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TOTM Concentration is a terrible measure of [insert basically anything people actually care about]. Have I said that before? Concentration tells us nothing about market power, efficiency, or whether . . .
Concentration is a terrible measure of [insert basically anything people actually care about]. Have I said that before? Concentration tells us nothing about market power, efficiency, or whether policy changes can do anything to increase welfare. Economists know that, especially industrial organization (IO) economists.
If we want to measure market power for a seller, a better measure is the markup, defined as the ratio of price over marginal cost. If we want to measure market power for a buyer, we can look at the markdown. Either one is a better measure of market power (possibly bad) and often the very definition of market power.
Read the full piece here.
Amicus Brief Brief for Amici Curiae International Center For Law & Economics and 11 Scholars of Antitrust Law and Economics in Support of Defendants’ Opposition to Plaintiffs’ . . .
Amici Curiae respectfully submit this brief in support of Defendants’ Opposition to Plaintiffs’ Motion for a Preliminary Injunction (Dkt. 130).[1]
The International Center for Law & Economics (“ICLE”) is a nonprofit, nonpartisan, global research and policy center aimed at building the intellectual foundations for sensible, economically grounded policy. ICLE promotes the use of law and economics methodologies, and economic findings, to inform public policy. ICLE has longstanding expertise in antitrust law, and a strong interest in the proper development of antitrust jurisprudence. ICLE thus routinely files amicus briefs in cases, like this one, presenting important issues of antitrust law. ICLE is joined by 11 scholars of antitrust law and economics (listed in the Appendix to this brief ).
Section 7 of the Clayton Act prohibits mergers where “the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.” 15 U.S.C. § 18. Congress used the word “may” to “indicate that its concern was with probabilities, not certainties.” Brown Shoe Co. v. United States, 370 U.S. 294, 323 (1962). The government thus need not wait for anticompetitive conduct to occur before seeking relief. Id. at 317-18. Still, the government must show a “ ‘reasonable likelihood ’ of a substantial lessening of competition in the relevant market.” United States v. Marine Bancorp., 418 U.S. 602, 622 (1974) (emphasis added).
But—as Yogi Berra might have paraphrased Nils Bohr—it can be “tough to make predictions, especially about the future.” Enforcers and courts thus traditionally approach merger control with caution. Deciding whether to block a merger requires making predictions about its likely impact on competition and consumers. That requires evaluating both the likely future state of the market given the transaction and the “but for” world in which it does not take place, often with limited (but nonetheless sufficiently substantial) information and imperfect (but ideally well-tested) tools.
For decades, courts and enforcers have looked to economic principles to develop a set of considerations to inform and constrain such decision-making. Three of them are especially relevant here: the distinctions among horizontal, vertical, and conglomerate mergers; the distinction between structural and behavioral threats to competition; and the distinction between structural and behavioral remedies. In challenging Amgen’s proposed acquisition of Horizon, the Federal Trade Commission elides all three established distinctions. It instead seeks to block a likely procompetitive conglomerate merger based on harms supposed to arise from a chain of conjectured post-transaction events, where each link in the chain is highly speculative. It is unlikely that they will all come to pass and cause the competitive harm the FTC posits. There is no sound economic basis for blocking the merger here and forfeiting its likely procompetitive benefits. Because the antitrust theory alleged in the complaint lacks merit, the FTC cannot establish the “likelihood of success” necessary for a preliminary injunction. FTC v. Great Lakes Chem. Corp., 528 F. Supp. 84, 86 (N.D. Ill. 1981).
[1] No party’s counsel authored any part of this brief, and no person other than amici and their counsel made a monetary contribution to fund its preparation or submission.
Scholarship Abstract Evidence of rising market power in the U.S. economy has received widespread attention in macroeconomics literature. Recent research has linked trends in measured market . . .
Evidence of rising market power in the U.S. economy has received widespread attention in macroeconomics literature. Recent research has linked trends in measured market power to other secular trends in the U.S., including multi-decade trends of declining rates of job reallocation and business entry (or “business dynamism”). Intuitively, firms with more market power are less responsive to shocks, and industries characterized by market power may have (or create) significant barriers to entry. Both forces predict a negative correlation between market power and business dynamism. However, industry-level data shows zero, or often a positive, correlation between markups and business dynamism; industries that experienced larger increases in markups had smaller decreases in dynamism on average. Those few industries that saw both large declines in markups and large declines in dynamism do not account for a significant share of the aggregate trends in markups and dynamism. Our results suggest that market power does not explain the decline in dynamism.
TOTM A market with 1,000 tiny sellers is not some ideal market. Concentration can be extremely beneficial, leading to economies of scale and stiffer competition to . . .
A market with 1,000 tiny sellers is not some ideal market. Concentration can be extremely beneficial, leading to economies of scale and stiffer competition to win a big share of the market.
Yet the Federal Trade Commission (FTC) and U.S. Justice Department’s (DOJ) draft merger guidelines double down on the idea that concentration is inherently a problem. They add new structural presumptions against concentration, for both horizontal and vertical mergers. Even worse, the agencies won’t recognize any efficiencies “if they will accelerate a trend toward concentration.”
The problem? Concentration is not a good proxy for competition. This post will go through some of the empirical work that generally finds that competition increases concentration. The FTC/DOJ are completely at odds with the economic literature on this point.
Read the whole piece here.
ICLE Issue Brief Executive Summary In October 2022, the Kroger Co. and Albertsons Cos. Inc. announced their intent to merge in a deal valued at $24.6 billion.[1] Given . . .
In October 2022, the Kroger Co. and Albertsons Cos. Inc. announced their intent to merge in a deal valued at $24.6 billion.[1] Given the Federal Trade Commission’s (FTC) increasingly aggressive enforcement stance against mergers and acquisitions, as well as Chair Lina Khan’s previous writings on food retail specifically,[2] some commentators have expressed skepticism that the agency would allow the transaction to proceed—even with divestitures.[3] The FTC and U.S. Justice Department’s (DOJ) recently unveiled draft revisions to the agencies’ merger guidelines further suggest that the agencies plan to challenge more mergers—and to do so more aggressively than under past administrations.[4]
But attempting to block this transaction would go against the analytical framework the FTC has historically used to evaluate similar transactions, as well as the agency’s historical precedent of accepting divestures as a remedy to address localized problems where they arise. Such breaks with the past sometimes happen; our understanding of the law and economics evolves. Unfortunately, these likely breaks from tradition would reflect a failure to consider relevant and significant changes in how consumers shop for food and groceries in today’s world.
The FTC has a long history of assessing retail mergers in a manner significantly at odds with the aggressive approach it is currently signaling. Only one supermarket merger has been challenged in court since American Store’s acquisition of Lucky Stores in 1988: the Whole Foods/Wild Oats merger in 2007.[5] Over the last 35 years, the FTC has allowed every other supermarket merger and most retail-store transactions to proceed with divestitures. Within the last two years alone, these have included Tractor Supply/Orschlein and 7-Eleven/Speedway.[6] The FTC’s historic approach recognizes the reality that competitive concerns regarding supermarket mergers can be readily and adequately remedied by divestitures in geographic markets of concern; indeed, even Whole Foods/Wild Oats was ultimately resolved with a divestiture agreement following a fractured circuit court decision.[7]
The retail food and grocery landscape has changed dramatically since American/Lucky and Whole Foods/Wild Oats. With the growth of wholesale clubs, delivery services, e-commerce, and other retail formats, the industry is no longer dominated by traditional supermarkets. In addition, these changing dynamics have made geographic distance, traffic patterns, and population density decreasingly relevant in a consumer’s choice of where they purchase food and groceries. Today, Kroger is only the fourth-largest food and grocery retailer in the United States, behind Walmart, Amazon, and Costco. If the merger goes through, the combined firm will move into third place in market share, but would still account for just 9% of nationwide sales.[8]
The upshot is that the food and grocery industry is arguably as competitive as it has ever been. Unfortunately, recent developments suggest the FTC may well ignore or dismiss the economic realities of this rapid transformation of the food and grocery industry, substituting instead the outdated approach to market definition and industry concentration signaled by the draft guidelines.[9]
Against this backdrop, our brief highlights five important areas where both the commission and commentators’ stances appear to run headlong into legal precedent that mandates an evidence-based approach to merger review, even as the best available evidence points to a dynamic and competitive grocery industry. The correct understanding of the law and the industry appears entirely at odds with a challenge to the proposed merger.
The Kroger/Albertsons merger proceeds against a backdrop of tough merger-enforcement rhetoric and actions from the FTC. Recent developments include the publication of aggressive revised merger guidelines, a string of cases brought to block seemingly benign mergers, process revisions burdening even unproblematic mergers, and FTC leadership’s contentious and expansive interpretation of the merger laws. The FTC’s ambition to remake U.S. merger law is likely to falter before the courts, but not before imposing a substantial tax on all corporate transactions—and, ultimately, on consumers.
Because of recent changes in market dynamics, it no longer makes sense to limit the relevant market to supermarkets alone. Rather, consumer behavior in the face of omnipresent wholesale clubs, e-commerce, and local delivery platforms significantly constrains supermarkets’ pricing decisions.
Recent FTC consent orders involving supermarket mergers have limited the relevant product market to local brick-and-mortar supermarkets and food and grocery sales at nearby hypermarkets (e.g., Walmart supercenters), while excluding wholesale-club stores (e.g., Costco), e-commerce (e.g., Amazon), and further-flung stores accessible through online-delivery platforms (e.g., Instacart). This is based on an assertion that the relevant market includes only those retail formats in which a consumer can purchase nearly all of a household’s weekly food and grocery needs from a single stop, at a single retailer, in the shopper’s neighborhood. This is, however, no longer how most of today’s consumers shop. Instead, shoppers purchase different bundles of groceries from multiple sources, often simultaneously.[10] This pattern has substantial implications for supermarkets’ competitive environment.
More than in any previous retail merger, opponents of the Kroger/Albertsons deal have raised the specter of potential monopsony power in labor markets. But these concerns reflect a manifestly unrealistic conception of labor-market competition. Fundamentally, the market for labor in the retail sector is extremely competitive, and workers have a wide range of alternative employment options—both in and out of the retail sector. At the same time, both Kroger and Albertsons are highly unionized, providing a counterbalance to any potential exercise of monopsony power by the merged firm.
Some critics of the merger have speculated that the merged company would be able to exercise monopsony power against its food and grocery suppliers (i.e., wholesalers and small manufacturers), often invoking an economic concept called the “waterbed effect.” The intuition is that the largest buyers may use their monopsony power to negotiate lower input prices from suppliers, leading the suppliers to make up the lost revenue by raising prices for their smaller, weaker buyers.
But these arguments are far from compelling. Much of the discussion of the waterbed effect focuses on harm to competing retailers, rather than consumers. But this is not the harm that U.S. antitrust law seeks to prevent. It is thus not surprising that at least one U.S. court has rejected waterbed-effect claims on grounds that there was no harm to consumers.
Historically, the FTC has allowed most grocery-store transactions to proceed with divestitures, such as Ahold/Delhaize (81 stores), Albertsons/Safeway (168 stores), and Price Chopper/Tops (12 stores). The extent of the remedies sought depends on the extent of post-merger competition in the relevant local markets, as well as the likelihood of significant entry by additional competitors into the relevant markets.
Despite a long history of divestitures serving as an appropriate and adequate remedy in supermarket mergers, some point to the Albertsons/Safeway merger divestitures to Haggen as evidence that divestitures are no longer an appropriate remedy. But several factors idiosyncratic to Haggen and its acquisition strategy led to the failure of that divestiture, and it does not properly stand for the claim that all supermarket divestitures are doomed. Any divestures associated with the Kroger-Albertsons merger should learn from the Haggen experience, rather than view it as justification to reject reasonable divestiture options that have worked for other mergers.
The recently published FTC-DOJ draft merger guidelines are a particularly notable backdrop for the Kroger/Albertsons merger, leading many commentators to expect the FTC to take a hardline stance on the deal.[11] Merger case law, however, has not changed much in recent years. Given the merging parties’ apparent willingness to litigate the case, if necessary, the likelihood of a protracted legal battle seems high. As we explain below, at least at first sight, any case against the merger would appear to be largely built on sand, and the commission’s chances of succeeding in court appear slim.
The Clayton Act of 1914 grants the U.S. government authority to review and challenge mergers that may substantially lessen competition. The FTC and DOJ are the two antitrust agencies that share responsibility to enforce this law. Traditionally, the FTC investigates retail mergers, while the DOJ oversees other sectors, such as telecommunications, banking, and transportation.
Before the FTC and DOJ officials appointed by the current administration came into office, the settled practice was for the antitrust agencies to follow the 2010 Horizontal Merger Guidelines, which outline the analytical framework and evidence they use to evaluate mergers. The 2010 guidelines describe four major steps of merger analysis:
The antitrust agencies weigh all these factors to determine whether a merger is likely to harm competition and consumers. If they find that a merger raises significant competitive concerns, they may seek to block it or require remedies such as divestitures or behavioral commitments from the merging parties.
Several factors, however, suggest that authorities are unlikely to follow this measured approach when reviewing the Kroger/Albertsons merger.
All of these factors—in concert with the merging parties’ claim that they are prepared to go to court if the FTC decides to block the transaction outright—suggest that there is a particularly high likelihood that the Kroger/Albertsons merger will be challenged and litigated, rather than approved or challenged and settled.
For the reasons outlined in the following sections, however, the FTC is unlikely to prevail in court. The market overlaps between the merging parties are few and can be resolved by relatively straightforward divestiture remedies—which, even if disfavored by the agency, are routinely accepted by courts. Likewise, the FTC’s likely market definition and potential theories of harm pertaining to labor monopsony and purchasing power, more generally, appear speculative at best. The upshot is that the FTC’s desire to bring tougher merger enforcement appears to be on a collision course with the law as it is currently enforced by U.S. courts.
The retail food and grocery landscape has changed dramatically since the last litigated supermarket merger. Consumer-shopping behavior has shifted toward more frequent shopping trips across a wide variety of formats, which include warehouse clubs (e.g., Costco), e-commerce (e.g., Amazon), online delivery platforms (e.g., Instacart), limited-assortment stores (e.g., Trader Joe’s and Aldi), natural and organic markets (e.g., Whole Foods), and ethnic-specialty stores (e.g., H Mart), in addition to traditional supermarkets. Because of these enormous changes, the market definition assumed in previous FTC consent orders likely will be—and should be—challenged, given the empirical evidence. This issue brief focuses particularly on the growing importance of warehouse clubs and e-commerce (including online delivery platforms).
The FTC is likely to define the relevant product market as supermarkets, which the agency has previously defined as retail stores that enable consumers to purchase all of their weekly food and grocery requirements during a single shopping visit. This market definition includes supermarkets within hypermarkets, such as Walmart supercenters, but excludes warehouse-club stores, such as Costco.[20] Prior consent orders omit any discussion of whether online retailers or delivery services should be included or excluded from the relevant market. This product-market definition has remained mostly unchanged—and mostly unchallenged—since the Ahold/Giant merger a quarter-century ago.[21]
The consent orders exclude warehouse-club stores—as well as hard discounters, limited-assortment stores, natural and organic markets, and ethnic-specialty stores—because these stores are asserted to “offer a more limited range of products and services than supermarkets and because they appeal to a distinct customer type.”[22] In addition, the orders indicate that “supermarkets do not view them as providing as significant or close competition as traditional supermarkets.”[23] Both claims are wrong.
Figure 1 shows that retail sales by supermarkets, warehouse clubs, supercenters, and other grocery stores have been relatively stable at 5-6% of U.S. gross domestic product (GDP).[24] Figure 2 shows that supermarkets’ share of retail sales dropped sharply from the early 1990s through the mid-2000s, with that share shifting to warehouse clubs and supercenters. These figures are consistent with the conclusion that warehouse clubs and supercenters successfully compete against traditional grocery stores. Indeed, it would be reasonable to conclude that the rise of warehouse clubs and supercenters at the expense of traditional supermarkets is one of the most significant long-run trends in retail.
The retail food and grocery industry has changed dramatically. Below, we note that the average consumer shops for food and groceries more than once a week and shops at more than one retail format in a given week. Since the Ahold/Giant merger in 1998, warehouse clubs and supercenters have doubled their share of retail sales, while supermarkets’ share has dropped by more than 25% (Figure 2). Over the same period, online shopping and home delivery has also greatly changed the market.[25]
Based on these observations, the product-market definition that the FTC has employed in its consent orders over more than two decades is likely to be—and should be—challenged to include warehouse clubs, in addition to accounting for online retail and delivery.
In the past, the FTC has specified that, for a firm to be in the relevant market of “supermarkets,” it must be able to “enable[e] consumers to purchase substantially all of their weekly food and grocery shopping requirements in a single shopping visit.”[26] This definition suffers from several deficiencies.
The first deficiency is that this hypothetical consumer behavior is at odds with how many or most consumers behave today.
There is no evidence that consumers view retailers who provide one-stop-shopping for an entire week’s food and grocery needs as distinct from other retailers who provide food and groceries. In fact, evidence suggests that many consumers “multi-home” across several different retail categories.
Thus, even if one-stop weekly food and grocery shopping at single retailers was once typical, the evidence indicates such a phenomenon is much less common today.
The FTC’s consent orders provide four reasons to exclude warehouse clubs from the relevant market that includes supermarkets:
In contrast to these conclusions, there is widespread recognition that warehouse clubs impose significant competitive pressure on supermarkets. Indeed, the evidence indicates that supermarkets do consider wholesale clubs to be competitors and vice versa.[33]
The FTC’s consent orders note that warehouse clubs offer a “more limited range of products and services” than supermarkets. The orders identify products sold at supermarket as “including, but not limited to, fresh meat, dairy products, frozen foods, beverages, bakery goods, dry groceries, detergents, and health and beauty products.”[38] The annual reports for Costco, Walmart (Sam’s Club), and BJ’s, however, indicate each company offers the same range of products the FTC consent orders identify as being offered by supermarkets. If warehouse clubs offer similar products, see themselves as competing with supermarkets, and customers view them as substitutes, warehouse clubs must be in the same market.[39]
Since the Ahold/Giant merger in 1998, online shopping and home delivery have grown from niche services serving only 10,000 households nationwide to a landscape where approximately one-in-eight consumers purchase groceries “exclusively” or “mostly” online.[40] This shift has increased competition and innovation in the supermarket industry, as traditional supermarkets have adapted to changing consumer preferences and behaviors by offering more delivery and pickup options, expanding their online assortments, and enhancing their digital capabilities.[41] Some have invested in their own e-commerce platforms and many have partnered with such third-party providers as Instacart, Shipt, and Peapod.[42]
One might surmise that e-commerce simply replaced in-person shopping, but with the same stores competing. This is not what has happened. E-commerce has also increased competition by bringing in new companies with which traditional stores need to compete (e.g., Amazon) and by increasing the options available to consumers through services like Instacart, which allow for direct price and product comparisons among many stores. Each of these innovations has blurred the lines between brick-and-mortar food and grocery retailers and e-commerce, as well as the lines between supermarkets and other retail formats.
In addition, the rapid growth of e-commerce and delivery services make distance, traffic patterns, and population density decreasingly relevant in a consumer’s choice of where they purchase food and groceries. Dimitropoulos and co-authors note (1) the presence of warehouse clubs expands the relevant geographic market, (2) online delivery options expand the geographic market “far away,” and (3) online food and grocery purchases can be delivered from fulfilment centers, as well as from traditional stores.[43]
Because of these observations, the product market-definition that has been employed in the FTC’s consent orders over more than two decades is likely to be—and should be—challenged to include warehouse clubs and to account for online retail and delivery.
In recent years, there has been more and more emphasis in antitrust discussions placed on labor markets and possible harms to workers. The recent draft merger guidelines added an explicit section on mergers that “May Substantially Lessen Competition for Workers or Other Sellers.”[44] Before the guidelines even, some writers predicted the FTC will push a case on labor competition.[45] While, in theory, antitrust harms can occur in labor markets, just as in product markets, proving that harm is more difficult.
An important fact about this merger is that both companies have many unionized workers. Around two-thirds of Kroger employees[46] and a majority of Albertsons employees[47] are part of the United Food and Commercial Workers International Union (UFCW), a union representing 1.3 million members. Even if the merger would increase labor monopsony power in the absence of unions, the FTC will have to acknowledge the reality of the unions’ own bargaining power.
Delegates of the UFCW unanimously voted to oppose the merger. [48] Rather than monopsony power or lower wages, however, the union’s stated reason for their opposition was lack of transparency.[49] While lack of transparency may be problematic for the UFCW members, it does not constitute an antitrust harm. Kroger, on the other hand, has contended that the merger will benefit employees, citing a commitment to invest an additional $1 billion toward increased wages and expanded benefits, starting from the day the deal closes.[50] As with most announced goals, however, there is no enforcement mechanism for this commitment at present, although one could be litigated.
Rather than relying on proclamations from any of the parties, we need economic analysis of the relevant labor markets, asking the types of questions raised above surrounding the output markets. A policy report from Economic Policy Institute estimates that “workers stand to lose over $300 million annually” from the merger.[51] But the report uses an estimate of the correlation between concentration (HHI) in labor markets and wages to arrive at that estimate. While academic research may benefit from such an estimate, it is unhelpful in merger analysis. As a long list of prominent antitrust economists recently wrote, “regressions of price on HHI should not be used in merger review… [A] regression of price on the HHI does not recover a causal effect that could inform the likely competitive effects of a merger.”[52]
Any labor case would require showing the merger would harm workers by reducing their bargaining power. For most workers involved, there are still many potential employers competing. While the exact job-to-job switches are unknown, press releases during the pandemic highlighted how Kroger was hiring workers from a wide variety of companies and industries—from hospitality (Marriott International) to restaurants (Waffle House) to food distribution (Sysco).[53] While there are no publicly available data on worker flows between different companies, economist Kevin Murphy explained that if you ask “where do people go when they leave, often you’ll find no more than 5 percent of them go to any one firm, that they go all over the place. And some go in the same industry. Some go in other industries.”[54]
If, as is likely, an overwhelming majority of Kroger’s workers’ next best option (what they would do if a store closed) was not an Albertsons store but something completely outside of food and grocery stores, the merger would not take away those workers’ next best option. If true, the merger cannot be said to increase labor monopsony power to the extent necessary to justify blocking a merger.
One antitrust harm that has been discussed frequently in recent years is the so-called “waterbed effect,” in which “price reductions are negotiated with suppliers by larger buyers and result in higher prices being charged by suppliers to smaller buyers.”[55] The waterbed effect is not unique to mergers but can apply any time there is differential buyer-market power. The firm with more market power gets a good deal and its competitors are harmed. Long before the proposed merger, but still in the context of retail, people were writing about the waterbed effect of Walmart.[56]
In the context of the Kroger/Albertsons merger, critics have again raised the possibility of a waterbed effect. Michael Needler Jr.—the president and chief executive of Fresh Encounter, a chain of 98 grocery stores based in Findlay, Ohio—raised the possibility in a U.S. Senate hearing on the merger.[57] He was also quoted by The New York Times, saying:
When the large power buyers demand full orders, on time and at the lowest cost, it effectively causes the water-bed effect. They push down, and the consumer packaged goods companies have no option but to supply them at their demands, leaving rural stores with higher costs and less availability to products.[58]
In a letter to the FTC, the American Antitrust Institute raised several concerns about the merger and argued that:
The waterbed effect is likely to worsen with Kroger-Albertsons enhanced buyer power post-merger, with adverse effects on the ability of independent grocers to compete in a tighter oligopoly of large grocery chains.[59]
If there is a waterbed effect, some firms will have lower wholesale prices, and some will have higher prices. Both will be partially passed on to consumers. While no doubt frustrating for small retailers, it is unclear whether competing for lower prices and more attention is a normal part of the competitive process, or whether it is anticompetitive, and policy could be used stop it. For example, if one firm is easier to deal with—either because they are more efficient or just more pleasant to interact with—sellers will switch to that firm and correspondingly demand higher returns from the other buyers. Moreover, even if we identify differential prices because of a waterbed effect, it would not imply that there has been any harm to consumers.[60]
While the waterbed theory has attracted the interest of some academics and policymakers, its relevance for antitrust is a different matter. There is a reason that courts have been skeptical. In particular, the court noted that the harms associated with the waterbed theory are borne by competing firms, rather than consumers or competition writ large.[61] Moreover, the court observed that actions taken by firms to avoid any possible harms from a hypothesized waterbed effect (e.g., by purchasing inputs from alternative suppliers) demonstrates a lack of—rather than presence of—monopsony power. The United Kingdom competition authority has evaluated “waterbed effect” allegations in at least two supermarket mergers and found no evidence indicating any anticipated effects of the mergers on input prices that would harm consumers.[62]
While the above sections argue that the FTC will have a hard time making a case that the merger is anticompetitive overall, there may be some specific geographic markets where concerns remain. In the face of such concerns, the FTC historically has allowed most supermarket transactions to proceed with divestitures, such as Ahold/Delhaize (81 stores), Albertsons/Safeway (168 stores), and Price Chopper/Tops (12 stores).[63] The extent of the remedies sought depends on the extent of post-merger competition in the relevant markets, as well as the likelihood of entry by additional competitors.[64] Dimitropoulos and coauthors noted that most divestitures required by recent consent orders in recent supermarket mergers have occurred in geographic markets with fewer than five remaining competitors.[65]
In recent merger consent orders, divested stores have been acquired by both retail supermarkets and wholesalers with retail outlets, including Publix, Supervalu, Big Y, Weis, Associated Wholesale Grocers, Associated Food Stores, and C&S Wholesale Grocers.[66] Several of these companies have been expanding—in some cases outside of their “home” territories. For example, Publix is a Florida-based chain that operates nearly 1,350 stores in seven southeastern states.[67] Publix expanded to North Carolina in 2014, Virginia in 2017, and has announced plans to expand into Kentucky this year.[68] Weis Markets is a Pennsylvania-based chain that operates more than 200 stores in seven northeastern states.[69] Last year, the company announced plans to spend more than $150 million on projects, including new retail locations and upgrades to existing facilities.[70] There are also many smaller stores that have proven successful and possible candidates for a few stores. For example, Rochester, New York-based Wegmans has entered Washington, D.C., Delaware, and Virginia over recent years.[71]
Despite a long history of divestitures serving as an appropriate and adequate remedy in supermarket mergers, some point to the Albertsons/Safeway merger divestitures to Haggen as evidence that divestitures are no longer an appropriate remedy.[72] But several factors idiosyncratic to Haggen and its acquisition strategy led to failure, rather than the divestiture itself.
In 2014, the parent company of Albertsons announced plans to purchase rival food and grocery chain Safeway for $9.4 billion. During its merger review, the FTC identified 130 local markets in western and mid-western states where it alleged the merger would be anticompetitive.[73] In response, Albertsons and Safeway agreed to divest 168 supermarkets in those geographic markets.[74] Haggen Holdings LLC was the largest buyer of the divested stores, acquiring 146 Albertsons and Safeway stores in Arizona, California, Nevada, Oregon, and Washington.
Following its acquisition of the divested stores, Haggen almost immediately encountered numerous problems at the converted stores. Consumers complained of high prices, and sales plummeted at some stores. The company struggled and began selling some of its stores. Less than a year after the FTC announced the divestiture agreement, Haggen filed for bankruptcy. Following the bankruptcy, Albertsons bought back 33 of the stores it had divested in its merger with Safeway.
Unique factors indicate Haggen may not have been an appropriate buyer for the divested stores. Before acquiring the divested stores, Haggen was a small regional chain with only 18 stores, mostly in Washington State. The acquisition represented a ten-fold increase in the number of stores the company would operate. While Haggen was once an independent family-owned firm, when it acquired the divested stores, the company was owned by a private investment firm that used a sale-leaseback scheme to finance the purchase. Christopher Wetzel notes that Haggen failed to invest sufficiently in the marketing necessary to create brand awareness in regions where Haggen had not previously operated.[75] Such issues would need to be avoided in any future divestitures; experience shows they can be.
The problems with the Haggen divestiture need not be repeated. As explained above, there are many companies of various sizes that have the capabilities and desire to expand. While the relevant product and geographic markets for supermarket mergers has shifted enormously over the past few decades, divestitures remain an appropriate and adequate remedy for any competitive concerns. The FTC has knowledge and experience with divestiture remedies and should have a good understanding of what works. In particular, firms acquiring divested assets should have an adequate cushion of capital, experience with the market conditions in which the stores are located, and the operational and marketing expertise to transition customers through the change.
[1] Press Release, Kroger and Albertsons Companies Announce Definitive Merger Agreement, Kroger (Oct. 14, 2022), https://ir.kroger.com/CorporateProfile/press-releases/press-release/2022/Kroger-and-Albertsons-Companies-Announce-Definitive-Merger-Agreement/default.aspx.
[2] In an article written with Sandeep Vaheesan before she became chair of the FTC, Lina Khan expressed disdain for grocery-industry consolidation and deep skepticism of even the best divestiture packages. See Lina Khan & Sandeep Vaheesan, Market Power and Inequality: The Antitrust Counterrevolution and Its Discontents, 11 Harv. L. & Pol’y Rev. 235, 254 (2017) (“Retail consolidation has enabled firms to squeeze their suppliers… and led to worse outcomes for consumers.”) & 289 (“Even if divestitures could be perfectly tailored and if they preserved competition in narrow markets in every instance, they would fail to advance the citizen interest standard.”).
[3] See, e.g., David Dayen, Proposed Kroger-Albertsons Merger Would Create a Grocery Giant, The American Prospect (Oct. 17, 2022), https://prospect.org/power/proposed-kroger-albertsons-merger-would-create-grocery-giant; Richard Smoley, Kroger, Albertsons, and Lina Khan, Blue Book Services (May 2, 2023), https://www.producebluebook.com/2023/05/02/kroger-albertsons-and-lina-khan.
[4] U.S. Dep’t of Justice & Fed. Trade Comm’n, Draft Merger Guidelines (Jul. 19, 2023), available at https://www.justice.gov/d9/2023-07/2023-draft-merger-guidelines_0.pdf. See also Gus Hurwitz & Geoffrey Manne, Antitrust Regulation by Intimidation, Wall St. J. (Jul. 24, 2023), https://www.wsj.com/articles/antitrust-regulation-by-intimidation-khan-kanter-case-law-courts-merger-27f610d9.
[5] Prior to Whole Foods/Wild Oats, the last litigated supermarket merger was the State of California’s 1988 challenge to American Store’s acquisition of Lucky Stores. Several retail mergers have been challenged in court, however, such as Staples/Office Depot in 2015. See Press Release, FTC Challenges Proposed Merger of Staples, Inc. and Office Depot, Inc., Federal Trade Commission (Dec. 7, 2015), https://www.ftc.gov/news-events/news/press-releases/2015/12/ftc-challenges-proposed-merger-staples-inc-office-depot-inc.
[6] This includes approving Albertsons/Safeway (2015), Ahold/Delhaize (2016), and Price Chopper/Tops (2022). See Analysis of Agreement Containing Consent Order to Aid Public Comment, In the Matter of Cerberus Institutional Partners V, L.P., AB Acquisition, LLC, and Safeway Inc. (File No. 141 0108) (Jan. 27, 2015) available at https://www.ftc.gov/system/files/documents/cases/150127cereberusfrn.pdf; Analysis of Agreement Containing Consent Order to Aid Public Comment, In the Matter of Koninklijke Ahold N.V. and Delhaize Group NV/SA (File No. 151-0175) (Jul. 22, 2016), available at https://www.ftc.gov/system/files/documents/cases/160722koninklijkeanalysis.pdf; Analysis of Agreement Containing Consent Order to Aid Public Comment, In the Matter of The Golub Corporation and Tops Markets Corporation (File No. 211-0002, Docket No. C-4753) (Nov. 8, 2021), available at https://www.ftc.gov/system/files/documents/cases/2110002pricechoppertopsaapc.pdf.
[7] Decision and Order, In the Matter of Whole Foods Market, Inc., (Docket No. 9324) (May 28, 2009), available at https://www.ftc.gov/sites/default/files/documents/cases/2009/05/090529wfdo.pdf; FTC v. Whole Foods Market, 548 F.3d 1028 (D.C. Cir. 2008).
[8] Number based on authors’ calculations, using data from Progressive Grocer Staff, 90th Annual Report, Progressive Grocer (May 2023), https://progressivegrocer.com/crossroads-progressive-grocers-90th-annual-report.
[9] U.S. Dep’t of Justice & Fed. Trade Comm’n, supra note 44.
[10] See, e.g., George Kuhn, Grocery Shopping Consumer Segmentation, Drive Research (2002), available at https://www.driveresearch.com/media/4725/final-2022-grocery-segmentation-report.pdf.
[11] Supra note 3.
[12] For instance, the Herfindahl–Hirschman Index (HHI) at which mergers are deemed problematic has been lowered from 2500 (and a post-merger increase of 200) to 1800 (and a post-merger increase of 100). Likewise, combined market shares of more than 30% are generally deemed problematic under the new guidelines (if a merger also increase the market’s HHI by 100 or more). The revised guidelines also focus more heavily on monopsony and labor-market issues. See U.S. Dep’t of Justice & Fed. Trade Comm’n, supra note 4, at 6-7.
[13] Id. at 21.
[14] See U.S. Dep’t of Justice & Fed. Trade Comm’n, 2010 Horizontal Merger Guidelines (Aug. 19, 2010) at §5.3 , available at https://www.justice.gov/atr/horizontal-merger-guidelines-08192010#5c.
[15] See U.S. Dep’t of Justice, Merger Guidelines (1968) at 6-7, available at https://www.justice.gov/archives/atr/1968-merger-guidelines.
[16] United States v. Von’s Grocery Co., 384 U.S. 270 (1966).
[17] See, e.g., Robert H. Bork, The Goals of Antitrust Policy, 57 Am. Econ. Rev. Papers & Proceedings 242 (1967) (“In the Von’s Grocery case a majority of the Supreme Court was willing to outlaw a merger which did not conceivably threaten consumers in order to help preserve small groceries in the Los Angeles area against the superior efficiency of the chains.”)
[18] FTC v. Illumina, Inc., U.S. Dist. LEXIS 75172 (2021); FTC v. Meta Platforms Inc., U.S. Dist. LEXIS 29832 (2023); FTC v. Microsoft Corporation et al., No. 23-cv-02880-JSC (N.D. Cal. Jul. 10, 2023), available at https://s3.documentcloud.org/documents/23870711/ftc-v-microsoft-preliminary-injunction-opinion.pdf.
[19] Lina M. Khan, Rohit Chopra, & Kelly Slaughter, Comm’rs, Fed. Trade Comm’n, Statement on the Withdrawal of the Vertical Merger Guidelines (Sep. 15, 2021) at 3, available at https://www.ftc.gov/system/files/documents/public_statements/1596396/statement_of_chair_lina_m_khan_commissioner_rohit_chopra_and_commissioner_rebecca_kelly_slaughter_on.pdf.
[20] In this paper, the terms “hypermarket” and “supercenter” are used synonymously. See Richard Volpe, Annemarie Kuhns, & Ted Jaenicke, Store Formats and Patterns in Household Grocery Purchases, Economic Research Service, Economic Information Bulletin No. 167 (Mar. 2017), https://www.ers.usda.gov/webdocs/publications/82929/eib-167.pdf?v=0 (supercenters are also known as hypermarkets or superstores).
[21] Fed. Trade Comm’n, supra note 6.
[22] Id.
[23] Id.
[24] Data obtained from: U.S. Census Bureau, Report on Retail Sales and Trends: Annual Retail Trade Survey: 2021, https://www.census.gov/data/tables/2021/econ/arts/annual-report.html.
[25] Id.
[26] FTC, supra note 6.
[27] Food Marketing Institute & The Hartman Group, Consumers’ Weekly Grocery Shopping Trips in the United States from 2006 to 2022 (Average Weekly Trips per Household), Statista (May 2022), available at https://www.statista.com/statistics/251728/weekly-number-of-us-grocery-shopping-trips-per-household.
[28] Kuhn, supra note 10.
[29] Id.
[30] Trip Drivers: Top Influencers Driving Shopper Traffic, Acosta (2017), available at https://acostastorage.blob.core.windows.net/uploads/prod/newsroom/publication_phetw_0rzq.pdf.
[31] Lijun Angelia Chen & Lisa House, US Food Shopper Trends in 2017, Univ. of Fla, IFAS Extension Pub. No. FE1126 (Dec. 7, 2022), https://edis.ifas.ufl.edu/publication/FE1126.
[32] FTC, supra note 6.
[33] See Paul B. Ellickson, Paul L.E. Grieco, & Oleksii Khvastunov, Measuring Competition in Spatial Retail, 51 RAND J. Econ. 189 (2020) (“[C]lub stores are able to draw revenue from a significantly larger geographic area than traditional grocers. Hence, club stores are relevant substitutes for grocery stores, even if they are located even several miles away, a fact that could easily be overlooked in an analysis in which stores are simply clustered by geographic market.”).
[34] National Academies of Sciences, Engineering, and Medicine, A Satellite Account to Measure the Retail Transformation: Organizational, Conceptual, and Data Foundations (2021), available at https://www.bls.gov/evaluation/a-satellite-account-to-measure-the-retail-transformation.pdf (“[T]he restructuring that started first with the warehouse clubs and superstores and then moved on to e-commerce has begun to blur the lines between the retail industry and several other sectors …”).
[35] Id. at 25 (“[C]hanges experienced by retail over the past few decades suggest that the sector is highly competitive and is undergoing substantial change and reorganization. As discussed earlier, the changes described involve warehouse clubs and superstores … e-commerce … digital goods, imports, and large firms …”).
[36] Paul B. Ellickson, Paul L.E. Grieco, & Oleksii Khvastunov, Measuring Competition in Spatial Retail, 51 RAND J. Econ. 189 (2020) (“Due to their size and attractiveness for larger purchases, club stores represent strong competitors to grocery stores even, when they are a significant distance away.”).
[37] Khan & Vaheesan, supra note 2, at 255 (“Grocers sought to bulk up in order to compete with the scale of warehouse clubs and large discount stores, fueling further mergers and leading many local grocers to close …”).
[38] FTC, supra note 6.
[39] Costco Wholesale Corporation, Annual Report (Form 10-K) (Aug. 28, 2022), https://www.sec.gov/ix?doc=/Archives/edgar/data/0000909832/000090983222000021/cost-20220828.htm; BJ’s Wholesale Club Holdings, Inc., Annual Report (Form 10-K) (Mar. 16, 2023), https://www.sec.gov/ix?doc=/Archives/edgar/data/1531152/000153115223000026/bj-20230128.htm; Walmart Inc., Annual Report (Form 10-K) (Mar. 27, 2023), https://www.sec.gov/ix?doc=/Archives/edgar/data/104169/000010416923000020/wmt-20230131.htm.
[40] Hean Tat Keh & Elain Shieh, Online Grocery Retailing: Success Factors and Potential Pitfalls, 44 Bus. Horizons 73 (Jul.-Aug., 2001); Appinio & Spryker, Share of Consumers Purchasing Groceries Online in the United States in 2022, by Channel, Statista (Sep. 2002).
[41] Navigating the Market Headwinds: The State of Grocery Retail 2022, McKinsey & Co. (May 2022), available at https://www.mckinsey.com/~/media/mckinsey/industries/retail/how%20we%20help%20clients/the%20state%20of%20grocery%20retail%202022%20north%20america/mck_state%20of%20grocery%20na_fullreport_v9.pdf.
[42] Id.; Dimitri Dimitropoulos, Renée M. Duplantis, & Loren K. Smith, Trends in Consumer Shopping Behavior and Their Implications for Retail Grocery Merger Reviews, CPI Antitrust Chron. (Dec. 2021), available at https://www.brattle.com/wp-content/uploads/2022/01/Trends-in-Consumer-Shopping-Behavior-and-their-Implications-for-Retail-Grocery-Merger-Review.pdf.
[43] Dimitropoulos, et al., supra note (“Of course, adjustments to geographic market definition likely would need to be factored into the analysis, as club stores tend to have larger catchment areas than traditional grocery stores, and online delivery can reach as far away as can be travelled by truck from a central fulfilment center.”)
[44] U.S. Dep’t of Justice & Fed. Trade Comm’n, supra note 4 at 25-7.
[45] Maeve Sheehey & Dan Papscun, Kroger-Albertsons Merger Tests FTC’s Focus on Labor Competition, Bloomberg Law (Dec. 2, 2022) https://news.bloomberglaw.com/antitrust/kroger-albertsons-merger-tests-ftcs-focus-on-labor-competition.
[46] Kroger Union, UFCW, https://www.ufcw.org/actions/campaign/kroger-union (last accessed Jul. 26, 2023).
[47] Albertsons and Safeway Union, UFCW, https://www.ufcw.org/actions/campaign/albertsons-and-safeway-union (last accessed Jul. 26, 2023).
[48] Press Release, America’s Largest Union of Essential Grocery Workers Announces Opposition to Kroger and Albertsons Merger, UFCW (May 5, 2023), https://www.ufcw.org/press-releases/americas-largest-union-of-essential-grocery-workers-announces-opposition-to-kroger-and-albertsons-merger.
[49] Id. (“Given the lack of transparency and the impact a merger between two of the largest supermarket companies could have on essential workers – and the communities and customers they serve – the UFCW stands united in its opposition to the proposed Kroger and Albertsons merger”).
[50] Press Release, Kroger and Albertsons Companies Announce Definitive Merger Agreement, Kroger (Oct. 14, 2022), https://ir.kroger.com/CorporateProfile/press-releases/press-release/2022/Kroger-and-Albertsons-Companies-Announce-Definitive-Merger-Agreement/default.aspx.
[51] Ben Zipperer, Kroger-Albertsons Merger Will Harm Grocery Store Worker Wages, Economic Policy Institute (May 1, 2023), https://www.epi.org/publication/kroger-albertsons-merger.
[52] Nathan Miller et al., On the Misuse of Regressions of Price on the HHI in Merger Review, 10 J. Antitrust Enforcement 248 (2022), available at http://www.nathanhmiller.org/hhiregs.pdf.
[53] Press Release, The Kroger Family of Companies Provides New Career Opportunities to 100,000 Workers, Kroger (May 14, 2020), https://ir.kroger.com/CorporateProfile/press-releases/press-release/2020/The-Kroger-Family-of-Companies-Provides-New-Career-Opportunities-to-100000-Workers/default.aspx.
[54] Kevin Murphy, Transcript of Proceedings at the Public Workshop Held by the Antitrust Division of the United States Department of Justice (Sep. 23, 2019), at 19, available at https://www.justice.gov/atr/page/file/1209071/download.
[55] Roman Inderst & Tommaso M. Valletti, Buyer Power and the ‘Waterbed Effect’, CEIS Research Paper 107 (Feb. 21, 2014), at 2, https://ssrn.com/abstract=1113318.
[56] Albert Foer, Mr. Magoo Visits Wal-Mart: Finding the Right Lens for Antitrust, American Antitrust Institute Working Paper No. 06-07, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1103609.
[57] Michael Needler Jr., Senate Hearing on Kroger and Albertsons Grocery Store Chains, at 1:43:00, available at https://www.c-span.org/video/?524439-1/senate-hearing-kroger-albertsons-grocery-store-chains.
[58] Julie Creswell, Kroger-Albertsons Merger Faces Long Road Before Approval, New York Times (Jan. 23, 2023), https://www.nytimes.com/2023/01/23/business/kroger-albertsons-merger.html.
[59] Diana Moss, The American Antitrust Institute to the Honorable Lina M. Khan, American Antitrust Institute (Feb. 7, 2023), available at https://www.antitrustinstitute.org/wp-content/uploads/2023/02/Kroger-Albertsons_Ltr-to-FTC_2.7.23.pdf.
[60] For an explicit economic model of the waterbed effect, see Roman Inderst & Tommaso M. Valletti, Buyer Power and the ‘Waterbed Effect’ 59 J. Ind. Econ. 1 (2011).
[61] DeHoog v. Anheuser-Busch InBev, SA/NV, No. 1:15-CV-02250-CL, 2016 U.S. Dist. LEXIS 137759, at *13-16 (D. Or. July 22, 2016).
[62] Safeway Merger Report, UK Competition Commission (2003), available at https://webarchive.nationalarchives.gov.uk/ukgwa/20120119163858/http:/www.competition-commission.org.uk/inquiries/completed/2003/safeway/index.htm (“Overall, therefore, there is little evidence of an immediate or short-term ‘waterbed’ effect. … [O]ur surveys produced insufficient evidence on this point for us to conclude that any waterbed effect would be exacerbated by any of the mergers.”); Anticipated Merger between J Sainsbury PLC and ASDA Group Ltd: Summary of Final Report, UK Competition & Markets Authority (Apr. 25, 2019), available at https://assets.publishing.service.gov.uk/media/5cc1434ee5274a467a8dd482/Executive_summary.pdf (“Overall, it seems unlikely that many retailers will raise their prices in response to the Merger; and even if some individual retailers do, the overall effect on UK households is unlikely to be negative. On that basis, our finding is that the Merger is unlikely to lead to customer harm through a waterbed effect.”).
[63] Supra note 6.
[64] See Dimitropoulos, et al., supra note 42.
[65] Id.
[66] Supra note 6.
[67] Publix, Facts and Figures (2023), https://corporate.publix.com/about-publix/company-overview/facts-figures.
[68] Caroline A., The History of Publix: Entering New States, The Publix Checkout (Jan. 4, 2018), https://blog.publix.com/publix/the-history-of-publix-entering-new-states; Press Release, Publix Breaks Ground on First Kentucky Store and Announces Third Location, Publix (Jun. 23, 2022), https://corporate.publix.com/newsroom/news-stories/publix-breaks-ground-on-first-kentucky-store-and-announces-third-location.
[69] Weis Markets, LinkedIn https://www.linkedin.com/company/weis-markets/about, (last accessed Jul. 26, 2023).
[70] Sam Silverstein, Weis Markets Unveils $150M Expansion and Upgrade Plan, Grocery Dive (May 2, 2022), https://www.grocerydive.com/news/weis-markets-unveils-150m-expansion-and-upgrade-plan/623015.
[71] Russell Redman, Wegmans lines up its next new store locations, Winsight Grocery Business (Dec. 1, 2022) https://www.winsightgrocerybusiness.com/retailers/wegmans-lines-its-next-new-store-locations.
[72] Dayen, supra note 3. (“As the Haggen affair makes clear, the whole idea of using conditions to allow high-level mergers and competition simultaneously has been a failure.”)
[73] Supra note 7.
[74] Id.
[75] Christopher A. Wetzel, Strict(er) Scrutiny: The Impact of Failed Divestitures on U.S. Merger Remedies, 64 Antitrust Bull. 341 (2019).
Popular Media Despite organizing many hearings around antitrust issues, U.S. Sen. Amy Klobuchar has been unable to convince her colleagues in the Senate to overhaul U.S. antitrust . . .
Despite organizing many hearings around antitrust issues, U.S. Sen. Amy Klobuchar has been unable to convince her colleagues in the Senate to overhaul U.S. antitrust law. With no movement from Congress, the Minnesota Democrat’s fellow progressive trust busters at the Federal Trade Commission (FTC) and Department of Justice (DOJ) are pushing for change from within the executive branch.
TOTM Fifteen months after the close of the comment period, we finally have the release of the draft merger guidelines by the Federal Trade Commission (FTC) and the . . .
Fifteen months after the close of the comment period, we finally have the release of the draft merger guidelines by the Federal Trade Commission (FTC) and the U.S. Justice Department (DOJ).
While there is a lot to digest in the 51 page document with over 100 (largely stale) footnotes, the broad picture is clear: the goal of this document is to stop more mergers. Period.
TOTM Why do monopolies exist? Many textbooks point to barriers to entry as a cause of monopolies. Tyler Cowen and Alex Tabarrok’s textbook says: “In addition to patents, . . .
Why do monopolies exist? Many textbooks point to barriers to entry as a cause of monopolies.
Tyler Cowen and Alex Tabarrok’s textbook says: “In addition to patents, government regulation and economies of scale, monopolies may be created whenever there is a significant barrier to entry, something that raises the cost to new firms of entering the industry.” Greg Mankiw’s textbook goes as far as to say: “The fundamental cause of monopoly is barriers to entry.”
Regulatory Comments Introduction The cloud-computing industry has undergone a transformation in recent years, driven by innovation, competition, and unprecedented demand for information-technology (IT) services. These comments assess . . .
The cloud-computing industry has undergone a transformation in recent years, driven by innovation, competition, and unprecedented demand for information-technology (IT) services. These comments assess the state of competition in this burgeoning field, and we thank the Federal Trade Commission (FTC) for the opportunity to respond to this request for information (RFI).
Competition among industry players within cloud computing is intense. It is crucial, however, to remember that, as ubiquitous as cloud-service providers might be, they must compete not just with each other but also with the internal IT capabilities of large enterprises. In other words, while the cloud-computing sector has been growing in importance within the IT ecosystem, it remains just one aspect of that ecosystem. Traditional, on-premises IT infrastructure continues to hold sway within many businesses, with internal IT teams designing solutions uniquely tailored to the specific needs of their organizations.
In this context, cloud providers present an attractive proposition. They offer companies the opportunity to take advantage of gains from specialization to outsource some or all of their IT services to expert entities. This decision between outsourcing and maintaining in-house operations is a typical business consideration, and its outcome will vary depending on a particular company’s individual capabilities. Nonetheless, it is clear that the advent of cloud computing has significantly expanded the range of available IT options.
While both the fast-moving nature of the cloud-computing industry and its intense competition have catalyzed numerous benefits, there are also some reasons for concern. For example, the shortage of computer chips has affected many segments of IT, including cloud computing. Despite this slowdown in the immediate term, the market’s general trends are mostly optimistic. These include an explosion in the variety of available software services and breakthroughs in hardware, both accompanying a dramatic fall in prices.
Given this energetic landscape, it is crucial that regulatory bodies like the FTC exercise caution in any potential interventions. After all, this vibrant and rapidly evolving industry stands as testament to the power of competitive forces to drive progress and deliver value.
The digital landscape is undergoing a profound transformation, as businesses around the globe increasingly transition from on-premises IT solutions to cloud services. This shift represents a significant evolution in the way that organizations manage their data, execute their operations, and leverage technology to gain competitive advantage. The market’s competitive dynamics are frequently misunderstood, however, which often leads to misconceptions about the role and impact of cloud computing in the broader IT ecosystem.
Traditionally, cloud computing has been divided into three “layers”:
One misconception about cloud computing is that it is a novel technology dominated by the “big three” companies of Amazon, Google, and Microsoft. In fact, cloud computing is merely one component of IT services, which used to be provided exclusively on-premises. Investments in cloud computing still represent a relatively small portion of global IT spending, with one report putting the total at 7%,[1] while another suggests it may be as much as 12%.[2] Whatever the precise figure, there clearly remains a sizeable opportunity for the sector to grow.
It’s also important to remember that before the advent of cloud computing, the IT landscape was dominated by a different set of players, some of which—including IBM, Hewlett-Packard, and Oracle—remain prominent today. It is therefore critical to acknowledge that cloud services have not replaced these entities, but have instead expanded the market and introduced new competitors and service offerings.
If we narrow our focus from all cloud-computing services to one of its three layers, such as IaaS, we can see that it is teeming with competition. Numerous competitors—including Amazon, Google, Alibaba, Microsoft, IBM, OVHcloud, Digital Ocean, Oracle, Deutsche Telekom, Huawei, and others—all vie for consumers. According to industry reports, in 2021 alone, these competitors showcased remarkable growth, with Microsoft growing 51%, Alibaba 42%, Google 64%, and Huawei 56%.[3]
Amid this robust competition, the dominance of established players like Amazon’s AWS has been declining. According to Gartner data for IaaS, AWS’s market share dipped from 45% in 2019[4] to 39% in 2021,[5] signaling a continuing evolution in the industry’s competitive dynamics. If we expand the market and look at IaaS, PaaS, and hosted private-cloud services (which is a subset of IaaS), Amazon’s market share has been steady, while Microsoft and Google have made huge gains in the past few years (see Figure 1 below).[6] This is exactly the sort of dynamics we would expect from a vibrant industry: some firms succeeding in one part but not in another, and market shares shifting around.
It is important to note that these “shares” are for the broad, colloquial sense of “a market,” and not for a relevant market in the antitrust sense. But even assuming, for the sake of argument, that it was a relevant market, concentration would not appear to be a concern. According to Synergy Group’s Q1 2023 numbers for IaaS, Amazon had a 32% market share, with Microsoft at 23%, Google at 10%, Alibaba at 4%, and IBM at 3%.[7] If we consider all other firms in the market to be a single entity, the highest possible Herfindahl-Hirschman Index (HHI) for this market (a proxy for all cloud computing) would be 2462.
Even though that is a large overestimate of the true market concentration, it still produces an HHI that is in the “moderately concentrated” range, according to the 2010 Merger Guidelines.[8] If the remaining 28% of the market were divided up among 28 firms, the HHI would drop to 1706. And neither of these figures account for the vast swath of IT spending that occurs outside the cloud, which suggests that competition in the market is far more vigorous than the HHI would imply.
By contrast, it is difficult even to conceive of the SaaS layer of cloud computing as a “market” in any meaningful sense. SaaS comprises an extremely varied set of productivity and collaboration tools, such as Microsoft Office 365, Google Workspace (formerly G Suite), and Slack; content management systems (CMS) like WordPress, Wix, and Squarespace; video-conferencing and communication platforms, such as Zoom, Microsoft Teams, and Slack; and cloud-gaming platforms like Microsoft xCloud and PlayStation Now. Like IaaS, SaaS has experienced dramatic expansion, with more than 30,000 providers in operation. Major players include most of the already mentioned companies, as well as industry giants like Cisco, Dell, Salesforce, Databricks, Heroku, Snowflake, Adobe, and Atlassian, among others.
To answer RFI Question #1 regarding the extent to which cloud providers specialize within a layer or operate at multiple layers, all of the major players in IaaS and PaaS (Amazon, Microsoft, Google, etc.) also offer SaaS, but not the other way around. SaaS is a much larger layer, in terms of both the number of companies and amount of revenue. It is the largest cloud-computing segment and has experienced exponential growth, with cloud-software sales escalating from $31 billion in 2015 to an impressive $103 billion in 2020 (see Figure 2 below).
Other research finds similar numbers regarding the dominance of SaaS within cloud computing. Grand View Research finds: “The SaaS segment dominated the industry in 2022 and accounted for the highest share of more than 53.95% of the overall revenue.”[9] Other research finds similar divisions among the layers. [10]
RFI Question #3 asks: “What are the competitive dynamics within and across the different layers of cloud computing?” These will vary by layer. In particular, any analysis of competition within SaaS would have to examine a particular subset of the layer. The subset of personal-storage services, for example, sees competition among Dropbox, Apple’s iCloud, Microsoft’s OneDrive, Google Drive, and many others. For video conferencing, we have competition among Zoom, Microsoft’s Teams, Google Meet, Apple’s FaceTime, Cisco’s Webex, and more.
Question #3 continues: “How does service quality vary between providers operating at one layer vs. providers operating at multiple layers?” While we cannot say much about the competitive dynamics within SaaS overall, as it is not a single, coherent market, we can work through the implications between SaaS and the other layers. Some of the major players in SaaS also provide IaaS and PaaS. They are not the norm, however. For example, Zoom (like most SaaS companies) does not provide the other layers, so it may not exert direct influence in those layers. SaaS is simply much broader. To the extent there is a competitive connection between SaaS and the other layers, it is indirect and manifests through demand for other services. In the other direction, falling prices for IaaS and PaaS increases competition among SaaS providers.
Beyond the newsworthy stories of big companies switching cloud providers, we see aggregate-level outcomes that indicate competition. Prices are dropping (with a recent exception that we discuss below) and quantity is increasing, both at rapid rates. We have already documented the rapid rise in revenue generated by these markets. Industry forecasts continue to predict significant growth in the coming years. Gartner, for example, forecasts 23% growth for 2023 alone.[11] These revenue-growth trends are particularly remarkable in the face of rapidly falling prices.
RFI Question #7 asks: “What are the trends in pricing practices used by cloud providers?” According to Amazon’s blog, the company reduced prices 107 times between AWS’s launch in 2006 and 2021.[12] For one comparison, in November 2010, the cost of Amazon’s “Simple Storage Service” (S3) was cut to $0.140 per-GB per-month.[13] In May 2023, the monthly cost was $0.023 per-GB, a drop of more than 80% in roughly 12 1/2 years.[14] Over the same period, the consumer price index rose nearly 40%.[15] Google Cloud’s standard storage prices are similarly at $0.020-$0.023 per-GB per-month.[16]
Byrne, Corrado, & Sichel conduct the most systematic study of AWS prices, but only for the period 2009-2016.[17] Looking at storage (S3), database management (RDS), and computing services (EC2), they found:
prices for S3 storage fall at an average annual rate of more than 17 percent over the full sample. Over sub-periods, the pattern is that same as that for EC2 prices. Prices fell at an annual average rate of about 12 percent from the beginning of 2009 to the end of 2013. Then, in early 2014, just as Microsoft had entered the market to sufficient degree that they were posting their cloud prices on the Internet, AWS began cutting prices more rapidly. That started with the big price drop in early 2014, and over the period from the start of 2014 to the end of 2016, S3 prices fell at an average annual rate of about 25 percent.[18]
The timing and magnitude of price drops was similar for Amazon’s RDS, a data-management system that involves both storage and computing abilities. Overall, “quality-adjusted prices for RDS instances fall at an average annual rate of more than 11 percent over the full sample.”[19]
RFI Question #4 asks: “What practices do cloud providers use to enhance or secure their position in any layer of cloud computing?” Lowering prices, especially for storage, is a major way that cloud providers compete. Examining the timing of the most extreme drops in AWS’s prices, it is clear that competition from Microsoft pushed down prices at AWS.
The story is more complicated when it comes to on-demand compute instances. Each cloud-computing provider offers many different tiers of instances, depending on the customer’s needs for memory, network performance, operating systems, and other criteria. Moreover, those tiers and offerings have changed over time, so any price comparison needs to be quality-adjusted.
Again, the systematic analysis by Byrne, Corrado, & Sichel for 2009-2016 shows a longer-term decline in prices.[20] They find:
quality-adjusted prices for EC2 instances fall at an average annual rate of about 7 percent over the full sample. Interestingly, prices fell at an annual average rate of about 5 percent from the beginning of 2009 to the end of 2013. Then, in early 2014, just as Microsoft had entered the market to sufficient degree that they were posting their cloud prices on the Internet (and shortly before Google started doing the same), AWS began cutting prices more rapidly. That started with the big price drop in early 2014, and over the period from the start of 2014 to the end of 2016, EC2 prices fell at an average annual rate of 10.5 percent.
More recently, some industry reports suggest that computing prices might not have fallen. For example, Liftr Insights estimates there was a 2.5% increase in 2022 for cloud-instance prices—though their methodology is unclear, especially around adjusting for quality improvements and the introduction of new products over time. In any case, this number should be taken with a pinch of salt. The study shows significant variation by provider.[21] For example, there was a 23.0% increase in 2022 for average prices of on-demand compute instances at AWS, while Azure saw a 9.1% decline.[22] These price variations suggest there may be significant price dispersion in the market, or that there were important and asymmetrical product quality variations during the observed time period. In either case, the diverging price paths suggest the report may be missing important parameters or competition or simply that its price measures are not accurate.
Even on its own terms, the Liftr report does not paint an unambiguously negative picture of cloud competition over recent years. First, AWS still has lower prices than competitors. As Liftr Insights writes in their news release, “despite all these increases and decreases in prices, Azure prices have been higher (on average) than AWS prices for three years.”[23] This suggests that AWS may have dropped prices at an unsustainable pace, as competitors did not go that low, and later decided to reverse course.
A more important factor to keep in mind is that the recent period of flat or rising prices is not unique to cloud computing. A January 2022 report that calculated the cost of computations by looking at the price of computing hardware found:
The price of computations in gigaFLOPS has not decreased since 2017. Similarly, cloud GPU prices have remained constant for Amazon Web Services since at least 2017 and Google Cloud since at least 2019. Although more advanced chips have been introduced in that time—with the primary example being Nvidia’s A100 GPU, released in 2020—they only offer five percent more FLOPS per dollar than the V100 that was released in 2017.[24]
For all of its success, the cloud-computing industry is not immune from the widespread demand for chips, combined with more recent supply shortages. The supply of the chips needed to run computations has barely kept up with demand, which has caused prices to remain flat.
While falling prices are evidence of strong competitive pressures within an industry, one may be concerned about barriers to switching service providers that, as RFI Question #10 suggests, may serve as a form of customer lock-in.
The major SaaS companies can still exert competitive pressure on the other layers through entry and exit. For example, Dropbox decided in 2017 to leave AWS and build its own infrastructure,[25] illustrating two things that matter for thinking about customer lock-in. First, it shows that exit is an option for customers. As explained above, cloud companies always compete with on-premises servers. Second, there is real harm to Amazon’s bottom line when it does not satisfy customers. Dropbox is a company with $2 billion in annual revenue.[26] While we do not know the nature of the Dropbox-Amazon negotiations, it seems implausible that Dropbox’s IT managers simply went on the AWS website to buy storage. Companies of Dropbox’s size will negotiate on price and quality/reliability terms. In this case, Dropbox decided its own servers would be superior.
On the flip side, cloud providers also attract large customers by convincing them that increased reliability and decreased costs justify a switch from on-premises servers to the cloud. Netflix migrated some services to AWS after originally having only its own servers. It partnered with Amazon despite Amazon Prime Video being a competitor to Netflix in the streaming-video space.[27] Importantly, Netflix was able to partially exit and to mix and match its own Open Connect with AWS to ensure that its streaming “never goes down,” as The Verge put it.
This sort of user entry and exit is to be expected from a healthy market. The turnover in these contracts also speaks to the influence that the IaaS and PaaS layers can have on SaaS.[28] IaaS can greatly improve SaaS systems’ offerings, but they always have to compete with the option of on-premises servers.
Do these examples illustrate that switching among different cloud providers is as easy as flipping a light switch? No, but moving data is neither immediate nor free. There are serious time costs and financial costs for cloud companies, and we should ultimately expect consumer prices to reflect those underlying costs. Back in 2015, moving 100 terabytes of data from an on-premises server to an AWS server could take 100 days. Amazon subsequently introduced a service called “Snowball” that involved physically shipping servers on trucks. With this service, that same transfer could take only two days.[29]
For many SaaS-storage options, such as Dropbox and Google Drive, the cost of moving data is not explicitly charged, as personal files are usually too small to bother charging for transfers, provided that the data is not moving across the country to a different data center. But for storage offered as part of IaaS, such as Google Virtual Private Cloud and Amazon S3, customers face explicit fees associated with moving data around.
Any transfer of data involves the data leaving one location (“egress traffic”) and entering another location (“ingress traffic”). Amazon,[30] Google,[31] and Microsoft[32] do not charge any fees for ingress traffic, even though incoming traffic is costly. Cloud providers instead recoup the costs of moving data through egress fees, including fees for moving within one provider or to somewhere else on the internet.
The pricing for egress fees varies depending on the type of transfer. For example, Google Cloud charges $0.01 per GiB[33] for an “Egress from a Google Cloud region in the US or Canada to another Google Cloud region in the US or Canada,” but $0.08 for an “Egress to a Google Cloud region on another continent (excludes Oceania).”[34] Amazon offers 100GB of transfer out to the internet each month, but thereafter charges $0.09 per GB for the first 10 TB per month.[35]
Beyond explicit egress charges for switching providers, policymakers may be concerned about other compatibility costs that could generate consumer lock-in. This is not a major issue for pure data storage or computing power. The major cloud providers allow users to run programs on open-source Linux instances. As one moves further from the commodity-like products of storage and computing, however, the switching costs become more real, depending on which precise service customers are using.
For example, for video editing, whether one is using editing software on one’s local machine or through cloud services, all the major editing software will input and output standardized files. If you are in the middle of an edit, however, that file format is often unique. Is that a switching cost? Probably not in any sense that is relevant to the FTC, but it is on par with the switching costs experienced once you enter a grocery store. The competitive pressures are to attract customers to enter the store, or to start using the software.
For less trivial examples, one could worry about the costs to a large company of switching from one cloud SQL-database (part of the PaaS layer) provider to another—e.g., from Amazon RDS to Microsoft Azure. SQL itself isn’t “open source” in the way that a software application or operating system might be. There are, however, numerous database systems that utilize SQL, and many of these are open source. Examples include MySQL, PostgreSQL, and SQLite; all are open-source relational database-management systems that use SQL as their standard language. Conversely, there are also proprietary, closed-source database systems that use SQL, such as Microsoft SQL Server and Oracle Database. No matter the system, again, changing providers is not as easy as flipping a light switch or dragging and dropping files on Google Drive.
But we must always ask, compared to what? Changes to major IT operations have always been costly. Transferring large amounts of data is costly, as noted above. That’s why companies have dedicated, full-time IT staff to handle such issues. Putting something on the cloud does not magically make it free to do whatever one wants, but cloud computing does open up the number of choices for any product that is available to customers.
While the above discussion frames such questions as an either/or decision, many users “multi-home” or use multiple providers. According to one survey, 70% of companies that use cloud providers use multiple providers.[36] This flexibility in selection allows customers to cherry-pick services from various providers and assign different providers for distinct workloads. Such an approach inherently amplifies the level of competition within the cloud industry. Again, it is worth contrasting this with on-premises IT services. The apparent ease of multi-homing suggests that other compatibility issues are not a major hindrance to competitive pressures and that there is still robust competition for consumers.
RFI Question #4 asks: “What are the effects of those practices on competition, including on cloud providers who do not operate at multiple layers?”
The biggest impact of competition on prices within the cloud-computing sector may not be observed directly by consumers; rather, it manifests in generating the infrastructure and platforms that allow other businesses to compete. This includes not only the various types of SaaS that people usually associate with cloud computing, such as Zoom and Dropbox, but also general online products and services that have become feasible due to the lower cost of cloud computing.
Every industry has been affected by cloud computing, as many large-scale enterprises are adopting cloud-based technologies to effectively manage and reduce their expenses.[37] As noted above, for the 2009-2016 period, Byrne, Corrado, & Sichel find that prices fell annually by 7% for computing power, 12% for database services, and 17% for storage.[38]
These cost reductions enhance competition in many sectors, not just “tech” sectors. For example, according to Grand View Research, the banking, financial services, and insurance (BFSI) sector has the largest share of cloud computing by end-use (see Figure 3 below).[39] As of 2017, a large BFSI company like JP Morgan Chase required 40,000 IT employees and an annual budget of more than $9 billion.[40] As companies moved more of those IT services to the cloud, they have saved money and opened new possibilities.
Cloud computing has also enabled such advances as mobile banking, digital wallets, and payment services. Services like Apple Pay, Google Pay, and PayPal allow users to make secure transactions with their smartphones, eliminating the need for physical credit cards or cash. By leveraging cloud computing, mobile-payment services can benefit from increased scalability, flexibility, security, and accessibility, ensuring the smooth and secure operation of payment transactions while providing a seamless user experience. These options and the competitive pressures they unleash are now feasible, given the drastic drop in cloud prices.
And banking is just one industry. Every industry has experienced the effects of cloud computing increasing competition in those downstream industries. For a recent example, American Airlines in May 2022 transitioned its customer-facing applications from an internal server to IBM Cloud. Again, for decades, companies have had to manage their own IT processes. The move by American was intended to enhance the airline’s digital self-service tools and offer customers improved access. By leveraging the open and flexible IBM cloud platform, American was able to modernize its technology stack, embrace DevOps principles, and achieve greater agility in its operations.[41]
This ease is especially important for startups. According to one IT-industry advocacy group, “cloud hosting and computing services, like AWS, Azure, Google Cloud, or others”[42] is one of the three most popular categories of services used by startups, alongside code repositories (like Github) and communication and collaboration tools (like Zoom or Slack). By their numbers, 69% of startups are using “cloud computing and database services,” because these “have lowered barriers for startups by enabling them to innovate without needing to worry about building the hardware physical infrastructure themselves.”[43] Whether the number is 60% or 80%, the important thing to recognize is that cloud providers now provide options to startups in the most remote parts of the country on par with those in Silicon Valley.
One aspect of the market’s evolution that may get lost in the discussions about price and exit is the increased security benefits that cloud computing can provide for downstream firms—especially for smaller startups without the means for a dedicated IT team. Oracle conducted a survey of “341 CEOs and CIOs, at firms between 500 to 10,000 employees, making between 100M to 999M dollars in revenue annually in a variety of industries, and located across the United States.”[44] They found that that 66% of the C-suite officials selected “security” as one of the “biggest benefits of cloud computing for your organization today,” while only 41% chose “cost reduction.”[45] Any policy proposals that seek changes in the cloud-computing market must take the potential impacts to security seriously.
Among the downfield services that have received considerable attention are artificial intelligence (AI) and machine learning (ML). Training large AI and language models requires an expensive, upfront training period. The costs are often not released to the public, but we can make rough calculations.
A cutting-edge GPU such as the popular Nvidia A100, released in 2020, costs about $10,000.[46] Meta’s largest language model used 2,048 Nvidia A100s. If Meta bought GPUs specifically for training this model, the cost would be more than $20 million and the training would take about 21 days. If it instead used dedicated prices from AWS, the cost would be over $2.4 million.[47] Cloud computing allows for the cost of GPUs to be split across many users. Training large models are a perfect use case for renting processing power, since it is a large training cost that companies do not need every day.
While $2 million to $20 million is a large investment, it is not beyond the capabilities of many large tech companies. For a comparison, Meta has spent more than $30 billion on the Metaverse.[48] And the returns to innovation in this space are large. OpenAI’s ChatGPT reached 100 million active users just two months after its release, making it the fast-growing user base ever.[49] And that came from a relatively unknown company.
Much of the attention around AI involves the big companies (OpenAI, Google, Meta, Microsoft). But the cloud increases the availability of AI models for smaller companies, thereby increasing competition in the AI space, just as it previously did in teleconferencing, mobile payments, and IT services. For example, Amazon’s Bedrock is a marketplace for “generative AI applications with foundation models (FMs)” that “makes FMs from leading AI startups and Amazon available via an API, so you can choose from a wide range of FMs to find the model that is best suited for your use case.”[50]
Similarly, Microsoft’s Azure provides tools for customers to use AI models for their unique situations by, for example, offering models to help with quality control in manufacturing.[51] Azure also offers large-scale language models—including ChatGPT, as well as others—for use on the pay-as-you-go model, similar to other cloud services.[52]
Cloud computing may allow AI to flourish, but AI also affects the cloud-computing markets. One concern in AI is the limit of suitable AI chips. For years, there have been news stories about chip shortages and their impact on car production, computer availability, and more. That supply constraint could have a major impact on cloud computing. As noted above, computing prices are rising both on the cloud and off.
In response to rising prices, as well the development of AI and ML, demand has grown for new types of chips within cloud computing. Many are transitioning from traditional CPU chips to specialized chips, such as graphics processing units (GPUs), which were traditionally used for graphics cards but are increasingly used for AI and ML. For example, Google’s AI Infrastructure is built around Google’s Tensor Processing Units (TPUs) and cloud GPUs.[53] Amazon introduced a new type of chip, known as Trainium, which was specifically engineered to train machine-learning algorithms and to compete with similar products from Nvidia.
To respond to RFI Question #4, new hardware—such as Google’s TPUs or Amazon’s Trainium—is one way that cloud providers could enhance or secure their position across multiple layers. By offering a better product, they secure their position both in IaaS, as well as in any SaaS that runs on that hardware.
The landscape of the cloud-computing industry is marked by intense competition and rapid innovation, influenced by the increasing demand for IT services. It’s important to acknowledge the dual nature of this competition: cloud providers must not only contend with one other, but also with the established internal IT capabilities of large firms.
Cloud computing is a new entrant to the IT sector. Traditional, on-premises IT infrastructure remains a significant player in this arena, with cloud computing forming one crucial component of the broader IT ecosystem. Firms’ ability to choose, combine, or even switch among services from multiple cloud providers further underscores the industry’s competitive dynamics. As we move forward, the promise of enhanced service offerings, technological innovation, and reduced costs for consumers appear set to continue, fueled by these competitive pressures. We could always imagine some perfect policy remedy that would allow these trends of falling prices, increasing quantity, and increased innovation to be even more extreme. But given what we have seen, it appears the future of cloud computing is bright, and we can eagerly anticipate exciting developments on the horizon.
[1] Bill Whyman, Secrets From Cloud Computing’s First Stage: An Action Agenda for Government and Industry, Information Technology and Innovation Foundation (Jun. 1, 2021), https://itif.org/publications/2021/06/01/secrets-cloud-computings-first-stage-action-agenda-government-and-industry.
[2] Glenn Solomon, The Cloud Is Still a Multibillion-Dollar Opportunity. Here’s Why, Forbes (Jan. 4, 2023)m https://www.forbes.com/sites/glennsolomon/2023/01/04/the-cloud-is-still-a-multibillion-dollar-opportunity-heres-why.
[3] Press Release, Gartner Says Worldwide IaaS Public Cloud Services Market Grew 41.4% in 2021, Gartner (Jun. 2, 2022), https://www.gartner.com/en/newsroom/press-releases/2022-06-02-gartner-says-worldwide-iaas-public-cloud-services-market-grew-41-percent-in-2021.
[4] Id.
[5] Id.
[6] Cloud Spending Growth Rate Slows But Q4 Still Up By $10 Billion from 2021; Microsoft Gains Market Share, Synergy Research Group (Feb. 6, 2023), https://www.srgresearch.com/articles/cloud-spending-growth-rate-slows-but-q4-still-up-by-10-billion-from-2021-microsoft-gains-market-share.
[7] Felix Richter, Big Three Dominate the Global Cloud Market, Statista (Apr. 28, 2023), https://www.statista.com/chart/18819/worldwide-market-share-of-leading-cloud-infrastructure-service-providers.
[8] U.S. Department of Justice & FTC, Horizontal Merger Guidelines § 5.3 (2010).
[9] Cloud Computing Market Size, Share & Trends Analysis Report By Service (SaaS, IaaS), By End-use (BFSI, Manufacturing), By Deployment (Private, Public), By Enterprise Size (Large, SMEs), And Segment Forecasts, 2023 – 2030, Grand View Research, https://www.grandviewresearch.com/industry-analysis/cloud-computing-industry (last visited Jun. 18, 2023).
[10] Minjau Song, Trend and Developments in Cloud Computing and On-Premise IT Solutions, Alliance for Digital Innovation (Dec. 2021), available at https://alliance4digitalinnovation.org/wp-content/uploads/2021/12/Brattle-Cloud-Computing-Whitepaper_Dec-2021-2.pdf, at 17.
[11] Press Release, Gartner Forecasts Worldwide Public Cloud End-User Spending to Reach Nearly $600 Billion in 2023, Gartner (Apr. 19, 2023), https://www.gartner.com/en/newsroom/press-releases/2023-04-19-gartner-forecasts-worldwide-public-cloud-end-user-spending-to-reach-nearly-600-billion-in-2023.
[12] Bowen Wang, Amazon EC2 – 15 Years of Optimizing and Saving Your IT Costs, Amazon (Aug. 17, 2021), https://aws.amazon.com/blogs/aws-cost-management/amazon-ec2-15th-years-of-optimizing-and-saving-your-it-costs.
[13] Alexia Tsotsis, Amazon Slashes AWS S3 Prices Up to 19%, TechCrunch (Nov. 1, 2010), https://techcrunch.com/2010/11/01/aws-s3-2.
[14] Amazon S3 pricing, Amazon, https://aws.amazon.com/s3/pricing (last visited Jun. 15, 2023).
[15] Consumer Price Index for All Urban Consumers: All Items in U.S. City Average, FRED, https://fred.stlouisfed.org/series/CPIAUCSL (last accessed Jun. 15, 2023).
[16] Cloud Storage price, Google, https://cloud.google.com/storage/pricing (last visited Jun. 15, 2023).
[17] David Byrne et al., The Rise of Cloud Computing: Minding Your P’s Q’s and K’s, National Bureau of Economic Research (Working Paper 25188 2018).
[18] Id. at 22.
[19] Id. at 22.
[20] Id at 20.
[21] Press Release, Liftr Insights Data Highlights Increases in AWS Prices While Microsoft Azure Prices Have Been Decreasing, Liftr Insights (Feb. 7, 2023), https://liftrinsights.com/news-releases/aws-and-azure-cloud-pricing-moving-in-different-directions-as-shown-by-liftr-insights-data.
[24] Andrew Lohn & Micah Musser, AI and Compute: How Much Longer Can Computing Power Drive Artificial Intelligence Progress, Center for Security and Emerging Technology (Jan. 2022), https://cset.georgetown.edu/publication/ai-and-compute.
[25] Ron Miller, Why Dropbox Decided to Drop AWS and Build Its Own Infrastructure and Network, TechCrunch (Sep. 15, 2017), https://techcrunch.com/2017/09/15/why-dropbox-decided-to-drop-aws-and-build-its-own-infrastructure-and-network.
[26] Press Release, Dropbox Announces Fourth Quarter and Fiscall 2022 Results, Dropbox (Feb. 16, 2023), https://dropbox.gcs-web.com/news-releases/news-release-details/dropbox-announces-fourth-quarter-and-fiscal-2022-results.
[27] See, e.g., Shirsha Datta, What Led Netflix to Shut Their Own Data Centers and Migrate to AWS?, Medium (Sep. 22, 2020), https://shirshadatta2000.medium.com/what-led-netflix-to-shut-their-own-data-centers-and-migrate-to-aws-bb38b9e4b965; Vaishnavi Katgaonkar, How Does Netflix Work?, Medium (Sep. 9, 2020), https://medium.com/@katgaonkarvaishnavi10/how-does-netflix-work-425e0fd06055; Netflix on AWS, Amazon, https://aws.amazon.com/solutions/case-studies/innovators/netflix (last visited Jun. 15, 2023).
[28] Catie Keck, A Look Under the Hood of the Most Successful Streaming Service on the Planet, The Verge (Nov. 17, 2021), https://www.theverge.com/22787426/netflix-cdn-open-connect.
[29] Yevgeniy Sverdlik, AWS Finds Way to Move a Lot of Data to Cloud Faster – by Putting It on a Shipping Truck, DataCenter Knowledge (Oct. 7, 2015), https://www.datacenterknowledge.com/archives/2015/10/07/aws-speeds-up-data-migration-to-cloud-using-shipping-trucks.
[30] Amazon, supra note 14.
[31] Bandwidth Pricing, Azure, https://azure.microsoft.com/en-us/pricing/details/bandwidth (last visited Jun. 15, 2023).
[32] All Network Pricing, Google Cloud, https://cloud.google.com/vpc/network-pricing (last visited June 15, 2023).
[33] 1 gibibyte (GiB) equals 1.074 gigabytes (GB).
[34] Google Cloud, supra note 32.
[35] Amazon, supra note 14.
[36] 2023 State of the Cloud Report, Flexera, https://info.flexera.com/CM-REPORT-State-of-the-Cloud#view-report (last visited Jun. 15, 2023).
[37] Grand View Research, supra 9.
[38] Byrne et al., supra 17.
[39] Grand View Research, supra 9.
[40] Kim S. Nash, J.P. Morgan Chase Names New CIO as Dana Deasy Exits, Wall Street Journal (Sep. 7, 2017), https://www.wsj.com/articles/j-p-morgan-chase-names-new-cio-as-dana-deasy-exits-1504822667.
[41] Id.
[42] Tools To Compete: Lower Costs, More Resources, and the Symbiosis of the Tech Ecosystem, CCIA Research Center and Engine (Jan. 25, 2023), https://research.ccianet.org/reports/tools-to-compete, at 6.
[43] Id. at 16.
[44] Security in the Age of AI, Oracle, available at https://www.oracle.com/a/ocom/docs/data-security-report.pdf, at 3 (last visited June 15, 2023),
[45] Id. at 6.
[46] Jonathan Vanian, ChatGPT And Generative AI Are Booming, but the Costs Can Be Extraordinary, CNBC (Mar. 13, 2023), https://www.cnbc.com/2023/03/13/chatgpt-and-generative-ai-are-booming-but-at-a-very-expensive-price.html.
[47] Id.
[48] Jyoti Mann, Meta Has Spent $36 Billion Building the Metaverse but Still Has Little to Show for It, While Tech Sensations Such as the iPhone, Xbox, and Amazon Echo Cost Way Less, Business Insider (Oct. 29, 2022), https://www.businessinsider.com/meta-lost-30-billion-on-metaverse-rivals-spent-far-less-2022-10.
[49] Krystal Hu, ChatGPT Sets Record for Fastest-Growing User Base – Analyst Note, Reuters (Feb. 2, 2023), https://www.reuters.com/technology/chatgpt-sets-record-fastest-growing-user-base-analyst-note-2023-02-01.
[50] Amazon Bedrock, Amazon, https://aws.amazon.com/bedrock (last visited Jun. 15, 2023).
[51] Azure AI, Microsoft, https://azure.microsoft.com/en-us/solutions/ai/#overview (last visited Jun. 15, 2023).
[52] Price Details, Microsoft, https://azure.microsoft.com/en-us/pricing/details/cognitive-services/openai-service/#pricing (last visited Jun. 15, 2023).
[53] AI Infrastructure, Google Cloud, https://cloud.google.com/ai-infrastructure (last visited Jun. 15, 2023)
