Report Finds Increased Antitrust Oversight Needed to Protect Small Business

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The sharp decline in the number of small, independent businesses in the U.S. is due, at least in part, to “anticompetitive behavior by large, dominant corporations,” according to a report released on Wednesday, August 10, by the Institute for Local Self-Reliance (ILSR).  Using examples from the pharmaceutical, banking, telecom, and retail industries, the report, “Monopoly Power and the Decline of Small Business: The Case for Restoring America’s Once Robust Antitrust Polices,” sets out to show how big companies routinely use their size and economic and political power to squelch competition from their small-business competitors.

The report points out that, not only have the number of small, independent businesses dropped sharply, they’ve also lost market share across many sectors of the economy. It notes that anticompetitive behavior by “dominant corporations” has “gone unchecked in recent decades because of a radical change in the ideological framework that guides antitrust enforcement.” In the early 1980s, policymakers under President Ronald Reagan believed that “maximizing efficiency” should be the goal of antitrust enforcement. This created a bias in favor of big business, the report contends.

A prime example of anticompetitive behavior, the report argues, is Amazon’s abuse of its market dominance. The report notes how Amazon has used “its size and clout to weaken competitors and wring concessions from publishers. It routinely sells books at a loss … which has injured competing booksellers that lack other product lines or deep pockets to fall back on, including chains like Borders, which folded in 2011, and independent stores. Amazon finances below-cost selling in part by extracting special fees from publishers. Those who decline to pay up face crippling retaliation, including the removal of the ‘buy’ button from their titles, a tactic that can cause a publisher’s revenue to plummet by 40 percent or more.”

The effects of Amazon’s dominance has also been the focus of the group Authors United and the American Booksellers Association, which in July 2015 in separate letters to the U.S. Department of Justice called for an investigation of Amazon’s business practices in the book industry. The Authors Guild and the Association of Authors’ Representatives also expressed their support of the group’s action.

In addition, in early March, ABA launched a national advocacy campaign with letters urging the U.S. Congress, the 50 state attorneys-general, and the 50 state governors to investigate Amazon for violations of antitrust laws. In conjunction with the antitrust campaign, ABA created an Antitrust Action Kit, which provides booksellers with state-specific letters that they can adapt and send to their state and federal lawmakers as well as other key officials.

The new ILSR report stresses that there are “at least three compelling reasons” to revamp antirust policy so that it favors fair and open markets for small business:

  1. Small businesses deliver distinct consumer and market benefits and often achieve superior results for consumers because of their small size;
  2. An economy of small indies produces a more “equitable distribution of income and opportunity” and creates more jobs, thereby supporting the middle class; and
  3. Concentrated power threatens liberty and “our ability to be self-governing people.”

Among the things that government officials can do to address the concentrated power and to restore competition, ILSR suggests:

  • Reinstating the broader set of aims that once guided antitrust law and providing open markets where small businesses have a level playing field;
  • Updating merger guidelines to give greater weight to market structure and the impact of consolidation on small businesses;
  • Doing more to enforce antitrust laws outside of merger reviews;
  • Looking into companies that harm competition; and
  • Undertaking a deep investigation of digital platforms like Amazon, with an eye toward extending common carriage rules to their operations, as policy makers did with utility companies and railroads over a century ago.

In summary, the report says that to restore America’s entrepreneurial tradition we should look to what it characterizes as the country’s commitment to entrepreneurism and antimonopoly history. In the late 19th and early 20th centuries, the report points out, reformers enacted policies to break up concentrated power and ensure a level playing field for small businesses. “These laws are still on the books, and the principles they embody are still relevant,” the report notes. “With a fresh look at how we enforce them, these policies can go a long way toward reviving competition and small business.”