The Unfair and Deceptive Online-Offline Playing Field – FTC Hearing Filing

Submission for: U.S. FTC  Fall 2018 Hearings on “Competition and Consumer Protection in the 21^st Century” Topic #2: “Competition and Consumer Protection in Communication, Information, and Media Technology Networks” FTC Project # P181201 (PDF of this filing is here.)

The Unfair and Deceptive Online-Offline Playing Field of Divergent U.S. Competition and Consumer Protection Policy
Internet policy* has been the determinative dynamic of U.S. competition and consumer protection in the 21^st Century. Government exemptions/immunities evidently heavily favor regulatory arbitrage over free market competition, and drive the evident divergent reality where most of U.S. competition and consumer protection problems occur online not offline.

*U.S. Internet industrial policy in the 1996 Telecom Act effectively exempts only Internet companies from: all U.S. communications law, regulation, and public responsibilities; most non-communications Federal/State regulation; and civil liability for whatever happens via their platforms and business models.

August 7, 2018, By Scott Cleland, President, Precursor® LLC  info@precursor.com & Chairman, NetCompetition®  

Disclosures: The views expressed in this presentation are the author’s; see Scott Cleland’s full biography at: www.ScottCleland.com. Precursor LLC is an internetization consultancy serving Fortune 500 clients, some of which are Internet Platform competitors. NetCompetition® is a pro-competition e-forum supported by broadband interests.

Executive Summary: (The PDF of the whole filing is here.)

The change that has caused the most competition and consumer protection problems since the Pitofsky hearings, was U.S. Internet industrial policy, not the advent of the Internet, technology, or innovation.

America’s twenty-year-old, Internet Industrial-policy has exempted and immunized Internet platforms from most civil law, regulation, and accountability that their competitors must obey.

This exceptional distortion of America’s free market competition has resulted in upside-down competition and consumer protection outcomes, where the distribution networks with the most scale, scope, reach, network effects, market power, and competition complaints, have enjoyed the least competition and consumer protection scrutiny from the DOJ and FTC.

This FTC filing spotlights the policy problem of anticompetitive asymmetric accountability, where only Internet companies are exempted from: all U.S. communications law, regulation, and public responsibilities; most Federal and State regulation; and most civil liability for whatever happens on their platforms.

Regulating similar “communication, information, and media technology networks” oppositely, massively favors regulatory arbitrage strategies over free market competition. This is especially problematic because arbitrage is generally unproductive, speculative, or parasitic activity, and not generally economic investment, real value creation, or consumer welfare enhancing activity.

This analysis offers innovations in the economic methods of understanding Internet competition in the 21st Century.

It includes a first-of-its-kind causation model for asymmetric accountability, that shows how unfair and deceptive Internet policy incents arbitrage, generates predetermined winners and losers, and distorts the process of competition.

It also includes a first-of-its-kind cost-estimation model for quantifying the hidden public costs of U.S. Internet industrial policy over its lifetime.   

Next this analysis explains the various major effects of encouraging regulatory arbitrage, i.e. harms to: 1) consumer welfare; 2) free market forces; 3) the process of competition from Google, Facebook, and Amazon’s bottleneck distribution control over offline supply and online demand; and 4) economic growth.   

Finally, the recommended solution is new legislation that ensures equal accountability under the law, with one consumer centric, and technology-neutral, communications standard and one equal accountability policy; and one antitrust enforcement policy that ensures no real or implied antitrust immunity for Internet platforms. 

Table of Contents

1. PROBLEM – Anticompetitive Asymmetric Accountability
1. Accountability Exemptions and Immunities
2. Unfair and Deceptive Competition and Consumer Protection Policy
3. Same Communications Regulated Oppositely by FCC
2. CAUSE – New Causation Model
1. The Asymmetric Accountability Arbitrage Causation Model
2. Accountability Arbitrage Distorts the Process of Competition
3. Accountability Arbitrage Depresses Overall Revenue Growth
3. EFFECTS – Harms
1. Harms to Consumer Welfare
2. Distortions of Market Forces
3. Harms to the Process of Competition
4. Depressing Effect on Revenue/Economic Growth
4.  SOLUTION – Same Rules. Same Accountability.
1. Equal Online-Offline Accountability Under the Law (including Antitrust)
5. CONCLUSION: Understanding the Rigged Game of Unfair & Deceptive Internet Policy

Appendices:

1. The Huge Hidden Public Costs (>$1.5T) of U.S. Internet Industrial Policy -- White Paper
2. Supporting Research
3. Bio