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PORTLAND, Ore. (April 12, 2023) – Advocates for legislation that would remake the online display-advertising market—most recently introduced by Sen. Mike Lee (R-Utah) as Advertising Middlemen Endangering Rigorous Internet Competition Accountability (AMERICA) Act—often claim the changes they seek are based on analogous rules used in the regulation of securities markets.

But a new white paper from the International Center for Law & Economics demonstrates that such analogies are based on fundamental misunderstandings of how securities regulation works and why it exists.

The AMERICA Act and Lee’s earlier Competition and Transparency in Digital Advertising Act (CTDA) both propose to bar companies that own a digital-advertising exchange with more than $20 billion in annual ad revenue from also providing services to buyers and sellers of ads, or from selling advertising space themselves. This requirement for “physical separation” could force the breakup of vertically integrated digital-advertising platforms like Google.

The bills also would impose fiduciary-like duties on those who buy and sell online ads for others, which has been compared to “best interests” standards imposed on stockbrokers.

But according to the paper’s author, ICLE Academic Affiliate M. Todd Henderson of the University of Chicago, there isn’t an analogous requirement for physical separation in securities law. Many stockbrokers also own exchanges where stocks are traded.

Moreover, rules that stock trades be executed at the best-available price are imposed precisely because vertical integration is common. Such rules nonetheless do not significantly limit trading behavior, Henderson argues, and could not be imported to the “adtech” market without erecting a massive regulatory bureaucracy to police them.

“Whatever the facts on the ground in stock markets, any analogy to them is misplaced, because it fails to appreciate the purpose of stock-market regulation,” Henderson writes. “The sale of stocks is regulated in the way that it is because of the centrality of stocks to the savings and investments of everyday Americans, as well as the various vital roles stocks and stock markets play in the capitalist economy.”

“Stock-market regulation protects the nerve center of the economy. Ads are not stocks, and any claim that they should be regulated as stocks is deeply misleading,” he added.

The full paper can be downloaded here. 

PORTLAND, Ore. (March 22, 2023) – As the Federal Trade Commission (FTC) and the U.S. Justice Department’s (DOJ) Antitrust Division prepare to release updated federal merger guidelines that the agencies say will better detect and prevent illegal and anticompetitive deals, a new research paper from the International Center for Law & Economics (ICLE) looks back at several recent high-profile mergers that drew apocalyptic warnings about potential harm to competition and consumers. 

Authors Brian C. Albrecht, Dirk Auer, Eric Fruits, and Geoffrey A. Manne note that a retrospective look at these past mergers finds that the critics—some of whom have since taken positions in the upper echelons of U.S. antitrust agencies—were frequently off-base in their dire predictions. For example:

• Amazon’s 2017 deal to purchase Whole Foods would, we were told, allow the company to dominate the grocery business, much as it had online retail. Lina Khan, now chair of the FTC, even warned that it “would allow Amazon to potentially thwart future innovations.” Five years after the deal, the stocks of many rival retail companies significantly outperformed Amazon’s, while Whole Foods’ market share has not meaningfully increased since its acquisition by Amazon.
• ABI’s 2016 deal to acquire SABMiller would, we were told, “eliminate competition” in the brewing industry and that “the effects on the craft-brewing industry would be devastating.” In fact, in the four years following the merger, the average U.S. market saw an 11% increase in the number of craft brewers, and the market concentration enjoyed by the four largest breweries has seen a long-term drop from 90.8% to 68.6%.
• Bayer’s 2018 merger with Monsanto would, Sen. Amy Klobuchar (D-Minn.) warned at the time, “significantly reduce competition, limit seed options for farmers, and raise prices for both farmers and consumers.” In fact, corn and soybean prices actually fell in real inflation-adjusted terms. And rather than enjoying monopoly profits, Bayer’s stock is down more than 50% over the past five years.
• Google’s 2019 purchase of Fitbit raised the hackles of both consumer privacy and antitrust advocates, with seven Democratic senators warning that adding “Fitbit’s consumer data to Google’s could further diminish the ability of companies to compete with Google in… ad technology markets.” In fact, Google’s share of online advertising spending has declined from 34.7% to 28.8%. Moreover, Fitbit’s share of the smartwatch market has actually fallen from 5.7% to 3.8%. And contrary to warnings from privacy advocates, Google does not use Fitbit data to target Google Ads.

The authors also examine a pair of deals that have drawn significantly more interest in recent years than they did at the time they were consummated.

• Facebook’s 2012 deal to purchase Instagram was largely ignored as insignificant at the time, or even derided as a poor business decision on Facebook’s part. In more recent years, it has been described as a “killer acquisition” that locked in Meta’s social-media monopoly, making it “the one that got away” from antitrust regulators. But, in fact, Meta’s stock has lost more than half its value since its peak in 2021, as the company has had to contend with the rise of TikTok. 
• Ticketmaster’s 2010 merger with Live Nation has come under increased scrutiny in the wake of the company’s technical difficulties in rolling out sales for Taylor Swift’s 2023 tour. While the merger did draw objections at the time, the reality is that Ticketmaster has actually lost market share in the years since, partly due to the structural remedies it agreed to as part of the deal. Moreover, the technical problems it encountered in the Taylor Swift fiasco don’t appear to be related in any way to the Live Nation merger. 

“Most mergers, even the ones we picked as noteworthy, are largely benign but pose a set of tradeoffs,” the authors write. “These ambiguous effects are precisely why evidence-based antitrust enforcement—along with remedies that can separate the wheat from the chaff—is as important today as it has ever been.”

The full paper can be downloaded here. To schedule an interview with the authors, contact Elizabeth Lincicome at [email protected] or (919) 744-8087.

PORTLAND, Ore. (Jan. 12, 2023) – A new amicus brief filed with the 7th U.S. Circuit Court of Appeals by the International Center for Law & Economics (ICLE) and 20 distinguished scholars of law & economics highlights the importance of market definition in labor markets, as well as the proper antitrust approach to franchise-agreement terms.

The case in question, Deslandes & Turner v. McDonald’s USA LLC, involved certain “no-poach” agreements between McDonald’s and its individual franchisees that were in effect prior to 2017. The plaintiffs argued that these agreements amounted to horizontal restraints that harmed competition and workers across the nation in what was, in essence, a McDonald’s-specific labor market.

The amici disputed that the plaintiffs’ had defined a relevant market. They note that McDonald’s franchises in one state do not typically compete with franchises in other states for the same workers, but they do compete for labor in local markets with other fast-food restaurants, as well as with hundreds of other employers who seek low-wage labor. There is therefore no evidence that McDonald’s wields market power in the relevant labor markets.

“Plaintiffs’ proposed market is both implausible and economically unsound,” the signatories write. “Antitrust markets typically have two dimensions: (1) a geographic market and (2) a product or services market. Plaintiffs’ single-brand, nationwide market fails along both dimensions.”

To argue that the no-poach clause constituted a horizontal restraint, the plaintiffs note that McDonald’s has a few corporate-owned restaurants that are horizontal competitors with independently owned franchisees. But as the brief points out, in 20 states and in many local markets, there are no corporate-owned restaurants at all, undermining the argument that there could be a horizontal restraint at the national level.

They argue instead that the agreements are vertical restraints that should be subject to case-by-case, rule-of-reason analysis. While some no-poach agreements may indeed be suspect, the kinds of intrabrand restraints McDonald’s employed do not obviously harm competition.

“McDonald’s vigorously competes with numerous firms in both labor markets and the output market,” the amici write. “Its competitive efforts have included various intrabrand restraints among its franchisees that foster a strong, consistent brand identity, along with shared marketing and product development. That successful brand identity is what attracts individual franchisees to open and operate McDonald’s restaurants.”

Signatories to the brief included ICLE President Geoffrey A. Manne, Director of Competition Policy Dirk Auer, Director of Law & Economics Programs Gus Hurwitz, Senior Scholar Daniel Gilman, Academic Advisor Richard A. Epstein, and Academic Affiliates Jonathan M. Barnett, Luke Froeb, Stan Liebowitz, Scott Masten, Alan Meese, Paul Rubin and Michael Sykuta.

Other signatories included James C. Cooper, Tad Lipsky, and John Yun of George Mason University’s Scalia School of Law; former Federal Communications Commission member Harold Furchtgott-Roth; Janice Hauge of the University of North Texas; Daniel A. Lyons of Boston College Law School; Gregory J. Werden, formerly of the U.S. Justice Department’s Antitrust Division; and Nobel laureate Vernon L. Smith of Chapman University.

The full brief can be downloaded here. To schedule an interview about the brief with ICLE scholars, contact Elizabeth Lincicome at [email protected].

PORTLAND, Ore. (Jan. 5, 2023) – New rules proposed by the Federal Trade Commission (FTC) to ban workplace noncompete agreements both exceed the commission’s rulemaking authority and threaten to erase the benefits that such agreements may provide to workers and firms alike, according to scholars with the International Center for Law & Economics (ICLE).

In many cases, noncompete agreements can help employers to capture the benefits of investments they make in employee training and trade secrets, upon which rivals could otherwise free ride by bidding away fully trained employees, according to ICLE Senior Scholar and former FTC Attorney Advisor Daniel Gilman, who added that even the FTC’s own Bureau of Economics staff have observed the benefits that such agreements can provide.

“Ultimately, these agreements offer both costs and benefits that each party must carefully weigh,” said ICLE Chief Economist Brian Albrecht. “This doesn’t mean that there’s never a reason for antitrust authorities to examine potentially abusive or anticompetitive noncompete clauses, but such examples should be assessed on a case-by-case basis, rather than through brightline rules.”

ICLE Director of Law & Economics Programs Gus Hurwitz also pointed to the dissenting statement from FTC Commissioner Christine S. Wilson, which raised questions about the commission’s authority to engage in “unfair methods of competition” rulemaking, as well as whether the rule violates the “major questions doctrine” addressed by the U.S. Supreme Court in their 2022 West Virginia v. EPA decision.

“Without any explicit guidance from Congress, the FTC in this rule proposes to rewrite millions of employment contracts and preempt what has traditionally been a matter for state contract law,” noted ICLE President Geoffrey A. Manne. 

“Between this rule and its recent guidance on the gig economy, the FTC is taking on a role as master labor regulator that no one in the world thinks it’s been granted,” Manne said. “This is particularly curious, given that we already have a U.S. Department of Labor.”

For other ICLE resources on noncompete agreements, see these comments filed with the FTC in September 2021 by Manne and Director of Competition Policy Dirk Auer; this 2022 paper by Academic Affiliate Alan Meese; and this 2020 paper co-authored by Academic Affiliate Jonathan M. Barnett. 

To schedule an interview with ICLE scholars about the FTC’s proposed noncompete rule, contact Communications Manager Elizabeth Lincicome at [email protected].

PORTLAND, Ore. (Nov. 22, 2022) – The Federal Trade Commission (FTC) appears set to propose sweeping data-security and privacy rules that ignore the tremendous benefits produced by the information economy and that barely acknowledge the limits of the FTC’s own authority, ICLE scholars argue in a response to an FTC advanced notice of proposed rulemaking (ANPR) on “commercial surveillance and data security.”

Written by ICLE President Geoffrey A. Manne, Director of Innovation Policy Kristian Stout and Senior Scholar Daniel Gilman—himself a veteran of the FTC’s Office of Policy Planning—the ICLE comments acknowledge the potential benefits of streamlined and uniform federal data-security or privacy regulations, and note that the commission is “uniquely positioned to understand the complexities entailed” in developing such rules. The ANPR fails to build on that expertise, however, and “its dearth of economic analysis is especially striking,” the ICLE scholars argue.

“Absent an express grant of authority and the requisite resources from Congress, the Commission would be ill-advised to consider, much less to adopt, the kinds of sweeping data regulations that the Commercial Surveillance ANPR appears to contemplate,” they write.

A copy of the full comments nation can be downloaded here. To schedule an interview with Geoff Manne, Dan Gilman or Kristian Stout, please contact ICLE Media and Communications Manager Elizabeth Lincicome at [email protected].

PORTLAND, Ore. (Nov. 14, 2022) – As part of the Infrastructure Investment and Jobs Act (IIJA), Congress asked that the Federal Communications Commission prevent discrimination in broadband access based on income level, race, ethnicity, color, religion, or national origin, while also taking account of issues of technical and economic feasibility.

But while evaluating discrimination based on race, ethnicity, color, religion, or national origin is relatively straightforward, a new issue brief from the International Center for Law & Economics (ICLE) finds that it is virtually impossible to disentangle the factors affecting the economic feasibility of broadband projects from factors correlated with income.

Income level will influence consumer decisions to adopt broadband, which in turn affects providers’ ability to deploy to a given area, ICLE Senior Scholar Eric Fruits and Director of Innovation Policy Kristian Stout argue. Not only is income a key factor influencing whether a given consumer will adopt broadband, but it is also highly correlated with race, ethnicity, national origin, age, education level, and home-computer ownership and usage, the authors note.

Given this backdrop, as well as recent U.S. Supreme Court precedent regarding  “disparate impact” analysis in the context of discrimination law, Fruits and Stout argue that the FCC’s rulemaking against digital discrimination should apply only in cases of intentional discrimination in deployment decisions, and that “mere statistical correlation between deployment and protected characteristics is insufficient to support a finding of discrimination.”

The FCC should also be cautious to avoid creating inefficient bureaucratic processes through which broadband providers would be forced to defend economically justified deployment decisions, as this would make it more difficult to close the so-called “digital divide,” Fruits and Stout write.

“For this reason, FCC rules should articulate a presumption of non-discrimination, in which allegations of digital discrimination must be demonstrated, rather than a presumption of discrimination that must be rebutted for each deployment decision,” the authors write.

A copy of the full report, “The Income Conundrum: Intent and Effects Analysis of Digital Discrimination,” can be downloaded here. To schedule an interview with Eric Fruits or Kristian Stout, please contact ICLE Media and Communications Manager Elizabeth Lincicome at [email protected].

WASHINGTON (Nov. 3, 2022) – As federal agencies move forward with implementing President Joe Biden’s executive order on digital assets, they should remain open to emerging on-chain privacy solutions and take care not to impose excessive liability on crypto’s “base” layer, International Center for Law & Economics (ICLE) Senior Scholar Miko?aj Barczentewicz argues in comments to the U.S. Treasury Department.

Submitted in response to Treasury’s inquiry on “Ensuring Responsible Development of Digital Assets,” the comments highlight how some base-layer participants of Ethereum responded to the department’s recent addition to the Specially Designated Nationals and Blocked Persons List of a number of Ethereum addresses deployed by Tornado Cash. Given the strict-liability duty not to facilitate transactions with sanctioned entities, many began to filter out transactions that interacted with SDN-listed Ethereum addresses, so that they would not contribute to including those transactions on the blockchain.

But Barczentewicz notes that such filtering is likely to be ineffective, given the ease with which sanctioned entities can obfuscate their identities, and could actually serve to forestall the development of changes to the Ethereum protocol to bypass such filtering.

“Targeting the base layer of permissionless blockchain networks may have symbolic value, but it is unlikely to achieve genuine law-enforcement or national-security goals,” he writes. “Imposing rules with which it would be impossible for base-layer operators to comply will simply push those operators to other jurisdictions.”

He added that it is important that federal agencies determine the appropriate policy response to these privacy-enhancing crypto technologies before there is a clash between more on-chain privacy and current investigative and enforcement methods.

“As Treasury seeks to forward the goals of consumer and investor protection, promotion of access to finance, support of technological advances, and reinforcement of U.S. leadership, all point in favor of facilitating responsible use of privacy-enhancing technologies, including so-called ‘privacy coins,’” Barczentewicz writes.

A copy of the full comments can be downloaded here. To schedule an interview with Miko?aj Barczentewicz, please contact ICLE Media and Communications Manager Elizabeth Lincicome at [email protected].

PORTLAND, Ore. (Nov. 3, 2022) – The digital advertising business has drawn attention from a growing chorus of regulators and competition watchdogs, who argue that the market is uncompetitive and dominated by its largest players. A new white paper from the International Center for Law & Economics (ICLE) examines those claims, finding that, rather than the monopolistic effects of rising prices and restricted output, digital advertising has become cheaper and more effective—evidence of vibrant competition.

Inquiries into advertising technology, or “ad tech,” have been launched on both sides of the Atlantic in recent years. Most notably, the State of Texas and nine other U.S. states (later joined by five more states) filed suit in December 2020 against Google alleging anticompetitive conduct related to the company’s online display-advertising business. It has been reported that the U.S. Justice Department (DOJ) may also bring a similar lawsuit before the end of the year. In addition, Sen. Mike Lee (R-Utah) and three bipartisan cosponsors earlier this year introduced the Competition and Transparency in Digital Advertising Act, which would require some of the largest Internet firms to break up their digital advertising businesses.

But according to white paper authors Geoffrey A. Manne and Eric Fruits, the key claims made against Google’s activities in digital advertising are based on a misunderstanding of U.S. antitrust law, or of the details of the digital advertising market itself. They note that digital advertising intermediaries like Google, Facebook and, to a growing extent, Amazon, that are vertically integrated into some or all components of the digital advertising “stack” of services use the prices charged to each side of the market to optimize overall use of the platform.

“As a result, pricing in these markets operates differently than pricing in traditional markets: pricing on one side of the platform is often used to subsidize participation on another side of the market, increasing the value to all sides combined,” Fruits and Manne write. “Consequently, pricing (or other terms of exchange) on one side of the market may appear to diverge from the competitive level when viewed for that side alone.”

The overall effect, they observe, has been falling prices: the Producer Price Index for Internet advertising sales is about 25% lower today than in 2010. In addition, major firms’ investments in ad tech and targeted ads have increased the effectiveness of digital advertising, making it more likely than ever that a given ad served to a given consumer will generate a response. Indeed, the authors contend that the digital advertising market’s history is one of dynamic innovation, with many new developments arising to solve problems created by previous innovations, address new innovations, and respond to market developments.

“U.S. antitrust law is intended to foster innovation that creates benefits for consumers, including innovation by incumbents,” Fruits and Manne write. “The law does not proscribe efficiency-enhancing unilateral conduct on the grounds that it might also inconvenience competitors, or that there is some other arrangement that could be ‘even more’ competitive.”

A copy of the full report, “The Antitrust Assault on Ad Tech: A Law & Economics Critique,” can be downloaded here. To schedule an interview with ICLE President Geoffrey A. Manne or Senior Scholar Eric Fruits, please contact ICLE Media and Communications Manager Elizabeth Lincicome at [email protected].

PORTLAND, Ore. (Oct. 7, 2022) — An executive order announced today by President Joe Biden to establish a new Privacy Shield framework marks an important next step in urgent negotiations to maintain transatlantic data flows between the United States and European Union that power an estimated $333 billion in annual trade of digitally enabled services, according to scholars with the International Center for Law & Economics (ICLE).

The order had been awaited since March, when U.S. and EU officials reached an agreement in principle on a new Privacy Shield, which EU officials insist must address concerns about surveillance practices by U.S. agencies. It will now be submitted to a months-long ratification process by the European Commission but, like earlier agreements, could also face legal challenges, ICLE Senior Scholar Miko?aj Barczentewicz said.

“It is urgent that agreement on an effective Privacy Shield be reached expeditiously, as EU citizens already face the potential to lose access to services like Google Analytics and Facebook, not to mention the potential disruption to financial services like insurance and payments networks,” Barczentewicz said. “What will be crucial is that the U.S. proposal addresses the two aspects the EU expects to be covered: redress for EU citizens and assurances that U.S. data-surveillance practices are ‘necessary and proportionate.’ We can hope that the EU courts will be reasonable, but litigation is all-but-certain.”

For more on the issue, see the ICLE issue brief “The Great Transatlantic Data Disruption,” as well as this ICLE explainer on the importance of data flows to the financial services sector. Reporters interested in interviewing Miko?aj Barczentewicz or other ICLE scholars should contact ICLE Media and Communications Manager Elizabeth Lincicome at [email protected].