ICLE President Geoffrey Manne joined the Tech Policy Podcast to discuss the recent Epic Games decision, what it means for Apple, and how it could shape the future of antitrust policy. The full show is embedded below.

Digital advertising is the economic backbone of the Internet. It allows websites and apps to monetize their userbase without having to charge them fees, while the emergence of targeted ads allows this to be accomplished affordably and with less wasted time wasted.

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Try listing every problem the Western world has at the moment. Along with Covid, you might include slow growth, climate change, poor health, financial instability, economic inequality, and falling fertility. These longer-term trends contribute to a sense of malaise that many of us feel about the Western world. They may seem loosely related, but there is one big thing that makes them all worse. That thing is a shortage of housing: too few homes being built where people want to live. And if we fix those shortages, we will help to solve many of the other, seemingly unrelated problems that we face as well.

Read the full piece here.

Words can wound. They can humiliate, anger, insult.

University students—or, at least, a vociferous minority of them—are keen to prevent this injury by suppressing offensive speech. To ensure campuses are safe places, they militate for the cancellation of talks by speakers with opinions they find offensive, often successfully. And they campaign to get offensive professors fired from their jobs.

Read the full piece here.

Last week gave us a picture of things to come in Britain. First, the Government raised National Insurance contributions by 2.5%. This was ostensibly to pay for “social care”, but the money will mostly go to the NHS, with social care’s problems left largely unaddressed. Then, on Saturday, The Times reported that the Government will abandon many of its plans for planning reform, under pressure from Tory backbenchers and voters.

Read the full piece here.

Introduction

Economist Ronald Coase devoted an article in the 1974 edition of the American Economic Review to an idea he had observed to be common among his academic colleagues:

(I)n the market for goods, government regulation is desirable whereas, in the market for ideas, government regulation is undesirable and should be strictly limited.

He found the idea strange because, as he argued in the paper, the two markets are not relevantly different. The case for regulation is no weaker in the market for ideas than in the market for goods. After all, it is usually easier for a consumer to know when ordinary goods are faulty than when ideas are bogus. Anyone can tell when a television doesn’t work. It takes unusual dedication to figure out, for example, that Hegel was wrong when he said that “absolute form and absolute content [are] identical — substance is in itself identical with knowledge.”

Coase hoped that devotion to consistency would inspire his peers to adopt a more skeptical attitude toward regulation of the market for goods. He got half of what he hoped for. Academics arguably have become more consistent, but rather than favor laissez-faire in the market for goods, they favor regulation in the market for ideas. This goes to show that consistency is not always something you should seek in your opponents.

Many professors are now keen to restrict the ideas their students hear; or, at least, they are willing to go along quietly with the enthusiasts for such restrictions. They do not seek to protect their students from the incoherent abstractions of 19^th century German philosophers or from any other kind of intellectual error. Rather, they seek to protect them from encountering ideas that will offend them or otherwise make them feel uncomfortable, especially when the topics concern race, sex, sexuality, or some other aspect of “identity.”

Universities are not national or state governments, of course. Their regulatory powers stop at the campus gates. But that doesn’t change the point, which is that many academics appear no longer to believe that the benefits of a free market in ideas are worth the harms that accompany it.

Some outside of universities take the same view, not always drawing the line at private organizations being able to constrain the speech of those with whom they have voluntarily entered contracts. Rather, they want governments to protect consumers of ideas by restricting what can be said. Just as government regulation ensures that only cars meeting certain safety standards are offered for sale, so too should government regulation ensure that only ideas meeting certain safety standards are expressed.

Of course, the market for ideas is already constrained by some safety regulations. For example, an American may not advocate violence or other illegal activity when directed at “producing imminent lawless action.” But beyond this and a few other constraints established by legislation and the courts—such as those entailed by defamation law—the First Amendment to the U.S. Constitution guarantees Americans the freedom to say all manner of harmful things. Some see this as a problem. For example, Richard Stengel, a former managing editor of Time magazine, argued in a 2019 Washington Post op-ed that the United States should follow the lead of other developed nations and develop a hate-speech law. Harvard University law professor Cass Sunstein proposed in his 2021 book Liars that speech deemed by the government to be false and harmful should lose its constitutional protection.

Section 230 of the Communications Decency Act of 1996, which protects “interactive computer services” from being treated as publishers or speakers of the content they host, is also becoming unpopular among those who worry about excessive freedom in the market for ideas. Some of its critics, usually from the political right, think it gives social media firms such as Facebook and Twitter too much freedom to indulge their political biases when moderating content. Other critics, usually from the political left, think it gives such firms too much freedom to host harmful content. Both President Joe Biden and former President Donald Trump have been critical of Section 230, if for very different reasons.

The fashion for private-sector speech prohibitions and proposals for more restrictive legal regimes agitate those who prize freedom of speech. It’s a hot topic in newspaper columns and on talk radio shows. Organizations have even been established to defend free speech, such as the Free Speech Project at Georgetown University and the U.K.’s Free Speech Union.

But defenders of free speech are generally doing their job poorly. Too many merely assert that “you should not have a right not to be offended,” when this is precisely what is at issue. Others follow the 19^th century English philosopher John Stuart Mill and claim that being offended, or suffering hurt feelings more generally, does not count as harm. Again, most seem to simply take this for granted, offering no reason why the offended are unharmed.

The right way to understand harm is economic. Something harms someone if he would pay to avoid it. Since offense and other hurt feelings can pass this test, they can be genuine harm (Section 1). And since speech can cause this harm—and most people believe that legal restrictions on causing harm are generally justified—we have a prima facie case for the regulation of speech.

Indeed, standard economics seems to provide more reason to regulate speech than ordinary goods. If a new car is defective and harms its drivers, people will be reluctant to buy it and its producer will suffer losses. Because the same goes for most goods, regulations that impose product standards are arguably unnecessary (at least, for this reason). Suppliers already have good reason to make their products safe. Speakers, by contrast, often do not bear the cost of the hurt feelings they cause. In other words, hurt feelings are an “external cost” of offensive speech. When someone doesn’t bear all the costs of an action, he tends to do it too much. That is to say, he does it even when the total social cost exceeds the total social benefit.

In his famous 1960 paper “The Problem of Social Cost,” Coase showed that one party holding a legal right not to suffer the external cost of some activity—such as being disturbed by noisy neighbors—needn’t stop it from happening. Nor would giving the neighbors the right to make noise guarantee that the noise continued. This is because, when certain conditions are met, the legally disfavored party will pay the favored party not to enforce his right (Section 2). When this happens, the outcome is efficient: in other words, it maximizes social welfare. Alas, the conditions for such rights trading are rarely met. When they are not, the initial allocation of rights determines the outcome. Which party’s interests should be protected by law therefore depends on who can avoid the harm at the lower cost. The efficient outcome will be produced by giving legal protection to the party facing the higher cost.

Coase’s conditions for trading rights aren’t met in the case of offensive speech (Section 2). We must therefore consider the costs faced by the offenders and by the offended when trying to avoid the offense. This appears to favor speech restrictions. After all, being offended is expensive, keeping your mouth shut is cheap, and each offensive speaker usually offends many hearers. For these reasons, Coasean analysis would seem on first impression to favor revisions to Section 230 that oblige social media platforms to be more assiduous in their moderation of offensive content. A post that would offend millions of the platform’s users can be removed at a low cost to the platform.

But that is merely a first impression. In this paper, I argue that the Coasean case for legal restrictions on offensive speech collapses when confronted with three facts: that being offended is often a masochistic pleasure; that most of the offensive speech that concerns would-be censors occurs on privately owned platforms; and that the proposed restrictions would impose large costs on society. Neither the First Amendment nor Section 230 of the Communications Decency Act should be weakened to remove protection for offensive speech.

Before answering the prima facie Coasean case for restrictions on offensive speech, however, we need to appreciate its force, which begins with recognizing that offense can be a real harm.

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The dystopian novel is a powerful literary genre. It has given us such masterpieces as Nineteen Eighty-Four, Brave New World, and Fahrenheit 451. Though these novels often shed light on the risks of contemporary society and the zeitgeist of the era in which they were written, they also almost always systematically overshoot the mark (intentionally or not) and severely underestimate the radical improvements that stem from the technologies (or other causes) that they fear.

Read the full piece here.

 

Introduction

The dystopian novel is a powerful literary genre. It has given us such masterpieces as Nineteen Eighty-Four, Brave New World, Fahrenheit 451, and Animal Farm. Though these novels often shed light on some of the risks that contemporary society faces and the zeitgeist of the time when they were written, they almost always systematically overshoot the mark (whether intentionally or not) and severely underestimate the radical improvements commensurate with the technology (or other causes) that they fear. Nineteen Eighty-Four, for example, presciently saw in 1949 the coming ravages of communism, but it did not guess that markets would prevail, allowing us all to live freer and more comfortable lives than any preceding generation. Fahrenheit 451 accurately feared that books would lose their monopoly as the foremost medium of communication, but it completely missed the unparalleled access to knowledge that today’s generations enjoy. And while Animal Farm portrayed a metaphorical world where increasing inequality is inexorably linked to totalitarianism and immiseration, global poverty has reached historic lows in the twenty-first century, and this is likely also true of global inequality. In short, for all their literary merit, dystopian novels appear to be terrible predictors of the quality of future human existence. The fact that popular depictions of the future often take the shape of dystopias is more likely reflective of the genre’s entertainment value than of society’s impending demise.

But dystopias are not just a literary phenomenon; they are also a powerful force in policy circles. For example, in the early 1970s, the so-called Club of Rome published an influential report titled The Limits to Growth. The report argued that absent rapid and far-reaching policy shifts, the planet was on a clear path to self-destruction:

If the present growth trends in world population, industrialization, pollution, food production, and resource depletion continue unchanged, the limits to growth on this planet will be reached sometime within the next one hundred years. The most probable result will be a rather sudden and uncontrollable decline in both population and industrial capacity.

Halfway through the authors’ 100-year timeline, however, available data suggests that their predictions were way off the mark. While the world’s economic growth has continued at a breakneck pace, extreme poverty, famine, and the depletion of natural resources have all decreased tremendously.

For all its inaccurate and misguided predictions, dire tracts such as The Limits to Growth perhaps deserve some of the credit for the environmental movements that followed. But taken at face value, the dystopian future along with the attendant policy demands put forward by works like The Limits to Growth would have had cataclysmic consequences for, apparently, extremely limited gain. The policy incentive is to strongly claim impending doom. There’s no incentive to suggest “all is well,” and little incentive even to offer realistic, caveated predictions.

As we argue in this Article, antitrust scholarship and commentary is also afflicted by dystopian thinking. Today, antitrust pessimists have set their sights predominantly on the digital economy—“big tech” and “big data”—alleging a vast array of potential harms. Scholars have argued that the data created and employed by the digital economy produces network effects that inevitably lead to tipping and more concentrated markets. In other words, firms will allegedly accumulate insurmountable data advantages and thus thwart competitors for extended periods of time. Some have gone so far as to argue that this threatens the very fabric of western democracy. Other commentators have voiced fears that companies may implement abusive privacy policies to shortchange consumers. It has also been said that the widespread adoption of pricing algorithms will almost inevitably lead to rampant price discrimination and algorithmic collusion. Indeed, “pollution” from data has even been likened to the environmental pollution that spawned The Limits to Growth: “If indeed ‘data are to this century what oil was to the last one,’ then—[it’s] argue[d]—data pollution is to our century what industrial pollution was to the last one.”

Some scholars have drawn explicit parallels between the emergence of the tech industry and famous dystopian novels. Professor Shoshana Zuboff, for instance, refers to today’s tech giants as “Big Other.” In an article called “Only You Can Prevent Dystopia,” one New York Times columnist surmised:

The new year is here, and online, the forecast calls for several seasons of hell. Tech giants and the media have scarcely figured out all that went wrong during the last presidential election—viral misinformation, state-sponsored propaganda, bots aplenty, all of us cleaved into our own tribal reality bubbles—yet here we go again, headlong into another experiment in digitally mediated democracy.

I’ll be honest with you: I’m terrified . . . There’s a good chance the internet will help break the world this year, and I’m not confident we have the tools to stop it.

Parallels between the novel Nineteen Eighty-Four and the power of large digital platforms were also plain to see when Epic Games launched an antitrust suit against Apple and its App Store in August 2020. Indeed, Epic Games released a short video clip parodying Apple’s famous “1984” ad (which upon its release was itself widely seen as a critique of the tech incumbents of the time).

Similarly, a piece in the New Statesman, titled “Slouching Towards Dystopia: The Rise of Surveillance Capitalism and the Death of Privacy,” concluded that: “Our lives and behaviour have been turned into profit for the Big Tech giants—and we meekly click ‘Accept.’ How did we sleepwalk into a world without privacy?”

Finally, a piece published in the online magazine Gizmodo asked a number of experts whether we are “already living in a tech dystopia.” Some of the responses were alarming, to say the least:

I’ve started thinking of some of our most promising tech, including machine learning, as like asbestos: … it’s really hard to account for, much less remove, once it’s in place; and it carries with it the possibility of deep injury both now and down the line.

. . . .

We live in a world saturated with technological surveillance, democracy-negating media, and technology companies that put themselves above the law while helping to spread hate and abuse all over the world.

Yet the most dystopian aspect of the current technology world may be that so many people actively promote these technologies as utopian.

Antitrust pessimism is not a new phenomenon, and antitrust enforcers and scholars have long been fascinated with—and skeptical of—high tech markets. From early interventions against the champions of the Second Industrial Revolution (oil, railways, steel, etc.) through the mid-twentieth century innovations such as telecommunications and early computing (most notably the RCA, IBM, and Bell Labs consent decrees in the US) to today’s technology giants, each wave of innovation has been met with a rapid response from antitrust authorities, copious intervention-minded scholarship, and waves of pessimistic press coverage. This is hardly surprising given that the adoption of antitrust statutes was in part a response to the emergence of those large corporations that came to dominate the Second Industrial Revolution (despite the numerous radical innovations that these firms introduced in the process). Especially for unilateral conduct issues, it has long been innovative firms that have drawn the lion’s share of cases, scholarly writings, and press coverage.

Underlying this pessimism is a pervasive assumption that new technologies will somehow undermine the competitiveness of markets, imperil innovation, and entrench dominant technology firms for decades to come. This is a form of antitrust dystopia. For its proponents, the future ushered in by digital platforms will be a bleak one—despite abundant evidence that information technology and competition in technology markets have played significant roles in the positive transformation of society. This tendency was highlighted by economist Ronald Coase:

[I]f an economist finds something—a business practice of one sort or another—that he does not understand, he looks for a monopoly explanation. And as in this field we are very ignorant, the number of ununderstandable practices tends to be rather large, and the reliance on a monopoly explanation, frequent.

“The fear of the new—and the assumption that ‘ununderstandable practices’ emerge from anticompetitive impulses and generate anticompetitive effects—permeates not only much antitrust scholarship, but antitrust doctrine as well.” While much antitrust doctrine is capable of accommodating novel conduct and innovative business practices, antitrust law—like all common law-based legal regimes—is inherently backward looking: it primarily evaluates novel arrangements with reference to existing or prior structures, contracts, and practices, often responding to any deviations with “inhospitality.” As a result, there is a built-in “nostalgia bias” throughout much of antitrust that casts a deeply skeptical eye upon novel conduct.

“The upshot is that antitrust scholarship often emphasizes the risks that new market realities create for competition, while idealizing the extent to which previous market realities led to procompetitive outcomes.” Against this backdrop, our Article argues that the current wave of antitrust pessimism is premised on particularly questionable assumptions about competition in data-intensive markets.

Part I lays out the theory and identifies the sources and likely magnitude of both the dystopia and nostalgia biases. Having examined various expressions of these two biases, the Article argues that their exponents ultimately seek to apply a precautionary principle within the field of antitrust enforcement, made most evident in critics’ calls for authorities to shift the burden of proof in a subset of proceedings.

Part II discusses how these arguments play out in the context of digital markets. It argues that economic forces may undermine many of the ills that allegedly plague these markets—and thus the case for implementing a form of precautionary antitrust enforcement. For instance, because data is ultimately just information, it will prove exceedingly difficult for firms to hoard data for extended periods of time. Instead, a more plausible risk is that firms will underinvest in the generation of data. Likewise, the main challenge for digital economy firms is not so much to obtain data, but to create valuable goods and hire talented engineers to draw insights from the data these goods generate. Recent empirical findings suggest, for example, that data economy firms don’t benefit as much as often claimed from data network effects or increasing returns to scale.

Part III reconsiders the United States v. Microsoft Corp. antitrust litigation—the most important precursor to today’s “big tech” antitrust enforcement efforts—and shows how it undermines, rather than supports, pessimistic antitrust thinking. It shows that many of the fears that were raised at the time didn’t transpire (for reasons unrelated to antitrust intervention). Rather, pessimists missed the emergence of key developments that greatly undermined Microsoft’s market position, and greatly overestimated Microsoft’s ability to thwart its competitors. Those circumstances—particularly revolving around the alleged “applications barrier to entry”—have uncanny analogues in the data markets of today. We thus explain how and why the Microsoft case should serve as a cautionary tale for current enforcers confronted with dystopian antitrust theories.

In short, the Article exposes a form of bias within the antitrust community. Unlike entrepreneurs, antitrust scholars and policy makers often lack the imagination to see how competition will emerge and enable entrants to overthrow seemingly untouchable incumbents. New technologies are particularly prone to this bias because there is a shorter history of competition to go on and thus less tangible evidence of attrition in these specific markets. The digital future is almost certainly far less bleak than many antitrust critics have suggested and yet the current swath of interventions aimed at reining in “big tech” presume. This does not mean that antitrust authorities should throw caution to the wind. Instead, policy makers should strive to maintain existing enforcement thresholds, which exclude interventions that are based solely on highly speculative theories of harm.

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The patent system is too often caricatured as involving the grant of “monopolies” that may be used to delay entry and retard competition in key sectors of the economy. The accumulation of allegedly “poor-quality” patents into thickets and portfolios held by “patent trolls” is said by critics to spawn excessive royalty-licensing demands and threatened “holdups” of firms that produce innovative products and services. These alleged patent abuses have been characterized as a wasteful “tax” on high-tech implementers of patented technologies, which inefficiently raises price and harms consumer welfare.

Read the full piece here.