President Joe Biden in November 2021 signed the Infrastructure Investment and Jobs Act. Among other provisions, the law allocated $42.45 billion toward last-mile broadband development, with the National Telecommunications and Information Administration (NTIA) directed to administer those funds through the newly created Broadband Equity, Access & Deployment (BEAD) program. The BEAD program will provide broadband grants to states, who may then subgrant the money to public and private telecommunications providers.

Serious analysis of the proper roles for government and the private sector in reaching the unserved is a necessary prerequisite for successful rollout of broadband-infrastructure spending. Public investment in broadband infrastructure should focus on the cost-effective provision of Internet access to those who don’t have it, rather than subsidizing competition in areas that already do.

Read the full checklist here.

Regulation is justified when it serves the public interest, but it is frequently motivated by the economic self-interest of powerful groups. Economists call this the “bootleggers and Baptists” phenomenon—those likely to profit from trade in illicit alcohol push for regulation alongside the moralists hoping to protect the vulnerable.

Read the full piece here.

Abstract

For over three centuries, Anglo-American courts have assessed employee noncompete agreements under a Rule of Reason. Despite longstanding precedent, some now advocate banning all such agreements. These advocates contend that employers use superior bargaining power to impose such “contracts of adhesion,” preventing employees from selling their labor to the highest bidder and reducing wages. Abolitionists also contend that such agreements cannot produce cognizable benefits and that employers could achieve any benefits via less restrictive alternatives, without limiting employee autonomy.

This article critiques the Abolitionist position. Arguments for banning noncompete agreements echo hostile critiques of other nonstandard contracts during Antitrust Law’s “inhospitality era.” These critiques induced courts and agencies to condemn various nonstandard agreements. Employee noncompete agreements escaped such condemnation because they were governed by state contract law.

The article recounts how Transaction Cost Economics (“TCE”), undermined these critiques. TCE demonstrated that nonstandard agreements, such as exclusive territories, could overcome market failures by preventing dealers from free riding on each other’s promotional efforts. TCE also concluded that such agreements were voluntary integration, unrelated to market power. These scientific developments induced courts to abandon their hostility to nonstandard contracts, and nearly all such agreements properly withstand rule of reason scrutiny.

TCE also undermines the case against employee noncompete agreements. Most notably, TCE predicts that most such agreements are voluntary methods of ensuring that employers capture the benefits of investments in employee training and trade secrets, by deterring rival firms from free riding on such investments and bidding away employees. Application of TCE also rebuts claims that less restrictive alternatives will achieve the same objectives as noncompete agreements.

Finally, TCE undermines contentions that such agreements injure employees by preventing them from receiving lucrative bids from competing employers. This account of harm treats hypothesized bids and resulting imagined (higher) wages as an exogenous baseline against which to measure the impact of such agreements. According to TCE, however, such bids are not exogenous, but instead often occur because noncompete agreements incentivize employers to make investments that increase employee productivity. Banning such agreements will thus reduce employee productivity, eliminating the incentive for rivals to bid for employees. In such cases, claims that noncompete agreements reduce wages invoke an illusory baseline of bids that would not occur but for the enforcement of such agreements.

Empirical evidence confirms TCE’s predictions. Many such agreements apparently arise in unconcentrated markets. Most are disclosed in advance, and robust enforcement induces additional employee training. Finally, employees who receive pre-employment notice of such provisions earn higher wages than similarly situated employees not bound by such agreements. Thus, many such agreements appear to be voluntary means of protecting investments in employee training, improving employee productivity, and increasing GDP.

This is not to say that all employee noncompete agreements produce significant benefits. Some employers decline to disclose such contracts until after employees join the firm. Such agreements apparently depress wages without producing benefits. Moreover, some such agreements could raise rivals’ costs and enhance employers’ market power.

Neither potential impact justifies abolition. States or the FTC could encourage or require pre-contractual disclosure, leaving employers and employees free to adopt provisions that increase their joint welfare. Moreover, even the inventors of raising rivals’ costs theory opined that most markets are not susceptible to such a strategy. Abolitionists have made no effort to establish that employee non-compete agreements usually arise in markets where such a strategy is possible. The rare prospect that parties may employ fully disclosed agreements to pursue such a strategy does not justify abolishing all such agreements.

Indeed, banning all such agreements may have a disparate impact on small, labor-intensive firms, by discouraging optimal investments in employee training. This potential impact may help explain labor union support for abolishing such agreements. Unionized firms predictably adopt capital-intensive production processes in response to collective bargaining and resulting noncompetitive wages. Laws that disadvantage non-union, labor-intensive firms will enhance the demand for the output of unionized firms, increasing the demand for unionized labor. Banning noncompete agreements will thus sometimes boost unionized workers at the expense of their nonunion counterparts.

Abstract

The right to be forgotten, which began as a part of European law, has found increasing acceptance in state privacy statutes recently enacted in the U.S. Commentators have largely analyzed the right to be forgotten as a clash between the privacy interests of data subjects and the free speech rights of those holding the data. Framing the issues as a clash of individual rights largely ignores the important scholarly literatures exploring how giving data subjects the ability to render certain information unobservable can give rise to systemic effects that can harm society as a whole. This Essay fills this gap by exploring what the right to be forgotten can learn from the literatures exploring the implications of adverse selection, moral hazard, and the emerging policy intervention know as ban the box.

Introduction

Real-time payments (RTP) are an increasingly popular means by which individuals can send credits from one account to another. Many banks have established internal RTP systems and, in some countries, these have been extended to other banks through private consortia such as The Clearing House in the United States. Such consortia enable someone with an account at Chase, for example, to send money to someone with an account at Wells Fargo, and vice versa, using their RTP apps.[1]

In other countries, central banks have inhibited the establishment of private RTP networks and have developed their own systems. One such example is Brazil, where the Banco Central do Brasil (“BCB”) has operated the Pix instant-payment system since 2020.

The Bank for International Settlements (BIS), the Basel-based organization that sets regulatory standards for central banks, recently published a paper examining Pix that was co-authored by two researchers from the BCB and three from the BIS.[2] This brief offers some initial thoughts on that BIS paper and on the Pix system more generally.

We begin with a discussion of the economics of payment networks, with an emphasis on the optimal distribution of costs and benefits. Section II addresses cost transparency and apportionment in payment systems run by central banks. Section III critiques several mistaken notions regarding the role of rewards in payment-card networks. Section IV illustrates the conflicts of interest that can arise when a governmental entity such as a central bank competes with the private sector. Section V discusses the inter-related problems of data breaches, inadequate know-your-customer procedures among some Pix-implementing entities, and the phenomenon of “lightning kidnappings.” Section VI compares the operational rules governing the BCB with international good governance. Section VII concludes with a discussion of the wider lessons for governments considering the implementation of RTP systems.

Read the full issue brief here.

[1] RTP Network Participating Financial Institutions, The Clearing House, https://www.theclearinghouse.org/payment-systems/rtp/rtp-participating-financial-institutions (last visited May 18, 2022).

[2] Angelo Duarte et al., Central Banks, the Monetary System and Public Payment Infrastructures: Lessons from Brazil’s Pix, BIS Bulletin no. 52 (Mar. 23, 2022), at 1.

We are in a new era for antitrust. There’s an attempt being made to throw the old rules out, and unfortunately, their replacements are being written by two bureaucratic government agencies at the forefront of “progressive” change in antitrust enforcement. Together, the Federal Trade Commission, under Lina Khan, and the Department of Justice Antitrust Division, under Jonathan Kanter, are updating their agencies’ merger guidelines to push a political agenda against mergers. Luckily, their attempts to discourage mergers in the marketplace are unlikely to go far. Hubris within the antitrust agencies will ultimately backfire when the courts reject their attempts to overhaul merger enforcement.

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Abstract

If a company misbehaves, lawsuits are one way of providing a remedy and encouraging that company and others to behave in the future. If the misbehavior is securities fraud, there are two potential plaintiffs—traders allegedly injured by the fraud may bring a private suit, and the government (through the SEC or DOJ) may sue to enforce the public interest in truthful disclosures of corporate information. If the misbehavior is violations of corporate governance rules, however, only private suits are available. Despite the parallel rationales for marrying private and public attorneys general, the toolkit for protecting the public interest in corporate governance is not as well stocked. This essay imagines what a government cause of action might look like for alleged corporate governance wrongdoing. Many of the pathologies of current corporate governance litigation may be ameliorated by a state-based, public cause of action for breaches of fiduciary duty. Although not without downsides, putting Delaware’s Corporate Governance Police on the beat may improve the governance of American companies, while reducing the amount of vexatious litigation.

Executive Summary

Digital advertising is the economic backbone of much of the Internet. But complaints have recently emerged from a number of quarters alleging the digital advertising market is monopolized by its largest participant: Google. Most significantly, a lawsuit first filed by the State of Texas and 17 other U.S. states in 2020 alleges anticompetitive conduct related to Google’s online display advertising business. The U.S. Justice Department (DOJ) reportedly may bring a lawsuit similarly focused on Google’s online display advertising business sometime in 2022. Meanwhile, the United Kingdom’s Competition and Markets Authority undertook a lengthy investigation of digital advertising, ultimately recommending implementation of a code of conduct and “pro-competitive interventions” into the market, as well as a new regulatory body to oversee these measures. Most recently, a group of U.S. senators introduced a bill that would break up Google’s advertising business (as well as that of other large display advertising intermediaries such as Facebook and Amazon).

All of these actions rely on a crucial underlying assumption: that Google’s display advertising business enjoys market power in one or more competitively relevant markets. To understand what market power a company has within the market for a given type of digital advertising, it is crucial to evaluate what constitutes the relevant market in which it operates. If the market is defined broadly to include many kinds of online and/or offline advertising, then even complete dominance of a single segment may not be enough to confer market power. On the other hand, if the relevant market is defined narrowly, it may be easier to reach the legal conclusion that market power exists, even in the absence of economic power over price.

Determining the economically appropriate market turns importantly on whether advertisers and publishers can switch to other forms of advertising, either online or offline. This includes the specific ad-buying and placement tools that the Texas Complaint alleges exist within distinct antitrust markets—each of which, it claims, is monopolized by Google. The Texas Complaint identifies at least five relevant markets that it alleges Google is monopolizing or attempting to monopolize: publisher ad servers for web display; ad-buying tools for web display; ad exchanges for web display; mediation of in-app ads; and in-app ad networks.

As we discuss, however, these market definitions put forth by the Texas Complaint and other critics of Google’s adtech business appear to be overly narrow, and risk finding market dominance where it doesn’t exist.

Digital advertising takes numerous forms, such as ads presented along with search results, static and video display ads, in-game ads, and ads presented in music streams and podcasts. Within digital advertising of all kinds, Google accounted for a little less than one-third of spending in 2020; Facebook accounted for about one-quarter, Amazon for 10%, and other ad services like Microsoft and Verizon accounted for the remaining third. Open-display advertising on third-party websites—the type of advertising at issue in the Texas Complaint and the primary critiques of Google’s adtech business—is a smaller subset of total digital advertising, with one estimate finding that it accounts for about 18% of U.S. digital advertising spending.

U.S. digital advertising grew from $26 billion in 2010 to $152 billion in 2020, an average annual increase of 19%, even as the Producer Price Index for Internet advertising sales declined by an annual average of 5% over the same period. The rise in spending in the face of falling prices indicates that the number of ads bought and sold increased by approximately 26% a year. The combination of increasing quantity, decreasing cost, and increasing total revenues is consistent with a growing and increasingly competitive market, rather than one of rising concentration and reduced competition.

But digital advertising is just one kind of advertising, and advertising more generally is just one piece of a much larger group of marketing activities. According to the market research company eMarketer, about $130 billion was spent on digital advertising in the United States in 2019, comprising half of the total U.S. media advertising market. Advertising occurs across a wide range of media, including television, radio, newspapers, magazines, trade publications, billboards, and the Internet.

An organization considering running ads has numerous choices about where and how to run them, including whether to advertise online or via other “offline” media, such as on television or radio or in newspapers or magazines, among many other options. If it chooses online advertising, it faces another range of alternatives, including search ads, in which the ad is displayed as a search-engine result; display ads on a site owned and operated by the firm that sells the ad space; “open” display ads on a third-party’s site; or display ads served on mobile apps.

Although advertising technology and both supplier and consumer preferences continue to evolve, the weight of evidence suggests a far more unified and integrated economically relevant market be-tween offline and online advertising than their common semantic separation would suggest. What publishers sell to advertisers is access to consumers’ attention. While there is no dearth of advertising space, consumer attention is a finite and limited resource. If the same or similar consumers are variously to be found in each channel, all else being equal, there is every reason to expect advertisers to substitute between them, as well.

The fact that offline and online advertising employ distinct processes does not consign them to separate markets. The economic question is whether one set of products or services acts as a competitive constraint on another; not whether they appear to be descriptively similar. Indeed, online advertising has manifestly drawn advertisers from offline markets, as previous technological innovations drew advertisers from other channels before them. Moreover, while there is evidence that, in some cases, offline and online advertising may be complements (as well as substitutes), the dis-tinction between these is becoming less and less meaningful as the revolution in measurability has changed how marketers approach different levels of what is known as the “marketing funnel.”

The classic marketing funnel begins with brand-building-type advertising at the top, aimed at a wide audience and intended to promote awareness of a product or brand. This is followed by increasingly targeted advertising that aims to give would-be customers a more and more favorable view of the product. At the bottom of this funnel is an advertisement that leads the customer to purchase the item. In this conception, for example, display advertising (to promote brand aware-ness) and search advertising (to facilitate a purchase) are entirely distinct from one another.

But the longstanding notion of the “marketing funnel” is rapidly becoming outdated. As the ability to measure ad effectiveness has increased, distinctions among types of advertising that were once dictated by where the ad would fall in the marketing funnel have blurred. This raises the question whether online display advertising constitutes a distinct, economically relevant market from online search advertising, as the Federal Trade Commission, for example, claimed in its 2017 review of the Google/DoubleClick merger.

The Texas Complaint adopts a non-economic approach to market definition, defining the relevant market according to similarity between product functions, not by economic substitutability. It thus ignores the potential substitutability between different kinds of advertising, both online and offline, and hence the constraint these other forms of advertising impose on the display advertising market.

If advertisers faced with higher advertising costs for open-display ads would shift to owned-and-operated display ads or to search ads or to other media altogether—rendering small but significant advertising price increases unprofitable—then these alternatives must be included in the relevant antitrust market. Similarly, if publishers faced with declining open-display ad revenues would quickly shift to alternative such as direct placement of ads or sponsorships, then these alternatives must be included in the relevant market, as well.

If advertisers and publishers are faced with a wide range of viable alternatives and the market is broadly defined to include these alternatives, then it is not clear that any single firm can profitably exercise monopoly power—no matter what its market share is in one piece of the broader market. Similarly, it is not clear whether “consumers” (e.g., advertisers, publishers, or users) have suffered any economic harm.

With a narrow focus on “open display,” it is quite possible that Google’s dominance can be technically demonstrated. But if, as suggested here, “open display” is really just a small piece of larger relevant market, then any fines and remedies resulting from an erroneously narrow market definition are as likely to raise the cost of business for advertisers, publishers, and intermediaries as they would be to increase competition that benefits market participants.

Read the full issue brief here.

Abstract

The classical “law & technology” approach focuses on harms created by technology. This approach seems to be common sense; after all, why be interested—from a legal standpoint—in situations where technology does not cause damage? On close inspection, another approach dubbed “law + technology” can better increase the common good.

The “+” approach builds on complexity science to consider both the issues and positive contributions technology brings to society. The goal is to address the negative ramifications of technology while leveraging its positive regulatory power. Achieving this double objective requires policymakers and regulators to consider a range of intervention methods and choose the ones that are most suitable.