Antitrust Law Daily Assistant A.G. Delrahim speaks on zero-price economy antitrust issues
Tuesday, February 12, 2019

Assistant A.G. Delrahim speaks on zero-price economy antitrust issues

By Nicole D. Prysby, J.D.

Assistant A.G. Makan Delrahim gave remarks on strategies for antitrust enforcement in the context of the zero-price economy. Delrahim advocated for scrutinizing zero-price products without a wholesale revision of the antitrust laws.

On February 11, 2019, Makan Delrahim, Assistant Attorney General for the Antitrust Division of the U.S. Department of Justice, discussed antitrust issues in the zero-price economy. His remarks were delivered as the Keynote Address to the Silicon Flatirons Annual Technology Policy Conference at The University of Colorado Law School. His presentation centered on how antitrust enforcers should think about zero-price products and services, such as social media, email, and other online activities in the digital age and were entitled "‘I’m Free:’ Platforms and Antitrust Enforcement in the Zero-Price Economy."

Assistant A.G. Delrahim pointed out that zero-price strategies predate the digital age and that there are four main types of zero-price strategies. First, multi-sided platforms with zero-price slide, such as ad-supported media, eBay, and OpenTable, operate by charging a merchant to participate or by selling the attention of consumers to advertisers. Second, the strategy of tying/bundling related products works by offering free products to increase demand for a positive-price good (e.g., cell phone service providers giving free phones to consumers). In the premium upgrade strategy (also called "freemium"), the sales of the premium product subsidize the free product. Examples include music streaming services Pandora and Spotify. The fourth strategy is temporary free products or services, in which businesses may temporarily offer zero-price products or services to promote their brand or break into a new market.

Zero-price strategies often benefit consumers, by allowing them to exchange their data or attention, in lieu of money, Delrahim noted. Zero-price strategies also may enable new entrants to break into markets, increasing competition and consumer choice.

Zero-price strategies pose challenges for antitrust enforcement. In the absence of price competition, market definition can be difficult. The traditional analytical test to define relevant markets, which looks at small but significant and non-transitory increases in price does not translate directly to a zero-price market. Given this challenge, there is a debate as to how antitrust enforcement should treat such products and services, especially when offered by a large digital platform. On one end of the spectrum is the argument that zero-price products and services should be exempt from antitrust scrutiny, because consumers and competition cannot be harmed if users are getting a product for free. On the other end of the spectrum, some call for more aggressive enforcement efforts against digital platforms that provide free services, arguing that the collection of consumer data in exchange for goods is potentially anticompetitive.

Mr. Delrahim rejected both of the above points of view, stating that zero-price products should not be exempt from antitrust scrutiny and that we do not need a wholesale revision of the antitrust laws to address competitive concerns in these contexts. Even though there is no price, there is a market and market power. For zero-price products and services, a proper antitrust analysis often requires looking more broadly than the free product itself.

The existence of a free product usually indicates that there is a related positive-priced product and that the economics of those two goods are related. Therefore, a proper antitrust analysis (in most cases) should consider the free product together with its companion money-making product, according to Delrahim. Also, in the context of zero-price goods, it becomes particularly important to look at non-price competition, such as quality, choice, and innovation. Finally, when considering appropriate enforcement, the purpose of market definition must be considered. In other words, enforcers should identify competitive constraints that limit a firm’s ability to engage in behavior that harms competition and consumers.

One example of such a constraint is vulnerability to "multi-homing," which is when a user forms ties with multiple platforms at once (such as a user installing both Uber and Lyft). Multi-homing may constrain the ability for a platform to engage in anticompetitive behavior because consumers can easily shift consumption to the other platform.

Delrahim concluded his remarks with a call for a focus on consumer welfare, but only where harm results from the reduction of competition, as opposed to concerns over privacy, inadequate notice, unauthorized use of data, and data protection. While those concerns are legitimate policy issues, they are not within the purview of antitrust enforcers.

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