The antitrust laws are designed to strengthen free market competition and benefit consumers. But some abusive foreign antitrust lawsuits and new related forms of regulation undermine competition and reduce economic welfare. One prominent recent example is Korean Government antitrust attacks against American firms, which reduced United States and Korean welfare to the tune of $1 trillion. The U.S. Government should consider targeting harmful misapplication of foreign antitrust and competition regulation as a key element of American economic policy.
Antitrust Policy Change in a Nutshell
U.S. antitrust laws, broadly speaking, aim to curb businesses’ efforts to reduce competition in the marketplace or to create or maintain monopolies. For many years, these laws have had the same basic objective: to protect the process of competition for the benefit of consumers, making sure that businesses have strong incentives to operate efficiently, keep prices down, and keep quality up. The modern consumer-welfare approach to antitrust enforcement in general has served the American public well.
In recent decades, almost all nations have adopted their versions of American antitrust law, referred to as “competition law.” This “globalization of antitrust” is becoming increasingly important to the economic welfare of many nations, because major businesses (in particular, massive digital tech companies like Google, Amazon, Apple, Microsoft, and Facebook) face growing antitrust scrutiny by multiple enforcement regimes worldwide.
Unfortunately, foreign competition enforcers increasingly have abandoned a primary focus on consumer welfare in favor of a “precautionary principle approach,” when assessing new dynamic technology companies’ behavior. Precautionary antitrust counsels taking enforcement action on the mere risk, without evidence, that novel business behavior may harm future competition, and thus should be stamped out in advance. This approach deters private sector innovation that could come under the government microscope. It therefore may prevent or slow great technological advances that generate new markets and bestow great benefits on consumers and the economy.
Governments are also being incentivized to apply the new precautionary approach to regulate high tech business conduct without having to find harm, as a supplement to traditional antitrust prosecutions. Governments can apply regulation quickly without having to wade through the complexities of litigation.
Specifically, new foreign “competition regulations” are supplementing antitrust to micromanage large, almost all American, “dominant gatekeeper” tech firms. The European Union has taken the regulatory lead with its 2023 “Digital Markets Act” that currently covers Alphabet, Amazon, Apple, ByteDance, Meta, Microsoft, and Booking.com. There already is evidence that despite its stated procompetitive goals, the DMA is imposing significant economic losses on the EU economy. Nevertheless, other foreign jurisdictions are adopting their own versions of the DMA.
A Dramatic Example: Korean Welfare-Reducing Competition Policy
New Korean Competition Studies
Two new analytical reports by trade economist Shanker Singham, President of the Competere Foundation, “quantify the economic costs of Korea’s current competition and digital-market policies, the Korea Fair Trade Commission’s [antitrust] enforcement practices and the proposed Online Platform Markets Act, and their impact on both the Korean and United States economies.”
As the studies explain, Korean competition enforcement recently has shifted from a consumer welfare focus (reflecting the longstanding U.S. philosophy) to a precautionary approach, penalizing efficient business practices and stifling innovation. Antitrust cases and planned regulation directed at U.S. companies stem from Korean officials’ claims that American firms have an unfair advantage over Korean businesses.
The KFTC’s reliance on formal categories of abuse rather than demonstrable consumer harm has led to economic inefficiencies. Recent cases illustrate this trend, where efficient practices were treated as suspect, limiting economies of scale and innovation.
The reports estimate the negative economic impacts of Korea’s competition policy on both Korean and U.S. economies, advocating for reforms based on consumer welfare. This policy directly discriminates against and harms major American firms. It also negative secondary effects up and down the supply chain that reduce efficiency and U.S. consumer welfare. Furthermore, the policy disincentivizes foreign direct investment into Korea, disproportionately damaging the country’s micro, small, and medium businesses.
Key Findings
The 2 reports find that KFTC competition enforcement plus KOPMA regulations could lead to losses of up to $469 billion for Korea and $525 billion for the United States. Korean regulations would cost the average American household roughly $3,800 in economic losses over the next 10 years. The estimates are generated by application of an analytic framework and econometric model that evaluates the effects of anticompetitive market distortions on markets.
The reports recommend that the Trump Administration seek to have Korea adopt the framework and model as part of a new U.S.-Korea trade agreement. They urge that the KFTC should:
- Reinstitute a consumer welfare standard in competition enforcement, emphasizing measurable efficiency dimensions: allocative, productive, and dynamic.
- Utilize narrow and focused on specific harmful conduct.
- Impose a competition filter in applying KOPMA regulation to ensure benefits outweigh potential efficiency losses.
- Both American and Korean consumers and businesses would enjoy enhanced innovation and higher economic welfare.
Government and Private Sector Misuse of Competition Policy Is Rampant
Regrettably, the Korean example is not rare. Government misapplication of antitrust and regulation to distort competition is rampant.
It is often a response to “rent seeking,” whereby individuals or companies lobby to obtain special favors from the government, rather than to protect consumers. When successful, rent seeking typically distorts markets and reduces economic welfare.
Rent-seeking aimed at generating European Commission antitrust actions against successful U.S. firms is common. For example:
- The streaming music service Spotify pushed for the Commission to investigate Apple’s practices.
- A search firm, DuckDuckGo, sought to have the Commission require Google to provide more detailed search data to its competitors.
- More generally, major foreign companies have urged their own antitrust agencies to investigate and sue American rivals. The Commission as well as national competition authorities also have sought greater powers (with lower burdens of proof) to challenge tech companies.
- In addition, leading companies in many jurisdictions (including the U.S.) may lobby their legislatures to impose anticompetitive regulations aimed at harming the lobbying companies’ rivals.
What to Do
Merely urging foreign competition authorities to drop the precautionary principle and pivot back to consumer welfare in antitrust and competition regulation will not suffice. The Trump Administration may, however, have some leverage to exercise through bilateral trade deals:
- New quantitative techniques applied by Singham to Korean policies could be employed to estimate the costs of competition enforcement and regulation in other nations.
- U.S. negotiators could use those estimates to incentivize trading partners to change their competition policies (including repealing anticompetitive regulations). The U. S in turn could point out that it is seeking to rescind anticompetitive federal regulations.
- A refusal to change could be met by possible sanctions, such as tariffs calibrated precisely and narrowly to the economic loss suffered in the U.S. Ideally tariffs would be imposed only on the imports from the foreign firms who benefited from the anticompetitive foreign actions.
- Alternative non-tariff remedies could also be on the table.