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TOTM The idea of the maverick firm requires that the firm play a critical role in the market. The maverick must be the firm that outflanks coordinated action or acts as a bulwark against unilateral action. By this loosey goosey definition of maverick, a single firm can make the difference between success or failure of anticompetitive behavior by its competitors.
There’s always a reason to block a merger:
Read the full piece here.
TOTM Over the last few years competition authorities in the US and elsewhere have repeatedly warned about the risk of patent hold-up in the licensing of Standard Essential Patents (SEPs). . . .
Over the last few years competition authorities in the US and elsewhere have repeatedly warned about the risk of patent hold-up in the licensing of Standard Essential Patents (SEPs). Concerns about such risks were front and center in the recent FTC case against Qualcomm, where the Court ultimately concluded that Qualcomm had used a series of anticompetitive practices to extract unreasonable royalties from implementers. This post evaluates the evidence for such a risk, as well as the countervailing risk of patent hold-out.
TOTM After spending a few years away from ICLE and directly engaging in the day to day grind of indigent criminal defense as a public defender, I now have a new appreciation for the ways economic tools can explain behavior that I had not before studied.
After spending a few years away from ICLE and directly engaging in the day to day grind of indigent criminal defense as a public defender, I now have a new appreciation for the ways economic tools can explain behavior that I had not before studied. For instance, I think the law and economics tradition, specifically the insights of Ludwig von Mises and Friedrich von Hayek on the importance of price signals, can explain one of the major problems for public defenders and their clients: without price signals, there is no rational way to determine the best way to spend one’s time.
Presentations & Interviews In the episode Blockchain antitrust old wine, new bottles? ICLE Academic Affiliate Thibault Schrepel and Caron Beaton-Wells discuss anti-competition practices (collusions & abuses of dominance). . . .
In the episode Blockchain antitrust old wine, new bottles? ICLE Academic Affiliate Thibault Schrepel and Caron Beaton-Wells discuss anti-competition practices (collusions & abuses of dominance). The answer… “Old wine is good.” The full episode is embedded below.
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.
TOTM ICLE Research Fellow Alec Stapp responds to a new paper by Thomas Wollman in the American Economic Review regarding “stealth” consolidation and its allegedly anticompetitive effects.
Thomas Wollmann has a new paper — “Stealth Consolidation: Evidence from an Amendment to the Hart-Scott-Rodino Act” — in American Economic Review: Insights this month. Greg Ip included this research in an article for the WSJ in which he claims that “competition has declined and corporate concentration risen through acquisitions often too small to draw the scrutiny of antitrust watchdogs.” In other words, “stealth consolidation”.
Regulatory Comments The Department should be commended for undertaking this workshop “to explore industry dynamics in media advertising and the implications for antitrust enforcement and policy.... and the competitive dynamics of media advertising in general.” The competitive dynamics of advertising markets—and digital advertising markets, in particular—are complicated and not well-understood.
The Department should be commended for undertaking this workshop “to explore industry dynamics in media advertising and the implications for antitrust enforcement and policy…. and the competitive dynamics of media advertising in general.” The competitive dynamics of advertising markets—and digital advertising markets, in particular—are complicated and not well-understood. As more and more attention is paid to online markets and the welfare implications of various practices, it is crucial that enforcers make measured and informed decisions. As these are rapidly changing markets characterized by novel business models and nonstandard contracts, it is important not to fall prey to the concern that Ronald Coase pointed out half a century ago:
[I]f an economist finds something—a business practice of one sort or another—that he does not understand, he looks for a monopoly explanation. And as in this field we are very ignorant, the number of ununderstandable practices tends to be very large, and the reliance on a monopoly explanation, frequent.
Economic learning has come a long way since then, but markets have also been transformed. This workshop is a valuable step toward updating the economic learning relevant to these novel and economically important markets, and toward ensuring that antitrust enforcement follows suit. As Robert Bork said (and AAG Delrahim quoted in his introductory remarks):
Though the goals of the antitrust statutes as they now stand should be constant, the economic rules that implement that goal should not. It has been understood from the beginning that the rules will and should alter as economic understanding progresses.
We hope that this workshop will be the beginning, not the end, of this discussion undertaken by the US antitrust agencies.
Click here to reach full comments.
Amicus Brief Introduction and Summary of Argument Building and maintaining a successful brand is no small task. First you must spot a widespread need or desire that . . .
Building and maintaining a successful brand is no small task. First you must spot a widespread need or desire that no one else can see—or can even feel yet. “People don’t know what they want until you show it to them,” Steve Jobs said. An entrepreneur must aim, therefore, “to read things that are not yet on the page.” Walter Isaacson, Steve Jobs 567 (2011). This, believe it or not, is sometimes the easy part.
Next, you must get people to notice you and your great idea. You must raise your voice above the modern din. This usually requires advertisements. Lots of advertisements. “Half the money I spend on advertising is wasted,” nineteenth-century retailer John Wanamaker is supposed to have said; “the trouble is I don’t know which half.”
Finally, you must maintain your momentum. During a train ride, a friend asked William Wrigley why he spent so much advertising his chewing gum when he already dominated the market. “How fast do you think this train is going?” Wrigley replied. “About ninety miles an hour,” answered the friend. “Well,” said Wrigley, “do you suggest we unhitch the engine?” David Ogilvy, Ogilvy on Advertising 171-72 (1985).
All this assumes, of course, that after you have innovated, invested, and risked all to climb to the top, the antitrust laws will not thwart your efforts to recoup a reward commensurate to your sacrifices. To read the Sherman Act as “making everyone fight but forbidding anyone to be victorious” would, observed Justice Holmes, turn it into an “imbecile statute.” Ron Collins, Ask the Author: “The Great Oracle of American Legal Thought”—Revisiting the Life and Times of Justice Holmes, SCOTUSblog, http://bit.ly/2Phv3qh (Mar. 28, 2019).
With pluck, daring, and dedication, 1-800 Contacts built the online contact lens market. People had assumed that contact lenses were available only at an optometrist’s office or a brick-and-mortar store. Spending many millions of dollars on advertising, 1-800 raised awareness that contact lenses could be bought—and bought cheaply—on the web. And 1-800 did not stop there. Thanks in no small part to its continuing to advertise widely to this day, the online lens market remains a thriving one.
Many copycat firms wisely followed 1-800 into the online contact lens market. Unfortunately, however, some of these firms sought not just to share in the successful market 1-800 created, but also to directly piggyback on 1-800’s advertising. Instead of following 1-800’s lead by doing the hard and expensive work of advertising broadly—on television, in print, on the radio, and so on—these firms just bought the advertising space at the top of internet search results for terms like “1-800 Contacts.” Rather than attract new customers of their own, in other words, the firms just tried to divert 1-800’s.
1-800 sued (or threatened to sue) each of the free-riding firms for trademark infringement, and each lawsuit settled. As part of the settlements, the parties agreed not to buy advertisements keyed to navigational searches of brand names like “1-800 Contacts.” Generic search terms like “cheap contact lenses” remained fair game for all, as did advertising in all other forms of media.
The Federal Trade Commission examined whether the settlements are an antitrust violation under the Sherman Act (as applied through the FTC Act). Assuming the settlements are even a proper subject of antitrust scrutiny 1-800 argues they are not—the FTC needed at the outset to decide the standard under which to perform its review. It could choose to conduct either (a) a “quick look” analysis of the settlements’ effect on competition, or (b) a more complete “rule of reason” analysis of it. The FTC erred, we contend in this brief, in electing to take only a “quick look” before condemning the settlements:
A. The quick-look standard governs only when the conduct at issue is obviously anticompetitive. The Supreme Court has accordingly applied the quick-look standard only to agreements that explicitly suppress competition. The settlements here, which leave almost the entire universe of contact-lens advertising intact, do nothing like that. What is more, the Supreme Court has declined to apply the quick-look standard to conduct accompanied by suspicious elements, such as a de facto advertising ban or a payment to delay entry into a market, that do not exist here.
B. Even without the Supreme Court’s guidance, the need for a rule-of-reason analysis would still be clear. The FTC cited no case or research that finds behavior analogous to the settlements an unreasonable restraint of trade. This is hardly surprising given that, as the FTC itself acknowledged, search-engine keyword advertising is “relatively new.” The lack of consensus about the settlements’ effect on competition should have driven the FTC toward the rule-of-reason standard.
Not only do the settlements serve no anticompetitive ends; they serve procompetitive ones. As 1-800 and Commissioner Phillips, writing in dissent below, explain, the settlements save litigation costs and protect trademark rights.
We home in on one vital benefit of trademark protection: the suppression of advertisement free riding. 1-800’s advertising attracted customers both to purchase contact lenses online and to purchase them from 1-800 specifically. The settlements did nothing to stop the general shoppers from finding the cheapest online contact lenses, but they did stop firms from diverting customers searching for 1-800. The settlements thus helped ensure that when 1-800’s broad (and expensive) advertising attracted new customers specifically to 1-800, competitors could not poach those customers on the cheap. By foreclosing a form of advertisement free riding, the settlements preserved the incentives that lead firms to invest in advertising in the first place. And because they therefore may have promoted, rather than suppressed, advertising, the settlements should not have been declared “obviously” anticompetitive and then subjected to a mere quick look.
C. The FTC claimed that, although it need not have done so, it ultimately conducted a rule-of-reason analysis. But the FTC never defined a market. And although it looked at prices, output, and quality, its analysis was abbreviated and defective. It plainly both adopted and applied the quick-look standard. This was error.
Read the full brief here.
