Joshua Wright Presents an Antitrust Framework for Internet Governance

By TAP Staff Blogger

Posted on December 18, 2017


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On Thursday, December 14th, 2017, the Federal Communications Commission (FCC) voted to repeal the net neutrality rules it adopted in 2015 by voting to approve FCC Chairman Ajit Pai’s Proposal to Restore Internet Freedom.

 

An FCC press release announcing the vote outlines the changes. Below is an excerpt:

 

In place of that heavy-handed framework, the FCC is returning to the traditional light-touch framework that was in place until 2015. Moreover, the FCC today also adopted robust transparency requirements that will empower consumers as well as facilitate effective government oversight of broadband providers’ conduct. In particular, the FCC’s action today has restored the jurisdiction of the Federal Trade Commission to act when broadband providers engage in anticompetitive, unfair, or deceptive acts or practices.

 

An article by George Mason University professor Joshua Wright explains the value of enabling the Federal Trade Commission (FTC) to police internet service providers (ISPs). Below are a few excerpts from “Antitrust Provides a More Reasonable Regulatory Framework than Net Neutrality.”

 

The Abstract

 

In 2015, the FCC reclassified the framework for regulation of the Internet from Title I of the Telecommunications Act to Title II. This reclassification treats the Internet as a common carrier and bans any vertical agreements between Internet service providers and content providers. Economic analysis shows the 2015 Order harmed consumers and depressed investment. In April 2017, the FCC initiated a proceeding to end the Title II regulatory approach. Such a shift will also replace the categorical ban on vertical arrangements to a regulatory regime grounded by antitrust law and its “rule of reason.” Critics argue the antitrust approach cannot reach each of the harms envisioned by proponents of net neutrality or is otherwise insufficient. We explain that the criticism that antitrust cannot reach harm to innovation caused by anticompetitive conduct is wrong as a matter of both antitrust as a matter of theory and practice. We conclude that antitrust is superior to proposed alternatives that would condemn vertical arrangements in broadband markets either on a categorical basis or the plaintiff bearing the prima facie burden of showing proof of harm to competition.

 

Introduction

 

Economic analysis predicted the 2015 Open Internet Order ban on vertical agreements would likely harm consumers and depress investment. Now, empirical evidence is consistent with those predictions. Reclassifying Internet service providers under Title I would restore incentives to invest in broadband markets. A less obvious benefit is that it replaces the 2015 Order’s categorical ban on contract arrangements that benefit consumers – including paid prioritization and other vertical arrangements – with antitrust jurisprudence’s rule of reason. A close look at the antitrust approach shows not only that it can reach the harms envisioned by net neutrality proponents, but also that it is superior to alternatives that would condemn vertical arrangements in broadband markets without proof of harm to competition.

 

Antitrust Framework

 

Antitrust law has developed a sophisticated “rule of reason” approach to determine whether vertical agreements are procompetitive or anticompetitive. The rule of reason approach examines vertical agreements on a case-by-case basis by “weighing costs and benefits, and recogniz[ing] possible losses from enforcement errors that go in either direction.” According to FTC staff, rule of reason “weigh[s] potential anticompetitive effects against the procompetitive effects and efficiencies that drive business practices in fast-growing industries.” The rule of reason analysis would not result in a categorical ban on vertical agreements. Instead, by applying rule of reason, vertical agreements would be analyzed on a case-by-case basis, and be rejected only if careful economic analysis concluded there are anticompetitive effects greater than any procompetitive effects or efficiencies.

 

Conclusion

 

Economic analysis predicted the 2015 Open Internet Order ban on vertical agreements would likely harm consumers and depress investment. Empirical evidence is consistent with those predictions. Reclassifying Internet service providers under Title I restores incentives to invest in broadband markets. A less obvious benefit is that it replaces the 2015 Order’s categorical ban on contract arrangements that benefit consumers – including paid prioritization and other vertical arrangements – with antitrust’s rule of reason. A close look at the antitrust approach shows not only that it can reach the harms envisioned by net neutrality proponents, but also that it is superior to alternatives that would condemn vertical arrangements in broadband markets without proof of harm to competition.

 

Access the full article from Professor Wright’s SSRN page: “Antitrust Provides a More Reasonable Regulatory Framework than Net Neutrality.”

 

 

Joshua Wright is University Professor and Executive Director of the Global Antitrust Institute at George Mason University. He also holds a courtesy appointment in the Department of Economics. He is a leading scholar in antitrust law, economics, intellectual property, and consumer protection.

 

Professor Wright served as a commissioner of the Federal Trade Commission (FTC) from 2013 to 2015. In this role, he led efforts to reach an agreement with fellow commissioners to release the FTC's first-ever guidelines on how the agency plans to use its powers to police "unfair" competition by businesses. Previously, he served in the FTC's Bureau of Competition as its inaugural Scholar-in-Residence from 2007 to 2008; and he also served the FTC as an intern in the Bureau of Economics and the Bureau of Competition.

 


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