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Written Testimonies & Filings FTC Hearings on Competition & Consumer Protection in the 21st Century. Comments of the International Center for Law & Economics: Summing Up the FTC Hearings: Advocates for Increased Antitrust Intervention Failed to Make Their Case. Submitted Jun 30, 2019.
These comments represent ICLE’s review and commentary of the detailed record set forth during the FTC’s Hearings on Competition and Consumer Protection in the 21st Century. The hearings — and these comments — covered a wide range of topics from data security and privacy, to horizontal and vertical merger policy, anticompetitive unilateral behavior, and a host of contemporary issues that have arisen around the question of whether antitrust law is capable of dealing with potential harms to competition from modern firms.
Specifically, the summary comments deal with the following topics.
Opponents of the consumer welfare standard seek to return antitrust to the bygone era of courts arbitrarily punishing firms for successfully outcompeting their rivals or simply growing “too large.” The Commission should tread carefully before incorporating these ideas, which, during the course of its evolution in the 20th century, antitrust law carefully and correctly selected out.
Based on the testimony heard during the hearings, there is no need to change the non-horizontal merger guidelines. If anything, vertical merger review should be pared back out of a recognition that the failure to account for dynamic effects (and the inherent difficulty of doing so) means it is likely that pro-competitive mergers are being deterred.
Concerns regarding vertical discrimination are predicated on the erroneous assumption that big tech platforms might be harming competition by favoring their content over that of their complementors. Not only is this fear overblown, but even the harms alleged are frequently ambiguous and provide benefits to some consumers.
Much of the analysis of popular technology companies is predicated on traditional market definition analysis, which infers future substitution possibilities from existing or past market conditions. This leads to overly-narrow market definitions and erroneous market power determinations. Thus, Amazon, Facebook, and Google are assumed — erroneously — to be unassailable monopolies.
Data is a valuable input for companies competing in the digital economy. It is not, however, a magic bullet or holy grail, as some commenters suggested. As with other assets, companies can use data in both pro-competitive and anti-competitive ways. “Big data” may be a new term, but it does not pose unique problems for competition policy.
Click here to read the full concluding comments.
Scholarship This Essay takes prior work on Chevron in a new direction, arguing that broad deference doctrines have the largely unrecognized but particularly pernicious effect of increasing the political gridlock and politicization of the legislative process.
This Essay takes prior work on Chevron in a new direction, arguing that broad deference doctrines have the largely unrecognized but particularly pernicious effect of increasing the political gridlock and politicization of the legislative process. Untethered from the need to actively govern agencies that have been delegated sufficiently broad authority to keep the basic ship of state afloat, legislators refocus their attention on maintaining power for themselves and their political party. In the thirty or so years since Chevron became the law of the land, our country’s governing institutions have grown increasingly politicized: At the risk of overstating this Essay’s claim, perhaps Chevron itself—and the related embrace of broad judicial deference to the administrative state of which it is part—is in some measure responsible for our current sorry political state.
This is an undesirable outcome. And, as framed here, it is not only unfortunate, but also problematic on separation of powers grounds. The intuition explored in this Essay is that Chevron dramatically exacerbates Congress’s worst tendencies, encouraging Congress to push its constitutional legislative duties to the Executive. Chevron thus effectively allows, and indeed encourages, Congress to abdicate its role as the most politically-accountable branch by deferring politically difficult questions to agencies. This argument is, at core, based in separation of powers concerns. While separation of powers concerns generally focus on preventing one branch of government from encroaching into the realm of the other branches, this Essay offers a twist, arguing that Chevron’s demurral to agency interpretations encourages a Congressional abdication of its constitutional responsibilities—and that such deference is therefore an abdication of the Judiciary’s constitutional role as a check on the problematic conduct of its sister branches.
Click here to read full paper.
Written Testimonies & Filings FTC Hearings on Competition & Consumer Protection in the 21st Century. Comments of the International Center for Law & Economics: Properly Balancing Consumer Protection and Innovation in Broadband Markets: The Competition Law and Economics of Vertical Restraints in Broadband. Hearing #10 (Mar. 20, 2019). Submitted May 31, 2019.
The necessity of the FTC’s involvement in regulating broadband competition arises most recently from the Federal Communication Commission’s (“FCC”) 2018 Restoring Internet Freedom Order (“2018 RIFO”). In the 2018 RIFO, the FCC adopted a competition-oriented approach to preventing what are otherwise violations of so-called “net neutrality” principles. This approach, consistent with the FCC’s historical deregulatory approach to information services, directly implicates the FTC as an important part of preventing competitive injuries that harm downstream consumers.
Rather than simply presuming harm, the FCC undertook an extensive, thorough, and fact-based analysis to first assess the likely risk of competitive harms that could arise in the broadband market. Based on this analysis, it concluded that the risk of harmful conduct is low, in terms of both the likelihood that ISPs will engage in such conduct and its potential adverse effects on consumers. Because this risk is low, the FCC determined that a “light-touch,” competition-oriented regulatory approach was appropriate for regulation of broadband.
This conclusion also followed from the FCC’s review of the Communications Act. As the FCC observed, “[t]he Communications Act includes an antitrust savings clause, so the antitrust laws apply with equal vigor to entities regulated by the Commission.” Recognizing this, the Commission carefully structured the 2018 RIFO so that consumers would be protected under existing consumer protection and antitrust laws, while still leaving room for the historically applied light-touch regime for information services under Title I of the Communications Act.
In so doing, the FCC struck the proper balance between indirect antitrust enforcement and direct regulation under the Communications Act, which incorporates competition policy as the generally applicable regulatory “default” in the absence of specific statutory mandates.
Click here to read full comments.
TOTM In the opening seconds of what was surely one of the worst oral arguments in a high-profile case that I have ever heard, Pantelis Michalopoulos, . . .
In the opening seconds of what was surely one of the worst oral arguments in a high-profile case that I have ever heard, Pantelis Michalopoulos, arguing for petitioners against the FCC’s 2018 Restoring Internet Freedom Order (RIFO) expertly captured both why the side he was representing should lose and the overall absurdity of the entire net neutrality debate: “This order is a stab in the heart of the Communications Act. It would literally write ‘telecommunications’ out of the law. It would end the communications agency’s oversight over the main communications service of our time.”
Read the full piece here.
Written Testimonies & Filings On December 19, 2018, ICLE President and Founder, Geoffrey A. Manne testified before the US Senate Committee on the Judiciary's Subcommittee on Antitrust, Competition Policy and Consumer Rights to discuss the differences between the antitrust regimes in the US and the EU, and the inadvisability of importing EU policy into the US.
On December 19, 2018, ICLE President and Founder, Geoffrey A. Manne testified before the US Senate Committee on the Judiciary’s Subcommittee on Antitrust, Competition Policy and Consumer Rights to discuss the differences between the antitrust regimes in the US and the EU, and the inadvisability of importing EU policy into the US. Mr. Manne noted:
An increasing number of scholars and advocates have argued recently that US antitrust law should be “reformed” in order to invigorate antitrust enforcement and sidestep the judicially-imposed constraints that have developed over antitrust’s 100 year history. Explicitly or not, these efforts seek to bring about a shift in US antitrust that would make it more closely resemble competition law in Europe. While these scholars and advocates assert that their proposals would improve economic conditions in the US, economic logic and the apparent reality from Europe suggest otherwise. *** Although the differences between US and EU antitrust law can appear minor or superficial at a glance, even small differences can have important consequences, and the cumulative effect of the differences is significant. Although the Commission is often quite careful to couch its decision-making in economic language, in practice, analytical economic administration of antitrust is far from the norm. *** Despite asserting that EU competition law is “better” than that of the US, and that emulating the EU will improve economic conditions in the US, references to the likely outcome — positive or negative — of the expanded antitrust experiment in the EU are not provided. Moreover, as noted below, to the extent the European experience is assessed at all, these assessments are manifestly unreliable.
An increasing number of scholars and advocates have argued recently that US antitrust law should be “reformed” in order to invigorate antitrust enforcement and sidestep the judicially-imposed constraints that have developed over antitrust’s 100 year history. Explicitly or not, these efforts seek to bring about a shift in US antitrust that would make it more closely resemble competition law in Europe. While these scholars and advocates assert that their proposals would improve economic conditions in the US, economic logic and the apparent reality from Europe suggest otherwise.
***
Although the differences between US and EU antitrust law can appear minor or superficial at a glance, even small differences can have important consequences, and the cumulative effect of the differences is significant. Although the Commission is often quite careful to couch its decision-making in economic language, in practice, analytical economic administration of antitrust is far from the norm.
Despite asserting that EU competition law is “better” than that of the US, and that emulating the EU will improve economic conditions in the US, references to the likely outcome — positive or negative — of the expanded antitrust experiment in the EU are not provided. Moreover, as noted below, to the extent the European experience is assessed at all, these assessments are manifestly unreliable.
The full testimony documents the many relevant differences, in particular the way that competition law in the EU and its member states vests enforcers with broad discretion. By comparison, the US standards impose requirements of conducting careful economic analysis in order to prove a competitive harm. The net effect is that the US antitrust approach provides both certainty for firms and consumers, and discipline for enforcers.
The full testimony is available here.
The full video of the hearing is available here.
Amicus Brief ICLE filed a brief in support of Petitioners in the D.C. Circuit case, Mozilla v. FCC, a case that challenged the FCC's authority to issue the Restoring Internet Freedom Order ("RIFO").
ICLE filed a brief in support of Petitioners in the D.C. Circuit case, Mozilla v. FCC, a case that challenged the FCC’s authority to issue the Restoring Internet Freedom Order (“RIFO”). In RIFO, the FCC repealed the Title II classification on ISPs, preempted conflicting state laws, and applied a transparency rule against ISPs, among other provisions. In our brief, we argue that:
Contrary to the claims of Petitioners, the Commission acted well within its authority in adopting the Order. The Commission developed a comprehensive regulatory scheme for ISPs that includes both obligations imposed under the Communications Act, as well as complementary regulation and potential enforcement under antitrust law by the Commission’s sister agencies. As we show below, this competition-oriented, light touch regulatory regime comports with the relevant provisions and stated goals of the Communications Act far better than the ex ante rules adopted in the Title II Order. In adopting this competition-oriented regulatory regime, the Commission also acted within its authority to preempt contradictory state laws under well- established precedent. The Commission did so while properly allowing for states to continue to regulate under other laws of general applicability that do not conflict with or frustrate the federal policies underlying the Order. Accordingly, the Order should be upheld and the petitions for review should be denied.
Contrary to the claims of Petitioners, the Commission acted well within its authority in adopting the Order. The Commission developed a comprehensive regulatory scheme for ISPs that includes both obligations imposed under the Communications Act, as well as complementary regulation and potential enforcement under antitrust law by the Commission’s sister agencies. As we show below, this competition-oriented, light touch regulatory regime comports with the relevant provisions and stated goals of the Communications Act far better than the ex ante rules adopted in the Title II Order.
In adopting this competition-oriented regulatory regime, the Commission also acted within its authority to preempt contradictory state laws under well- established precedent. The Commission did so while properly allowing for states to continue to regulate under other laws of general applicability that do not conflict with or frustrate the federal policies underlying the Order.
Accordingly, the Order should be upheld and the petitions for review should be denied.
Written Testimonies & Filings FTC Hearings on Competition & Consumer Protection in the 21st Century. Comments of the International Center for Law & Economics: Has the U.S. Economy Become More Concentrated and Less Competitive? Hearing #1 (Sep. 13, 2018). Submitted October 14, 2018.
[feature_embed image=”/wp-content/uploads/2018/10/ftc-bldg-400×200.png” meta_icon=”/wp-content/uploads/2017/03/ICLE-icon_News-Type_ICLE-in-the-News.svg” meta_text=”FTC 21st Century Hearings” ]An ICLE Commentary Series.[/feature_embed]
When examining the currently in vogue (and incorrect) claims that the economy is more concentrated and, therefore, less competitive, three important principles must be understood.
First, there is no rigorous economic support for claims that high concentration levels are a strong indicator of harm to competition, let alone that they trigger a presumption of such harm in antitrust analysis. Instead, such assertions are based on a simple inference of competitive effects from market structures, and the unsupported assumption that an increase in concentration can mean only a reduction in competition. The problem is that no such inference can be made.
Second, parties seeking to challenge mergers often rely substantially on structural presumptions, and notably on claims regarding a deal’s assessment under the Herfindahl-Hirschman Index (HHI). In particular, they often urge consideration of the market’s HHI and the transaction’s purported effect on it, asserting that even the HHI alone counsels against a merger. But, as we note at length in the attached comments, HHIs simply can’t bear the weight put on them.
Finally, it is important to understand the shortcomings of recent empirical research which claims to show that increased concentration does, in fact, lead to higher prices or other competitive harm. One such example that is sometimes relied upon is the recent merger retrospective study by Professor John Kwoka. Unfortunately, Professor Kwoka’s study—and the econometric literature of which it is a part—cannot bear the weight placed upon it.
Written Testimonies & Filings FTC Hearings on Competition & Consumer Protection in the 21st Century. Comments of the International Center for Law & Economics: The current landscape of competition and consumer protection law and policy. Hearing #1 (Sep. 13, 2018). Submitted October 14, 2018.
Despite the vast social benefits generated by companies operating in the digital economy, this economic transformation has stoked fears amongst members of the general public, the press, and policymakers. It has led to calls for interventionist policies such as heightened antitrust enforcement, sector-specific regulation, and direct intervention against industry concentration.
Unfortunately, there is insufficient evidence and, at best, ambivalent theory to support any of these proposed policies—and in the absence of a strong basis for adopting them, the proposed policies would do more harm than good. Among other things, economies of scale, economies of scope, network effects, and the like may bring about larger firms and more concentrated markets along with considerable consumer benefits. And new markets necessarily imply the consolidation of some firms and the exit of others, as competitors vie to come up with the winning paradigm.
Against the backdrop of this evolutionary process, it is critical that authorities avoid knee-jerk reactions that may impair the long-term welfare of consumers and firms alike.
To steer clear of these acute false positives, we urge policymakers to base their enforcement efforts on the tried and tested “law and economics” approach. This approach seeks to maximize consumer welfare and places a heavy emphasis on evidence-based scholarship. In doing so, it promotes innovation and minimizes the costs of policy errors.
Following this analytical framework will enable competition authorities to better address issues of exclusion and exploitation — as well as those of innovation and efficiency — in the digital economy.
Read the full comments here.
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.
