Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Antitrust law superior to strict net neutrality, FTC Commissioner Wright argues, (Jun 20, 2014)

By Edward L. Puzzo, J.D.

In the current net neutrality debate, antitrust law offers a superior analytic framework for determining the best regulatory structure to promote consumer welfare, stated FTC Commissioner Joshua D. Wright. In his June 20, 2014 appearance before the House Judiciary Committee, Wright advocated for the use of antitrust law's "rule of reason" approach rather than a categorical strict net neutrality ban on all vertical arrangements between broadband providers and content providers.

Economic perspective on net neutrality. From an economic perspective, Wright stated, the debate over net neutrality is over the competitive effects of vertical contracts between broadband providers and content providers, and the fear that broadband providers will enter into business arrangements that disadvantage certain content providers, harm competition and thereby leave consumers worse off. An example would be a broadband provider entering into an exclusive contract with an online video site to foreclose a rival video site’s access to the broadband provider’s subscribers. This competitive concern is grounded in "raising rivals costs" aspect of antitrust economics; that is, the risk that a monopolist can raise rivals' costs in order to reduce competition, obtain power over prices, and thereby harm consumers.

To prevent this consumer harm, proponents of net neutrality tend to favor a categorical ban on providers' ability to enter into vertical contractual relationships. But, Wright argued, while vertical contracts can lead to anticompetitive foreclosure under certain circumstances, vertical contracts could also generate significant efficiencies, by aligning manufacturers and distributors' incentives. Wright claimed that vertical contracts are often procompetitive, with "non-neutral" business models often producing efficiencies which are passed onto consumers in the form of lower prices, higher quality and greater innovation.

Wright argued that any economically coherent answer to the question of what regulatory scheme best promotes consumer welfare "must begin with the fundamental observation and market experience that the business practices at the heart of the net neutrality debate are generally procompetitive."

"Rule of reason" approach. Wright maintained that antitrust jurisprudence has evolved a highly sophisticated "rule of reason" balancing approach for determining whether or not vertical arrangements are anticompetitive. This approach requires that vertical arrangements be assessed on a case-by-case basis to evaluate evidence of actual competitive harm. The "rule of reason" framework is flexible enough to allow consumers to benefit from the "vast number of vertical agreements that are procompetitive," while also creating a means for identifying those virtual contracts that harm consumers.

According to the Commissioner, strict net neutrality, or a regulatory regime that prohibits all vertical arrangements, would only be in consumers’ best interests if vertical agreements are overwhelmingly anticompetitive. Wright maintained that was not the case; that "the vast body of economic theory and empirical evidence demonstrates that such conditions do not hold in the case of the business arrangements and contracts at the heart of the net neutrality debate."

News: Antitrust FederalTradeCommissionNews