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Showing 9 of 123 Publications by Dirk Auer
Scholarship Abstract The object of this dissertation is to study the role that innovation occupies – and should occupy – in Antitrust/Competition analysis, and to put . . .
The object of this dissertation is to study the role that innovation occupies – and should occupy – in Antitrust/Competition analysis, and to put forward a coherent framework for the analysis of “innovation defenses” (defined as situations where a restriction of competition is necessary to produce a socially desirable innovation).
The dissertation is separated into two parts.
Part I adopts a positive law and economics approach, and examines how competition law an innovation might overlap. The dissertation separates this issue into three questions: What is innovation; what are the goals of competition laws on both sides of the Atlantic; and where is the enforcement of competition laws most likely to affect innovation? Having answered these questions, the dissertation examines how European Union (“EU”) competition law currently deals with innovation defenses. If this were done in a satisfactory manner, then there would be little need for a revised innovation defense framework. To this end, the dissertation surveys recent European competition cases to determine whether they incorporate economic concepts related to innovation and whether they overtly take defendants’ incentives to innovate into account. The dissertation shows that European competition law currently does not address innovation defenses in a coherent and satisfactory manner.
Part II takes a more normative stance. In order to fill the perceived policy gap, identified in Part I, it puts forward a framework for innovation defenses (“the framework”). The goal of this framework is not so much to be applied directly, but to guide policymakers through the various issues that would arise if they decided to analyze the potential chilling effects that their enforcement activities may exert on innovation.The framework centers on two key questions: is a given innovation desirable from a social welfare standpoint (i.e. do its social benefits outweigh its social costs), and is a restriction of competition necessary in order to achieve the innovation? The framework hinges on the economic concept of appropriability. Key questions include whether firms take the existence of such frameworks into account, even unwittingly, when they make their investment decisions; how the framework should be implemented; and whether it is compatible with the stated goals of competition laws and existing antitrust legislation on both sides of the Atlantic. The dissertation then applies this framework in a number of case studies and discusses its potential implications.
Regulatory Comments In a submission to the Australian Treasury on 12 September 2019, a group of esteemed international scholars critiqued the recently published Final Report of the Australian Competition and Consumer Commission (ACCC) Digital Platforms Inquiry.
In a submission to the Australian Treasury on 12 September 2019, a group of esteemed international scholars critiqued the recently published Final Report of the Australian Competition and Consumer Commission (ACCC) Digital Platforms Inquiry.
In its report, the ACCC claims that competition in the media, communications, advertising and other markets it investigated is “not working,” and that substantial regulatory and legislative changes are necessary to solve—and would solve—the problems caused by ineffective competition.
But the premise that competition is not working is not well supported by evidence presented in the report. Meanwhile, the report’s conclusion misses the bigger picture: Government intervention is appropriate only if it produces net social benefits. Yet the ACCC almost entirely omits consideration of the adverse effects of its proposed interventions, which in many cases are likely worse than the alleged problems. As such, the report’s proposals should be treated with great caution.
The submission tackles three “significant oversights”:
The submission notes in conclusion that “The ACCC’s lackadaisical assessment of regulatory costs is all-the-more troubling given that its report focuses on an extremely dynamic industry. What is only a small regulatory cost today could severely hamper competition in the future.”
Click here to read the full submission.
TOTM If the EU wants to turn itself into a digital economy powerhouse, it will have to switch towards light-touch regulation that allows firms to experiment with disruptive services, flexible employment options, and novel monetization strategies.
Ursula von der Leyen has just announced the composition of the next European Commission. For tech firms, the headline is that Margrethe Vestager will not only retain her job as the head of DG Competition, she will also oversee the EU’s entire digital markets policy in her new role as Vice-President in charge of digital policy. Her promotion within the Commission as well as her track record at DG Competition both suggest that the digital economy will continue to be the fulcrum of European competition and regulatory intervention for the next five years.
Read the full piece here.
TOTM TOTM: The following is the eighth in a series of posts by TOTM guests and authors on the FTC v. Qualcomm case recently decided by Judge Lucy Koh in the Northern District of California. The blog post is based on a forthcoming paper regarding patent holdup, co-authored by Dirk Auer and Julian Morris.
In his latest book, Tyler Cowen calls big business an “American anti-hero”. Cowen argues that the growing animosity towards successful technology firms is to a large extent unwarranted. After all, these companies have generated tremendous prosperity and jobs.
ICLE White Paper We suggest that antitrust authorities and courts should draw inspiration from acclaimed scholarship regarding both the evolution of cooperation and the management of common-pool resources.
Thousands of patents underpin the technologies that power the digital economy. Coordination among firms developing and implementing these novel technologies has notably been facilitated in large part by Standards Developing Organizations (SDOs). Despite the evident benefits of standardization in general and SDOs in particular, certain aspects of these processes have come under severe scrutiny from scholars, antitrust authorities and courts. These critics argue that the standardization space suffers from two crippling market failures, namely “patent holdup” and “royalty stacking”. They thus conclude that opportunistic firms will squeeze their rivals’ profits, harming consumers and stifling innovation in the process. However, recent empirical scholarship strongly suggests that patent holdup and royalty stacking rarely, if ever, occur in the standardization space.
Against this checkered backdrop, our paper argues that standardization is an emergent phenomenon, where parties have strong incentives to design institutions and contractual relationships that mitigate the scope for opportunistic behavior (including patent holdup and royalty stacking). The paper explores how these incentives have likely enabled firms to avoid severe market failures. We argue that ignoring these complex market dynamics may cause antitrust authorities and courts to do more harm than good (notably by exacerbating patent holdout behavior). The paper then reviews recent regulatory interventions and questions whether this has indeed been the case. Finally, we suggest that antitrust authorities and courts should draw inspiration from acclaimed scholarship regarding both the evolution of cooperation and the management of common-pool resources.
“The greatest improvement in the productive powers of labour, and the greater part of the skill, dexterity, and judgment with which it is anywhere directed, or applied, seem to have been the effect of the division of labour.”
Adam Smith
Click here to read the full paper.
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.
Written Testimonies & Filings FTC Hearings on Competition & Consumer Protection in the 21st Century. Comments of the International Center for Law & Economics: Toward a Proper Understanding of Consumer Privacy and Its Regulation: Market Realities and the Consumer Welfare Costs of Abandoning Regulatory Restraint. Hearing #12 (Apr. 9-10). Submitted May 31, 2019.
Digital privacy and data security are important ongoing concerns for lawmakers, particularly in light of recent, high-profile data breaches and allegations of data misuse. Understandably, in the wake of such incidents advocates regularly call for tighter restrictions on data collection and use. But, as we detail below, privacy is a highly complex topic comprising a wide variety of differing, and often conflicting, consumer preferences. While undoubtedly in need of ongoing assessment in the face of new challenges, the US federal government’s sectoral, tailored model of privacy regulation remains the soundest method of regulating privacy.
Although the US does not have a single, omnibus, privacy regulation, this does not mean that the US does not have “privacy law.” In the US, there already exist generally applicable laws at both the federal and state level that provide a wide scope of protection for individuals, including consumer protection laws that apply to companies’ data use and security practices, as well as those that have been developed in common law (property, contract, and tort) and criminal codes. In addition, there are specific regulations pertaining to certain kinds of information, such as medical records, personal information collected online from children, credit reporting, as well as the use of data in a manner that might lead to certain kinds of illegal discrimination.
Before engaging in a deeply interventionist regulatory experiment—such as intervening in the design of algorithms or imposing strict privacy regulations in contravention to revealed consumer preferences—there should be empirically justifiable reasons for doing so; in the language of economics, there should be demonstrable market failures in the provision of “privacy” (however we define that term), before centralized regulation co-opts the voluntary choices of consumers and firms in the economy.
It surely might be the case that some consumers, abstractly speaking, would prefer one-hundred percent perfect privacy and security. It is also a certainty that, faced with tradeoffs—including the price of services, the number of features, the pace of innovation, ease of use and convenience—consumers are willing to settle for some lesser degree of privacy and security.
Click here to read full comments.
Written Testimonies & Filings FTC Hearings on Competition & Consumer Protection in the 21 st Century. Comments of the International Center for Law & Economics: The FTC’s Flawed Data Security Enforcement Program and Suggestions for Reform. Hearing #9 (Dec. 11-12, 2018). Submitted May 31, 2019.
Several pressing issues are raised by the ongoing need for data security as underscored by high profile breaches. One of the core problems in this area, however, is not simply that firms have inadequate data security, but that lawmakers have, to date, broadly failed to offer a viable standard by which firms can guide their conduct in this area.
The flawed strategy which the FTC currently deploys to deal with data security issues is a prime example. In brief, the Commission’s over-reliance on enforcement by consent decrees has created a quasi-regulatory approach to data security, eschewed the fundamentally useful aspects of a true common law approach to developing liability rules, and as a consequence provided little record of what actually amounts to liability for “unreasonable” data security. A true standard would include such components as: the assessment of reasonable care on the part of the tortfeasor, the thorough analysis of causality, an economically grounded computation of harm, and the establishment that harm is likely absent some level of care.
Given these failings, the FTC should consider implementing reforms that might bring its decisional practice closer to the common law tradition. These include giving more weight to economic analysis (notably by allowing the FTC’s Bureau of Economics to play a greater role in data security proceedings), adopting modest measures that would increase the transparency of the FTC’s data security decisions (thereby increasing legal predictability), bringing greater judicial review to data security proceedings, and incentivizing firms to better communicate their data security activities.
TOTM In a new ICLE Issue Brief, we question whether there is any merit to these claims of protectionism. We show that, since the entry into force of Regulation 1/2003, US firms have borne the lion’s share of monetary penalties imposed by the Commission for breaches of competition law.
Last month, the European Commission slapped another fine upon Google for infringing European competition rules (€1.49 billion this time). This brings Google’s contribution to the EU budget to a dizzying total of €8.25 billion (to put this into perspective, the total EU budget for 2019 is €165.8 billion). Given this massive number, and the geographic location of Google’s headquarters, it is perhaps not surprising that some high-profile commentators, including former President Obama and President Trump, have raised concerns about potential protectionism on the Commission’s part.
