Today, following a six year investigation into Google’s business practices in India, the Competition Commission of India (CCI) issued its ruling.

Read the full piece here.

This week the FCC will vote on Chairman Ajit Pai’s Restoring Internet Freedom Order. Once implemented, the Order will rescind the 2015 Open Internet Order and return antitrust and consumer protection enforcement to primacy in Internet access regulation in the U.S.

Read the full piece here.

Withholding Time Warner content from competitors would make no financial sense. AT&T has agreed to pay $85 billion for Time Warner. More than half of Time Warner’s revenue, $6 billion last year, comes from fees that distributors pay to carry its content. Because fewer than 15% of home-video subscriptions are on networks owned by AT&T (DirecTV, U-verse, and DirecTV Now), the bulk of that revenue comes from other providers.

Read the full piece here.

Summary

This case raises significant questions about the thoroughness with which a court must review agency decisionmaking—or the extent to which a court may instead defer to that decisionmaking—when the agency has reversed a prior policy determination in the absence of a change in applicable law.

The Open Internet Order (“OIO”) issued by the Federal Communications Commission (“FCC” or “Commission”) presents such a policy reversal. The FCC ostensibly rooted the OIO in sufficient factual and legal analysis, but closer examination reveals that the OIO is based upon implausible factual assertions, questionable factual reinterpretations, and the strategic disavowal of long-defended statutory interpretation, all in support of a radical change in federal telecommunications policy that raises questions of vast economic and political significance.

Nevertheless, as discussed in Part I, the D.C. Circuit opinion affirming the OIO reflexively afforded substantial deference to the FCC, declining to consider serious questions about the reasonableness or permissibility of the FCC’s decisionmaking process. That decision is both in tension with this Court’s precedents and, more, raises exceptionally important and previously unaddressed questions about this Court’s precedents on judicial review of agency changes of policy.

As discussed in Part II, recent empirical work suggests that there are systematic problems with judicial review of agency changes in policy. These problems—respecting the substantive quality of agency and judicial decisions as well as judicial understanding of, or compliance with, this Court’s precedents governing such review—have led to consistently inconsistent review of agency policy changes in the circuit courts. Judicial review of agency policy changes thus presents a certiorari doublewhammy: there is a need for this Court to clarify existing precedent regarding judicial review of such policy changes and to address inconsistent application of that precedent, as well as for this Court to consider whether evidence of systematically problematic decisionmaking when agencies change policies militates in favor of a more searching standard of review.

Part III discusses how the D.C. Circuit and the Commission’s OIO implicate these concerns.

A new article by Professors Cass Sunstein and Adrian Vermeule highlights the exceptional significance of this issue. See Cass R. Sunstein & Adrian Vermeule, The Morality of Administrative Law, HARV. L. REV. (forthcoming 2018). In discussing empirical evidence collected by Professors Kent Barnett and Christopher Walker (discussed in Part II), Sunstein and Vermeule note that there is a “discrepancy between the law on the books and the law in action” when it comes to how courts review changes in agency policy. Id. (manuscript at 24) (https://papers.srn.com/abstract_id=3050722).

In National Cable & Telecommunications Ass’n v. Brand X Internet Services, 545 U.S. 967 (2005), this Court held that an agency’s alteration of policy is not grounds for heightened scrutiny. Id. at 981 (“Agency inconsistency is not a basis for declining to analyze the agency’s interpretation under the Chevron framework. Unexplained inconsistency is, at most, a reason for holding an interpretation to be an arbitrary and capricious change from agency practice under the Administrative Procedure Act.”). But, as Sunstein and Vermeule observe, “Brand X notwithstanding, the Court just isn’t particularly clear or consistent about the role of consistency under Chevron.” Sunstein & Vermeule, supra (manuscript at 23-24 n.159).

Indeed, “[a]t the level of individual cases, although no subsequent case has denied the rule expressly laid out in Brand X, opinions have occasionally adverted to consistency as a Chevron factor—including opinions for the Court.” Id. (ms. at 23). Moreover, contrary to the rule laid out in Brand X, “[a]t the level of large-N research, recent work by Chris Walker and Kent Barnett shows that judges in fact tend to defer more heavily to consistent agency interpretations.” Id. (ms. at 23-24).

In this instance, it seems likely that the policy under review will reverse course yet again, with the agency returning to the pre-OIO interpretation of the
law and issuing new rules consistent with that interpretation. Indeed, it must be acknowledged that the FCC could reverse the OIO as soon as December of this year. Under ordinary circumstances this would appear to moot, or at least substantially lessen, the concerns raised by petitioners here.

But the foreseeability of significant administrative policy changes—in this case and elsewhere—abetted by the precedent of substantial deference established in this case, militates in favor of the Court granting
certiorari. Should the FCC reverse the OIO, it is a foregone conclusion that supporters of the current order will challenge that reversal in a proceeding that will raise many of the same legal concerns currently at issue. The issuance of a new rule will thus not moot the issues in this case, but simply raise the precise issues yet again. Indeed, without clear guidance from this Court, there is every reason to believe the process will become an endless feedback loop—in the case of this regulation and others—at great cost not only to regulated entities and their consumers, but also to the integrity of the regulatory process.

Summary

Over the past 20 years, credit cards have become an increasingly popular means of paying for goods and services in Canada. Today nearly 90 percent of Canadian adults own a credit card and approximately 65 percent of all point of sale payments are made using credit cards.

The rise of credit cards has been driven by the benefits that accompany their use, including convenience, security, insurance, and warranties on purchases. But arguably the biggest driver has been the rewards that cards offer, such as cash back, Air Miles or Aeroplan rewards, or merchant-specific rewards. About 80 percent of Canadians with credit cards have at least one card that offers rewards for use, and owners of credit cards with rewards say that the rewards are the primary reason they use their rewards card for purchases.

The benefits provided by credit cards are paid for by the issuing bank through a combination of annual fees charged to cardholders and transaction fees charged to merchants. In closed-loop three-party card systems (primarily American Express, as well as international cards issued by Discover), the payment card provider charges both merchants and consumers directly. In four-party card systems (Visa and Mastercard), card issuers charge cardholders directly but the fees from merchants come via the acquirer (such as a merchant’s bank), which charges merchants a service charge. The largest portion of the merchant service charge is the interchange fee, which is passed on to issuing banks.

In spite of the higher annual fees on cards with more benefits, the vast majority of consumers report that they receive more benefits from their cards than the cost of the fees they carry. Middle class consumers are the major beneficiaries of credit card rewards. A consumer or household earning $40k might expect annual rewards valued at $450, while paying fees of $75, providing a net bene t of $375. Meanwhile, a consumer or household earning $90k might expect benefits of about $1350 while paying $225 in fees, providing a net bene t of around $1125.

Merchants, however, are less happy with the higher interchange fees. Apparently assuming that all of the bene t of rewards cards accrues to users, while merchants bear the added interchange cost, these merchants say that the increase has negatively affected their profitability. Of note, however, the number of merchants who accept credit cards, after falling in the early 2000s, has increased in the past decade – and appears to have risen more rapidly following the introduction of more generous rewards cards, in spite of a rise in accompanying interchange fees.

Some merchant groups have, in fact, called for the government to impose caps on interchange fees; in February 2016, a private member’s bill was introduced in Parliament seeking to do just that.

Interchange fee caps, like other price controls, tend to have predictable effects: as a rule, they result in other prices increasing, leading to a redistribution, but not a reduction, in overall costs. Several other countries have introduced caps on interchange fees, including, of particular relevance, the caps introduced in Australia in 2003. These caps resulted in a significant increase in the annual fees charged to cardholders and a substantial reduction in the rate at which card use earned rewards.

Using data on and analysis of the effect of Australia’s interchange fee caps, combined with publicly available and proprietary data on Canadian credit card use, household income and expenditure, and other economic variables, the authors of this report modelled the likely effects of introducing a cap on interchange fees in Canada. They estimate that, were an interchange fee cap imposed here, it would have significant negative consequences for Canadian consumers and the Canadian economy as a whole. Specifically, they estimate that if interchange fees were forcibly reduced by 40 percent:

1. On average, each adult Canadian would be worse off to the tune of between $89 and $250 per year due to a loss of rewards and increase in annual card fees:a For an individual or household earning $40,000, the net loss would be $66 to $187; andb for an individual or household earning $90,000, the net loss would be $199 to $562.
2. Spending at merchants in aggregate would decline by between $1.6 billion and $4.7 billion, resulting in a net loss to merchants of between $1.6 billion and $2.8 billion.
3. GDP would fall by between 0.12 percent and 0.19 percent per year.
4. Federal government revenue would fall by between 0.14 percent and 0.40 percent.

The authors estimate that a tighter cap on interchange fees would have a more dramatic negative effect on middle class households and the economy as a whole.

They also provide specific case studies for three typical middle class households, showing how a cap on interchange fees, along the lines of those imposed in Australia, would affect their household income and expenditure.

Continue reading at Macdonald-Laurier Institute

In a recent post at the (appallingly misnamed) ProMarket blog (the blog of the Stigler Center at the University of Chicago Booth School of Business — George Stigler is rolling in his grave…), Marshall Steinbaum keeps alive the hipster-antitrust assertion that lax antitrust enforcement — this time in the labor market — is to blame for… well, most? all? of what’s wrong with “the labor market and the broader macroeconomic conditions” in the country.

Read the full piece here.

Summary

During the past decade, academics—predominantly scholars of behavioral law and economics—have increasingly turned to the claimed insights of behavioral economics in order to craft novel policy proposals in many fields, most significantly consumer credit regulation. Over the same period, these ideas have also gained traction with policymakers, resulting in a variety of legislative efforts, such as the creation of the Consumer Financial Protection Bureau.

In 2016 the issue reached the Supreme Court, which granted certiorari in Expressions Hair Design v. New York for the October 2016 term. The case, which centers on a decades-old New York state law that prohibits merchants from imposing surcharge fees for credit card purchases, represents the first major effort to ground constitutional law (here, First Amendment law) in the claims of behavioral economics.

In this article we examine the merits of that effort. Claims about the real-world application of behavioral economic theories should not be uncritically accepted— especially when advanced to challenge a state’s commercial regulation on constitutional grounds. And courts should be especially careful before relying on such claims where the available evidence fails to support them, where the underlying theories are so poorly developed that they have actually been employed elsewhere to support precisely opposite arguments, and where alternative theories grounded in more traditional economic reasoning are consistent with both the history of the challenged laws and the evidence of actual consumer behavior. The Petitioners in the case (five New York businesses) and their amici (scholars of both behavioral law and economics and First Amendment law) argue that New York’s ban on surcharge fees but not discounts for cash payments violates the free speech clause of the First Amendment. The argument relies on a claim derived from behavioral economics: namely, that a surcharge and a discount are mathematically equivalent, but that, because of behavioral biases, a price adjustment framed as a surcharge is more effective than one framed as a discount in inducing customers to pay with cash in lieu of credit. Because, Petitioners and amici claim, the only difference between the two is how they are labeled, the prohibition on surcharging is an impermissible restriction on commercial speech (and not a permissible regulation of conduct). Assessing the merits of the underlying economic arguments (but not the ultimate First Amendment claim), we conclude that, in this case, neither the behavioral economic

The Petitioners in the case (five New York businesses) and their amici (scholars of both behavioral law and economics and First Amendment law) argue that New York’s ban on surcharge fees but not discounts for cash payments violates the free speech clause of the First Amendment. The argument relies on a claim derived from behavioral economics: namely, that a surcharge and a discount are mathematically equivalent, but that, because of behavioral biases, a price adjustment framed as a surcharge is more effective than one framed as a discount in inducing customers to pay with cash in lieu of credit. Because, Petitioners and amici claim, the only difference between the two is how they are labeled, the prohibition on surcharging is an impermissible restriction on commercial speech (and not a permissible regulation of conduct). Assessing the merits of the underlying economic arguments (but not the ultimate First Amendment claim), we conclude that, in this case, neither the behavioral economic

Assessing the merits of the underlying economic arguments (but not the ultimate First Amendment claim), we conclude that, in this case, neither the behavioral economic theory, nor the evidence adduced to support it, justifies the Petitioners’ claims. The indeterminacy of the behavioral economics underlying the claims makes for a behavioral law and economics “just-so story”—an unsupported hypothesis about the relative effect of surcharges and discounts on consumer behavior adduced to achieve a desired legal result, but that happens to lack any empirical support. And not only does the evidence not support the contention that consumer welfare is increased by permitting card surcharge fees, it strongly suggests that, in fact, consumer welfare would be harmed by such fees, as they expose consumers to potential opportunistic holdup and rent extraction.

As far as we know, this is the first time the Supreme Court has been expressly asked to consider arguments rooted in behavioral law and economics in reaching its decision. It should decline the offer.

David Chavern (News Media Alliance, whose members include NYT, WSJ, Tronc (Chicago Tribune, LA Times)), in a July 9, 2017 Wall Street Journal op-ed and subsequent press release, called for an antitrust exemption from Congress that would allow newspapers to negotiate collectively with Facebook and Google for stronger intellectual property protections, better support for subscription models, and a “fair share” of revenue and data.

From his Op Ed, “How Antitrust Undermines Press Freedom: Facebook and Google dominate online ads, and news companies can’t join forces to compete”:

…[E]xisting laws are having the unintended consequence of preventing news organizations from working together to negotiate better deals that will sustain local, enterprise journalism that is critical to a vibrant democracy. News organizations are limited with disaggregated negotiating power against a de facto duopoly that is vacuuming up all but an ever-decreasing segment of advertising revenue.

As part of the argument, the long decline in newspaper advertising revenues are compared to the relatively large control that Facebook and Google have over the online portion of the advertising market as part of an effort to paint online platforms as the sole, or a primary, driver for the decline in the fortunes of newspapers.

Geoffrey Manne joined the ABA Teleconference forum to discuss these issues and their broad antitrust implications. In particular, Mr. Manne noted that:

• It is difficult to today trace a single, important driver of the decline of newspaper revenues in the face of changing consumer preferences in news consumption such that coordination among large publishers would “fix” current revenue problems.
• Complicating this analysis is the fact that the first, and the largest, drop in newspaper ad revenue happened well over a decade ago when sites like Craigslist and eBay displaced newspapers as the long dominant players classified ads.
• Newspapers already collect upwards of 70% of the advertising revenue on Google’s and Facebook’s networks — the remaining share to be collected would barely put a dent in the ad losses attributed to alternative classifieds.
• The benefits of permitting (or more likely facilitating) this sort of group action are unclear given the large competition on every level of the news industry from local news to national news to topic-specific blogging.
• Moreover, any facilitation of coordination in this manner is more likely to benefit the large incumbent papers to the detriment of smaller news producers — a tradeoff that is likewise unclear (and probably negative) in its effects on consumer welfare.

The full call is embedded below.

 

 

Geoffrey Manne joined CNBC to discuss the removal of the border-adjustment tax from Republicans’ tax-reform proposal.