Last fall, the Democratic majority staff of the House Subcommittee on Antitrust issued a 450-page report on “competition in digital markets.” The bulk of this Staff Report details allegedly anticompetitive conduct by Apple, Google, Facebook and Amazon. The Staff Report laments that because these firms “wield tremendous power,” Congress should consider legislation to impose stringent “line of business” restrictions to limit the markets in which these firms can participate.
While the Staff Report contends that legislative “line of business” restrictions are “mainstay tools of the antimonopoly toolkit”, it fails to recognize that the U.S. experience with “line of business” restrictions has not met with optimal results. In truth, all of the examples of “line of business” restrictions cited by the Staff Report (e.g., the Bank Holding Company Act of 1956, the Hepburn Act of 1906 for railroads and the Federal Communications Commission’s “financial syndication” rules) were repealed years ago because the costs far exceeded any benefit.
But line-of-business restriction failures are not just limited to the examples the Staff Report (incorrectly) cites; there are multiple other failed experiments with “line of business” restrictions the Staff Report conveniently omits to mention.
To wit, we can look at the country’s experience with the Public Utility Holding Company Act (PUHCA) of 1935. PUHCA was never intended to regulate the rates terms and conditions of utilities providing interstate electricity service; Congress assigned that task to the Federal Power Commission (which was eventually succeeded by the Federal Energy Regulatory Commission) under the Federal Power Act. Rather, PUHCA aimed to protect shareholders of electric utility holding companies from potential management malfeasance and, as such, was administered by the Securities and Exchange Commission (SEC). And in Congress’s view, the best way to protect those shareholders was to limit the activities of registered utility holding companies to “the operations of one or more integrated public-utility systems.”
Not all electric holding companies fell under PUHCA’s umbrella; only those holding companies that carried on business within multiple states had to register with the SEC and be subject to PUHCA’s severe “line of business” restrictions. Those holding companies who primarily conducted their business within a single state were exempt from PUHCA’s constraints and were thus free to enter ancillary businesses such as wholesale generation or even telecommunications if they liked.
This distinction made little sense, and over time the pointless regulatory asymmetry between registered and exempt electric holding companies became impossible to ignore. Yet instead of repealing PUHCA, a simple and sensible solution, Congress instead added to the confusion by creating the legislative constructs known as “Exempt Wholesale Generators”…
Go to the news source: The folly of ‘line of business’ restrictions for Big Tech