Published July 2017
Supporting policies that promote competition is a key part of Public Knowledge’s effort to promote freedom of expression on affordable communications platforms for all. In the digital age, the way we consume products and information is changing as new technologies become ever more integrated into our daily experiences. It’s important that we reflect on what competition means in the 21st century, and make choices that continue to foster a competitive marketplace for consumers. Competition is a critical part of PK’s work on issues ranging from privacy protection to the reform of intellectual property laws.
Why do we need competition and competition policy?
A competitive marketplace is the backbone of our economy. Consumers benefit from competition because it keeps prices low and ensures that the market offers meaningful choices. When multiple vendors are vying for a piece of a consumer’s paycheck, they are forced to offer their best or risk losing business to someone else with a better idea. The United States has laws on the books that foster this competitive marketplace, but they only work if carefully enforced by the entities charged with protecting consumers.
Because many markets aren’t inherently competitive, some companies’ natural drive to maximize profit results in inflated prices and lower quality. Therefore our nation’s antitrust and regulatory authorities must work together to ensure that companies are competing on the merits instead of using anticompetitive practices to get ahead of their rivals, and harming consumers in the process. However, the new administration’s focus on eliminating public oversight tools threatens the existing balance between public accountability and the market. We should ensure that expert economic analysis, and not simplistic rhetoric, is the measure of the day and continue to uphold the public/private balance needed to drive competition and encourage innovation in today’s market.
During the past several years, the federal government vigorously enforced pro-competition policies, which ensured that companies challenge each other on a level playing field. These pro-consumer policies are important for every sector of the economy. In communications for example, the Department of Justice blocked the proposed merger of AT&T and T-Mobile in 2011. The DOJ noted that T-Mobile was an important innovator in the wireless industry with a number of historic firsts, including the first android phone. The DOJ’s action prevented the consolidation of the wireless market that threatened this innovation.
While the wireless market isn’t perfect, today, as a result of this decision, instead of three major wireless carriers there are four. T-Mobile has continued to innovate through pricing plans with unlimited data and has ended two-year contracts, with other carriers following suit. According to the Wall Street Journal, Verizon recently cut prices and added more data to its wireless plans to stop customers from fleeing to T-Mobile and Sprint. This competition has led not only to innovative product offerings for consumers but competition on price as well. Prices for wireless phone service were down eleven percent in March 2017 from March of 2016, and down seven percent from February of 2017.
This type of competition provides a stark contrast to the highly consolidated cable market. Two large providers — Comcast and Charter — control more than half of American cable broadband connections. And, since they operate in separate regions and do not compete against each other, the majority of Americans have no choice of cable broadband provider. According to the Federal Communications Commission’s latest Broadband Progress Report, three quarters of census blocks in the United States have at most one provider that offers a 25 Mbps broadband connection. Only about a third of Americans have a choice of two or more providers, less than ten percent have a choice of three or more, and the picture gets worse as Internet speeds increase. This lack of competition means higher prices and worse service.
Complementary enforcement mechanisms
Antitrust enforcement, by either the DOJ or Federal Trade Commission, isn’t the only way to ensure that the American economy is functioning competitively. Regulation by expert agencies also plays an important role in ensuring that consumers have options in the market. Just like peanut butter and jelly, antitrust law and regulation are better together, each playing an important role at different places in the market. Put another way, regulation helps where the market is inclined to fail to offer competitive structures on its own for consumers, because of network effects or other structural defects. It can also be used to jump start competition. Antitrust on the other hand steps in when things have already gone sideways and consumers are being hurt by anticompetitive practices.
Since its creation in 1934, the FCC has been charged with regulating communications in the public interest. This standard, unlike the pure economic efficiency that antitrust regulators strive for, asks about broader societal goals like ensuring the availability of diverse content for consumers throughout the U.S. The FCC has the authority to regulate broadcast licenses to ensure that local content, content for children, content accessible for people with disabilities, and content produced by minorities and women all have a place on our airwaves. These goals certainly go beyond what antitrust authorities are looking at when they police our markets. But the combination of regulation that takes into account factors not reflected in the economic determinism of antitrust, combined with that rigorous economic scrutiny, gets us the best of both worlds: effective and efficient markets populated by a diversity of voices and ideas.
How can we keep our markets competitive?
Protecting consumers is a nonpartisan issue. Democrats and Republicans have consistently been united in ensuring that consumers have real choices in the economy because it benefits everyone.
A key way to ensure that competition endures is the review of mergers by both antitrust authorities and expert agencies. Mergers have the potential to decrease options for consumers by increasing the consolidation of big companies. Antitrust authorities review mergers that threaten to dangerously decrease the options available to consumers. These mergers can either be entirely blocked or approved conditionally. Conditions are applied if they can eliminate the potential anticompetitive effects of the merger. President Trump has promised to curb consolidation and to promote competition in order to protect our democracy from the harm of increased concentration of ownership in media markets. Public Knowledge hopes that the President will follow through on this pledge to protect consumers.
Antitrust plays a role in guaranteeing free expression in our society by ensuring that our marketplace of ideas is a competitive one. Consolidation in the communications marketplace restricts the ideas that people are exposed to because it limits the number of voices. Where appropriate, Public Knowledge believes harmful deals should be blocked, or at least remedied with enforceable conditions designed to protect the public interest.
America has long valued competition as one our of core democratic principles. Justice Thurgood Marshall once wrote, “Antitrust laws in general, and the Sherman Act in particular, are the Magna Carta of free enterprise. They are as important to the preservation of economic freedom and our free-enterprise system as the Bill of Rights is to the protection of our fundamental personal freedoms.” Media and communications consolidation not only leads to higher prices for consumers, it threatens democracy and diversity of viewpoints in the market.
What is Public Knowledge doing to help?
We will continue to weigh in on efforts to eliminate public oversight and undermine competition in our marketplace and globally. In order to ensure that we keep pace with fast moving technologies, we also want to connect with experts to understand how theories of competition are continuing to evolve. Public Knowledge is committed to monitoring the state of antitrust enforcement and merger review to ensure that consumers continue to be effectively protected.