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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.
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.
Click here to read the full comments.
Written Testimonies & Filings ICLE and a number of its European affiliates have recently responded to the European commission’s public consultation on “shaping competition policy in the era of . . .
ICLE and a number of its European affiliates have recently responded to the European commission’s public consultation on “shaping competition policy in the era of digitisation.” In our submission, we argue that competition policy in the digital economy should be based on sound, theoretical underpinnings and rigorous, evidence-based analysis, best encapsulated in the “law and economics” approach. Despite many expressed fears to the contrary, digital markets are not inherently prone to anticompetitive behavior, and the weight of economic theory and evidence offer little support for the asserted risk of harm. We thus argue that competition intervention should take into account the uncertainty of harm, the presence of countervailing benefits and the problems of devising an effective remedy.
Our submission notably challenges the idea that leveraging, consumer lock-in, network effects, and data collection necessarily lead to winner-take all situations where digital platforms exclude their rivals and exploit their users. Instead, we show that these phenomena are just as likely (if not more likely) to benefit consumers as they are to be anticompetitive. Leveraging may, for instance, increase market output by enabling firms to offer superior products. Far from monopoly being the constant problem plaguing markets characterized by network effects, fragmentation is often more of an issue, and mandating smaller networks can limit users’ ability to coordinate on a preferred platform.
Of crucial importance in evaluating the conduct of online platforms is the awareness that in such two-sided markets one side of the market may subsidize another or operate under contractual restraints aimed at improving the platform for other participants. These characteristics frequently enable the platform to function effectively—even though, viewed in isolation, they might appear to amount to supracompetitive pricing or anticompetitive restrictions. The interdependent nature of online platforms thus makes it difficult to assert that a price increase or other action that allegedly harms users on only one side of the market represents a harmful course of conduct overall. The only way to assess the propriety of such conduct is to look at its effect on output across the entire market, taking account of the full range of costs and benefits.
Our submission also demonstrates that the advent of the “data economy” does not presumptively alter the balance of competition enforcement. Indeed, the mere fact that an incumbent owns large amounts of data may be an indication of successful competition of precisely the sort competition laws are designed to encourage. It certainly does not inherently constitute a barrier to entry, much less an essential facility, that could trigger antitrust enforcement.
Because the digital economy is built upon tremendous investments in innovation, we also argue that competition enforcement should pay particularly close attention to firms’ incentives to innovate. It is well-established that expected profits are generally a precondition for innovation. Accordingly, competition enforcers must walk a very fine line between punishing anticompetitive conduct that might deter innovation by new entrants, and protecting incumbent innovators’ incentives by avoiding enforcement activity that punishes firms experimenting on the frontiers of their industries.
In the final analysis, we argue that European competition authorities should consider carefully how little certainty we have about digital markets and the effects of challenged conduct within them, and operate with the restraint and regulatory humility appropriate to our ignorance.
Scholarship In its investigation into Google’s search practices, Google Search, the Commission alleges that Google abuses its dominant position on the web search market by giving systematic favourable treatment to its “comparison shopping product” (namely, “Google Shopping”) in its general search results pages.
In its investigation into Google’s search practices, Google Search, the Commission alleges that Google abuses its dominant position on the web search market by giving systematic favourable treatment to its “comparison shopping product” (namely, “Google Shopping”) in its general search results pages. This Article analyses whether the conduct in question in Google Search can be an abuse under Article 102TFEU (prohibiting the abuse of a dominant position in the EU) and, if so, under what conditions. This Article proceeds by first providing a positive assessment of the application of Article 102TFEU and the relevant case law to the issues involved in Google Search on the assumption that the Commission may seek to place the facts under an existing category of abuse. Three categories of abuse are analysed to this end: refusal to deal (including the essential facilities doctrine), discrimination, and tying. The article then proceeds to a normative assessment of the circumstances under which Article 102TFEU should be applied in Google Search under a principled conceptualisation of “abuse,” one which requires exploitation, exclusion, and a lack of an increase in efficiency. The Article finds that the facts in Google Search do not meet the requirements of the existing law to be found abusive unless the established frameworks for the types of abuse examined are unjustifiably disrupted. It also finds that under the principled conceptualisation of abuse adopted in this Article, the facts in Google Search do not represent the type of conduct that should be found abusive either.
ICLE White Paper A pair of recent, long-form articles in the New York Times Magazine and Wired UK — the latest in a virtual journalistic cottage industry of such articles — chronicle the downfall of British price comparison site and stalwart Google provocateur, Foundem, and attribute its demise to anticompetitive behavior on the part of Google.
A pair of recent, long-form articles in the New York Times Magazine and Wired UK — the latest in a virtual journalistic cottage industry of such articles — chronicle the downfall of British price comparison site and stalwart Google provocateur, Foundem, and attribute its demise to anticompetitive behavior on the part of Google.
Unfortunately, the media’s hagiographies of Foundem and its founders, Shivaun and Adam Raff, approach the antitrust question as if it were imbued with the simple morality of a David vs. Goliath tale. The reality is far more complicated. In fact, these articles misunderstand and misstate the critical economic, business, and legal realities of Google Search, of Foundem’s claims of harm, and of the relationship between the two.
Was Foundem’s failure really the result of anticompetitive “gatekeeping” on Google’s part? Or could it simply be a pedestrian tale of yet another tech start-up that failed because its founders didn’t appreciate that a successful business is built on more than just a good idea?
While the import of the Foundem story has been misconstrued by journalists and EU regulators, it is useful in illuminating what may actually be the fundamental question regarding the antitrust fortunes of the platform economy:
What, if anything, does a successful platform “owe” to the companies that make themselves dependent upon it?
Continue reading the full paper.
TOTM Last week the editorial board of the Washington Post penned an excellent editorial responding to the European Commission’s announcement of its decision in its Google . . .
Last week the editorial board of the Washington Post penned an excellent editorial responding to the European Commission’s announcement of its decision in its Google Shopping investigation. Here’s the key language from the editorial…
Read the full piece here.
Regulatory Comments This week, the International Center for Law & Economics filed comments on the proposed revision to the joint U.S. Federal Trade Commission (FTC) – U.S. Department of Justice (DOJ) Antitrust-IP Licensing Guidelines.
The proposed guidelines are founded on a commendable set of underlying assumptions: that intellectual property (“IP”) is, for antitrust purposes, amenable to the same sort of analysis that applies to other forms of property, and, that IP licensing presents presumptively procompetitive opportunities for market actors to manage their property rights. As the proposed guidelines recognize, licensing, along with a variety of vertical arrangements, frequently allows separate firms to realize efficiencies in the production, marketing and commercialization process that are otherwise difficult, if not impossible, to achieve individually.1 As the proposed guidelines note, this translates not merely into single firms commercializing a particular discovery, but also into their undertaking a variety of licensing relationships that, for example, encourage licensees to further improve upon the original invention.
More broadly, in many cases, licensing arrangements allow inventive firms that lack sufficient capital to license inventions to firms that are better positioned to engage in the efficient production of complicated or expensive processes and products. Economic literature broadly recognizes the value of this form of specialization,2 and the proposed guidelines are to be commended for likewise recognizing this reality and generally encouraging the practice.
Although, in short, our assessment of the proposed guidelines is positive, we offer some constructive criticism in the remainder of this comment. In particular, we believe, first, that the proposed guidelines should more strongly recognize that a refusal to license does not deserve special scrutiny; and, second, that traditional antitrust analysis is largely inappropriate for the examination of innovation or R&D markets.
Filed under: antitrust, doj, essential facilities, federal trade commission, truth on the market Tagged: Intellectual property, Patent
TOTM Since the European Commission (EC) announced its first inquiry into Google’s business practices in 2010, the company has been the subject of lengthy investigations by . . .
Since the European Commission (EC) announced its first inquiry into Google’s business practices in 2010, the company has been the subject of lengthy investigations by courts and competition agencies around the globe. Regulatory authorities in the United States, France, the United Kingdom, Canada, Brazil, and South Korea have all opened and rejected similar antitrust claims.
And yet the EC marches on, bolstered by Google’s myriad competitors, who continue to agitate for further investigations and enforcement actions, even as we — companies and consumers alike — enjoy the benefits of an increasingly dynamic online marketplace.
TOTM I’d like to begin by discussing Geoff’s post on the pending legislative proposals designed to combat strategic abuse of drug safety regulations to prevent generic competition. Specifically, . . .
I’d like to begin by discussing Geoff’s post on the pending legislative proposals designed to combat strategic abuse of drug safety regulations to prevent generic competition. Specifically, I’d like to address the economic incentive structure that is in effect in this highly regulated market.
TOTM Brand drug manufacturers are no strangers to antitrust accusations when it comes to their complicated relationship with generic competitors — most obviously with respect to . . .
Brand drug manufacturers are no strangers to antitrust accusations when it comes to their complicated relationship with generic competitors — most obviously with respect to reverse payment settlements. But the massive and massively complex regulatory scheme under which drugs are regulated has provided other opportunities for regulatory legerdemain with potentially anticompetitive effect, as well.