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Showing 9 of 180 Results in Vertical Restraints & Self-Preferencing
TOTM No surprise here. The WSJ announced it was coming yesterday, and today Google publicly acknowledged that it has received subpoenas related to the Commission’s investigation. . . .
No surprise here. The WSJ announced it was coming yesterday, and today Google publicly acknowledged that it has received subpoenas related to the Commission’s investigation. Amit Singhal of Google acknowledged the FTC subpoenas at the Google Public Policy Blog…
Read the full piece here.
Popular Media Josh and I have just completed a white paper on search neutrality/search bias and the regulation of search engines. The paper is this year’s first . . .
Josh and I have just completed a white paper on search neutrality/search bias and the regulation of search engines. The paper is this year’s first in the ICLE Antitrust & Consumer Protection White Paper Series:
In this paper we evaluate both the economic and non-economic costs and benefits of search bias. In Part I we define search bias and search neutrality, terms that have taken on any number of meanings in the literature, and survey recent regulatory concerns surrounding search bias. In Part II we discuss the economics and technology of search. In Part III we evaluate the economic costs and benefits of search bias. We demonstrate that search bias is the product of the competitive process and link the search bias debate to the economic and empirical literature on vertical integration and the generally-efficient and pro-competitive incentives for a vertically integrated firm to discriminate in favor of its own content. Building upon this literature and its application to the search engine market, we conclude that neither an ex ante regulatory restriction on search engine bias nor the imposition of an antitrust duty to deal upon Google would benefit consumers. In Part V we evaluate the frequent claim that search engine bias causes other serious, though less tangible, social and cultural harms. As with the economic case for search neutrality, we find these non-economic justifications for restricting search engine bias unconvincing, and particularly susceptible to the well-known Nirvana Fallacy of comparing imperfect real world institutions with romanticized and unrealistic alternatives
Search bias is not a function of Google’s large share of overall searches. Rather, it is a feature of competition in the search engine market, as evidenced by the fact that its rivals also exercise editorial and algorithmic control over what information is provided to consumers and in what manner. Consumers rightly value competition between search engine providers on this margin; this fact alone suggests caution in regulating search bias at all, much less with an ex ante regulatory schema which defines the margins upon which search providers can compete. The strength of economic theory and evidence demonstrating that regulatory restrictions on vertical integration are costly to consumers, impede innovation, and discourage experimentation in a dynamic marketplace support the conclusion that neither regulation of search bias nor antitrust intervention can be justified on economic terms. Search neutrality advocates touting the non-economic virtues of their proposed regime should bear the burden of demonstrating that they exist beyond the Nirvana Fallacy of comparing an imperfect private actor to a perfect government decision-maker, and further, that any such benefits outweigh the economic costs.
Filed under: announcements, antitrust, economics, error costs, essential facilities, exclusionary conduct, google, law and economics, markets, monopolization, technology, truth on the market Tagged: antitrust, foundem, google, search, search bias, Search Engines, search neutrality, tradecomet, Vertical integration
Popular Media [UPDATE: Josh links to a WSJ article telling us that EU antitrust enforcers raided several (unnamed) e-book publishers as part of an apparent antitrust investigation . . .
[UPDATE: Josh links to a WSJ article telling us that EU antitrust enforcers raided several (unnamed) e-book publishers as part of an apparent antitrust investigation into the agency model and whether it is “improperly restrictive.” Whatever that means. Key grafs:
At issue for antitrust regulators is whether agency models are improperly restrictive. Europe, in particular, has strong anticollusion laws that limit the extent to which companies can agree on the prices consumers will eventually be charged. Amazon, in particular, has vociferously opposed the agency practice, saying it would like to set prices as it sees fit. Publishers, by contrast, resist the notion of online retailers’ deep discounting.
At issue for antitrust regulators is whether agency models are improperly restrictive. Europe, in particular, has strong anticollusion laws that limit the extent to which companies can agree on the prices consumers will eventually be charged.
Amazon, in particular, has vociferously opposed the agency practice, saying it would like to set prices as it sees fit. Publishers, by contrast, resist the notion of online retailers’ deep discounting.
It is unclear whether the animating question is whether the publishers might have agreed to a particular pricing model, or to particular prices within that model. As a legal matter that distinction probably doesn’t matter at all; as an economic matter it would seem to be more complicated–to be explored further another day . . . .]
A year ago I wrote about the economics of the e-book publishing market in the context of the dispute between Amazon and some publishers (notably Macmillan) over pricing. At the time I suggested a few things about how the future might pan out (never a god good idea . . . ):
And that’s really the twist. Amazon is not ready to be a platform in this business. The economic conditions are not yet right and it is clearly making a lot of money selling physical books directly to its users. The Kindle is not ubiquitous and demand for electronic versions of books is not very significant–and thus Amazon does not want to take on the full platform development and distribution risk. Where seller control over price usually entails a distribution of inventory risk away from suppliers and toward sellers, supplier control over price correspondingly distributes platform development risk toward sellers. Under the old system Amazon was able to encourage the distribution of the platform (the Kindle) through loss-leader pricing on e-books, ensuring that publishers shared somewhat in the costs of platform distribution (from selling correspondingly fewer physical books) and allowing Amazon to subsidize Kindle sales in a way that helped to encourage consumer familiarity with e-books. Under the new system it does not have that ability and can only subsidize Kindle use by reducing the price of Kindles–which impedes Amazon from engaging in effective price discrimination for the Kindle, does not tie the subsidy to increased use, and will make widespread distribution of the device more expensive and more risky for Amazon.
This “agency model,” if you recall, is one where, essentially, publishers, rather than Amazon, determine the price for electronic versions of their books sold via Amazon and pay Amazon a percentage. The problem from Amazon’s point of view, as I mention in the quote above, is that without the ability to control the price of the books it sells, Amazon is limited essentially to fiddling with the price of the reader–the platform–itself in order to encourage more participation on the reader side of the market. But I surmised (again in the quote above), that fiddling with the price of the platform would be far more blunt and potentially costly than controlling the price of the books themselves, mainly because the latter correlates almost perfectly with usage, and the former does not–and in the end Amazon may end up subsidizing lots of Kindle purchases from which it is then never able to recoup its losses because it accidentally subsidized lots of Kindle purchases by people who had no interest in actually using the devices very much (either because they’re sticking with paper or because Apple has leapfrogged the competition).
It appears, nevertheless, that Amazon has indeed been pursuing this pricing strategy. According to this post from Kevin Kelly,
In October 2009 John Walkenbach noticed that the price of the Kindle was falling at a consistent rate, lowering almost on a schedule. By June 2010, the rate was so unwavering that he could easily forecast the date at which the Kindle would be free: November 2011.
There’s even a nice graph to go along with it:
So what about the recoupment risk? Here’s my new theory: Amazon, having already begun offering free streaming videos for Prime customers, will also begin offering heavily-discounted Kindles and even e-book subsidies–but will also begin rescinding its shipping subsidy and otherwise make the purchase of dead tree books relatively more costly (including by maintaining less inventory–another way to recoup). It will still face a substantial threat from competing platforms like the iPad but Amazon is at least in a position to affect a good deal of consumer demand for Kindle’s dead tree competitors.
For a take on what’s at stake (here relating to newspapers rather than books, but I’m sure the dynamic is similar), this tidbit linked from one of the comments to Kevin Kelly’s post is eye-opening:
If newspapers switched over to being all online, the cost base would be instantly and permanently transformed. The OECD report puts the cost of printing a typical paper at 28 per cent and the cost of sales and distribution at 24 per cent: so the physical being of the paper absorbs 52 per cent of all costs. (Administration costs another 8 per cent and advertising another 16.) That figure may well be conservative. A persuasive looking analysis in the Business Insider put the cost of printing and distributing the New York Times at $644 million, and then added this: ‘a source with knowledge of the real numbers tells us we’re so low in our estimate of the Times’s printing costs that we’re not even in the ballpark.’ Taking the lower figure, that means that New York Times, if it stopped printing a physical edition of the paper, could afford to give every subscriber a free Kindle. Not the bog-standard Kindle, but the one with free global data access. And not just one Kindle, but four Kindles. And not just once, but every year. And that’s using the low estimate for the costs of printing.
Filed under: antitrust, business, cartels, contracts, doj, e-books, economics, error costs, law and economics, litigation, MFNs, monopolization, resale price maintenance, technology, vertical restraints Tagged: agency model, Amazon, Amazon Kindle, antitrust, Apple, doj, e-book, e-books, iBookstore, Kindle, major publishers, MFN, most favored nations clause, per se, price-fixing, publishing industry, Rule of reason, two-sided markets, vertical restraints
TOTM Economist and occasional TOTM guest blogger Steve Salop (Georgetown) recently sent me the following questions spurred by the local debate over Governor McConnell’s proposal to . . .
Economist and occasional TOTM guest blogger Steve Salop (Georgetown) recently sent me the following questions spurred by the local debate over Governor McConnell’s proposal to private the retailing of alcoholic beverages…
TOTM Connecticut AG Richard Blumenthal has reportedly contacted Apple and Amazon concerning their pricing arrangements with publishers (WSJ, CNN): Mr. Blumenthal said he has sent letters . . .
Connecticut AG Richard Blumenthal has reportedly contacted Apple and Amazon concerning their pricing arrangements with publishers (WSJ, CNN):
Mr. Blumenthal said he has sent letters to Amazon and Apple asking them to “meet with his office” to address his concerns that agreements in place may restrict rivals from offering cheaper e-books. For instance, he said, “both Amazon and Apple have reached agreements with the largest e-book publishers that ensure both will receive the best prices for e-books over any competitors.”
A “most favored nation” (MFN) clause is a contractual agreement between a supplier and a customer that requires the supplier to sell to the customer on pricing terms at least as favorable as the pricing terms on which that supplier sells to other customers.
TOTM Compared to the nominations of Justices Alito, Roberts and Sotomayor, there has been little excitement for the antitrust community on the most recent Supreme Court . . .
Compared to the nominations of Justices Alito, Roberts and Sotomayor, there has been little excitement for the antitrust community on the most recent Supreme Court nomination of Elena Kagan. But there is something. The WSJ Law Blog reports that while Kagan refused to “praise the Leegin decision.” Legal Times reports that in response to Senator Kohl’s questions about recent Supreme Court antitrust activity, including Leegin Creative Leather Products v. PSKS and Bell Atlantic v. Twombly, Kagan offered some thoughts on the manner in which economic theory should be incorporated into antitrust doctrine…
TOTM I’ve recently finished reading Jonathan Baker’s Preserving a Political Bargain: The Political Economy of the Non-Interventionist Challenge to Monopolization Enforcement, forthcoming in the Antitrust Law . . .
I’ve recently finished reading Jonathan Baker’s Preserving a Political Bargain: The Political Economy of the Non-Interventionist Challenge to Monopolization Enforcement, forthcoming in the Antitrust Law Journal.
Baker’s central thesis in Preserving a Political Bargain builds on earlier work concerning competition policy as an implicit political bargain that was reached during the 1940s between the more extreme positions of laissez-faire on the one hand and regulation on the other. The new piece tries to explain what Baker describes as the “non-interventionist” critique of monopolization enforcement within this framework.
TOTM The soda industry is trending toward vertical integration, which Coke and Pepsi acquiring their largest bottlers. From the WSJ… Read the full piece here.
The soda industry is trending toward vertical integration, which Coke and Pepsi acquiring their largest bottlers. From the WSJ…
TOTM Today, the Commission announced a consent decree with Transitions Optical in an exclusionary conduct case. Here’s the FTC description… Read the full piece here.
Today, the Commission announced a consent decree with Transitions Optical in an exclusionary conduct case. Here’s the FTC description…
