ICLE Senior Fellow of Law & Economics Dirk Auer joined the Institute for Internet & the Just Society’s Just Talking series for a discussion of competition policy and the digital economy. Video of the full event is embedded below.

Background…

Apple Inc. and Epic Games are currently locked in a high-stakes antitrust dispute. Epic is challenging Apple’s rules that require apps to use Apple Pay for in-app purchases and that ban alternative app stores from iOS devices like iPhones and iPads. 

The suit is part Epic’s broader strategy, dubbed Project Liberty, to pay lower fees to online platforms. If it succeeds, Epic would be able to steer its users toward lower-priced payment processors. This would increase the competitive constraints that Apple faces when it sets platform fees.

But…

Epic’s proposals would allow large developers and rival payment processors to get the benefit of Apple’s investments in iOS and the App Store without paying for them. It could also undermine other online platforms that rely on commissions to earn a positive return on their upfront investments. This could shrink investments in platform creation and upkeep, hurting users and leading to worse platforms overall.

Read the full explainer here.

In a new paper published by the Progressive Policy Institute, ICLE Senior Fellow Dirk Auer and PPI’s Caleb Watney make the case that while the EU desires to be at the forefront of developing regulations to manage emerging issues relevant to artificial intelligence, the European Commission’s leadership have failed to grapple meaningfully with the significant tradeoffs that regulation of these new technologies entails.

Unlike many other trading blocs (most notably the EU), the ASEAN nations are yet to agree upon a common, unified set of competition law provisions. Nevertheless, recent years have seen the ASEAN members embark upon various initiatives that seek to harmonize their competition regimes (though these stop well short of common rules). In 2016, for instance, the member states adopted the ASEAN Competition Action Plan (“ACAP”). Among other things, the plan seeks to ensure that all ASEAN states implement competition regimes that meet a set of minimal standards, and eventually to harmonize competition policy across the ASEAN region.

These ongoing efforts to modernize and harmonize ASEAN competition laws do not arise in a vacuum. Rather, they take place amid a longstanding effort by both the European Union and the United States to export their respective competition laws throughout the world:

The EU and the US . . . want the rest of the world to follow their respective regulatory models. Both jurisdictions have actively promoted their competition laws as “best practices” abroad, urging developed and developing countries alike to adopt domestic competition laws and build institutions to enforce them. They promote their models through a specialized network of competition regulators—the International Competition Network (ICN)—and also more general bodies—notably the Organization for Economic Cooperation and Development (OECD) and the United Nations Conference on Trade and Development (UNCTAD). They also employ bilateral tools in their promotion effort—including offering technical assistance to emerging competition law jurisdictions. In its trade agreements, the EU also explicitly conditions access to its markets on the adoption of a competition law, exporting its own law in the process, while the US relies primarily in its persuasive powers rather than on formal treaties in exporting its laws.

No doubt the EU and US competition regimes are the most developed and dominant exemplars; following the policies of one or both to some extent is virtually inevitable. But this raises a critical question: should the ASEAN countries attempt to mimic the competition regimes of other developed nations, notably those that are in force in the EU and the US? And, if so, which one of these regimes should they draw more inspiration from?

While we certainly do not purport to know what type of regime would best fit the idiosyncratic needs of the ASEAN countries, we seek to dispel the myth that the European model of competition enforcement would necessarily provide a superior blueprint. To the contrary, we show that the evolutionary, common-law-like regime that has emerged in the US has many strengths that are often overlooked by contemporary competition policy scholarship, and which might provide a particularly good fit for the economic and political realities of the ASEAN member states.

Our paper also falls squarely within a much broader debate. Over the past couple of years, there have been renewed calls for policymakers to reform existing competition regimes in order to better address the challenges that are, purportedly, posed by the emergence of the digital economy. This has notably resulted in a series of high-profile reports, papers, and draft legislation, concluding that more interventionist tools are required to effectively deal with competition issues in digital markets. The draft European Digital Markets Act, the US House Judiciary report on competition in digital markets, as well as the draft bill put forward by US Senator Amy Klobuchar all mark the culmination of this antitrust reform movement.

Although the connection is often implicit, these calls for reform ultimately seek to implement (and amplify) features that are currently at the forefront of European competition enforcement. Potential reforms thus include broadening the goals of competition policy, as well as relying more heavily on structural and behavioral presumptions (rather than outcome-oriented reasoning).

At times this desire to move closer to the EU model is more explicit. For example, writing in Vox, Matthew Yglesias ventured that “[o]ne idea [for remedying perceived problems with US antitrust] would be for the US to actually move to something more like the European system and abandon the consumer welfare standard.” In a similar vein, Bloomberg featured an article by economics writer Noah Smith heaping praise on the growing populist antitrust wave and its potential to roll back the consumer welfare standard. And, at least according to EU Commissioner Margrethe Vestager, the US executive branch agencies have expressed a “renewed deeper interest and curiosity as to what we are doing in Europe.”

In parallel to these calls for reform, scholars have also analyzed the evolution of competition legislation around the world (as well as regulation, more generally). These scholars observe that recent initiatives have tended to mimic the rules of the European Union, rather than the more laissez faire approach that is often associated with the US. This trend has been referred to as the “Brussels Effect.” Accordingly, these scholars predict a regulatory “race to the top”, where more stringent rules and regulations will become the norm. While ostensibly agnostic, this implicitly conveys a sense that “resistance is futile,” and that the European approach will inevitably continue to spread more rapidly than its US counterpart.

With these policy debates in mind, our paper argues that ASEAN member states should not be too quick to embrace the European model of competition enforcement – be it by adopting more expansive competition laws or by regulating competition in digital markets. While the above-referenced scholars and advocates tend to assert that a more-expansive, EU-oriented approach would improve economic conditions, economic logic and the apparent reality from Europe strongly suggest otherwise.

Antitrust is an attractive regulatory tool for a number of reasons. The vague, terse language of most antitrust laws (including those in both the US and EU) readily lend themselves to “interpretation” imbuing them with virtually limitless scope. Indeed, the urge to treat antitrust as a legal Swiss Army knife capable of correcting all manner of social and economic ills is apparently difficult to resist. Conflating size with market power, and market power with political power, many recent calls for regulation of the tech industry are framed in antitrust terms, even though they are mostly rooted in nothing recognizable as modern, economically informed antitrust legal claims or analysis.

But that attraction is precisely why everyone—and emerging economies like ASEAN members in particular—should care about the scope, process, and economics of antitrust and the extent of its politicization. Antitrust in the US has largely resisted the relentless effort to politicize it. Despite being rooted in vague and potentially expansive statutory language, US antitrust is economically grounded, evolutionary, and limited to a set of achievable social welfare goals. In the EU, by contrast, these sorts of constraints are far weaker.

This conclusion is in no way altered by the fact that US antitrust law has become the “outlier” of global antitrust enforcement, compared to the EU’s more “consensual” approach. What matters is a policy’s actual results, not whether it is widely adopted; the world is full of debunked beliefs that were once widely shared. And it is far from certain that the widespread adoption of the EU model is in any way indicative of superior results. It is equally (or even more) plausible that this model has proliferated because it naturally accommodates politically useful populist narratives—such as “big is bad,” robin hood fallacies and robber baron myths—that are constrained by the US’s more evidence based and rational antitrust decision-making. America’s isolation might thus be a testament to its success rather than an emblem of its failure.

The EU’s more aggressive pursuit of technology platforms under its antitrust laws demonstrates many of the problems with its approach in general. Endorsing the European approach to antitrust, in a naïve attempt to bring high-profile cases against large internet platforms, would prioritize political expediency over the rule of law. It would open the floodgates of antitrust litigation and facilitate deleterious tendencies, such as non-economic decision-making, rent-seeking, regulatory capture, and politically motivated enforcement.

Bringing international antitrust enforcement in line with that of the EU would thus unlock a veritable Pandora’s box of concerns that might otherwise be kept in check. Chief among them is the use of antitrust laws to evade democratically and judicially established rules and legal precedent. When considering this question, it is important to see beyond any particular set of firms that enforcement officials and politicians may currently be targeting. An antitrust law expanded to consider the full scope of soft concerns that the EU aims at will not be employed against only politically disfavored companies, companies in other jurisdictions, or in order to expediently “solve” otherwise political problems. Once antitrust is expanded beyond its economic constraints and imbued with political content, it ceases to be a uniquely valuable tool for addressing real economic harms to consumers, and becomes a tool for routing around legislative and judicial constraints.

Our paper proceeds as follows. Section II analyzes the high-level differences between the American and European approaches to competition policy. Notably, this Section shows that these regimes pursue different goals, rely to varying degrees on economic insights to inform their decision-making, afford very different degrees of judicial deference to antitrust authorities, and exhibit different degrees of politization. Section III shows that the US and Europe also differ substantially in terms of the conduct that may constitute an infringement of competition law—the EU system being significantly more restrictive. Section IV turns to question of competition in digital platform markets. It argues that European competition enforcement in the digital industry provides a cautionary tale that cuts against both the adoption of ex ante regulation and a relaxation of existing antitrust standards (such as the “consumer welfare standard”). Section V posits that reducing economic concentration—sometimes cited as a byproduct of European-style competition enforcement—should not be a self-standing goal of antitrust policy. Finally, Section VI argues that many of the economic and political characteristics of the ASEAN economy cut in favor of using the US model of competition enforcement as a blueprint for further development and harmonization of ASEAN competition law.

Read the full white paper here.

Policy discussions about the use of personal data often have “less is more” as a background assumption; that data is overconsumed relative to some hypothetical optimal baseline. This overriding skepticism has been the backdrop for sweeping new privacy regulations, such as the California Consumer Privacy Act (CCPA) and the EU’s General Data Protection Regulation (GDPR).

Read the full piece here. 

 

We thank the Commission for the opportunity to comment on its Advance Notice of Proposed Rulemaking (“ANPRM”) concerning future amendments to the premerger notification rules under the Hart-Scott-Rodino Antitrust Improvements Act (“HSR’’).

The International Center for Law and Economics (ICLE) is a nonprofit, nonpartisan research center whose work promotes the use of law & economics methodologies to inform public policy debates. We believe that intellectually rigorous, data-driven analysis will lead to efficient policy solutions that promote consumer welfare and global economic growth.

ICLE’s scholars have written extensively on competition and consumer protection policy. Some of our writings are included as references in the comment below. Additional materials may be found at our website: www.laweconcenter.org.

Our comment argues that the FTC’s rulemaking initiatives should be informed by the error-cost framework. As we explain, the framework offers several key insights that authorities should carefully consider when reviewing existing merger rules and guidance.

Among other things, it demonstrates that the societal costs stemming  from false negatives (i.e. anticompetitive mergers that evade antitrust enforcement) are inextricably linked to those that originate from false positives (efficient mergers that are prohibited or deterred) and administrative costs (the social costs that are created by the operation of a given regulatory regime). As a result, any attempt to reduce one of these costs necessary entails a tradeoff as far as the others are concerned. All three costs should thus be considered together.

In short, we urge the FTC to take a holistic view when updating HSR rules and interpretations of those rules. In particular, it is important to consider the overall welfare costs of new rules, and not just their ability to plug existing enforcement gaps.

Read the full comments here.

Background…

The European Union has unveiled draft legislation that seeks to tame so-called “gatekeeper” Big Tech firms. If passed into law, this Digital Markets Act (“DMA”) would create a list of “dos and don’ts” by which the platforms must abide, such as allowing interoperability with third parties and sharing data with rivals. In short, the DMA would give the European Commission significant powers to tell tech companies how to run their businesses.

But…

The DMA essentially shifts competition enforcement against gatekeeper platforms away from an “effects” analysis that weighs costs and benefits to a “blacklist” approach that proscribes all listed practices as harmful. This will constrain platforms’ ability to experiment with new products and make changes to existing ones, limiting their ability to innovate and compete.

Read the full explainer here.

It has been a brutal few days for Parler, the now-infamous Twitter alternative favored by President Donald Trump’s most die-hard supporters. Both Google and Apple removed the app from their online stores, and the site went offline altogether after Amazon Web Services (AWS) suspended its webhosting account with little notice.

Parler responded to this deplatforming by filing an antitrust suit against Amazon, which is certain to fail and may not even survive a motion to dismiss. The crux of Parler’s antitrust case is that Amazon conspired with Twitter to eliminate its service. But the company’s filing contains not a single allegation of reduced competition relevant to antitrust law, let alone evidence to back up such claims.

Read the full piece here.

If passed into law, this Digital Markets Act (“DMA”) would fundamentally alter the way these platforms conduct business in Europe. But European Commission officials have been so preoccupied with how to regulate Big Tech that they never stopped to consider whether they should. Indeed, these new rules could have unintended consequences that hamper digital markets in the EU.

Read the full piece here.