I have a new article on the Comcast/Time Warner Cable merger in the latest edition of the CPI Antitrust Chronicle, which includes several other articles on the merger, as well.

In a recent essay, Allen Grunes & Maurice Stucke (who also have an essay in the CPI issue) pose a thought experiment: If Comcast can acquire TWC, what’s to stop it acquiring all cable companies? The authors’ assertion is that the arguments being put forward to support the merger contain no “limiting principle,” and that the same arguments, if accepted here, would unjustifiably permit further consolidation. But there is a limiting principle: competitive harm. Size doesn’t matter, as courts and economists have repeatedly pointed out.

Read the full piece here.

Last month the Wall Street Journal raised the specter of an antitrust challenge to the proposed Jos. A. Bank/Men’s Warehouse merger.

Whether a challenge is forthcoming appears to turn, of course, on market definition:

An important question in the FTC’s review will be whether it believes the two companies compete in a market that is more specialized than the broad men’s apparel market. If the commission concludes the companies do compete in a different space than retailers like Macy’s, Kohl’s and J.C. Penney, then the merger partners could face a more-difficult government review.

You’ll be excused for recalling that the last time you bought a suit you shopped at Jos. A. Bank and Macy’s before making your purchase at Nordstrom Rack, and for thinking that the idea of a relevant market comprising Jos. A. Bank and Men’s Warehouse to the exclusion of the others is absurd.  Because, you see, as the article notes (quoting Darren Tucker),

“The FTC sometimes segments markets in ways that can appear counterintuitive to the public.”

“Ah,” you say to yourself. “In other words, if the FTC’s rigorous econometric analysis shows that prices at Macy’s don’t actually affect pricing decisions at Men’s Warehouse, then I’d be surprised, but so be it.”

But that’s not what he means by “counterintuitive.” Rather,

The commission’s analysis, he said, will largely turn on how the companies have viewed the market in their own ordinary-course business documents.

According to this logic, even if Macy’s does exert pricing pressure on Jos. A Bank, if Jos. A. Bank’s business documents talk about Men’s Warehouse as its only real competition, or suggest that the two companies “dominate” the “mid-range men’s apparel market,” then FTC may decide to challenge the deal.

I don’t mean to single out Darren here; he just happens to be who the article quotes, and this kind of thinking is de rigeur.

But it’s just wrong. Or, I should say, it may be descriptively accurate — it may be that the FTC will make its enforcement decision (and the court would make its ruling) on the basis of business documents — but it’s just wrong as a matter of economics, common sense, logic and the protection of consumer welfare.

One can’t help but think of the Whole Foods/Wild Oats merger and the FTC’s ridiculous “premium, natural and organic supermarkets” market. As I said of that market definition:

In other words, there is a serious risk of conflating a “market” for business purposes with an actual antitrust-relevant market. Whole Foods and Wild Oats may view themselves as operating in a different world than Wal-Mart. But their self-characterization is largely irrelevant. What matters is whether customers who shop at Whole Foods would shop elsewhere for substitute products if Whole Food’s prices rose too much. The implicit notion that the availability of organic foods at Wal-Mart (to say nothing of pretty much every other grocery store in the US today!) exerts little or no competitive pressure on prices at Whole Foods seems facially silly.

I don’t know for certain what an econometric analysis would show, but I would indeed be shocked if a legitimate economic analysis suggested that Jos. A. Banks and Men’s Warehouse occupied all or most of any relevant market. For the most part — and certainly for the marginal consumer — there is no meaningful difference between a basic, grey worsted wool suit bought at a big department store in the mall and a similar suit bought at a small retailer in the same mall or a “warehouse” store across the street. And the barriers to entry in such a market, if it existed, would be insignificant. Again, what I said of Whole Foods/Wild Oats is surely true here, too:

But because economically-relevant market definition turns on demand elasticity among consumers who are often free to purchase products from multiple distribution channels, a myopic focus on a single channel of distribution to the exclusion of others is dangerous.

Let’s hope the FTC gets it right this time.

Cross-posted from Truth On the Market

Summary

While several scholars and policymakers have proposed that threats to privacy and competition from concentration of data be incorporated into antitrust analysis, no one has yet articulated a coherent theory as to how degrading privacy or aggregating data can be anticompetitive — nor even what, precisely, privacy harms are in this context. In this paper, we survey and evaluate the various attempts to incorporate privacy concerns into antitrust’s domain. We find that those more skeptical of antitrust law’s ability to deal with privacy concerns have the better of the argument.

We approach the question by applying law and economics insights, including the error cost framework associated with antitrust scholars such as Frank Easterbrook, Joshua Wright, and Douglas Ginsburg. This is the first paper in the literature to evaluate all of the proposed approaches in a systematic way. While there have been a few skeptics of incorporating privacy into antitrust, we complement those papers by considering the literature arguing the aggregation of data can itself be a privacy harm that has developed since their publication.

We highlight several problems with the theories advanced thus far. First, some of the theories rely on outdated economic models that assume big is bad, rather than on modern consumer welfare analysis. Second, none of the proposed approaches adequately defines the market for data. Third, none of the proposed approaches adequately explains how concentrations of data alter a firm’s ability or incentive to degrade privacy, nor why such degradations would amount to anticompetitive conduct. Fourth, the theories of harm identified by advocates of including privacy in antitrust analysis are inconsistent with one another: Some of the competitive harms identified have little to do with privacy, and some of the privacy harms identified are not antitrust-relevant, or at least not of the type normally condemned by antitrust law. Finally, there are no reasonable or antitrust-relevant remedies available for alleged anticompetitive harms arising from data or the privacy threats supposedly posed by increased data aggregation.

Insofar as privacy harms need a public policy response, common law remedies of tort and contract supplemented by the FTC’s ongoing enforcement of consumer protection law are a better alternative to antitrust law. There are pro-competitive reasons for allegedly privacy-invasive practices like data collection, analysis, behavioral advertising, and even price discrimination. Applying an error cost framework suggests that barring such activity outright will lead to a decrease in consumer welfare. Targeted enforcement against anti-consumer abuses through common law and consumer protection law could preserve the benefits of data collection and analysis while ameliorating and deterring privacy harms.

This paper is an outgrowth of a presentation given by Geoffrey Manne at the George Mason Law Review’s Symposium on Privacy Regulation and Antitrust on January 17, 2013.

Earlier this month New Jersey became the most recent (but likely not the last) state to ban direct sales of automobiles. Although the rule nominally applies more broadly, it is directly aimed at keeping Tesla Motors (or at least its business model) out of New Jersey. Automobile dealers have offered several arguments why the rule is in the public interest, but a little basic economics reveals that these arguments are meritless.

Read the full piece here.

Summary

“Respondent (“Aereo”) deploys a system of tiny antennas and large computer servers to capture, transcode, and retransmit live television broadcasts online without authorization or, indeed, any contractual relationship with copyright holders at all. The inelegant complexity of its retransmission system is entirely a function of Aereo’s efforts to evade copyright law; it makes no sense from a technological standpoint. Despite its efforts to engineer its way around the Copyright Act, Aereo cannot escape copyright liability. By providing unlicensed television broadcasts to its subscribers—a subset of the public—Aereo plainly violates the exclusive public performance rights held by copyright holders in its unauthorized transmissions.

Although Aereo’s technological machinations are cleverly designed to create sufficient ambiguity as to their legality, Aereo’s business model is clear: to offer the public the same online access to broadcast television programming that is readily available elsewhere, but without incurring the cost of compensating copyright holders of that programming. In so doing, Aereo effects a simple— and illegitimate—wealth transfer from copyright holders to itself, without creating any appreciable countervailing consumer benefits. In so doing, it undermines the ability of copyright holders to enter into voluntary transactions to license their content and thus subverts the constitutionally and congressionally protected right of creators and their licensees to market their creative works…”

In 1914, Congress gave the FTC sweeping jurisdiction and broad powers to enforce flexible rules to ensure that it would have the ability to serve as the regulator of trade and business that Congress intended it be. Much, perhaps even the great majority, of what the FTC does is uncontroversial and is widely supported, even by critics of the regulatory state. However, both Congress and the courts have expressed concern about how the FTC has used its considerable discretion in some areas. Now, as the agency approaches its 100th anniversary, the FTC, courts, and Congress face a series of decisions about how to apply or constrain that discretion. These questions will become especially pressing as the FTC uses its authority in new ways, expands its authority into new areas, or gains new authority from Congress.

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In 1914, Congress gave the FTC sweeping jurisdiction and broad powers to enforce flexible rules, to ensure that it would have the ability to serve as the national regulator of trade and business. Much, perhaps even the great majority, of what the FTC does is uncontroversial and is widely supported, even by critics of the regulatory state. However, both Congress and the courts have expressed concern about how the FTC has used its considerable discretion in some areas. Now, as the agency approaches its 100th anniversary, the FTC, courts, and Congress face a series of decisions about how to apply or constrain that discretion. These questions will become especially pressing as the FTC uses its authority in new ways, expands its authority into new areas, or gains new authority from Congress (such as over data security or privacy).

 

Excerpt

No mattter what you think of network neutrality — for it, against it, it’s complicated, who cares — the fact that a federal court just struck down most of the FCC’s net neutrality rules is clearly cause for concern.

But not for the reasons you think. Others are saying that the FCC just lost the battle but “can finally win the war” — if the agency formally “reclassifies” broadband as a heavily regulated “common carrier” (like traditional telephone services). Actually, the FCC lost the battle, but it just won the war over regulating the internet. It no longer needs to bother with reclassification, a process so difficult and drawn-out it was always a political fantasy anyway.

The FCC’s broad new powers should worry everyone, whatever they think of net neutrality. Because beneath the clever rallying cries of “net neutrality!” lurks a wide range of potential issues. Most concerns are imaginary or simply misplaced. The real concerns would be better addressed through other approaches — like focusing on abuses of market power that harm competition.

But first, we need to look at the ruling in a more nuanced way.

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