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Scholarship This Article makes the case in support of the current consumer welfare standard and against a sweeping set of unsupported populist antitrust reforms.
Populist antitrust notions suddenly are fashionable again. At their core is the view that antitrust law is responsible for a myriad of purported socio-political problems plaguing society today, including but not limited to rising income inequality, declining wages, and increasing economic and political concentration. Seizing on Americans’ fears about changes to the modern US economy, proponents of populist antitrust policies assert the need to fundamentally reshape how we apply our nation’s competition laws in order to implement a variety of prescriptions necessary to remedy these perceived social ills. The proposals are varied and expansive but have the unifying theme of returning antitrust to the “big-is-bad” enforcement era prevalent in the first half of the twentieth century.
But the criticisms populist antitrust proponents raise are generally unsupported and often dramatized, and the resulting policy proposals are, accordingly, fatally flawed. There is sparse evidence today suggesting that the underlying trends these critics purportedly identify are real or in any way linked to lax antitrust enforcement. Ironically, populist antitrust proponents ignore that antitrust law debated over 50 years ago the same proposals that they are raising anew today. At that time, leading jurists, economists, enforcers, and practitioners from across the political spectrum rejected the use of liability standards that seek to evaluate a variety of vague and often contradictory socio-political goals or that condemn conduct based simply on the size of a company. They recognized that these tests led to incoherent and paradoxical results that often did more to hinder than to promote competition by undermining the rule of law and fostering corporate welfare. Instead, antitrust evolved the elegant “consumer welfare standard” that simplified the core issue of what constitutes harm to competition into a straightforward question: does the conduct at issue harm consumers?
Today, the consumer welfare standard offers a rigorous, objective, and evidence-based framework for antitrust analysis. It leverages developments in modern economics more reliably to predict when conduct is likely to harm consumers as a result of harm to competition. It offers a tractable test that is broad enough to contemplate a variety of evidence related to consumer welfare but also sufficiently objective and clear to cabin discretion and honor the principle of the rule of law. Perhaps most significantly, it is inherently an economic approach to antitrust that benefits from new economic learning and is capable of evaluating an evolving set of commercial practices and business models. These virtues are precisely the target of the new populist antitrust movement, which seeks to reject economics in favor of mere supposition.
This Article makes the case in support of the current consumer welfare standard and against a sweeping set of unsupported populist antitrust reforms. There is significant room for debate within the consumer welfare model for what types of conduct should face antitrust scrutiny, what evidence is relevant, and where liability standards should be drawn. Such debate is healthy and to the benefit of antitrust enforcement. But it does not require abandoning decades of experience and economic learning that would turn back the hands of time and return us to an era where antitrust enforcement was incoherent and deleterious.
ICLE Issue Brief PPI Director of Technology Policy, Alec Stapp reviews the antitrust cases against IBM, AT&T, and Microsoft and discusses what we can learn from them today. He explains the relevant concepts necessary for understanding the history of market competition in the tech industry.
Alec Stapp, current Director of Technology Policy at Progressive Policy Institute, and former Research Fellow, Law & Economics at International Center for Law & Economics (ICLE), reviews the antitrust cases against IBM, AT&T, and Microsoft and discusses what we can learn from them today. He explains the relevant concepts necessary for understanding the history of market competition in the tech industry.
Big Tech continues to be mired in “a very antitrust situation,” as President Trump so eloquently put it in 2018. Advocates for more aggressive antitrust enforcement in the tech industry often justify their proposals by pointing to the cases against IBM, AT&T, and Microsoft. In announcing her plan to break up the tech giants, Elizabeth Warren highlighted the case against Microsoft in particular:
The government’s antitrust case against Microsoft helped clear a path for Internet companies like Google and Facebook to emerge. The story demonstrates why promoting competition is so important: it allows new, groundbreaking companies to grow and thrive — which pushes everyone in the marketplace to offer better products.
Tim Wu, a law professor at Columbia University, summarized the overarching narrative recently (emphasis added):
If there is one thing I’d like the tech world to understand better, it is that the trilogy of antitrust suits against IBM, AT&T, and Microsoft played a major role in making the United States the world’s preeminent tech economy. The IBM-AT&T-Microsoft trilogy of antitrust cases each helped prevent major monopolists from killing small firms and asserting control of the future (of the 80s, 90s, and 00s, respectively). A list of products and firms that owe at least something to the IBM-AT&T-Microsoft trilogy. (1) IBM: software as product, Apple, Microsoft, Intel, Seagate, Sun, Dell, Compaq (2) AT&T: Modems, ISPs, AOL, the Internet and Web industries (3) Microsoft: Google, Facebook, Amazon
If there is one thing I’d like the tech world to understand better, it is that the trilogy of antitrust suits against IBM, AT&T, and Microsoft played a major role in making the United States the world’s preeminent tech economy.
The IBM-AT&T-Microsoft trilogy of antitrust cases each helped prevent major monopolists from killing small firms and asserting control of the future (of the 80s, 90s, and 00s, respectively).
A list of products and firms that owe at least something to the IBM-AT&T-Microsoft trilogy.
(1) IBM: software as product, Apple, Microsoft, Intel, Seagate, Sun, Dell, Compaq (2) AT&T: Modems, ISPs, AOL, the Internet and Web industries (3) Microsoft: Google, Facebook, Amazon
In other words, by breaking up the current crop of dominant tech companies, we can sow the seeds for the next one. But this reasoning depends on an incorrect — albeit increasingly popular — reading of the history of the tech industry.
Click here to read the full issue brief.
ICLE White Paper The European Commission’s recent Google Android decision will go down as one of the most important competition proceedings of the past decade. Yet, in-depth reading . . .
The European Commission’s recent Google Android decision will go down as one of the most important competition proceedings of the past decade. Yet, in-depth reading of the 328-page decision leaves attentive readers with a bitter taste. The problem is simple: while the facts adduced by the Commission are arguably true, the normative implications it draws—and thus the bases for its action—are largely conjecture.
This paper argues that the Commission’s decision is undermined by unsubstantiated claims and non sequiturs, the upshot of which is that the Commission did not establish that Google had a “dominant position” in an accurately defined market, or that it infringed competition and harmed consumers. The paper analyzes the Commission’s reasoning on questions of market definition, barriers to entry, dominance, theories of harm, and the economic evidence adduced to support the decision.
Section I discusses the Commission’s market definition It argues that the Commission produced insufficient evidence to support its conclusion that Google’s products were in a different market than Apple’s alternatives.
Section II looks at the competitive constraints that Google faced. It finds that the Commission wrongly ignored the strong competitive pressure that rivals, particularly Apple, exerted on Google. As a result, it failed to adequately establish that Google was dominant – a precondition for competition liability under article 102 TFEU.
Section III focuses on Google’s purported infringements. It argues that Commission failed to convincingly establish that Google’s behavior prevented its rivals from effectively reaching users of Android smartphones. This is all the more troubling when one acknowledges that Google’s contested behavior essentially sought to transpose features of its rivals’ closed platforms within the more open Android ecosystem.
Section IV reviews the main economic arguments that underpin the Commission’s decision. It finds that the economic models cited by the Commission poorly matched the underlying fact patterns. Moreover, the Commission’s arguments on innovation harms were out of touch with the empirical literature on the topic.
In short, the Commission failed to adequately prove that Google infringed European competition law. Its decision thus sets a bad precedent for future competition intervention in the digital sphere.
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.
Scholarship If the Supreme Court’s recent decision in Apple Inc. v. Pepper (Apple) had hewed to the precedent established by Ohio v. American Express Co. (Amex), . . .
If the Supreme Court’s recent decision in Apple Inc. v. Pepper (Apple) had hewed to the precedent established by Ohio v. American Express Co. (Amex), it would have begun its antitrust inquiry with the observation that the relevant market for the provision of app services is an integrated one, in which the overall effect of Apple’s conduct on both app users and app developers must be evaluated. A crucial implication of the Amex decision is that participants on both sides of a transactional platform are part of the same relevant market, and the terms of their relationship to the platform are inextricably intertwined.
We believe the Amex Court was correct in deciding that effects falling on the “other” side of a tightly integrated, two-sided market from challenged conduct must be addressed by the plaintiff in making its prima facie case. But that outcome entails a market definition that places both sides of such a market in the same relevant market for antitrust analysis.
As a result, the Amex Court’s holding should also have required a finding in Apple that an app user on one side of the platform who transacts with an app developer on the other side of the market, in a transaction made possible and directly intermediated by Apple’s App Store, is similarly deemed to be in the same market for standing purposes.
Under the proper conception of the market, it is difficult to maintain that either side does not have standing to sue the platform for alleged anticompetitive conduct relating to the terms of its overall pricing structure, whether the specific terms at issue apply directly to that side or not. Both end users and app developers are “direct” purchasers from Apple—of superficially different products, but in a single, inextricably interrelated market. Both groups should have standing and should be able to establish antitrust injury—harm to competition—by showing harm to either group, as long as they can establish the requisite interrelatedness of the two sides of the market.
As we discuss, such a result would have been consistent with the way antitrust doctrine has long evolved—in both its substantive and its procedural aspects—to reflect new economic knowledge, particularly with respect to such “nonstandard” business models.
ICLE Issue Brief Read ICLE's study by Eric Fruits and Geoffrey A. Manne, "The Antitrust Risks of Four To Three Mergers: Heightened Scrutiny of a Potential ThyssenKrupp/Kone Merger."
This study examines the heightened scrutiny of four to three mergers by competition authorities in the current regulatory environment, using the potential merger of two of the world’s largest elevator and escalator businesses — Germany’s ThyssenKrupp and Finland’s Kone — as a case study.
In recent years, regulators have become more aggressive in merger enforcement in response to populist criticisms that lax merger enforcement has led to the rise of anticompetitive “big business.” In this environment, it is easy to imagine regulators intensely scrutinizing and challenging or conditioning virtually any merger that substantially increases concentration.
The next opportunity for antitrust authorities to dispel criticism by flexing their muscles in a four to three merger review may be just around the corner. It is widely reported that ThyssenKrupp is contemplating the sale of its elevator business, with Kone as a potential buyer. This potential deal provides an opportunity to highlight the likely challenges, complexity, and cost that regulatory scrutiny of such mergers actually entails — and it is likely to be a far cry from the lax review and permissive decisionmaking of antitrust critics’ imagining.
In the case of a potential ThyssenKrupp/Kone merger, the combined entity would face lengthy, costly, and duplicative review in multiple jurisdictions, any one of which could effectively block the merger or impose onerous conditions. It would face the automatic assumption of excessive concentration in several of these, including the US, EU, and Canada. In the US, the deal would also face heightened scrutiny based on political considerations, including the perception that the deal would strengthen a foreign firm at the expense of a domestic supplier. It would also face the risk of politicized litigation from state attorneys general, and potentially the threat of extractive litigation by competitors and customers.
Whether the merger would actually entail anticompetitive risk may, unfortunately, be of only secondary importance in determining the likelihood and extent of a merger challenge or the imposition of onerous conditions.
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.
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.
Scholarship This Essay takes prior work on Chevron in a new direction, arguing that broad deference doctrines have the largely unrecognized but particularly pernicious effect of increasing the political gridlock and politicization of the legislative process.
This Essay takes prior work on Chevron in a new direction, arguing that broad deference doctrines have the largely unrecognized but particularly pernicious effect of increasing the political gridlock and politicization of the legislative process. Untethered from the need to actively govern agencies that have been delegated sufficiently broad authority to keep the basic ship of state afloat, legislators refocus their attention on maintaining power for themselves and their political party. In the thirty or so years since Chevron became the law of the land, our country’s governing institutions have grown increasingly politicized: At the risk of overstating this Essay’s claim, perhaps Chevron itself—and the related embrace of broad judicial deference to the administrative state of which it is part—is in some measure responsible for our current sorry political state.
This is an undesirable outcome. And, as framed here, it is not only unfortunate, but also problematic on separation of powers grounds. The intuition explored in this Essay is that Chevron dramatically exacerbates Congress’s worst tendencies, encouraging Congress to push its constitutional legislative duties to the Executive. Chevron thus effectively allows, and indeed encourages, Congress to abdicate its role as the most politically-accountable branch by deferring politically difficult questions to agencies. This argument is, at core, based in separation of powers concerns. While separation of powers concerns generally focus on preventing one branch of government from encroaching into the realm of the other branches, this Essay offers a twist, arguing that Chevron’s demurral to agency interpretations encourages a Congressional abdication of its constitutional responsibilities—and that such deference is therefore an abdication of the Judiciary’s constitutional role as a check on the problematic conduct of its sister branches.
Click here to read full paper.
