ICLE President Geoffrey A. Manne joined a panel hosted by the Global Antitrust Institute examining the ever-changing competition policy landscape involving large digital platforms, including the litany of conduct alleged to give rise to antitrust violations, theories of harm emphasizing potential and nascent competition, labor market impacts, and, even, “toxic” or “predatory” innovation. Video of the full panel is embedded below.

Abstract

Complexity science permeates the policy spectrum but not antitrust. This is unfortunate. Complexity science provides a high-resolution screen on the empirical realities of markets. And it enables a rich understanding of competition, beyond the reductionist descriptions of markets and firms proposed by neoclassical models and their contemporary neo-Brandeisian critique. New insights arise from the key teachings of complexity science, like feedback loops and the role of uncertainty. The present article lays down the building blocks of a complexity-minded antitrust method.

ICLE Chief Economist Brian Albrecht was a guest on The Hub Dialogues podcast to discuss the utility of economic theory, reasons to be skeptical about sweeping policy reforms, and lessons for young economists about using social media to present their ideas, engage experts, and learn. The full episode is embedded below.

Abstract

Artificial Intelligence (“AI”) and machine learning (“ML”) have the potential to create breakthrough advances in a range of industries, but they also raise novel legal, ethical, and privacy questions that will likely define the next era of technological advancement. Over the last several years, there has been a flurry of AI- and ML-related regulations and guidance issued by international bodies, governments, and regulators seeking to mitigate the risks posed by AI and ML, especially when these technologies are used to make important decisions related to employment or healthcare. Given the proliferation of these technologies across various industries, more regulation is likely to come. Organizations with AI and ML-based products and services should understand and consider how existing laws apply to them, as well as how the changing regulatory landscape may impact their business plans going forward. In this article, we discuss the differing approaches to regulating AI and ML in Europe and at the federal and state levels in the United States and the best practices for building compliance.

Introduction

Since 1950, when Congress closed a loophole in Section 7 of the Clayton Act, the federal antitrust agencies have investigated actively, and prosecuted diligently, mergers the government believed could be anti-competitive. In 1976, the Clayton Act was amended to require notification of many mergers to the agencies before consummation, allowing the government to sue to stop these mergers before they occur. Throughout the decades, merger review has become an elaborate, expensive process consuming vast resources; involving the merging parties, their attorneys, various experts, and those in the government; and rarely ending in judicial proceedings. The large majority of mergers the government opposed were either abandoned or settled with agreements requiring asset divestitures before consummation.

Prospective merger screening at the federal antitrust agencies has evolved, using advances in theoretical and empirical economics, to deemphasize structural tests in favor of an effects-based analysis. The agencies’ merger guidelines have changed with this evolution in economic knowledge and agency practice. The goal of guideline changes has been to increase the predictability and accuracy of the agencies’ merger screening, thereby decreasing the social costs of merger enforcement.

Strident critics of modern antitrust law, including merger policy, hold each key competition job in the administration of Pres. Joseph R. Biden Jr., including heads of both the Federal Trade Commission (FTC) and the Antitrust Division of the U.S. Department of Justice. President Biden recently decried modern antitrust law and policy as a 40-year “experiment failed.”To correct these “mistakes,” the antitrust agencies plan to replace the 2010 Horizontal Merger Guidelines and the 2020 Vertical Merger Guidelines (already withdrawn by the FTC) with a new enforcement approach.

Periodic revisions to the merger guidelines ensure that they reflect current agency practice, recent legal developments, and sound antitrust policy. Given the current administration’s desire to alter significantly how the agencies analyze mergers, changes to the guidelines are necessary to ensure that they accurately describe the new agency practice. It is less clear, however, whether the planned changes to antitrust enforcement and guidelines will reflect current law or sound antitrust policy. Although the precise nature, including the operational details, of the new guidelines is unknown at this writing, the agencies not only have made their disdain for the guidelines of the past 40 years known, but also have expressed their affinity for the pre-1980 merger law that modern guidelines have repudiated. Both their request for comment on the guidelines, one year ago, and a recent speech from FTC Chair Lina Khan show this affinity. The request relied almost entirely on pre-1980 law; Chair Khan’s speech was even more explicit.

In September 2022 at Fordham Law School, FTC Chair Khan discussed her work on revising the merger guidelines and stressed “fidelity to the law” as a guiding principle. She claims that, starting in the 1980s, the antitrust agencies “began straying” by sidestepping “controlling precedent and the statutory text, including the 1950 amendments” through “administrative fiat.” The law to which Chair Khan refers relied on strict structural presumptions to proscribe mergers. As shown here, merger law then did much more, reflecting a populist animus against mergers. The result was an era when the only consistency in the cases, as Justice Potter Stewart famously remarked, was that “the Government always wins.” The case law was incoherent, illogical, and, most important, anti-consumer, condemning bigness for its own sake, even when the mergers were not especially large or in concentrated markets.

In her speech, Chair Khan also notes that a post–World War II FTC study showing growing industrial concentration was “cited extensively by Congress as evidence of the danger to the American economy in unchecked corporate expansions through mergers” and was a “major driver in the passage of the 1950 amendment.” David Cicilline, then Chairman of the House Judiciary Committee’s Antitrust, Commercial, and Administrative Law Subcommittee and a leading critic of recent antitrust enforcement, also cites the same historical evidence. Yet, the FTC study showing growing concentration as a result of merger activity was methodologically flawed and wrong on the facts. Scholars convincingly demonstrated the flaws in the study and its conclusions, and shortly thereafter the authors of this FTC study on concentration even conceded it was wrong. Concentration was in fact not growing, from mergers or otherwise, and may actually have been decreasing. The problems with this study were known shortly before Congress passed the 1950 amendments. The courts obviously were wrong to rely on this discredited study in the 1960s, and one is more puzzled still that the current administration finds it useful to approvingly cite a flawed and discredited study today.

Critics of antitrust enforcement since 1980 also cite newer studies that show increasing industry concentration and claim that this increase is associated with increases in aggregate markups and decreased competition. This evidence has the same flaws as the discredited evidence used to support the structural approach to merger control from the 1960s that the Biden administration admires. Industrial organization economists have repeatedly shown that reliable inferences about the competitive dynamics in antitrust markets cannot be derived from measures of concentration or correlations between concentration and aggregate markups. These advances in theoretical and empirical economics undermined the economic core of the structural approach and eventually caused the agencies under both political parties to abandon that approach to merger control. Surely, new evidence with the same flaws cannot support a return to structural antitrust.

To provide background on the issues and show the fallacy in returning to reliance on strong and simple structural presumptions, section II begins with a brief description of the economic evolution of the effects-based approach contained in the 2010 U.S. Horizontal Merger Guidelines and 2020 U.S. Vertical Merger Guidelines. Section III then examines the flawed economic evidence cited to support returning to strong structural presumptions. Section IV next analyzes why the statutory text of the 1950 amendment and the post-1950 merger law do not support turning the clock back to structural presumptions. Section V concludes.

Abstract

The United States Department of Justice (“DOJ”) and three overlapping groups of states have filed federal antitrust cases alleging Google has monopolized internet search, search advertising, internet advertising technologies, and app distribution on Android phones. In this Article, we focus on the DOJ’s claims that Google has used contracts with tech firms that distribute Google’s search services in order to exclude rival search providers and thus to monopolize the markets for search and search advertising—the two sides of Google’s search platform. The primary mechanisms of exclusion, according to the DOJ, are the many contracts Google has used to secure its status as the default search engine at all major search access points. The complaint echoes the DOJ’s claims two decades ago that Microsoft illegally maintained its monopoly in personal computer operating systems by forming exclusionary contracts with distributors of web browsers, and by tying its Internet Explorer browser to Windows. The gist of the case was that Microsoft had used exclusionary tactics to thwart the competitive threat Netscape’s Navigator browser and Sun Microsystems’ Java programming technologies—both forms of “middleware”—posed to the Windows monopoly. In this Article, we argue that the treatment of market definition, exclusionary contracting, causation, and remedies in the D.C. Circuit’s Microsoft decision has important lessons for the Google litigation.

In a Feb. 14 column in the Wall Street Journal, Commissioner Christine Wilson announced her intent to resign her position on the Federal Trade Commission (FTC). For those curious to know why, she beat you to the punch in the title and subtitle of her column: “Why I’m Resigning as an FTC Commissioner: Lina Khan’s disregard for the rule of law and due process make it impossible for me to continue serving.”

Read the full piece here.

ICLE Director of Innovation Policy Kristian Stout appeared on the Mornings with Brian Haldane radio show in Baton Rouge, Louisiana, to discuss what the emergence of generative AI systems means for copyright. The full audio is embedded below.

Counter-positioning is a business strategy in which a company positions itself in a way that its competitors are unwilling to replicate to avoid cannibalization. A well-known example of counter-positioning is Netflix’s policy not to charge late fees. In 2000, Blockbuster was earning a large portion of its revenue ($800 million) from late fees. When Netflix entered the market, the company began shipping DVDs to customers’ homes. Customers could pay for up to three DVDs at a time, and if they didn’t return them, Netflix simply wouldn’t send the next one on the list. This strategy caused Blockbuster to eliminate late fees in 2004, i.e., Netflix essentially forced Blockbuster to cannibalize its business model in order to survive.

By integrating ChatGPT, Bing is poised to put Google in a similarly difficult situation. In 2021, Google earned $148.95 billion (out of $256.74 billion) from search ads. The more users click on different results and reformulate requests, the more advertisers are willing to pay to appear at the top… the more Google generates revenue.

Read the full piece here.