Stop Chug-a-Lug-a-Lugin 5 Miles an Hour on Your International Harvester: How Modern Economics Brings the FTC's Unfairness Analysis Up to Speed with Digital Platforms

Abstract

In this Essay, the authors argue that in cases involving digital platforms, the Federal Trade Commission — when alleging unfair acts or practices in violation of section 5 of the Federal Trade Commission Act — must adopt the insights from platform economics and apply them within the legal framework of section 5(n), as informed by the Commission’s Policy Statement on Unfairness. After outlining the development and rise of digital platforms and discussing of the importance of digital platforms to consumers and the marketplace, this Essay sets forth a brief overview of the basic economics of multisided platform markets and points out the key differences between these markets and traditional markets as well as their corresponding implications for consumer welfare. The Essay then describes the evolution of the Commission’s unfairness authority in consumer protection cases — including the statutory requirement that the agency conduct cost-benefit analysis — and examines how the Commission has performed such cost-benefit analyses in recent cases. The Essay critiques the Commission’s decision in the recent Apple case as an example of the potential pitfalls for consumer protection in multisided markets when the Commission conducts a cost-benefit analysis without arming itself with the basic economic insights from platform economics. Untethered from the appropriate economic framework, the Commission’s logic allows it to condemn product design decisions whenever it can imagine an alternative design it believes survives a cost-benefit test. As the number of consumer protection cases involving digital platforms inevitably rise, the authors recommend that the Commission instead apply insights from platform economics within the well-established legal framework of section 5(n) and the FTC Policy Statement on Unfairness.

Keywords: Apple, consumer welfare, competition, digital platforms, Federal Trade Commission, FTC, multisided platform markets, platform economics, product design, section 5(n), unfairness

JEL Classification: D18, K21