‘Self-Preferencing’ Can Be a Good Thing; ITIF Proposes New Taxonomy for Antitrust Regulators to Differentiate Competitive Benefits From Exclusionary Practices

WASHINGTON-Legislation proposed in the U.S. Senate would prohibit large tech platforms from favoring their own products and services, yet this so-called "self-preferencing" actually can benefit consumers and competition, according to a new report from the Information Technology and Innovation Foundation (ITIF), the leading think tank for science and technology policy. Instead of a blanket prohibition on the practice per se, ITIF proposes a practical taxonomy for antitrust regulators to assess the state of competition in the context of relevant business contracts.

"Companies have been favoring their own products and services for a long time-and antitrust enforcers traditionally have taken a deferential view of the practice because it can spur competition and benefit consumers," said Aurelien Portuese, director of ITIF's Schumpeter Project on Competition Policy. "Indiscriminately banning self-preferencing would harm consumers, deter innovation, and distort the competitive process. Antitrust enforcers should adopt a 'rule of reason' approach-as courts have long done-to assess the state of competition in the context of relevant contracts."

ITIF's report proposes a practical taxonomy for regulators to distinguish between the pro-competitive effects of self-preferencing as a legitimate self-promotion tool and the anticompetitive effects of self-preferencing as an unjustified exclusionary tool. User preferences often generate the former type of self-preferencing, which would warrant differential treatment from antitrust enforcement. The latter, however, may require further antitrust enforcement as it would thwart competition and innovation.

ITIF warns against following in Europe's footsteps, as new legislation from Sens. Amy Klobuchar (D-MN) and Chuck Grassley (R-IA) would do by emulating the European Commission's proposed Digital Markets Act.

The Klobuchar-Grassley bill would distort competition to the detriment of consumers by prohibiting a narrowly defined class of covered U.S. Internet platforms from favoring their own products, services, or lines of business over other sellers, but allowing foreign platforms and domestic incumbents to continue the practice. That would relieve exempted companies from competitive constraints and pressure to innovate, which would leave consumers with fewer innovative products and services and higher costs.

ITIF argues antitrust regulators should apply a rule of reason to determine whether a company is actively excluding or demoting a competitor and otherwise commit to viewing self-preferencing as a procompetitive, pro-consumer business practice that helps companies diversify their portfolios, enter new markets, challenge incumbents, and disseminate innovation through a process of imitation and disruption, which unequivocally benefits consumers.

"A general, per se prohibition of self-preferencing, as proposed in the European Commission's Digital Markets Act, would generate considerable costs and unintended consequences," said Portuese. "The United States should refrain from importing such approaches with bills such as Klobuchar and Grassley's."

Read the report.