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The Finnish consultancy Rewheel periodically issues reports using mobile wireless pricing information to make claims about which countries’ markets are competitive and which are not. For example, Rewheel claims Canada and Greece have the “least competitive monthly prices” while the United Kingdom and Finland have the most competitive.

Read the full piece here.

Competition is strong in digital markets, but traditional antitrust tools may miss competitive nuances in these markets.

Background…

Critics argue that competition is weak in digital platform markets because each market tends to be dominated by a single player: Google in Search, Amazon in online retail, and so on.

But…

Digital platforms overlap significantly and are constantly expanding into each other’s markets, and new entrants are a constant threat. Retrospective market definition, the tool that antitrust agencies use to determine the boundaries of competition, will frequently miss changes in the nature of the products and markets under review, and as a result miss much of the competition taking place. Features of that competition are discussed below.

Read the full tl;dr explainer here.

On Friday, April 17, 2020, ICLE President and Founder, Geoffrey A. Manne, submitted written testimony to the U.S. House of Representatives Committee on the Judiciary, Subcommittee on Antitrust, Commercial, and Administrative Law. Mr. Manne contends that underlying much of the contemporary antitrust debate are two visions of how an economy should work. 

One vision, which tends to favor more intervention and regulation than the status quo, sees the economy and society as being constructed from above by laws and courts. In this view, suspect business behavior must be justified to be permitted, and . . . the optimal composition of markets can be known and can be designed by well-intentioned judges and legislators.

On the other hand, there is the view of individual and company behavior as emerging from each person’s actions within a framework of property rights and the rule of law. This view sees the economy as a messy discovery process, with business behavior often being experimental in nature. This second conception often sees government intervention as risky, because it assumes a level of knowledge about the dynamics of markets that is impossible to obtain.  

In Manne’s view,

Antitrust law and enforcement policy should, above all, continue to adhere to the error-cost framework, which informs antitrust decision-making by considering the relative costs of mistaken intervention compared with mistaken non-intervention. Specific cases should be addressed as they come, with an implicit understanding that, especially in digital markets, precious few generalizable presumptions can be inferred from the previous case. The overall stance should be one of restraint, reflecting the state of our knowledge. We may well be able to identify anticompetitive harm in certain cases, and when we do, we should enforce the current laws. But dramatic new statutes that undo decades of antitrust jurisprudence or reallocate burdens of proof with the stroke of a pen are unjustified.  

Manne goes on to address several of the most important and common misperceptions that seem to be fueling the current drive for new and invigorated antitrust laws. These misperceptions are that: 

1. We can infer that antitrust enforcement is lax by looking at the number of cases enforcers bring;  
2. Concentration is rising across the economy, and, as a result of this trend, competition is declining; 
3. Digital markets must be uncompetitive because of the size of many large digital platforms; 
4. Vertical integration by dominant digital platforms is presumptively harmful; 
5. Digital platforms anticompetitively self-preference to the detriment of competition and consumers; 
6. Dominant tech platforms engage in so-called “killer acquisitions” to stave off potential competitors before they grow too large; and 
7. Access to user data confers a competitive advantage on incumbents and creates an important barrier to entry. 

See his full testimony, here.

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.

The proposed Vertical Merger Guidelines provide little practical guidance, especially on the key issue of what would lead one of the Agencies to determine that it will not challenge a vertical merger. Although they list the theories on which the Agencies focus and factors the Agencies “may consider,” the proposed Guidelines do not set out conditions necessary or sufficient for the Agencies to conclude that a merger likely would substantially lessen competition. Nor do the Guidelines communicate generally how the Agencies analyze the nature of a competitive process and how it is apt to change with a proposed merger.

Read the full piece here.

The European Commission’s recent Google Android decision will surely go down as one of the most important competition proceedings of the past decade. And yet, an in-depth reading of the 328 page decision should leave attentive readers with a bitter taste.

Read the full piece here.

Summary

Amazon has largely avoided the crosshairs of antitrust enforcers to date (leaving aside the embarrassing dangerous threats of arbitrary enforcement by some US presidential candidates). The reasons seem obvious: in the US it handles a mere 5% of all retail sales (with lower shares in the EU), and it consistently provides access to a wide array of affordable goods. Yet even with Amazon’s obvious lack of dominance in the general retail market, the EU and some of its member states are opening investigations.

This isn’t new: the EU and its member states have pursued many competition claims against the big tech platforms. In the last two years alone, the EU imposed over $9B USD in fines on Google for “harms” that were highly speculative and hard to square with concern for consumers.

The theories of harm in the pending investigations of Amazon demonstrate some of the same confused antitrust theories that cropped up in the EU Google Shopping case. Platforms like Amazon and Google are criticized for allegedly discriminating against certain platform users who are also competitors or potential competitors of one or more of the platform’s services (or, in some cases, the platform itself).

Commissioner Margarethe Vestager’s probe into Amazon came to light in September, and centers on whether Amazon is illegally using its dominant position vis-á-vis third party merchants on its platforms in order to obtain data that it then uses either to promote its own direct sales, or else to develop competing products under its private label brands. More recently, Austria and Germany have launched separate investigations of Amazon rooted in much the same concerns as those of the European Commission.

The Austrian investigation will examine “whether Amazon abused its dominant position against retailers, that are active on the Amazon market place.” According to Andreas Mundt, president of the German competition authority, “Amazon functions as a kind of ‘gatekeeper’ [for sellers’ access] to customers. Its double role as the largest retailer and largest marketplace has the potential to hinder other sellers on its platform.” The German investigation also focuses on whether the terms of the contractual relationships that third-party sellers enter into with Amazon are unfair because these sellers are “dependent” on it.

Claims of competitive harm arising from this so-called vertical discrimination or bias are light on both theory and empirics. One of the fundamental, erroneous assumptions upon which they are built is the alleged “essentiality” of the underlying platform or input. But these cases are more often based on stories of firms that, unfortunately, chose to build their businesses to rely on a specific platform. In other words, their own decisions — from which they substantially benefited — made their investments highly “asset specific” and thus vulnerable to otherwise avoidable risks. When a platform on which these businesses rely makes a disruptive move, the third parties cry foul, even though the platform was not — nor should have been — under any obligation to preserve the status quo on behalf of third parties.

This issue brief explores the flaws in designating Amazon as something like an “essential facility,” as well as the attendant errors of treating the distribution mechanism of Internet-based commerce as though it were a market definition, and the problems with failing to learn the innovation-damaging effects of the Microsoft case.

Click here to read the full issue brief.

Summary

In his commentary, Geoffrey A. Manne supports the Supreme Court’s decision, and offers insightful analysis of why, to his mind, the decision properly identifies the competitive process of platforms.

Tim Wu’s critique, on the other hand, raises concerns as to the treatment of evidence and theory in this case and the legacy of the ruling, which may undermine the efficacy of future antitrust enforcement.

The Supreme Court’s decision in Ohio, et al v Am Express Co, et al (‘Amex’) is uniquely important for the antitrust analysis of firms in the modern platform economy. Although it is undoubtedly not the last word on the subject, the case represents the Court’s first comprehensive effort to address the thorny and previously indeterminate question of how courts should define the relevant market and assess competitive effects in antitrust cases involving two-sided or multi-sided platforms (‘two-sided markets’). In this article, I evaluate the Supreme Court’s approach to this question, discuss the economic and legal underpinnings of how it approached market definition and effects analysis, and demonstrate why the primary criticisms of the Court’s decision are misguided. While the Court’s approach has been roundly decried by some, its conclusion—that both sides of a two-sided market must be considered in defining the relevant market and evaluating the existence and consequences of a firm’s exercise of market power—is, indeed, the proper one.

Click here to read the full paper.