.

Our objective, however, remains the same: to promote competition and protect consumers. In digital markets, as in all enforcement matters, the Division engages in case-by-case analyses in which we look closely at the evidence. We don’t rush to conclusions, but take action where there is credible evidence of harm to competition manifested through higher prices, lower output, reduced innovation, undue restrictions in consumer choice, or a serious deterioration in quality.

As part of our thoughtful approach, the Antitrust Division actively engages on issues related to competition in digital markets in a number of different ways.

Merger and Conduct Investigations

Without commenting on any pending merger or investigation, it should be no surprise that the Division often confronts digital markets issues within its traditional merger and conduct investigations. In some cases, the presence of a new technology provides additional competitive restraints to traditional industries. In other cases, we look at whether mergers or conduct by firms are foreclosing the ability of innovative new firms to compete. Although these issues can come up in many types of cases, two of our civil sections have especially relevant expertise in analyzing features of these types of markets:

Technology and Financial Services Section

Our Technology and Financial Services (TFS) Section has a long history investigating markets that spring up around new technologies, including products or services that commercialize data, utilize online distribution, or depend on network effects.

The Section has conducted significant investigations into digital markets involving products offered to consumers for free. Fundamental to this analysis is appreciating how zero-price products work as part of a firm’s overall business plan and strategy. Indeed, zero-price products are increasingly popular across many industries, from natively digital markets like online search and advertising to historically offline markets like travel and dining. In market after market, the Section has followed the facts and worked to protect competition and consumer welfare.

Relevant investigations include H&R Block/TaxACT, where the Division secured an injunction against the merger based, in part, on evidence that TaxACT had a history of competing in the digital do-it-yourself tax preparation market by providing free products online that were higher quality than those of its competitors.

Another example is Google/ITA, where the Division entered a consent decree that resolved allegations in the complaint that Google’s merger with the producer of airfare pricing and shopping systems would have substantially lessened competition among online flight search platforms, resulting in reduced choice and less innovation for consumers who used those zero-price services.

Also, in Expedia/Orbitz, the Section analyzed the horizontal merger of two popular travel booking platforms by investigating both the user and provider sides of the platform. In deciding not to challenge the merger, the Division explained that Orbitz did not provide a competitive constraint on the commissions that Expedia charged airlines, car rental companies, and hotels. The Section also analyzed barriers to entry and found that new booking platforms, which users could try for free, had been introduced in the prior 18 months.

Media, Entertainment, and Professional Services Section

Our Media, Entertainment, and Professional Services (MEPS) Section is also increasingly looking at digital markets issues within its merger and conduct investigations. For instance, many of the markets that MEPS investigates are supported by advertising revenue and compete for the time and attention of consumers. The transition to digital distribution is also a recurring issue for many of the media and entertainment businesses that MEPS understands well.

For example, MEPS recently investigated both the listener and advertiser sides of local radio broadcasting markets in reaching the conclusion that Entercom’s acquisition of CBS Radio stations would result in harm to competition in local advertising markets in Boston, San Francisco, and Sacramento. The parties entered a consent decree with the Division requiring the divestiture of 13 radio stations. Though the investigation involved ad-supported, zero-price services, the Section alleged in the complaint that advertisers, on the other side of the platform, would experience a price effect from a reduction in head-to-head competition after the acquisition.

Upcoming Workshop on Advertising in Digital Markets

In many sectors, the digital economy is changing how companies compete and interact with each other, which, in turn, affects how antitrust enforcers think about traditional market definitions and competitive effects. In many of the Division’s investigations, the increase in advertising dollars spent online, in particular, is playing an important role in the analysis.

To study this issue more closely, the Division is planning to hold a workshop on media advertising on May 2 and 3, 2019. The workshop will examine whether and how the Division should rethink definitions of advertising markets, particularly with respect to broadcast, cable, and online advertising. We will announce speakers and additional details in the coming month.

Public Advocacy and Policy

Assistant Attorney General (AAG) Makan Delrahim and senior staff have delivered a range of speeches addressing digital markets. Key messages have been the importance of evidence-based enforcement in digital markets; the flexibility of the consumer welfare standard and the existing legal framework; the need to preserve incentives to innovate and avoid existing or new regulatory barriers to competition; the need to evaluate claims about data cautiously, while remaining vigilant about possible use of data to collude or otherwise interfere with the competitive process; and the risk of not accounting for properly defined antitrust markets in claims of increased overall market concentration.

Below are a few of AAG Delrahim’s speeches on competition in digital markets from this past year:

Notable speeches from other senior leadership on antitrust enforcement in the digital economy include:

International Dialogue

The Antitrust Division works closely with its international counterparts on competition in digital markets both on specific investigations and on competition policy generally. This is a prominent issue internationally. Australia, the European Union, Japan, and the UK, among others, are producing reports and recommendations in this area.

The Department of Justice and FTC submitted a number of papers to the Organisation for Economic Co‑operation in the past year related to competition policy in the digital economy.

The Division will continue to discuss and work with its international partners on these important issues. Especially where the United States has different perspectives on some of these debates, it is particularly important to engage in collaborative discussions with our counterparts.

Ones and zeros

Image credit: 31moonlight31/iStock/Getty Images Plus

Updated September 30, 2019

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