Self Preferencing: First Consider Whether There Are Pro-Competitive or Competitively Neutral Business Reasons
It is tempting to assume that where a platform directs customers to a product or service which it owns, there must be an antitrust violation. Often there is no basis for this assumption. It is important to separate pro-competitive or competitively neutral conduct from conduct which has no function other than to exclude competition.
Bear in mind that a search engine or internet platform can be pro-competitive on a massive scale. Via the internet, small businesses can achieve global reach. What was once a local business with walk-in customers can market itself worldwide at very low incremental cost.
There is no antitrust violation called preferencing or self preferencing. Rather, people who use the term appear to be referring to the law against tying.
In evaluating the facts bear in mind the elements of a tying claim:
(1) Two separate products. Is there separate customer demand for each product standing alone or are the products usually sold as one integrated function or device? Does the combination of the two provide enhanced functions or efficiencies that selling them separately could not achieve?
(2) Market power in the alleged tying product. This implies a properly defined relevant market in which a claimed tying product is sold, that the seller has a large share of the market for the tying product, and that customers as a practical matter cannot get functional substitutes at roughly comparable prices.
(3) Conditioning or coercion. Did the seller require that the more desirable product could only be had if a less desirable product which the customer did not want was purchased as well? Did the customer resist the demand, or did the customer willingly want and seek to purchase both products?
(4) Foreclosure of competition in a market for the allegedly tied product. Did the seller’s conduct foreclose a “not insubstantial” dollar amount of commerce in the tied product?
Tying does happen, and it can violate Sections 1 and 2 of the Sherman Act and in certain circumstances Section 3 of the Clayton Act. But before jumping to that conclusion, consider whether the conduct in fact has procompetitive or competitively neutral effects. While not an exhaustive list, here are some of the questions to ask.
· Consumer Choice Should be Honored
In search or in selling, what was the customer's query? Is the search result responsive to the query? Does the result provide what the customer sought? Or is a seller, or in some cases an antitrust authority, in effect saying that the customer should have made some other query that would have displayed other alternatives? Consumers' choices in stating what they seek should be honored.
Were the consumers forced to use a certain product or service? Or did the consumers repeat their use because they are happy with the quality and terms provided? Or did the consumers use a particular app repeatedly simply out of habit or inertia? In either of these possibilities, the consumers are not forced or coerced, but are making a choice. And an element of tying, forcing or leveraging from one market into another, may be missing.
What criteria does an algorithm use? For example, if a result is based on customer location, price, and demonstrated prior preference of the customer, this does not appear to be anti-competitive conduct by a seller. It is giving the customer what he seeks, or things of a sort that the customer’s prior conduct or circumstances demonstrate the customer likely wants.
If a search result excludes unlawful, dangerous, false, or fraudulent material, or results that would impair public health or safety, this is a prudent exercise of business ethics, not anti-competitive conduct.
If consumers are directed to products or services owned by the platform, is the price of those products or services lower than that of competing offers? Are their performance characteristics superior to the competing offers?
Does the conduct actually harm consumers or customers? If so, does such harm result from a lessening of competition, or does the issue sound in consumer protection/ fraud, breach of contract, privacy law, copyright, or libel? What remedy does one seek?
What is the format of the response to the consumer's query? Are alternative providers really hidden? Do they all appear on the first page? On a link where the consumer can click through?
Where would-be competitors lodge complaints with antitrust authorities, does such companies' lack of success reflect inferior product, service, marketing, or business planning? Are they trying to get, by government help, an advantage which their product or service could not achieve on its merits?
· Is the Platform Doing Anything More Than Achieving a Return on Its Invention?
In U.S. antitrust law, with very rare exception, even a monopolist is not required to assist a competitor. This principle applies even more strongly to someone who does not have a monopoly. Public policy has led to regulations and statutory regimes for certain industries, for example state regulation of electric utilities and insurance, federal regulation of some aspects of broadcast television and banking. But absent some regulatory system, companies generally cannot be forced to deal with one another.
In addition to this general principle, are there technical reasons based in quality, data privacy, data security, or functionality, why assisting a competitor should not be attempted?
Is the platform doing anything more than obtaining a return on its invention? Obtaining the benefits of one’s innovation should be allowed and encouraged; this is what drives further innovation, improved productivity, and improved living standards.
The level of return on an innovator's investment should be irrelevant. Outsize profits may reflect the value of what has been invented, first mover advantage, intellectual property, the inherent structure of the market, or all of the above. Profit levels do not necessarily indicate anti-competitive conduct. Profit may reflect the value of what is provided.
· Is the conduct complained of in reality an integrating of functions that achieves efficiencies and benefits for consumers?
In the 1980s, 1990s, and 2000s there were antitrust cases where incumbent makers of computer peripherals complained that functions performed by the peripherals were integrated into the original equipment. For example, battery makers complained when the power function was made re-chargeable and incorporated into the device. The courts rejected antitrust challenges to these product improvements. Are we seeing an analogous repeat of such claims now?
Brick and mortar stores might place private label products, or products on which they earn higher margins, at the front of the store or at locations designed to get more attention from customers. Are we seeing something analogous now in e-commerce? Do we want to say this is tying when, with minimal effort, the other products can be found?
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There will be some instances where customer choice is being forced upon it, customer queries are being ignored in order to give low quality results, innovators are forcing customers to do more than pay for the value of the product, or a product with new features has no purpose other than an exclusionary one. But I suggest that the foregoing pro-competitive and competitively neutral possibilities should be considered before an antitrust remedy is sought.