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Showing 9 of 273 Results in Monopolization
TOTM In the headline to a Dec. 7 press release, the Federal Trade Commission (FTC) announced that it, in concert with the U.S. Justice Department (DOJ) and . . .
In the headline to a Dec. 7 press release, the Federal Trade Commission (FTC) announced that it, in concert with the U.S. Justice Department (DOJ) and U.S. Department of Health and Human Services (HHS), had managed to “Lower Health Care and Drug Costs, Promote Competition to Benefit Patients, Health Care Workers.” According to the subhead: “Recent agency actions have helped lower costs, increase care quality for consumers and promote competition across the health care market.”
The headline sounds great. One wonders about the extent to which the subhead is true.
Read the full piece here.
TOTM Way back in May, I cracked wise about the Federal Trade Commission’s (FTC) fictional “Bureau of Let’s Sue Meta,” noting that the commission’s proposal (really, . . .
Way back in May, I cracked wise about the Federal Trade Commission’s (FTC) fictional “Bureau of Let’s Sue Meta,” noting that the commission’s proposal (really, an “order to show cause”) to modify its 2020 settlement of a consumer-protection matter with what had then been Facebook—in other words, a settlement modifying a 2012 settlement—was the FTC’s third enforcement action with Meta in the first half of 2023. That seemed like a lot, even if we ignored, say, Meta’s European and UK matters (see, e.g., here on the EU Digital Markets Act’s “gatekeeper” designations; here on the Norwegian data-protection authority; here and here on the Court of Justice of the European Union, and here on the UK Competition Appeal Tribunal).
TL;DR tl;dr Background: In the U.S. Justice Department’s (DOJ) recent suit against Google and the Federal Trade Commission’s (FTC) latest complaint against Amazon, both antitrust agencies . . .
Background: In the U.S. Justice Department’s (DOJ) recent suit against Google and the Federal Trade Commission’s (FTC) latest complaint against Amazon, both antitrust agencies allege these large technology firms behave anti-competitively by preventing their rivals from reaching the “scale” needed to compete effectively.
But… achieving scale or a large customer base does not, in itself, violate antitrust law. Private companies also owe no duty to allow their competitors to reach scale. For example, Google is not required to allow Bing to gain more users so that Bing’s quality can improve. Google and Amazon’s competition for users at the expense of competitors is central to the competitive process. To make an effective antitrust case, the agencies must delineate how Amazon and Google allegedly abuse their size in ways that harm competition and consumers.
Antitrust regulators often cite “scale” in recent complaints against large tech companies. Instead of throwing that particular term around loosely, the enforcement agencies should detail precisely how firms allegedly abuse scale to harm rivals.
Does scale unfairly raise barriers to entry? Does it impose costs on competitors? In both of the cases cited above, the alleged harm is the direct costs imposed on competitors, not the firm’s scale. After all, scale can be just another way of describing the firm that produces the highest-quality product at the lowest price. Without greater clarity, enforcement agencies would be unable to substantiate antitrust claims centered on “scale.”
To prevail in court, the agencies must articulate precise mechanisms of competitive injury from scale. Broad assertions about nebulous “scale advantages” are unlikely to demonstrate concrete anticompetitive effects.
It has long been recognized that simply “achieving scale” and becoming a large firm with significant market share or production capacity does not constitute an antitrust violation. No law prohibits a company from growing large through legal competitive means. The agencies know this. The FTC argues that its complaint against Amazon is “not for being big.”
While scale can potentially be abused, it also confers significant consumer advantages. Basic economic principles demonstrate the benefits of size or scale, which may allow larger firms to reduce average costs and become more efficient. These cost savings can then be passed on to consumers through lower prices. Larger firms may also be able to make more substantial investments in innovation and product development. And network effects in technology platforms show how scale can improve service quality by attracting more users.
Scale only becomes an issue if it is leveraged to restrain trade unfairly or in ways that harm consumers. The restraint is the harm, not the scale.
Preventing a competitor from achieving greater size and scale is not inherently an antitrust violation either. Companies routinely take business from one another through price competition, product improvements, or other means that may limit rivals’ growth. This is a normal part of market competition.
For example, if Amazon achieves sufficient scale that allows it to offer better prices or selection than smaller e-commerce websites, that may necessarily limit those competitors’ scale. But this does not constitute an antitrust harm; it is, instead, simply vigorous competition. An antitrust violation requires the firm to take specific actions to restrain trade or artificially raise rivals’ costs. Similar arguments hold for the DOJ’s case against Google over the company paying to be the default search engine on various mobile devices.
Unless the agencies can demonstrate precisely how a company has abused its position to undermine rivals’ scale unfairly—rather than winning business through competition on the merits—their complaints will struggle to establish antitrust liability.
Regulators often assume that large scale enables anticompetitive behavior to harm smaller rivals. Economic analysis, however, demonstrates that scale can benefit consumers and simultaneously increase concentration through competition.
Firms that achieve significant scale can leverage resulting efficiencies to reduce costs and prices. Scale enables investments in R&D, specialized assets, advertising, and other drivers of innovation and productive efficiency. By passing cost savings on to consumers, scaled firms often gain share at the expense of higher-cost producers.
As search and switching costs fall, consumers flock to the lowest-cost and highest-quality offerings. Competition redirects purchases toward scaled companies with superior productivity and lower prices stemming from economies of scale. This reallocates market share to efficient large firms, raising concentration.
Greater competition and the competitive advantages of scale are thus entirely consistent with increased concentration. Size alone does not imply anticompetitive behavior. Regulators should evaluate specific evidence of abuse, rather than assume that scale harms competition simply because it leads to concentration.
For more on this issue, see Brian Albrecht’s posts “Is Amazon’s Scale a Harm?” and “Competition Increases Concentration,” both at Truth on the Market.
Scholarship Abstract What are the welfare implications of markup heterogeneity across firms? In standard monopolistic competition models, such heterogeneity implies inefficiency even in the presence of . . .
What are the welfare implications of markup heterogeneity across firms? In standard monopolistic competition models, such heterogeneity implies inefficiency even in the presence of free entry. We enrich the standard model with heterogeneous firms so that preferences are non-separable in off-market time and market consumption and show that this changes the welfare implications of markup heterogeneity. In this context, homogeneity of markups is neither necessary nor sufficient for efficiency. The marginal cost of the marginal firm is weakly inefficiently high when off-market time and market consumption are complements and inefficiently low when they are substitutes, and the equilibrium allocation devotes weakly too few resources to firm creation. However, when off-market time and market consumption are perfect complements, markups are heterogeneous across firms and yet the equilibrium allocation is efficient.
TOTM The European Commission late last month published the full list of its “gatekeeper” designations under the Digital Markets Act (DMA). Alphabet, Amazon, Apple, ByteDance, Meta, and Microsoft—the six . . .
The European Commission late last month published the full list of its “gatekeeper” designations under the Digital Markets Act (DMA). Alphabet, Amazon, Apple, ByteDance, Meta, and Microsoft—the six designated gatekeepers—now have six months to comply with the DMA’s list of obligations and restrictions with respect to their core platform services (CPS), or they stand to face hefty fines and onerous remedies (see here and here for our initial reactions).
TOTM In order to promote competition in digital markets,[1] Latin American countries should not copy and paste “solutions” from other jurisdictions, but rather design their own set . . .
In order to promote competition in digital markets,[1] Latin American countries should not copy and paste “solutions” from other jurisdictions, but rather design their own set of policies. In short, Latin American countries—like my own, Peru—should not “put the cart before the horse” and regulate markets that are not yet mature.
TOTM One of the most important changes in the Federal Trade Commission (FTC) and U.S. Justice Department’s (DOJ) draft merger guidelines is the abandonment of market power . . .
One of the most important changes in the Federal Trade Commission (FTC) and U.S. Justice Department’s (DOJ) draft merger guidelines is the abandonment of market power as the central element of merger enforcement. The “unifying theme” of the 2010 horizontal merger guidelines was that “mergers should not be permitted to create, enhance, or entrench market power or to facilitate its exercise.” The draft guidelines have dropped the unifying theme language.
The guidelines’ abandonment of enhancement of market power as the central element of merger enforcement will have profound consequences for antitrust. One consequence is that merger enforcement will no longer prioritize consumers over competitors of the merging firms. Another important consequence, however, is the loss of a limiting principle in merger enforcement. Courts recognize that enhancement of market power is a necessary element of a merger challenge under antitrust law. The U.S. Circuit Court of Appeals for the D.C. Circuit made this point clear in its 2001 FTC v. H.J. Heinz opinion when it held that “[m]erger enforcement, like other areas of antitrust, is directed at market power.” The draft guidelines have removed enhancement of market power as a necessary element of a merger case.
TL;DR tl;dr Background: The Federal Trade Commission (FTC) and 17 states this month filed a major antitrust complaint against Amazon. The much-anticipated suit comes more than . . .
Background: The Federal Trade Commission (FTC) and 17 states this month filed a major antitrust complaint against Amazon. The much-anticipated suit comes more than two years after Lina Khan became FTC chair and more than six years since her student note criticizing Amazon’s practices. The complaint describes a broad scheme in which Amazon (1) used various practices to prevent sellers from offering prices at Amazon’s rivals below the level at Amazon (anti-discounting), and (2) conditioned a product’s eligibility for Amazon Prime on whether the seller used Fulfillment by Amazon (FBA). This conduct allegedly violates Section 5 of the FTC Act as an unfair method of competition, Section 2 of the Sherman Act as maintenance of monopoly, and various state laws.
But… It will be difficult for the FTC and the states to prove Amazon’s monopoly power and to discredit the procompetitive justifications for the challenged conduct. Retail competition is robust and the proposed narrow markets are ripe for criticism. Moreover, the challenged conduct is core to Amazon’s offer of important consumer benefits, such as fast and reliable shipping. Whatever remedy the FTC ultimately pursues, it risks undermining the benefits Amazon has created for consumers and sellers alike.
The complaint relies on two overarching theories of anticompetitive conduct: anti-discounting and conditioning Prime eligibility on a seller using FBA.
The first is reminiscent of a challenge to “most-favored nation” (MFN) provisions, in which a defendant demands terms that are equivalent to or better than those given to its rivals. However, MFNs are agreements typically challenged under Section 1 of the Sherman Act; the FTC doesn’t explicitly claim that Amazon’s unilateral policy constitutes an MFN.
The second theory appears similar to a tying claim. But the FTC doesn’t allege an actual tie between the sale of two distinct products, perhaps because sellers cannot buy the Prime badge; they must qualify for it by meeting the two-day shipping requirement (which FBA ensures).
Both of the relevant markets put forward in the FTC’s complaint fail to reflect real-world competition.
Amazon allegedly possesses monopoly power in the “online superstore market.” According to the FTC, online “superstores” provide a unique breadth and depth of products and unique services that brick-and-mortar stores and smaller online retailers don’t. Thus the commission alleges that these rivals cannot constrain Amazon’s market power over consumers.
This alleged market is so narrowly drawn that it appears to include just Amazon, eBay, and the online stores offered by Walmart and Target. This excludes single-brand online retailers, product-category-specific online retailers, and all brick-and-mortar stores. It beggars belief that these rivals don’t exert competitive constraints on Amazon. After all, no consumers shop exclusively online, and price-comparison services like Google Shopping facilitate shopping across all online outlets. This will almost certainly prove to be a sticking point when the case goes to trial.
The FTC also defines a relevant market for “online marketplace services”—i.e., the services needed to sell products online (including access to shoppers, online interface, pricing capabilities, customer reviews). This excludes traditional wholesalers and e-commerce platforms like Shopify that offer software allowing sellers to create their own online stores.
As with the first market, it’s hard to imagine these claims will be borne out by the evidence. Most retail sales still occur offline and manufacturers and brands readily access these outlets. And the recent success of new marketplaces like Shein and Temu—which entered the U.S. market during the FTC’s investigation of Amazon—further undermines both the alleged market and Amazon’s market power.
While both unlawful MFNs and unlawful tying would be legitimate theories of harm, both are also vertical restrictions reviewed under the rule of reason, which requires weighing the anticompetitive and procompetitive effects.
The economics literature shows that MFNs can promote efficiency by protecting investments that couldn’t have been recouped without the protections offered by an MFN, such as Amazon’s substantial investment in the infrastructure to deliver products within two days. These provisions can benefit consumers by cutting their search costs and offering retailers incentives to improve the quality of their search and display capabilities.
Economic theory also suggests that it can be cheaper to offer some products together, rather than selling them separately; in some cases, it may be necessary to sell the products together in order to offer the products at all. If Amazon’s FBA services are critical for it to dependably deliver on Prime’s promise of two-day-shipping, then the alleged tying may be procompetitive.
While the FTC’s complaint doesn’t explicitly ask for Amazon to be broken up, it does ask for the court to provide “equitable relief, including but not limited to structural relief, necessary to restore fair competition.”
It’s anyone’s guess what this means. “Fair competition” isn’t part of U.S. antitrust case law or mainstream economic terminology.
This seemingly innocuous wording may be used to impose the FTC’s idiosyncratic—and nostalgic—vision of online retail on Amazon. Worse, it may be a euphemism for breaking up the company.
TOTM Federal Communications Commission (FCC) Chair Jessica Rosenworcel on Tuesday announced the agency’s proposal to regulate internet services under Title II of the Communications Act. Commonly referred . . .
Federal Communications Commission (FCC) Chair Jessica Rosenworcel on Tuesday announced the agency’s proposal to regulate internet services under Title II of the Communications Act. Commonly referred to as “net neutrality,” the chair plans to release proposed rules today, with a vote scheduled for Oct. 19 to begin the rulemaking process.
