August 7, 2000

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Is Regulatory Watchfulness Right For Fast-Moving Market?

By Steve Konicki

ederal regulators aren't a stumbling block to the new economy. In fact, they're helping it along, says Mozelle Thompson, commissioner of the Federal Trade Commission, and considered to be the agency's guru on business-to-business exchanges. "The actions of the federal government in investigating B-to-B marketplaces actually give legitimacy to the idea," says Thompson. "The fact that the FTC is studying them and wants to understand them better means that they're real and provide benefits to those who want to participate."

Others don't see it quite that way. Few companies involved in B-to-B will say it publicly, but many believe the FTC and the Department of Justice--which coordinate investigations of B-to-B and the high-tech industry--have all but blocked formation of large exchanges and drained enthusiasm for B-to-B marketplaces. The Covisint auto exchange, the GlobalNetXchange clothing retail exchange, and the T2 airlines online travel service, all have been delayed by federal investigations. One large exchange owned by a consortium of manufacturers claims it never holds a board meeting without an antitrust attorney present.

Thompson, who declines to answer questions about Covisint or any exchange being investigated by the FTC, says companies must understand that antitrust laws developed for the brick-and-mortar world apply to the Internet, too. "If you couldn't legally share a certain kind of information in an industry offline," he says, "being able to do it on a real-time basis on a computer doesn't make it lawful." Lawlessness in cyberspace isn't the rule, Thompson says, but when markets are moving fast, regulatory watchfulness is appropriate. Where some companies see enormous benefits for all in real-time trading exchanges, others may see enormous opportunities to engage in price fixing, anticompetitive behavior, and collusion.

The FTC is particularly interested in areas such as bulk purchasing by competitors that could force some suppliers out of the market or drive prices artificially low, Thompson says, as well as agreements among sellers about who will offer a particular item or the price they'll charge for the item. Any exchange policy that limits buyers or suppliers to doing business solely on that exchange would be considered anticompetitive, he adds. Because most business handled on exchanges such as Covisint is supposed to be private--conducted between a particular buyer and its supply chain--the FTC wants to know who owns and runs the marketplace and how it's protecting against unauthorized access to proprietary pricing, production, or other data. In public auctions, the FTC wants protection from situations in which bidders who represent the seller enter bids that artificially drive up prices.

Return to main story, "Covisint's Rough Road."

Illustration by Peter Horvath

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