Remarks before Forum for Trust in Online Trade, Princeton Club
New York, N.Y.
It is a pleasure to be with you this afternoon. As is always the case for Federal Trade Commissioners, it is important for me to note that my comments today are my own and in no way represent the views of the Commission or of any other Commissioner. During the FTC's recent B2B Workshop,(1) I expressed the belief that it was important for the Commission and other interested government regulators to LISTEN and LEARN from the business people and technical experts.
I suggested that we must be certain that any actions the FTC takes in the B2B and E-commerce world are necessary and rational. We must get this right; otherwise we could do terrible harm. I also suggested that the government is not knowledgeable enough to begin regulating. We must look before we leap and consider the potential unintended consequences of our actions.
Some common themes emerged from the workshop. We are very early in this new model for doing business; there is great potential for efficiencies; and the emerging B2B marketplace is not immune from competition problems and FTC scrutiny. Some of what I heard is plain common business sense. One particular point I heard comes to mind -- without trust, online commerce and B2B will not survive.
No trust = No business.
Trust online is the underlying factor that determines if a business transaction occurs. Transparency -- the ability to provide the buyer and seller with accurate and sufficient information -- will enable both sides to make an informed decision. Buyers must believe that the product being purchased is indeed what they want; that it will arrive on time and in good condition; and that it is of the quality represented. Sellers must know that the buyer has the financial ability to complete the sale and will live up to the contract. These are fundamentals that everyone in this room understands.
Transparency -- a cardinal virtue of the B2B marketplace -- can provide real-time pricing, information about the status of the transaction, and convenience. Transparency allows buyers and sellers to have instant access to dynamic marketplace information from which an informed business transaction can occur.
I would like to focus the remainder of this brief discussion on antitrust. Ensuring a competitive marketplace is essential for an economy to thrive, and it is essential for innovation and consumer participation to grow. Properly applied through prudent law enforcement and private compliance programs, antitrust principles foster a vigorous competitive environment, to the benefit of both business and consumers.
The B2B concept raises numerous concerns from a law enforcement perspective. Some such concerns might arise from B2Bs operating without proper licenses, violations of commercial law, insolvencies, or securities law violations. Antitrust concerns certainly occupy a prominent place on any list.
One intuitively obvious antitrust concern comes to mind -- the potential for collusion, on the part of both sellers and buyers.
In April of this year, the FTC and the Department of Justice issued their final Antitrust Guidelines for Collaborations Among Competitors. Under the principles set forth in those Guidelines, it is clear that while a B2B exchange can be very procompetitive, such an arrangement can also give rise to anticompetitive information-sharing among actual or potential competitors. This can increase the likelihood of collusion on price, output, or other competitive variables, to the detriment of competition and consumers. Ease of access to common cost or pricing information via websites could increase sellers' incentives and ability to collude. Because of this, B2Bs may well find it advisable to look at ways to keep such sensitive business information more confidential.
The same concerns can arise on the buyer side of a transaction. The information flow and transparency made possible by B2Bs can make it easier for purchasers to behave like oligopsonists-- i.e., to coordinate their behavior in ways that artificially depress prices and lead to output restrictions. This is not to deny the procompetitive benefits of joint buying, which can yield economies of scale and efficiencies in purchasing and distribution. However, a notable danger behind joint purchasing is the power to drive the prices of products below competitive levels.
Mechanisms to prevent such collusive activities include confidential bidding and restrictions on competitors' access to competitively sensitive information. In my view, the goal should be to reap as many benefits as possible from this innovative way of organizing markets while minimizing the possibilities of sellers or buyers colluding or otherwise exercising market power.
Even though the B2B phenomenon is quite new, these are not just theoretical concerns. Antitrust challenges to electronic information exchanges have already occurred. For example, in 1994 the Justice Department settled a case involving the airline industry and its electronic fare system.(2) Airlines were allegedly sharing fare information to coordinate prices and to discourage discounts to consumers. Although that case predated the explosion of the Internet, it aptly illustrates some of the risks we may encounter down the road with B2Bs that do not employ appropriate safeguards.
E-commerce is shifting to the B2B marketplace, with projections for B2B transactions in the trillions of dollars over the next few years. Although the antitrust concerns I have discussed are not clearly formed as yet, antitrust sensitivity will increase as B2B markets evolve and grow. If history is any teacher about conduct during evolutions such as this, we can count on a lot of honest mistakes and a lot of intentional efforts to operate close to the edge of allowable conduct. If competition concerns are not addressed early on, companies that conduct business over the Internet might find themselves in very undesirable circumstances. Competition principles have weathered the test of time. True, much of the economy has moved a long way from the "smokestack" industrial era of basic manufacturing in huge plant facilities. But it is widely recognized that the principles that make our competitive economic model work are still applicable. B2B businesses -- and especially their legal counsel -- should make every effort to become familiar with these principles. Electronic commerce cannot and certainly should not expect that it can operate outside the competitive regime that, for most part, has worked so well for our economy, our businesses, and our consumers.
The FTC still has much to learn about what you are doing, about the technology, about the advantages, the problems, the successes, the future. Given the enormous interest in the subject, I expect we will issue a staff report summarizing the recent discussions at our Workshop by later this summer. However, that report will steer clear of drawing conclusions and making recommendations. We are listening. We need to continue to learn from you. Education will lead to an informed decision-making process. You can be instrumental in this process by educating policymakers and law enforcers regarding your concerns about B2B issues, and you can help us formulate governmental policies that do the least harm to this potentially marvelous new business model.
I look forward to a lively discussion.
1. Federal Trade Commission, Public Workshop: Competition Policy in the World of B2B Electronic Marketplaces, June 29 and 30, 2000.
2. United States v. Airline Tariff Publishing Co., 1994-2 Trade Cas. (CCH) ¶ 70,687 (D.D.C. 1994) (Final Consent Decree).