Research Programs
More
What are you looking for?
Showing 9 of 132 Results in Consumer Welfare Standard
Regulatory Comments The purpose of this submission is to highlight some of the findings of the relevant scholarship to help to inform the ACCC’s work, and to highlight some of the problems that may arise during the course of the study, given the misconceptions about competition between advertising-funded digital platforms that are common in the media and popular debate today.
The International Center for Law and Economics (ICLE) welcomes the opportunity to make a submission to the Australian Competition and Consumer Commission’s (ACCC) Digital Advertising Services Inquiry. As a nonprofit, nonpartisan research center, ICLE works with academics around the world to promote scholarship into the intersection of law and economics.
The purpose of this submission is to highlight some of the findings of the relevant scholarship to help to inform the ACCC’s work, and to highlight some of the problems that may arise during the course of the study, given the misconceptions about competition between advertising-funded digital platforms that are common in the media and popular debate today.
This submission will focus on three areas raised by the Issues Paper: concentration of market power in digital advertising, unequal access to data acting as a potentially anti-competitive barrier to entry, and the effect of vertical integration on competition and innovation.
Click here to read the submission.
Written Testimonies & Filings On Friday, April 17, 2020, ICLE President and Founder, Geoffrey A. Manne, submitted written testimony to the U.S. House of Representatives Committee on the Judiciary, Subcommittee on Antitrust, Commercial, and Administrative Law.
On Friday, April 17, 2020, ICLE President and Founder, Geoffrey A. Manne, submitted written testimony to the U.S. House of Representatives Committee on the Judiciary, Subcommittee on Antitrust, Commercial, and Administrative Law. Mr. Manne contends that underlying much of the contemporary antitrust debate are two visions of how an economy should work.
One vision, which tends to favor more intervention and regulation than the status quo, sees the economy and society as being constructed from above by laws and courts. In this view, suspect business behavior must be justified to be permitted, and . . . the optimal composition of markets can be known and can be designed by well-intentioned judges and legislators. On the other hand, there is the view of individual and company behavior as emerging from each person’s actions within a framework of property rights and the rule of law. This view sees the economy as a messy discovery process, with business behavior often being experimental in nature. This second conception often sees government intervention as risky, because it assumes a level of knowledge about the dynamics of markets that is impossible to obtain.
One vision, which tends to favor more intervention and regulation than the status quo, sees the economy and society as being constructed from above by laws and courts. In this view, suspect business behavior must be justified to be permitted, and . . . the optimal composition of markets can be known and can be designed by well-intentioned judges and legislators.
On the other hand, there is the view of individual and company behavior as emerging from each person’s actions within a framework of property rights and the rule of law. This view sees the economy as a messy discovery process, with business behavior often being experimental in nature. This second conception often sees government intervention as risky, because it assumes a level of knowledge about the dynamics of markets that is impossible to obtain.
In Manne’s view,
Antitrust law and enforcement policy should, above all, continue to adhere to the error-cost framework, which informs antitrust decision-making by considering the relative costs of mistaken intervention compared with mistaken non-intervention. Specific cases should be addressed as they come, with an implicit understanding that, especially in digital markets, precious few generalizable presumptions can be inferred from the previous case. The overall stance should be one of restraint, reflecting the state of our knowledge. We may well be able to identify anticompetitive harm in certain cases, and when we do, we should enforce the current laws. But dramatic new statutes that undo decades of antitrust jurisprudence or reallocate burdens of proof with the stroke of a pen are unjustified.
Manne goes on to address several of the most important and common misperceptions that seem to be fueling the current drive for new and invigorated antitrust laws. These misperceptions are that:
See his full testimony, here.
Regulatory Comments Although it is doubtless correct that the 1984 Nonhorizontal Merger Guidelines require updates in light of the last three decades of legal and economic developments, . . .
Although it is doubtless correct that the 1984 Nonhorizontal Merger Guidelines require updates in light of the last three decades of legal and economic developments, it is by no means clear that errors in judicial decisions or enforcement practices have led to widespread problems that are ad- dressed by the proposed changes. Indeed, harms could actually arise because there is ambiguity in the proposed guidelines that may lead either to uncertainty as to how the agencies will exercise their discretion, or, more troublingly, could lead courts to take seriously speculative theories of harm.
The purpose of this comment is to draw attention to an implicit underpinning of the draft guidelines that we believe the agencies should clearly disavow (or at least explain more clearly the complexity surrounding): the extent and implications of the presumed functional equivalence of vertical integration by contract and by merger.
Despite the fact that, among law and economics scholars, it has long been an essentially settled matter that vertical integration — whether partial integration by contract or full integration by merger — is typically procompetitive (or, at the very least, competitively ambiguous, and problematic in only very limited, stylized, and theoretical circumstances), vertical conduct of all sorts has come under increased scrutiny. Much of the new opprobrium for vertical conduct has come from the likes of presidential hopefuls, journalists, political pundits, and activists. But, more concerning, a fair amount of the resurgence in opposition to vertical restraints and mergers has come from academic economic quarters. Surprisingly, this criticism of vertical conduct also misunderstands or ignores fundamental economic concepts.
One prominent line of criticism of vertical mergers, for example, equates vertical mergers with vertical contracts, and proposes to prohibit or significantly deter vertical integration by merger because it inherently leads to competitive problems that either don’t exist or can more easily be corrected in vertical contracts. But the choice between merger and contract for firms is not so simple, especially in highly dynamic industries in which effective competition often demands both process and product innovation. In particular, the management of intangible, information assets — often the crucial in- puts in dynamic, high-tech firms — may not be as readily (or at all) accomplished by contract as by internal coordination. In the face of extreme informational uncertainties and the need for the inherently uncertain exercise of entrepreneurial judgment and dynamic capabilities (which reside in a firm’s individual decisionmakers, corporate culture, and collective ability to implement novel business processes), contracts cannot always replicate the competitive advantages of integration through merger.
This narrow view of vertical integration thus ignores and threatens to undermine dynamic competition and innovation. Indeed, if we take the organization theory and business strategy literature on the organization of firms in dynamic industries seriously, the status quo might even be over-enforcing, and leading to the deterrence of innovative, procompetitive mergers. It is insufficient merely to advert to potential price effects or innovation effects on foreclosed competitors or input providers, and there truncate the analysis. A proper evaluation of the competitive effects of vertical conduct requires an assessment of industrywide increases in innovation and of quality improvements that may accompany superficial price increases or localized constraints on innovation. Without this it is impossible to conclude that such conduct is anticompetitive.
We recently contributed two pieces to a symposium on Truth on the Market that explore the position set out above. We have attached these pieces to this comment for your convenience. We also explore all of these and related points more fully in a forthcoming article that will be published this spring by the Kansas Law Review. A draft of that article has likewise been attached.
We thank the agencies for the opportunity to comment on this important set of guidelines. We certainly advocate for clarity in the agencies’ enforcement practice with respect to vertical integration, but caution that the agencies carefully consider whether the status quo — as out of date as it may be — is truly inferior to updates that introduce more ambiguity.
ICLE White Paper This paper analyzes the question of market power. Longstanding definitions and analytical tools are inadequate because they conflate conditions under which a firm has unbeneficial control over its markets (market power) with situations where firms are successful because they are superior in how they serve customers (expanding consumer welfare).
This paper analyzes the question of market power. Longstanding definitions and analytical tools are inadequate because they conflate conditions under which a firm has unbeneficial control over its markets (market power) with situations where firms are successful because they are superior in how they serve customers (expanding consumer welfare). Furthermore, today’s fast-changing markets make current antitrust approaches invalid because the information decays as circumstances rapidly change. This paper develops a more rigorous definition of market power and proposes new tests. The proposed definition seeks to isolate damaging market control and the tests examine the extent to which investors, actual rivals, and potential rivals act as if market power is present.
Regulatory Comments ICLE filed a letter summarizing its analysis of the relevant empirical literature on mobile carrier mergers as part of the Tunney Act review process.
The central question of a merger review is the likely effect that the transaction will have on consumers. The DOJ’s complaint against the Sprint-T-Mobile merger is built upon the allegation that the proposed transaction represents a reduction from four to three national facilities-based mobile network operators (a so-called “4-to-3 merger”), and that such a transaction would reduce competition and result in “higher prices, reduced innovation, reduced quality and fewer choices” in the marketplace. This is an empirical question that has been studied by numerous scholars in recent years.
The upshot of the empirical literature is that, in fact, such mergers appear to increase, not decrease, innovation. Moreover, the research is, at best, inconclusive with respect to the price effects of such mergers. Based on these findings, we believe that the DOJ was correct to approve the transaction, and that this is so regardless of the expected competitive effects of the Final Judgment’s Divestiture Package, which is likely unnecessary to ensure that the market remains competitive.
ICLE filed a letter summarizing its analysis of the relevant empirical literature on mobile carrier mergers as part of the Tunney Act review process.
The letter and attached analysis can be read here.
ICLE White Paper The merger between T-Mobile and Sprint has been characterized as a “4-to-3 merger” because after the merger there will be 3 national mobile network operators. . . .
The merger between T-Mobile and Sprint has been characterized as a “4-to-3 merger” because after the merger there will be 3 national mobile network operators. Concerns have been raised regarding the effects of such mergers on competition and consumer welfare. Seeking to understand and evaluate the basis for these concerns, the International Center for Law and Economics (ICLE) undertook a comprehensive review of the economic effects of mergers and other factors affecting market concentration in the wireless telecommunications industry. The review found:
When evaluating the merits of a merger, authorities are charged with identifying the effects on the welfare of consumers. On the basis of the studies that we review, “4-to-3 mergers” appear to generate net benefits to consumer welfare in the form of increased investment, while the effects on price are inconclusive.
Click here to download the report.
Click here to download the appendices.
TOTM The idea of the maverick firm requires that the firm play a critical role in the market. The maverick must be the firm that outflanks coordinated action or acts as a bulwark against unilateral action. By this loosey goosey definition of maverick, a single firm can make the difference between success or failure of anticompetitive behavior by its competitors.
There’s always a reason to block a merger:
Read the full piece here.
Written Testimonies & Filings FTC Hearings on Competition & Consumer Protection in the 21st Century. Comments of the International Center for Law & Economics: Summing Up the FTC Hearings: Advocates for Increased Antitrust Intervention Failed to Make Their Case. Submitted Jun 30, 2019.
These comments represent ICLE’s review and commentary of the detailed record set forth during the FTC’s Hearings on Competition and Consumer Protection in the 21st Century. The hearings — and these comments — covered a wide range of topics from data security and privacy, to horizontal and vertical merger policy, anticompetitive unilateral behavior, and a host of contemporary issues that have arisen around the question of whether antitrust law is capable of dealing with potential harms to competition from modern firms.
Specifically, the summary comments deal with the following topics.
Opponents of the consumer welfare standard seek to return antitrust to the bygone era of courts arbitrarily punishing firms for successfully outcompeting their rivals or simply growing “too large.” The Commission should tread carefully before incorporating these ideas, which, during the course of its evolution in the 20th century, antitrust law carefully and correctly selected out.
Based on the testimony heard during the hearings, there is no need to change the non-horizontal merger guidelines. If anything, vertical merger review should be pared back out of a recognition that the failure to account for dynamic effects (and the inherent difficulty of doing so) means it is likely that pro-competitive mergers are being deterred.
Concerns regarding vertical discrimination are predicated on the erroneous assumption that big tech platforms might be harming competition by favoring their content over that of their complementors. Not only is this fear overblown, but even the harms alleged are frequently ambiguous and provide benefits to some consumers.
Much of the analysis of popular technology companies is predicated on traditional market definition analysis, which infers future substitution possibilities from existing or past market conditions. This leads to overly-narrow market definitions and erroneous market power determinations. Thus, Amazon, Facebook, and Google are assumed — erroneously — to be unassailable monopolies.
Data is a valuable input for companies competing in the digital economy. It is not, however, a magic bullet or holy grail, as some commenters suggested. As with other assets, companies can use data in both pro-competitive and anti-competitive ways. “Big data” may be a new term, but it does not pose unique problems for competition policy.
Click here to read the full concluding comments.
TOTM Complexity need not follow size. A star is huge but mostly homogenous. “It’s core is so hot,” explains Martin Rees, “that no chemicals can exist (complex . . .
Complexity need not follow size. A star is huge but mostly homogenous. “It’s core is so hot,” explains Martin Rees, “that no chemicals can exist (complex molecules get torn apart); it is basically an amorphous gas of atomic nuclei and electrons.”
Nor does complexity always arise from remoteness of space or time. Celestial gyrations can be readily grasped. Thales of Miletus probably predicted a solar eclipse. Newton certainly could have done so. And we’re confident that in 4.5 billion years the Andromeda galaxy will collide with our own.
