California has long been the global digital economy\u2019s growth engine. However, Californian policymakers\u2019 latest proposal to \u201cpromote fairness\u201d for third-party businesses by importing European-style regulation would only hamper the goods and services that have made American tech companies like Google, Apple, Amazon and Meta so popular.<\/p>\n
Introduced by Senator Scott Wiener<\/a>, D-San Francisco, the BASED Act<\/a> imports elements of the EU\u2019s Digital Markets Act (DMA). It targets \u201cself-preferencing,\u201d that is where digital platforms like Amazon\u2019s marketplace or Google Maps promote their own services or those of affiliates over third-party businesses that use their platform to reach customers. The BASED Act would treat many common product integrations, such as ranking, bundling, defaults, data use, and even some AI-driven recommendations, as presumptively illegal without asking whether they harm consumers.\u00a0<\/p>\n Instead of promoting fairness, it would make digital tools less useful by tailoring their architectures and algorithms to regulators\u2019 whims rather than user preferences. Far from promoting neutrality, it would \u201crig the game\u201d by favoring some businesses over others.<\/p>\n Self-preferencing long predates the internet. Supermarkets, for example, give their own house brands prime shelf space, pushing name brands to compete on price or quality. This often increases competition, and can lead to lower prices by eliminating \u201cdouble marginalization,\u201d<\/a> where multiple firms each add their own markups along the supply chain.\u00a0<\/p>\n Amazon operates under similar incentives. If it promotes inferior house brands, it risks losing customers who expect convenience and value. This could explain why the company was found to enter into competition with third-party sellers for only about 8%<\/a> of products sold on its US marketplace. In practice, marketplaces generally favor their own products only when it\u2019s more profitable than collecting commissions \u2014 or when consumers might otherwise bypass the platform entirely to buy directly from a third-party seller. In other words, consumers rarely lose from these arrangements, and often benefit from more product choices.<\/p>\n Even if Amazon continues to sell its own products, their ability to lower shipping and manufacturing costs through large order volumes would suffer if they\u2019re restricted from self-preferencing. Similarly, by prohibiting Amazon from tying third-party sellers\u2019 eligibility for Amazon Prime to use of Amazon\u2019s Fulfillment By Amazon shipping service, the BASED Act could destroy Prime\u2019s value by making it harder to lower costs and harder to guarantee timely delivery.<\/p>\n Instead of \u201cleveling the playing field,\u201d preventing digital platforms from taking advantage of these opportunities would reduce competition by discouraging the entry of competing products. And by reducing opportunities for platform monetization while preventing the introduction and recommendation of products that consumers find useful, it could deter them from using the platform while discouraging<\/a> platform owners from developing, improving and investing in their platforms. This would harm the very third-party businesses the BASED Act seeks to help.\u00a0<\/p>\n Take Google. The DMA prevented Google from integrating its search and service aggregator tools by forcing it to link to third-party hotel and flight booking sites. Functionality soon suffered as users needed more clicks to get the same result.One study quantified<\/a> consumers\u2019 wasted time from additional webpage navigation at over 3.3 million euros yearly. Degraded user experience due to lack of direct hotel booking options also drove<\/a> a 36% fall in Google Hotel Ads bookings while reducing the service\u2019s European web traffic by 30%. So, while some third-party booking sites benefited from increased traffic, hotels reliant on Google to reach customers lost their standing in the market.\u00a0<\/p>\n Certainly, corporations can use self-preferencing in an anticompetitive manner. For instance, Google was<\/a> found liable under US antitrust law for contracting with web browsers to make its search engine their default, as this was deemed to have prevented rival engines from reaching enough users to refine their algorithms to compete effectively. And Apple was recently found liable for violating California\u2019s unfair competition law through app store policies \u201csteering\u201d users<\/a> toward Apple\u2019s payment portal for in-app transactions.<\/p>\n Both verdicts have<\/a> drawn criticism<\/a>, and Google\u2019s appeal is pending<\/a>. Regardless, these examples show that existing antitrust laws can capture anti-competitive self-preferencing. They do so on a case-by-case basis that requires evidence, rather than presuming illegality. They also generally require evidence that the platform has enough market power to restrict competition and harm consumers without losing dominance. By contrast, the BASED Act targets companies purely for raw size, specifically<\/a> platforms with a $1 trillion+ market capitalization serving 100 million+ monthly US users. But size alone says nothing<\/a> about a firm\u2019s ability to dictate market conditions.\u00a0<\/p>\n