Research Programs
More
What are you looking for?
Showing 9 of 124 Publications by Dirk Auer
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.
Read the full piece here.
ICLE Issue Brief 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).
“I told you so! The European Union just slapped a Five Billion Dollar fine on one of our great companies, Google. They truly have taken advantage of the U.S., but not for long!”
Donald Trump
“When I look into merger control, antitrust control, state aid control, I find no U.S. bias.”
Margrethe Vestager
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 commentators have raised concerns about potential protectionism on the Commission’s part.
This is nothing new. Critics have long argued that European competition law has been used to shield European industries from their large American rivals. From the notorious decision to block the GE/Honeywell merger in 2001, to more recent enforcement activities in the tech sector, every European intervention against a US company tends to usher in a fresh wave of accusations.
This criticism has come from both sides of the US political aisle, and both Donald Trump (quoted above) and Barack Obama have led the charge during their respective Administrations. Referring to European investigations against US tech companies such as Facebook and Google, then President Obama famously decried that:
Sometimes their vendors—their service providers—who can’t compete with ours, are essentially trying to set up some roadblocks for our companies to operate effectively there. We have owned the Internet. Our companies have created it, expanded it, perfected it, in ways they can’t compete. And oftentimes what is portrayed as high-minded positions on issues sometimes is designed to carve out their commercial interests.
But is there any merit to these claims of protectionism? A quick look at the monetary penalties assessed by recent decisions of the European Commission reveals that its enforcement activities (under article 101 and 102 TFEU, excluding cartels) have disproportionately affected US companies. Since the entry into force of Regulation 1/2003 (the main piece of legislation that implements the competition provisions of the EU treaties), US companies have been fined a total of €10.91 billion by the European Commission, compared to €1.17 billion for their European counterparts. On its face, this seems to stand in stark contrast to the findings of a recent study by Anu Bradford, Robert Jackson, and Jonathon Zytnick, which rejects claims that EU merger control is biased against US firms (findings that are certainly bolstered by the Commission’s condemnation of the contemplated merger between Siemens and Alstom).
As we explain, the harsh fines inflicted upon US firms are not necessarily evidence of protectionism.
Instead, they are likely a result of the Commission’s decision to focus significant attention on the tech sector. Because the vast majority of large tech firms are US-based, all else equal, it is to be expected that the majority of investigations and enforcement actions would involve US firms. At the same time, for reasons also discussed below, the Commission’s tech-industry focus may tend to lead to larger fines when infringements are found.
Nevertheless, some caution is warranted with this conclusion. It bears noting that the Commission is a political body, and, as we discuss below, it is hardly structured to be immune to domestic political influences that may tend toward protectionism. The decision to prioritize enforcement in the tech sector is not taken in a vacuum. Whether this policy preference is down to legitimate concerns about high-tech markets or to (potentially unconscious) protectionism is almost impossible to tell. Similarly, neither a finding of infringement nor the magnitude of the fine imposed is mechanical: Even if its outcomes generally correspond with the expected outcomes from a country-neutral, tech-sector focus, the specific decisions the Commission makes, as well as the magnitude of the fines it imposes, may show a protectionist bias. Without a more robust statistical analysis it is impossible to rule out entirely the possibility that these decisions are influenced by a protectionist impulse, as well.
Click here to read the full issue brief.
ICLE Issue Brief How does a market’s structure affect innovation? This crucial question has occupied the world’s brightest economists for almost a century, from Schumpeter who found that monopoly was optimal, through Arrow who concluded that competitive market structures were key, to the endogenous growth scholars who empirically derived an inverted-U relationship between market concentration and innovation.
How does a market’s structure affect innovation? This crucial question has occupied the world’s brightest economists for almost a century, from Schumpeter who found that monopoly was optimal, through Arrow who concluded that competitive market structures were key, to the endogenous growth scholars who empirically derived an inverted-U relationship between market concentration and innovation. Despite these pioneering contributions to our understanding of competition and innovation, if the past century of innovation economics has taught us anything it is that no market structure is strictly superior at generating innovation. Just as the SCP paradigm ultimately faltered because structural presumptions were a weak predictor of market outcomes, so too have dreams of divining the optimal market structure for innovation. Instead, in any given case, the right market structure likely depends on a plethora of sector- and firm-specific characteristics that range from the size and riskiness of innovation-related investments to the appropriability mechanisms used by firms, regulatory compliance costs, and the rate of technological change, among many others.
Against this backdrop, it may come as a surprise that the European Commission believes it has cracked the innovation market structure conundrum. Throughout its recent competition decisions, the Commission has almost systematically concluded that more firms in any given market will produce greater choice and more innovation for consumers. I call this the “Structuralist Innovation Presumption.” Notably, this presumption seems to have played a pivotal role in the recent Google Android decision (although the text of the Commission’s decision is not yet publicly available).
In what follows I argue that the Structuralist Innovation Presumption is a misguided heuristic that antitrust authorities around the globe would do well to avoid. Although it has been almost unequivocally endorsed by the European Commission, the presumption is at odds with the mainstream economics of innovation. To make matters worse, structuralist innovation also ignores the complex second-order effects that may arise when antitrust intervention tampers with rapidly evolving markets.
Click here to read the full paper.
Written Testimonies & Filings FTC Hearings on Competition & Consumer Protection in the 21 st Century. Comments of the International Center for Law & Economics: Understanding Competition in Markets Involving Data or Personal or Commercial Information. Hearing # 6 (Nov. 6-8, 2018). Submitted January 7, 2019.
Markets involving data and personal information have unique characteristics, but do not present such novel challenges that the well-developed tools of antitrust are incapable of incorporating them. Nonetheless, some critics continue to press for misguided antitrust intervention into data markets, often based on fundamental misunderstandings.
For a start, commonly repeated analogies between data and oil are highly misleading. Oil is physical commodity that is highly rivalrous (a user cannot use oil without impairing others’ ability to use the same oil) and readily excludable (it can easily be stored in ways that prevent use by non-authorized parties). By contrast, data is simply information that bears some of the traits of a public good: it is often non-rivalrous in consumption (the same information may be used by multiple parties without any degradation) and difficult to appropriate because it is difficult to prevent others’ use of the same data, it is difficult to ensure optimal investment in its creation). Moreover, in most instances, it is not data that is scarce, but the expertise required to generate and analyze it. In any case, most successful internet companies started life with little to no data. This suggests that data is more a byproduct of the ongoing operation of internet platforms than it is a critical input for their creation.
Further, data is unlikely to constitute a barrier to entry, and even less likely to amount to an essential facility. As George Stigler famously argued, a barrier to entry is “[a] cost of producing that must be borne by a firm which seeks to enter an industry but is not borne by firms already in the industry.” There is no reason that the cost of obtaining data for a new entrant should be any higher than it was for an incumbent. In fact, the opposite will often turn out to be true.
Other ills that allegedly plague data-rich markets (and the merits of proposed solutions) are equally dubious. This is notably the case for the relationship between mandated data portability and competition. Contrary to what some scholars have advanced, it is far from clear that mandated data portability will increase consumer welfare in data-reliant markets. Not only is this type of portability unlikely to significantly affect switching costs for consumers but, even if it did, this would have ambiguous consumer welfare consequences (as is generally the case for consumer lock-in and regulatory interventions to overcome it). To make matters worse, mandated data portability is not without its risks. Most notably, data portability poses data security and user privacy risks.
Likewise, fears of costly price discrimination and widespread algorithmic collusion are greatly overblown. While it is true that big data may have a transformative effect on firms’ ability to price discriminate, there is no strong reason to believe that this would have a detrimental effect on consumer welfare. Instead, as with all forms of price discrimination, it may potentially expand output and allow less well-off consumers to participate in markets they might otherwise be priced out of. Similarly, the idea that big data and algorithms will lead to collusion is deeply flawed. Fears of collusion rest on the faulty premise that online marketplaces and the use of big data will dramatically increase transparency, thus facilitating collusion. In fact, the opposite is just as likely (and, in any case, the manifest benefits of increased transparency, likely outweigh the speculative costs).
In short, the advent of data-enabled markets does not have implications that support the calls for a significant expansion of antitrust tools and antitrust enforcement being made. Data is not irrelevant, of course, but it is just one amongst a plethora of factors that enforcement authorities and courts should consider when they analyze firms’ behavior.
Click here to read the full comments.
Written Testimonies & Filings FTC Hearings on Competition & Consumer Protection in the 21st Century. Comments of the International Center for Law & Economics: The Continued Viability and Flexibility of the Consumer Welfare Standard, and the Weakness of Its Alternatives. Hearing # 5 (Nov. 1, 2018). Submitted December 31, 2018.
The consumer welfare standard (“CWS”) has been the subject of much discussion lately, largely driven by a seeming uptick in criticism of the standard. This criticism falls generally into two camps. On the one hand, the CWS is understood to be the broadly correct, if imperfect, touchstone for antitrust enforcement. Proponents of this view support the consumer-focused approach to antitrust but nevertheless often recognize the inherent shortcomings of the CWS (endemic to any general legal principle applied in complex and evolving economic circumstances), and particular areas where its operationalization can and should be improved (e.g. accounting for innovation harms or properly defining who counts as a “consumer”).
On the other hand, the CWS is objected to per se by some critics as an improper or incurably deficient guiding principle for antitrust enforcement. Proponents of this view see the CWS as inconsistent with the proper goals of antitrust, which should, they contend, focus on control of threats to the “process of competition” (as opposed to the welfare of consumers). Many of the adherents to this perspective also contend that antitrust should address private-sector economic threats to the democratic process more broadly. In both cases a key component of the antipathy to the CWS is that it has allowed for the sustained presence of large corporations in the polity — a presence that is alleged to threaten, simply by its existence, both competitive and democratic welfare.
Yet, as discussed in this comment, the CWS continues to be a vital component of modern antitrust analysis. Despite the characterization of its critics, the CWS is not a single tool which gauges all conduct with a simplistic price analysis. Rather, it is a methodology by which to arrange the array of legal and economic tools that guide antitrust enforcement and adjudication and to evaluate their efficacy.
For example, and as discussed at length in this comment, the CWS is completely capable of relying upon the tool of presumptions for certain modes of analysis. Yet presumptions are neither good nor bad per se, but are merely a single tool, the utility of which depends upon the method of use. When applied within the CWS framework, presumptions can serve procompetitive ends. By contrast, when employed to satisfy the ends of advocates who wish to impose hypothetical “ideal” structures on the economy, presumptions can be — and often are — destructive.
Regulatory Comments ICLE submitted comments to the National Telecommunications and Information Administration (NTIA) on Developing the Administration’s Approach to Consumer Privacy.
Last week, ICLE submitted comments to the National Telecommunications and Information Administration (NTIA) on Developing the Administration’s Approach to Consumer Privacy. Scholars Geoffrey Manne, Kristian Stout, and Dirk Auer urge the agency to avoid legislation mandating tight controls on private companies’ use of consumer data akin to the EU’s General Data Protection Regulation (GDPR).
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.
Getting regulation right is always difficult, but it is all the more so when confronting evolving technology, inconsistent and varied consumer demand, and intertwined economic effects — all conditions that confront online privacy regulation. Given this complexity, and the limits of our knowledge regarding consumer preferences and business conduct in this area, ICLE’s evaluation suggests that the proper method of regulating privacy is, for now at least, the course that the Federal Trade Commission (FTC) has historically taken: case-by-case examination of actual privacy harms, without ex ante regulations, coupled with narrow legislation targeted at problematic uses of personal information.
Many (if not most) services on the Internet are offered on the basis that user data can, within certain limits, be used by a firm to enhance its services and support its business model, thereby generating benefits to users. To varying degrees (and with varying degrees of granularity), services offer consumers the opportunity to opt-out of this consent to the use of their data, although in some cases the only way effectively to opt-out is to refrain from using a service at all.
Critics of the US approach to privacy sometimes advocate for a move to an opt-in regime (as is the case in the GDPR). But the problem is that “‘[o]pt-in’ provides no greater privacy protection than ‘opt-out’ but imposes significantly higher costs with dramatically different legal and economic implications.” In staunching the flow of data, opt-in regimes impose both direct and indirect costs on the economy and on consumers, reducing the value of certain products and services not only to the individual who does not opt-in, but to the broader network as a whole. Not surprisingly, these effects fall disproportionately on the relatively poor and the less technology-literate.
U.S. privacy regulators have generally evidenced admirable restraint and assessed the relevant tradeoffs, recognizing that the authorized collection and use of consumer information by data companies confers enormous benefits, even as it entails some risks. Indeed, the overwhelming conclusion of decades of intense scrutiny is that the application of ex ante privacy principles across industries is a fraught exercise as each firm faces a different set of consumer expectations about its provision of innovative services, including privacy protections.
This does not mean that privacy regulation should never be debated, nor that a more prescriptive regime should never be considered. But any such efforts must begin with the collective wisdom of the agencies, scholars, and policy makers that have been operating in this space for decades, and with a deep understanding of the business realities and consumer welfare effects involved.
Read the full comments here.
TOTM The dust has barely settled on the European Commission’s record-breaking €4.3 Billion Google Android fine, but already the European Commission is gearing up for its next high-profile case.
The dust has barely settled on the European Commission’s record-breaking €4.3 Billion Google Android fine, but already the European Commission is gearing up for its next high-profile case. Last month, Margrethe Vestager dropped a competition bombshell: the European watchdog is looking into the behavior of Amazon. Should the Commission decide to move further with the investigation, Amazon will likely join other US tech firms such as Microsoft, Intel, Qualcomm and, of course, Google, who have all been on the receiving end of European competition enforcement.
Written Testimonies & Filings FTC Hearings on Competition & Consumer Protection in the 21 st Century. Comments of the International Center for Law & Economics: Antitrust Principles and Evidence-Based Antitrust Under the Consumer Welfare Standard. Hearing #1 (Sep. 13, 2018). Submitted October 14, 2018.
Since the original Pitofsky hearings at the dawn of the Internet era, much has fundamentally changed in the way the firms do businesses. Yet, despite these rapid and fundamental shifts in technology and behavior, we still face many of the same policy challenges as existed twenty-plus years ago. Innovation always yields both costs and benefits, meaning that some firms will face adverse effects as the environment in which they developed their business changes. Unfortunately, some antitrust observers use this reality as an opportunity to advocate for problematic changes in the underlying law.
Yet, in the face of these changes, time-tested antitrust principles become even more important, and the focus of enforcers and lawmakers should be in favor or maintaining and strengthening the existing consumer welfare standard. It is a standard rooted in testable, empirical realities, and is designed to lead to reproducible outcomes that redound to the benefit of consumers. These comments explore a number of important areas, including:
By combining lessons from the history of antitrust policy and contemporary economics, this analysis elucidates the key issues faced by the antitrust enforcers as they consider the future of antitrust policy. To date, no better alternative has been proposed, and enforcement agencies should tread lightly when considering alterations that would undermine the solid foundations of antitrust law. The unfortunate outcome of many calls to reform would be to return antitrust law to an era of politicized enforcement, lower consumer welfare, and greater uncertainty for firms operating in the economy.
Written Testimonies & Filings FTC Hearings on Competition & Consumer Protection in the 21 st Century. Comments of the International Center for Law & Economics: Privacy, Antitrust, and the Economic Approach to the Regulation of Consumer Data. Hearing #1 (Sep. 13, 2018). Submitted October 14, 2018.
Increasingly, people use the Internet to connect with one another, access information, and purchase products and services. The growth in the online marketplace has brought with it numerous concerns, particularly regarding the privacy of personal information and competition issues surrounding this and other data.
While concerns about privacy are not unique to the Internet ecosystem, they are in some ways heightened due to the ubiquitous nature of information sharing online. Though much of the sharing is voluntary, a group of scholars and activists have argued that several powerful online companies have overstepped their bounds in gathering and using data from Internet users. These advocates have pushed the FTC and regulators in Europe to incorporate privacy and more general data collection concerns into antitrust analysis.
Although there are a number of unique dimensions to online data sharing that bear consideration, the necessary analysis is much more nuanced than reform advocates typically admit.
First, despite their best efforts, privacy advocates have yet to make a compelling case that quality-adjusted price may be affected by monopolization of data or a merger of entities with large quantities of data. Making such a case requires considerably more analysis than that offered by privacy advocates to date. Rather, the collection and use of relatively large amounts of information by a large firm actually serves as a tool to help such a firm improve the quality of its products. In the modern tech economy, large pools of data and their effective use frequently permit firms to offer services to consumers for zero price. Improving product quality (by offering more tailored products with collected data) while maintaining a constant zero price — i.e., decreasing quality-adjusted price — is not normally an antitrust injury.
Second, the potential, if any, for price discrimination practices to cause privacy harms to consumers is not subject to a simple analysis. One argument offered by critics of data collection is that price discrimination could become a harm when large tech platforms are able to collect a great deal of data about their users, and could thereby segment their users along certain private characteristics in order to offer tailored services. The resulting price discrimination could lead to many consumers paying more than they would in the absence of the data collection. Therefore, the data collection by these major online companies can be alleged to facilitate price discrimination that harms consumer welfare. This argument misses a large part of the story, however. The flip side is that price discrimination could have benefits to those who receive lower prices from the scheme than they would have in the absence of the data collection. While privacy advocates have focused on the possible negative effects of price discrimination to one subset of consumers, they generally ignore the positive effects of businesses being able to expand output by serving previously underserved consumers.
Finally, little evidence has been presented to bolster the claim that tech platforms can employ large pools of data as barriers to entry against competitors. The various theories of how this can arise all stem from an underlying assumption about the inability or difficulty of competitors to develop alternative products in the marketplace. The argument is that upstarts do not have sufficient data to compete with established players which in turn employ their data to attract online advertisers and to foreclose their competitors from this crucial source of revenue. This argument suffers from a number of deficiencies.
Superior competition, notably through data, is not a barrier to entry. It is a mistake to regard data as essential in many, if not all, cases, particularly in the complex ecosystem of online platforms, where that same data can be used by platforms to facilitate new entry. Further, data is useful to all industries — this is not a new phenomenon particular to online companies. Companies have historically employed a variety of measures to gather data on their customers. It is also a mistake to assume that simply having a large amount of data is worth anything at all. It is not in the possession of data that a firm finds success, but in how intelligently the firm uses that data to optimize its services or otherwise generate a revenue stream. Start-ups are not necessarily less capable of generating value from relatively smaller pools of data simply by virtue of having a small set of data.
And the possession of data provides no absolute advantage to a firm in a world in which competition is just a click or a swipe away. Users can and do defect from products easily. Moreover, access to data is not exclusive to any firm. If one platform collects certain useful data about a user it does not possess that data to the exclusion of all others. Other firms are free to make the same observations about the same sets of users.
