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March 9, 2011
Antitrust should not apply to conduct between non-competitors

goodlatte1.jpgIntellectual Property subcommittee Chairman Bob Goodlatte, R-VA (pictured), said he is considering legislation to tweak antirust law to address net neutrality concerns, according to the Hill. That's apparently because Rep. Henry Waxman (D-CA) reports that,

According to DoJ, favoring websites that pay high fees and degrading websites that don't is perfectly legal under the antitrust laws as long as the phone or cable company isn't in direct competition with the websites being degraded.

Goodlatte and Waxman seem to be talking about a vast expansion of the antitrust laws, which are presently concerned with anticompetitive behavior. As a definitional matter, if two rivals are not in competition with one another, then neither can behave anticompetitively toward the other. Nor would they have any incentive for doing so. What would be the point? Neither could derive any tangible benefit if the other were harmed.

This is not the scenario that recently prompted the Seattle Times to editorialize in favor of a bill by Sen. Maria Cantwell (D-WA). The newspaper claimed the reason her bill is needed is because,

Her legislation introduced last week would prohibit Internet access service providers from discriminating "in favor of their own or affiliated services, content and applications and against other providers of such services, content and applications."
* * * *

"Without the strong protections provided by this bill, broadband Internet providers will likely favor their own or affiliated content, service and applications because they have the economic incentives and technical means to do so," Cantwell said last week.

Although her rhetoric is firmly grounded in familiar antitrust principles,Cantwell's bill would give the FCC sweeping new powers to do what antitrust cannot. Broadband providers would be prevented from treating anyone's services, content and application differently from anyone else's, whether or not the broadband provider has market power or a sound business justification for differential treatment. Traditionally, antitrust is only concerned with anticompetitive behavior by a dominant entity.

Consider that no one seems to be suggesting that other sectors of the economy should betreated like Cantwell and others want to treat broadband -- at least not yet -- and imagine the consequences if they did.

For example, Delta, United and US Airways voluntarily provide service to Roanoke Regional Airport in Goodlatte's congressional district. American does not. You could say American blocks access to Roanoke for its customers.

The airline industry is competitive, American is not in the airport business and the airline may be acting on the basis of a legitimate profit motive (with no anticompetitive animus). Maybe American does not believe Roanoke would be profitable without local tax incentives, reduced landing fees, volume commitments from local businesses or other inducements which flow to the carrier's bottom line just like a direct fee for service. In these circumstances, there's probably little if anything the DoJ could do under current antitrust law.

Yet conceptually, there's no difference between forcing broadband companies to provide access to websites versus requiring American Airlines to provide access to airports if it's economically inefficient. Since the cost of providing either broadband or air service has to be recovered, both broadband providers and American Airlines would have to resort to cost-shifting. There is no free lunch.

Cost-shifting results in a mish-mash of over-charges and under-charges, distoring consumption and competition. Buyers over-consume products and services priced below cost. Competitors target products and services priced above cost. Ultimately, the system is unsustainable.

There are a lot of problems with the antitrust laws, but limiting their reach to anticompetitive conduct by dominant providers -- not mere supply arrangements between non-competitors -- is not one of them.

Waxman also complained to the Hill that "DoJ told us that ... antitrust does not stop a phone or cable company from blocking websites that don't pay for access."

Assuming Waxman meant what he actually said, websites receive a valuable service from broadband providers. In the future they may choose to experiment with pro-competitive new or modified pricing structures. If the DoJ could tell a broadband provider that it cannot block websites that don't pay for access, that would be no different than telling a vendor of some other product or service that it has to serve customers who won't pay. Hospital emergency rooms operate under a similar rule. Does Goodlatte really want to extend that model into other sectors of the economy?

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