FTC Testifies on Small Business Competition Policy: Are Markets Open for Entrepreneurs?

The Federal Trade Commission provided testimony today before the U.S. House of Representatives’ Committee on Small Business hearing on “Small Business Competition Policy: Are Markets Open for Entrepreneurs?” According to the testimony, presented by Chairman William E. Kovacic, while the FTC does not prefer either large firms or small ones, small businesses benefit from the Commission’s goal of ensuring “an open and honest marketplace where all businesses can compete for the consumer dollar.”

The Commission’s testimony began by reviewing the factors that make small businesses an important factor in a competitive marketplace. “Small businesses are a key part of a competitive economy,” accounting for about half of all private-sector employees in the United States, providing more than 45 percent of the total payroll, and generating about 70 percent of new jobs. A successful competitive economy requires open markets, the testimony continued, and small businesses “can be an important vehicle for these competitive forces, but only if the antitrust laws protect, and require, open markets and competition for all.” The Commission’s goal, therefore, is to provide competitive markets for large and small businesses alike.

“Consumers choose the companies, products, and services they prefer,” according to the testimony. “Our task is to help protect the competitive framework in which these choices can be made.” The application of these neutral principles has benefitted small businesses in many specific ways, the testimony continued.

Innovative and discount real estate brokers have benefitted from Commission legal actions ensuring equal access to multiple listing services. New or innovative professional offices – such as doctors, lawyers, or accountants – have benefitted from actions that remove unjustified restrictions on their ability to advertise their services. Small producers of food products have benefitted from the Commission’s work regarding slotting allowances and shelf space, a subject on which the FTC held a two-day workshop in 2000. The ultimate consumers of these products have benefitted indirectly but substantially as a result of the increased competition.

According to the testimony, the Commission has been particularly active in the area of real estate brokerage. The agency began by challenging associations of established brokers that had simply excluded discount brokers from the local multiple listing service altogether, and has since gone on to challenge more subtle techniques for putting discounters at a competitive disadvantage, such as impeding their ability to list properties on the Internet.

The testimony also described the Commission’s work in providing business guidance, including the recently issued “FTC Guide to the Antitrust Laws” [see link at http://www.ftc.gov/bc/antitrust/index.shtm]. Specifically designed for the needs of small business, this publication succinctly addresses a number of practical, recurring questions, including how to respond to manufacturer-imposed display requirements, exclusive dealing arrangements, and refusals to supply.

While the testimony was primarily focused on the FTC’s work in the competition area, it noted that “the work of our Bureau of Consumer Protection is also relevant to ensuring competitive opportunities for entrepreneurs.” The Franchise Rule, for example, ensures that entrepreneurs can enter into franchise contracts with greater confidence that they have the relevant information. Moreover, when the Commission brings law enforcement actions against firms for deceptive or unfair practices, this helps the honest small businesses that compete in the same marketplace. By policing the market in this way, the FTC helps to develop consumer confidence in small business generally.

The testimony also provided a description of the FTC’s programs in advocacy and competition research. The advocacy program assists state and federal legislators by offering insights into the competitive ramifications of their decisions. For example, the Commission’s study of real estate closing services suggested that they did not necessarily require the use of attorneys. The FTC’s competition research program works to expand the total base of information about competition issues. The agency’s study of Internet wine sales, for example, was repeatedly cited by the Supreme Court in Granholm v. Heald, in 2005, as suggesting that total bans on interstate wine orders were not needed to protect against sales to minors.

“The Commission does not have programs that specifically favor small businesses,” the testimony concluded. “Our mission, instead, is to maintain a neutral marketplace for all participants, so that competition will determine the winners and losers, thus maximizing consumer welfare. As part of fulfilling that mission, however, the Commission takes many actions that are of practical benefit to the small-business community. . . .With that assistance, small business has the opportunity to thrive.”

The Commission vote approving issuance of the testimony and its inclusion in the formal record was 4-0. The written testimony represents the views of the FTC, while the oral statement of Chairman Kovacic represents his own views.

Copies of the Commission’s testimony are available from the FTC’s Web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600
Pennsylvania Avenue, N.W., Washington, DC 20580. The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC's online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 1,500 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC's Web site provides free information on a variety of consumer topics.

(FTC File No. P859910)
(Small Business Testimony.final.wpd)