Showing 9 of 68 Publications in Barriers to Entry

The FTC Did Not ‘Fumble the Future’ in Its Google Search Investigation

TOTM In the final analysis, what the revelations do not show is that the FTC’s market for ideas failed consumers a decade ago when it declined to bring an antitrust suit against Google.

Politico has released a cache of confidential Federal Trade Commission (FTC) documents in connection with a series of articles on the commission’s antitrust probe into Google Search a decade ago. The headline of the first piece in the series argues the FTC “fumbled the future” by failing to follow through on staff recommendations to pursue antitrust intervention against the company. 

Read the full piece here.

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Antitrust & Consumer Protection

Correcting Common Misperceptions About the State of Antitrust Law and Enforcement

Written Testimonies & Filings On Friday, April 17, 2020, ICLE President and Founder, Geoffrey A. Manne, submitted written testimony to the U.S. House of Representatives Committee on the Judiciary, Subcommittee on Antitrust, Commercial, and Administrative Law.

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

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

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

In Manne’s view,

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

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

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

 

See his full testimony, here.

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Antitrust & Consumer Protection

Why Data Is Not the New Oil

TOTM “Data is the new oil,” said Jaron Lanier in a recent op-ed for The New York Times. Lanier’s use of this metaphor is only the latest instance of what has become the dumbest meme in tech policy.

“Data is the new oil,” said Jaron Lanier in a recent op-ed for The New York Times. Lanier’s use of this metaphor is only the latest instance of what has become the dumbest meme in tech policy. As the digital economy becomes more prominent in our lives, it is not unreasonable to seek to understand one of its most important inputs. But this analogy to the physical economy is fundamentally flawed. Worse, introducing regulations premised upon faulty assumptions like this will likely do far more harm than good.

Read the full piece here.

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Data Security & Privacy

Concluding Comments: The Weaknesses of Interventionist Claims (FTC Hearings, ICLE Comment 11)

Written Testimonies & Filings FTC Hearings on Competition & Consumer Protection in the 21st Century. Comments of the International Center for Law & Economics: Summing Up the FTC Hearings: Advocates for Increased Antitrust Intervention Failed to Make Their Case. Submitted Jun 30, 2019.

These comments represent ICLE’s review and commentary of the detailed record set forth during the FTC’s Hearings on Competition and Consumer Protection in the 21st Century. The hearings — and these comments — covered a wide range of topics from data security and privacy, to horizontal and vertical merger policy, anticompetitive unilateral behavior, and a host of contemporary issues that have arisen around the question of whether antitrust law is capable of dealing with potential harms to competition from modern firms. 

Specifically, the summary comments deal with the following topics.

I. The Consumer Welfare Standard

Opponents of the consumer welfare standard seek to return antitrust to the bygone era of courts arbitrarily punishing firms for successfully outcompeting their rivals or simply growing “too large.” The Commission should tread carefully before incorporating these ideas, which, during the course of its evolution in the 20th century, antitrust law carefully and correctly selected out.

II. Vertical Mergers

Based on the testimony heard during the hearings, there is no need to change the non-horizontal merger guidelines. If anything, vertical merger review should be pared back out of a recognition that the failure to account for dynamic effects (and the inherent difficulty of doing so) means it is likely that pro-competitive mergers are being deterred.

III. Vertical Discrimination

Concerns regarding vertical discrimination are predicated on the erroneous assumption that big tech platforms might be harming competition by favoring their content over that of their complementors. Not only is this fear overblown, but even the harms alleged are frequently ambiguous and provide benefits to some consumers.

IV. Technology Platforms and Innovation

Much of the analysis of popular technology companies is predicated on traditional market definition analysis, which infers future substitution possibilities from existing or past market conditions. This leads to overly-narrow market definitions and erroneous market power determinations. Thus, Amazon, Facebook, and Google are assumed — erroneously — to be unassailable monopolies.

V. Data Competition and Privacy

Data is a valuable input for companies competing in the digital economy. It is not, however, a magic bullet or holy grail, as some commenters suggested. As with other assets, companies can use data in both pro-competitive and anti-competitive ways. “Big data” may be a new term, but it does not pose unique problems for competition policy.

Click here to read the full concluding comments.

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Antitrust & Consumer Protection

Understanding Competition in Markets Involving Data or Personal or Commercial Information (FTC Hearings, ICLE Comment 7)

Written Testimonies & Filings FTC Hearings on Competition & Consumer Protection in the 21 st Century. Comments of the International Center for Law & Economics: Understanding Competition in Markets Involving Data or Personal or Commercial Information. Hearing # 6 (Nov. 6-8, 2018). Submitted January 7, 2019.

Comments of the International Center for Law & Economics”

Markets involving data and personal information have unique characteristics, but do not present such novel challenges that the well-developed tools of antitrust are incapable of incorporating them. Nonetheless, some critics continue to press for misguided antitrust intervention into data markets, often based on fundamental misunderstandings. 

For a start, commonly repeated analogies between data and oil are highly misleading. Oil is physical commodity that is highly rivalrous (a user cannot use oil without impairing others’ ability to use the same oil) and readily excludable (it can easily be stored in ways that prevent use by non-authorized parties). By contrast, data is simply information that bears some of the traits of a public good: it is often non-rivalrous in consumption (the same information may be used by multiple parties without any degradation) and difficult to appropriate because it is difficult to prevent others’ use of the same data, it is difficult to ensure optimal investment in its creation). Moreover, in most instances, it is not data that is scarce, but the expertise required to generate and analyze it. In any case, most successful internet companies started life with little to no data. This suggests that data is more a byproduct of the ongoing operation of internet platforms than it is a critical input for their creation.

Further, data is unlikely to constitute a barrier to entry, and even less likely to amount to an essential facility. As George Stigler famously argued, a barrier to entry is “[a] cost of producing that must be borne by a firm which seeks to enter an industry but is not borne by firms already in the industry.” There is no reason that the cost of obtaining data for a new entrant should be any higher than it was for an incumbent. In fact, the opposite will often turn out to be true.

Other ills that allegedly plague data-rich markets (and the merits of proposed solutions) are equally dubious. This is notably the case for the relationship between mandated data portability and competition. Contrary to what some scholars have advanced, it is far from clear that mandated data portability will increase consumer welfare in data-reliant markets. Not only is this type of portability unlikely to significantly affect switching costs for consumers but, even if it did, this would have ambiguous consumer welfare consequences (as is generally the case for consumer lock-in and regulatory interventions to overcome it). To make matters worse, mandated data portability is not without its risks. Most notably, data portability poses data security and user privacy risks.

Likewise, fears of costly price discrimination and widespread algorithmic collusion are greatly overblown. While it is true that big data may have a transformative effect on firms’ ability to price discriminate, there is no strong reason to believe that this would have a detrimental effect on consumer welfare. Instead, as with all forms of price discrimination, it may potentially expand output and allow less well-off consumers to participate in markets they might otherwise be priced out of. Similarly, the idea that big data and algorithms will lead to collusion is deeply flawed. Fears of collusion rest on the faulty premise that online marketplaces and the use of big data will dramatically increase transparency, thus facilitating collusion. In fact, the opposite is just as likely (and, in any case, the manifest benefits of increased transparency, likely outweigh the speculative costs).

In short, the advent of data-enabled markets does not have implications that support the calls for a significant expansion of antitrust tools and antitrust enforcement being made. Data is not irrelevant, of course, but it is just one amongst a plethora of factors that enforcement authorities and courts should consider when they analyze firms’ behavior.

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Antitrust & Consumer Protection

Schrepel - The European Commission Is Undermining Innovation

ICLE Issue Brief This article introduces an empirical study conducted over the period 2004 to 2018 (Android included) on all the fines imposed by the European Commission on the basis of Article 102 TFEU. We show that the European Commission’s decisions may have the effect of slowing down R&D for numerous sanctioned companies.

Abstract

On July 18, 2018, the European Commission fined Alphabet (Google) 4.34 billion euros. This decision confirms the Commission’s willingness to deter companies from engaging in anticompetitive practices. It also confirms that the European competition authority is missing the big picture by imposing disproportionate fines with regard to the specifics of the digital economy.

According to Article 23(2) of Regulation No 1/2003, the fines imposed by competition authorities cannot exceed 10% of the overall annual turnover of the concerned company. This limit is intended to avoid disproportionate sanctions that would jeopardize the company’s future. In fact, however, while this turnover threshold is useful, it is insufficient. The digital economy requires companies to compete by innovating. R&D investments have become the lifeblood of the digital economy and the very essence of competition. The specific competitive dynamics of the industry should also be taken into account in considering the extent to which fines imposed by competition authorities can disrupt the investment capacity of companies.

This article introduces an empirical study conducted over the period 2004 to 2018 (Android included) on all the fines imposed by the European Commission on the basis of Article 102 TFEU. We show that the European Commission’s decisions may have the effect of slowing down R&D for numerous sanctioned companies. For this reason, an innovation protection mechanism should be incorporated into the calculation of the fine. We propose doing so by introducing a new limit that caps Article 102 fines at a certain percentage of companies’ investment in R&D.

Click here to read the full article.

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Antitrust & Consumer Protection

Competition Committee Hearing on Big Data and Competition (Paris, France)

Presentations & Interviews The difference between privacy protection and antitrust law -Privacy is fundamentally a consumer protection or tort issue. - In theory, antitrust law can deal with privacy as a non-price factor of hard to measure against/combine competition, but this is an uneasy fit — with other effects...

ICLE Executive Director Geoffrey Manne took part in a hearing in Paris on big data and competition before the OECD’s Competition Committee. The panel included:

  • Maurice Stucke (Professor of Law at the University of Tennessee and co-founder
    of the Konkurrenz Group)
  • Hal Varian (Chief Economist at Google and Professor at Berkeley School of
    Information)
  • Geoffrey Manne (Executive Director of the International Centre for Law and
    Economics and member of the FCC’s Consumer Advisory Committee)
  • Annabelle Gawer (Professor of Digital Economy at the University of Surrey)
  • Alec Burnside (Managing Partner at Cadwalader)

Manne argued that antitrust law is not well-suited to promote privacy rights, which should be a matter of consumer-protection law. As he explained, firms do not need to have market power in order to violate privacy rights and, even if they do, it would still be necessary to prove that such conduct would amount to an abuse of dominance.

He also pointed out that not all product characteristics are necessarily relevant for a competitive analysis: despite the claims that consumers value privacy, there is evidence that consumers are usually willing to disclose sensitive information for a small reward, suggesting that the value of privacy is lower than what it is usually considered. Therefore, incorporating privacy into antitrust has the risk of increasing the level of subjectivity in competition-law enforcement, due to the inherent difficulties of measuring consumers’ willingness to pay for privacy and, eventually, it could prevent companies from using data to actually improve the quality of their products.

In response to the frequent concern that data could be used to monopolize an industry, Manne reinforced Professor Varian’s arguments that data is cheap and can be collected from many alternative sources, particularly due to the massive size of the data-broker industry.

A copy of his presentation can be found here.

 

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Data Security & Privacy

FCC Chairman Wheeler’s claimed fealty to FTC privacy standards is belied by the rules he actually proposes

TOTM Next week the FCC is slated to vote on the second iteration of Chairman Wheeler’s proposed broadband privacy rules. Of course, as has become all . . .

Next week the FCC is slated to vote on the second iteration of Chairman Wheeler’s proposed broadband privacy rules. Of course, as has become all too common, none of us outside the Commission has actually seen the proposal. But earlier this month Chairman Wheeler released a Fact Sheet that suggests some of the ways it would update the rules he initially proposed.

According to the Fact Sheet, the new proposed rules are…

Read the full piece here

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Antitrust & Consumer Protection

Reed on the Apple e-books case: “We can remember it for you wholesale” – why the model matters in Apple e-books

TOTM In Philip K. Dick’s famous short story that inspired the Total Recall movies, a company called REKAL could implant “extra-factual memories” into the minds of anyone. That technology may . . .

In Philip K. Dick’s famous short story that inspired the Total Recall movies, a company called REKAL could implant “extra-factual memories” into the minds of anyone. That technology may be fictional, but the Apple eBooks case suggests that the ability to insert extra-factual memories into the courts already exists.

The Department of Justice, the Second Circuit majority, and even the Solicitor General’s most recent filing opposing cert. all assert that the large publishing houses invented a new “agency” business model as a way to provide leverage to raise prices, and then pushed it on Apple.

Read the full piece here.

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Antitrust & Consumer Protection