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Antitrust Has Forgotten its Coase

Scholarship Abstract There is a raging debate within antitrust to determine how to best assess the conduct of digital platforms and tailor the enforcement of antitrust . . .

Abstract

There is a raging debate within antitrust to determine how to best assess the conduct of digital platforms and tailor the enforcement of antitrust laws to the modern economy. The distinguishing features of digital platforms can make their analysis quite different from conventional, single-sided markets. The Supreme Court’s ruling in Ohio v. American Express (“Amex”) was the first decision to explicitly incorporate features of multisided platforms into antitrust analyses. However, the decision has divided academics and practitioners as to whether the Court properly incorporated platform features into antitrust’s rule of reason framework, which seeks to divide the burden of production between plaintiffs and defendants. Adding fuel to the fire are the lower courts’ interpretation of Amex, including in U.S. v. Sabre, where the district court ruled that only “transactional” platforms compete with other transactional platforms, which effectively short-circuited the competitive analysis. This Article argues that antitrust has forgotten the lessons from Ronald Coase’s work on the nature of the firm. Specifically, categorizing business organizations as “platforms” is insufficient to properly inform the actual competitive effects analysis. Firms organize in various ways to ultimately turn inputs into outputs. Precisely how this process is achieved is relevant to understand a firm’s conduct and incentives, but firm organization alone should not lead to competitive effects conclusions. In light of Coase, this Article reexamines the Court’s Amex decision to put suitable bounds on its precedential value. Additionally, this Article examines several key antitrust cases before and after Amex to assess their fidelity to a Coasian interpretation of platforms.

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Antitrust & Consumer Protection

The Paradox of Choice Meets the Information Age

TOTM Barry Schwartz’s seminal work “The Paradox of Choice” has received substantial attention since its publication nearly 20 years ago. In it, Schwartz argued that, faced . . .

Barry Schwartz’s seminal work “The Paradox of Choice” has received substantial attention since its publication nearly 20 years ago. In it, Schwartz argued that, faced with an ever-increasing plethora of products to choose from, consumers often feel overwhelmed and seek to limit the number of choices they must make.

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Antitrust & Consumer Protection

Is It Better to Address the Apple-Google App Store Duopoly Through Antitrust or Regulation?

Popular Media The antitrust debate on app store practices is all over the news almost every day. Last month, the Paris Commercial Court fined Google for abusive . . .

The antitrust debate on app store practices is all over the news almost every day. Last month, the Paris Commercial Court fined Google for abusive dealings with developers, while the Dutch competition authority issued a tenth weekly penalty payment against Apple for failing to comply with its decision to allow dating apps on its App Store to use non-Apple methods of payment. Yet, the US Court of Appeals for the Ninth Circuit will soon rule in Epic’s appeal over the Californian District Court ruling in its case against Apple.

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Antitrust & Consumer Protection

ICLE Brief for 9th Circuit in Epic Games v Apple

Amicus Brief In this brief for the 9th U.S. Circuit Court of Appeals, ICLE and 26 distinguished scholars of law & economics argue that the district court in a suit brought by Epic Games rightly found that Apple’s procompetitive justifications outweigh any purported anticompetitive effects in the market for mobile-gaming transactions.

United States Court of Appeals
For the
Ninth Circuit

EPIC GAMES, INC.,
Plaintiff/Counter-Defendant, Appellant/Cross-Appellee,
v.
APPLE, INC.,
Defendant/Counter-Claimant, Appellee/Cross-Appellant

Appeal from a Decision of the United States District Court
for the Northern District of California,
No. 4:20-cv-05640-YGR ? Honorable Yvonne Gonzalez Rogers

BRIEF OF AMICI CURIAE INTERNATIONAL CENTER FOR LAW & ECONOMICS
AND SCHOLARS OF LAW AND ECONOMICS
IN SUPPORT OF APPELLEE/CROSS-APPELLANT

 

INTEREST OF AMICI CURIAE

 

The International Center for Law & Economics (“ICLE”) is a nonprofit, non- partisan global research and policy center aimed at building the intellectual foundations for sensible, economically grounded policy. ICLE promotes the use of law & economics methodologies to inform public policy debates and has longstanding expertise in the evaluation of antitrust law and policy.

Amici also include 26 scholars of antitrust, law, and economics at leading universities and research institutions around the world. Their names, titles, and academic affiliations are listed in Addendum A. All have longstanding expertise in, and copious research on, antitrust law and economics.

Amici have an interest in ensuring that antitrust promotes the public interest by remaining grounded in sensible legal rules informed by sound economic analysis. Amici believe that Epic’s arguments deviate from that standard and promote the private interests of slighted competitors at the expense of the public welfare.

INTRODUCTION

Epic challenges Apple’s prohibition of third-party app stores and in-app payments (“IAP”) systems from operating on its proprietary, iOS platform as a violation of the antitrust laws. But, as the district court concluded, Epic’s real concern is its own business interests in the face of Apple’s business model—in particular, the commission charged for the use of Apple’s IAP system. See Order at 1-ER22, Epic Games, Inc. v. Apple Inc., No. 4:20-CV-05640 (N.D. Cal. Sept. 10, 2021), ECF No. 812 (1-ER3–183). In essence, Epic is trying to recast its objection to Apple’s 30% commission for use of Apple’s optional IAP system as a harm to consumers and competition more broadly.

Epic takes issue with the district court’s proper consideration of Apple’s procompetitive justifications and its finding that those justifications outweigh any anticompetitive effects of Apple’s business model. But Epic’s case fails at step one of the rule of reason analysis. Indeed, Epic did not demonstrate that Apple’s app distribution and IAP practices caused the significant market-wide effects that the Supreme Court in Ohio v. Am. Express Co. (“Amex”) deemed necessary to show anticompetitive harm in cases involving two-sided transaction markets. 138 S. Ct. 2274, 2285–86 (2018). While the district court found that Epic demonstrated some anticompetitive effects, Epic’s arguments below focused only on the effects that Apple’s conduct had on certain app developers and failed to appropriately examine whether consumers were harmed overall. This is fatal. Without further evidence of the effect of Apple’s app distribution and IAP practices on consumers, no conclusions can be reached about the competitive effects of Apple’s conduct.

Nor can an appropriate examination of anticompetitive effects ignore output. It is critical to consider whether the challenged app distribution and IAP practices reduce output of market-wide app transactions. Yet Epic did not seriously challenge that output increased by every measure, and Epic’s Amici ignore output altogether.

Moreover, the district court examined the one-sided anticompetitive harms presented by Epic, but rightly found that Apple’s procompetitive justifications outweigh any purported anticompetitive effects in the market for mobile gaming transactions. The court recognized that the development and maintenance of a closed iOS system and Apple’s control over IAP confers enormous benefits on users and app developers.

Finally, Epic’s reliance on the theoretical existence of less restrictive alternatives (“LRA”) to Apple’s business model is misplaced. Forcing Apple to adopt the “open” platform that Epic champions would reduce interbrand competition, and improperly permit antitrust plaintiffs to commandeer the judiciary to modify routine business conduct any time a plaintiff’s attorney or district court can imagine a less restrictive version of a challenged practice, irrespective of whether the practice promotes consumer welfare. See NCAA v. Alston, 141 S. Ct. 2141, 2161 (2021) (“[C]ourts should not second-guess ‘degrees of reasonable necessity’ so that ‘the lawfulness of conduct turn[s] upon judgments of degrees of e?ciency.’”). Particularly in the context of two-sided platform businesses, such an approach would sacrifice interbrand, systems-level competition for the sake of a superficial increase in competition among a small subset of platform users.

Read the full brief here.

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Antitrust & Consumer Protection

Self-Preferencing and Competitive Damages: A Focus on Exploitative Abuses

Scholarship Abstract Conceived as a theory of competitive harm, self-preferencing has been at the core of recent European landmark cases (e.g., Google Android, Google Shopping). In . . .

Abstract

Conceived as a theory of competitive harm, self-preferencing has been at the core of recent European landmark cases (e.g., Google Android, Google Shopping). In the context of EU competition law, beyond the anti-competitive leveraging effect, self-preferencing may lead to vertical and horizontal exclusionary abuses, encourage exploitation abuses, and generate economic dependence abuses. In this paper, we aim at characterizing the various forms of self-preferencing, investigating platforms’ capacity and incentives to do so through their dual role, by shedding light on the economic assessment of these practices in an effects-based approach. We analyze the different options for remedies in this context, by insisting on their necessity, adequacy, and proportionality.

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Antitrust & Consumer Protection

The American Innovation and Choice Online Act Would Foster Neither Innovation Nor Choice

Popular Media It’s always fun to see what names politicians come up with for their legislative proposals. Take, for example, the American Innovation and Choice Online Act, . . .

It’s always fun to see what names politicians come up with for their legislative proposals. Take, for example, the American Innovation and Choice Online Act, which is co-sponsored by Sens. Amy Klobuchar (D-Minnesota) and Chuck Grassley (R-Iowa) and just cleared the Senate Judiciary Committee. Should it pass, it would promote neither innovation nor choice, but would in fact give the Federal Trade Commission and the Department of Justice a mandate to squash innovation.

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Antitrust & Consumer Protection

Gus Hurwitz on the American Innovation and Choice Online Act

Presentations & Interviews ICLE Director of Law & Economics Programs Gus Hurwitz joined Steptoe & Johnson’s The Cyberlaw Podcast to discuss the American Innovation and Choice Online Act, . . .

ICLE Director of Law & Economics Programs Gus Hurwitz joined Steptoe & Johnson’s The Cyberlaw Podcast to discuss the American Innovation and Choice Online Act, just voted out of the Senate Judiciary Committee. The full episode is embedded below.

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Antitrust & Consumer Protection

Intermediaries: The Hero We Need?

TOTM In policy discussions about the digital economy, a background assumption that frequently underlies the discourse is that intermediaries and centralization always and only serve as a cost to . . .

In policy discussions about the digital economy, a background assumption that frequently underlies the discourse is that intermediaries and centralization always and only serve as a cost to consumers, and to society more generally. Thus, one commonly sees arguments that consumers would be better off if they could freely combine products from different trading partners. According to this logic, bundled goods, walled gardens, and other intermediaries are always to be regarded with suspicion, while interoperability, open source, and decentralization are laudable features of any market.

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Antitrust & Consumer Protection

Amazon Italy’s Efficiency Offense

TOTM Early last month, the Italian competition authority issued a record 1.128 billion euro fine against Amazon for abuse of dominance under Article 102 of the Treaty on the Functioning . . .

Early last month, the Italian competition authority issued a record 1.128 billion euro fine against Amazon for abuse of dominance under Article 102 of the Treaty on the Functioning of the European Union (TFEU). In its order, the Agenzia Garante della Concorrenza e del Mercato (AGCM) essentially argues that Amazon has combined its Amazon.it marketplace and Fulfillment by Amazon (FBA) services to exclude logistics rivals such as FedEx, DHL, UPS, and Poste Italiane.

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Antitrust & Consumer Protection