States' anti-competitive laws can harm consumers.

Consumer Alert executive director Fran Smith spoke at a Federal Trade Commission Public Workshop held October 9-10, 2002, on "Possible Anticompetitive Efforts to Restrict Competition on the Internet." The workshop's focus was on business-to-consumer companies that have had substantial growth in commerce via the Internet, but that also may have been hampered by anticompetitive restrictions. The workshop included panels that focused on state licensing or other restrictions on internet sales of such consumer products as wine, contact lenses, automobiles, and even caskets.

In her remarks, Smith recapped some of the earlier presentations: "Some common themes have been raised--one main one is the enormous benefits that the Internet and e-commerce have brought to consumers in the areas of competition, choice and convenience. Yet we have also learned that there are some areas where those three Cs of competition, choice and convenience are being undermined--where consumers are paying the cost and not getting the benefits. "A second theme is the disintermediation that has occurred and efforts of those affected to ward off these threats to the middlemen. Speakers have detailed many types of state regulations ostensibly to advance the public good but in reality to advance special interests of distributors or retailers or agents."

In her presentation, Smith noted that many of the state restrictions hide their anti-competitive purpose behind an ostensible "public good," such as to protect public health, even when there are no health consequences for consumers.

Many special interests at the state level are concerned that their traditional distribution channels are being eroded by the Internet, where consumers can shop directly. They then plead their case with the state legislators to restrict such sales in their states through licensing laws or regulations that favor existing bricks-and-mortar businesses at the expense of new Internet competitors. Some private companies also may be discouraging Internet sales through joining together to pressure suppliers or dealers to limit sales over the Internet.

In her remarks, Smith provided some recommendations to the FTC in focusing on possible anticompetitive efforts to restrict e-commerce competition:

* Continue the FTC's excellent work in weighing in at the state level on anticompetitive laws and regulations that provide no public good--and where the costs to consumers greatly exceed the purported benefits.

* For regulations affecting interstate commerce, the FTC should aggressively block efforts to restrict free trade among citizens.

* For intrastate regulatory policy, do comparative studies of specific policies and consumer impact, e.g., rate regulation of auto insurance, licensing of beauty salons.

* Examine how new channels of distribution offer new gains for consumers.

* Take care in applying static views of antitrust to new entities and new combinations. Much of the value of the new intermediaries will be providing aggregated information for consumers that competitors may charge is "tying," "bundling," "steering," "collusion," instead of packaging, referring, linking, cooperating.

* Review some of the trends in antitrust that may work against consumers' interest in the e-commerce marketplace, such as too narrowly defining markets.

Smith also urged the FTC to foster "competitive federalism," to allow experimentation among states but ensure that there is no regulation without representation. That is, those consumers affected by a state's policy should be able to discipline the policy makers that enact them--consumers asserting their rights as citizens. She cautioned the FTC not to advocate preemption of those state laws: "Some have suggested that certain types of state licensing laws should be 'harmonized' at the federal level, since states officials are subjects of 'rent-seeking' by special interests to protect their turf. Federal regulators are also subjected to such rent-seeking, and the costs of uniformity extended over the country as a whole would but magnify the problems."