The dust has barely settled on the European Commission’s record-breaking €4.3 Billion Google Android fine, but already the European Commission is gearing up for its next high-profile case. Last month, Margrethe Vestager dropped a competition bombshell: the European watchdog is looking into the behavior of Amazon. Should the Commission decide to move further with the investigation, Amazon will likely join other US tech firms such as Microsoft, Intel, Qualcomm and, of course, Google, who have all been on the receiving end of European competition enforcement.

Read the full piece here.

Last week, the DOJ cleared the merger of CVS Health and Aetna (conditional on Aetna’s divesting its Medicare Part D business), a merger that, as I previously noted at a House Judiciary hearing, “presents a creative effort by two of the most well-informed and successful industry participants to try something new to reform a troubled system.” (My full testimony is available here).

Read the full piece here.

On Monday, the U.S. Federal Trade Commission and Qualcomm reportedly requested a 30 day delay to a preliminary ruling in their ongoing dispute over the terms of Qualcomm’s licensing agreements–indicating that they may seek a settlement. The dispute raises important issues regarding the scope of so-called FRAND (“fair reasonable and non-discriminatory”) commitments in the context of standards setting bodies and whether these obligations extend to component level licensing in the absence of an express agreement to do so.

Read the full piece here.

ICLE Senior Scholar Joshua Wright participated in the FTC’s Hearing #3: Multi-Sided Platforms, Labor Markets, and Potential Competition on the panel, Do the U.S. and Europe Treat Competition Cases Involving Platforms Differently?  Read the full transcript here. Video of the event is embedded below.

Comments of the International Center for Law & Economics:

Increasingly, people use the Internet to connect with one another, access information, and purchase products and services. The growth in the online marketplace has brought with it numerous concerns, particularly regarding the privacy of personal information and competition issues surrounding this and other data.

While concerns about privacy are not unique to the Internet ecosystem, they are in some ways heightened due to the ubiquitous nature of information sharing online. Though much of the sharing is voluntary, a group of scholars and activists have argued that several powerful online companies have overstepped their bounds in gathering and using data from Internet users. These advocates have pushed the FTC and regulators in Europe to incorporate privacy and more general data collection concerns into antitrust analysis.

Although there are a number of unique dimensions to online data sharing that bear consideration, the necessary analysis is much more nuanced than reform advocates typically admit.

First, despite their best efforts, privacy advocates have yet to make a compelling case that quality-adjusted price may be affected by monopolization of data or a merger of entities with large quantities of data. Making such a case requires considerably more analysis than that offered by privacy advocates to date. Rather, the collection and use of relatively large amounts of information by a large firm actually serves as a tool to help such a firm improve the quality of its products. In the modern tech economy, large pools of data and their effective use frequently permit firms to offer services to consumers for zero price. Improving product quality (by offering more tailored products with collected data) while maintaining a constant zero price — i.e., decreasing quality-adjusted price — is not normally an antitrust injury.

Second, the potential, if any, for price discrimination practices to cause privacy harms to consumers is not subject to a simple analysis. One argument offered by critics of data collection is that price discrimination could become a harm when large tech platforms are able to collect a great deal of data about their users, and could thereby segment their users along certain private characteristics in order to offer tailored services. The resulting price discrimination could lead to many consumers paying more than they would in the absence of the data collection. Therefore, the data collection by these major online companies can be alleged to facilitate price discrimination that harms consumer welfare. This argument misses a large part of the story, however. The flip side is that price discrimination could have benefits to those who receive lower prices from the scheme than they would have in the absence of the data collection. While privacy advocates have focused on the possible negative effects of price discrimination to one subset of consumers, they generally ignore the positive effects of businesses being able to expand output by serving previously underserved consumers.

Finally, little evidence has been presented to bolster the claim that tech platforms can employ large pools of data as barriers to entry against competitors. The various theories of how this can arise all stem from an underlying assumption about the inability or difficulty of competitors to develop alternative products in the marketplace. The argument is that upstarts do not have sufficient data to compete with established players which in turn employ their data to attract online advertisers and to foreclose their competitors from this crucial source of revenue. This argument suffers from a number of deficiencies.

Superior competition, notably through data, is not a barrier to entry. It is a mistake to regard data as essential in many, if not all, cases, particularly in the complex ecosystem of online platforms, where that same data can be used by platforms to facilitate new entry. Further, data is useful to all industries — this is not a new phenomenon particular to online companies. Companies have historically employed a variety of measures to gather data on their customers. It is also a mistake to assume that simply having a large amount of data is worth anything at all. It is not in the possession of data that a firm finds success, but in how intelligently the firm uses that data to optimize its services or otherwise generate a revenue stream. Start-ups are not necessarily less capable of generating value from relatively smaller pools of data simply by virtue of having a small set of data. 

And the possession of data provides no absolute advantage to a firm in a world in which competition is just a click or a swipe away. Users can and do defect from products easily. Moreover, access to data is not exclusive to any firm. If one platform collects certain useful data about a user it does not possess that data to the exclusion of all others. Other firms are free to make the same observations about the same sets of users.

Click here to read the full comments.

[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]

Comments of the International Center for Law & Economics:

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.

Click here to read the full comments.

More than 20 countries have introduced taxation on e-cigarettes and other vapor products. In the United States, several states and local jurisdictions have enacted e-cigarette taxes.

Most of the harm from smoking is caused by the inhalation of toxicants released through the combustion of tobacco. Non-combustible nicotine de-livery systems, including e-cigarettes, “heat-not-burn” products, smokeless tobacco and other nicotine delivery systems, are generally considered to be significantly less harmful than combustible cigarettes.

Policymakers face a wide range of strategies regarding the taxation of va-por products. On the one hand, principles of harm reduction suggest vapor products should face no taxes or low taxes relative to conventional ciga-rettes, to guide consumers toward a safer alternative to smoking. On the other hand, the precautionary principle as well as principles of tax equity point toward the taxation of vapor products at rates similar to conventional cigarettes.

Analysis of tax policy issues is complicated by divergent—and sometimes obscured—intentions of such policies. Some policymakers claim that the objective of taxing nicotine products is to reduce nicotine consumption. Other policymakers indicate the objective is to raise revenues to support government spending. Often missed in the policy discussion is the effect of fiscal policies on innovation and the development and commercialization of harm-reducing products. Also, often missed are the consequences for cur-rent consumers of nicotine products, including smokers seeking to quit us-ing harmful conventional cigarettes.

Policy decisions regarding taxation of vapor products should consider both long-term fiscal effects, as well as broader economic and welfare effects. These effects might (or might not) suggest very different tax policies to those that have been enacted or are under consideration.

Our research concludes the economics of harm reduction with respect to vapor products is an area in need of reliable empirical research.

• Within a harm reduction framework, some policy objectives overlap and others conflict. For example, an objective to encourage current smokers to switch to less harmful e-vapor products largely is con-sistent with an objective to discourage dual use. On the other hand, policies that encourage switching may conflict with an objective to discourage youth uptake of vapor products. The extent of the net eco-nomic benefits of vapor products in a harm reduction framework are empirical matters of degree that require reliable research. To date, there is no peer-reviewed published research quantifying the net economic benefits of vapor products with respect to harm reduction.

• The small body of research on consumer demand response to e-ciga-rette pricing finds a wide range of estimates of e-cigarette own-price elasticity and cross-price elasticity with respect to conventional cig-arettes, even among studies using the same set of data. Without re-liable empirical research, policymakers face great uncertainty regarding whether specific tax proposals will achieve—or con-found—their stated policy goals.

• Despite the innovations that gave rise to the market for vapor prod-ucts, virtually no empirical research has evaluated the impacts of taxation and regulation on innovation in the industry. Differential taxation of vapor products would like induce a supply-side response, but there is no quantitative research on supply at this time.

Principles of harm reduction recognize that every proposal has uncertain outcomes as well as potential spillovers and unforeseen consequences. Nev-ertheless, the basic principle of harm reduction is a focus on safer rather than safe. Policymakers must make their decisions weighing the expected benefits and expected costs. With such high risks and costs associated with cigarette and other combustible use, taxes and regulations must be devel-oped in an environment of uncertainty and with an eye toward a net reduc-tion in harm, rather than an unattainable goal of zero harm.

Click here to continue reading the paper.