Does it Matter if Competition is “Fair” or “on the Merits”? An Application to Platform Self-Preferencing

Abstract

AbstractPlatform self-preferencing is often attacked as being “unfair.” Proponents of the consumer welfare standard complain that a fairness standard is too vague and too untethered from competitive effects to be a useful guide for antitrust enforcement. However, the consumer welfare standard relies on assessment of whether competition is “on the merits,” and the criteria for “merits” substantially overlap with those for “fairness.” Both standards generally condemn: (a) deception; (b) raising rivals’ costs; and (c) gaining too much competitive advantage from past success, especially across markets. This article examines whether these criteria help identify when the competitive effects of self-preferencing are positive or negative. The discussion is framed in terms of a platform that facilitates the interaction of buyers and sellers, and chooses whether to preference certain sellers. As the literature has shown, whether it owns a seller or not, a platform may use preferencing to promote seller competition or to promote seller market power, depending on the circumstances. Given the varying effects of self-preferencing, a blanket prohibition is unwarranted. Unfortunately, the common criteria for fairness and merit do not reliably identify the direction of self-preferencing’s competitive effects. For example, deception by a lagging firm could strengthen competition in the sense of lowering equilibrium purchase prices and raising consumer welfare. And gaining “too much” competitive advantage from past successes could facilitate entry into new markets, thus increasing competition in those markets. Instead of applying criteria for fairness and merit, a case-by-case, fact-intensive analysis of actual competitive effects is needed.