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Has the U.S. Economy Become More Concentrated and Less Competitive? (FTC Hearings, ICLE Comment 3)

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]

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.

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Antitrust & Consumer Protection

The Current Landscape of Competition and Consumer Protection Law and Policy (FTC Hearings, ICLE Comment 2)

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.

Comments of the International Center for Law & Economics:

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.

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Antitrust & Consumer Protection

ICLE response to the European commission’s public consultation on “shaping competition policy in the era of digitisation”

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.

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Antitrust & Consumer Protection

The Amazon / Whole Foods overreaction: Antitrust populism exposed [Amazon-Whole Foods Symposium]

TOTM Dirk Auer is a Research Fellow at the Liege Competition and Innovation Institute.

What is antitrust populism? In a deeply insightful paper, Barack Orbach defines it as “the use of thin ideas, exaggerations, and anxieties to advance antitrust theories”. From a policy standpoint, this often leads to the protection of small businesses and the identification of large business size as evil.

Read the full piece here.

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Antitrust & Consumer Protection

WHY THE COMMISSION'S GOOGLE ANDROID DECISION HARMS COMPETITION

TOTM Today’s Google Android decision could severely harm competition and innovation in the digital economy. It ignores the powerful rivalry that exists between Android devices and Apple’s iPhone. To compete against Apple, Google opted for an open-source project which entails a complex governance structure. By meddling with these rules, the Commission’s decision threatens the viability of the Android platform. Consumers will be the biggest losers.

Our story begins on the morning of January 9, 2007. Few people knew it at the time, but the world of wireless communications was about to change forever. Steve Jobs walked on stage wearing his usual turtleneck, and proceeded to reveal the iPhone. The rest, as they say, is history. The iPhone moved the wireless communications industry towards a new paradigm. No more physical keyboards, clamshell bodies, and protruding antennae. All of these were replaced by a beautiful black design, a huge touchscreen (3.5” was big for that time), a rear-facing camera, and (a little bit later) a revolutionary new way to consume applications: the App Store. Sales soared and Apple’s stock started an upward trajectory that would see it become one of the world’s most valuable companies.

Read the full piece here.

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Antitrust & Consumer Protection

Appropriability and the European Commission’s Android Investigation

Scholarship This paper seeks to ascertain whether Google’s Android licensing terms, which are currently under scrutiny from the European Commission, could be excused under an innovation defense framework. The paper starts by analyzing Google’s business model with regard to its Android OS.

Summary

This paper seeks to ascertain whether Google’s Android licensing terms, which are currently under scrutiny from the European Commission, could be excused under an innovation defense framework. The paper starts by analyzing Google’s business model with regard to its Android OS. It then identifies the Commission’s main concerns. It argues that Google is simply pursuing a sensible appropriation strategy. Finally, it puts forward a framework which hinges on the concept of “appropriability”, and tentatively applies it to Google’s behavior.

Read the entire piece here

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Antitrust & Consumer Protection

The Challenge of Turning Economic Theory into Antitrust Policy

Popular Media The award of the Nobel Prize in Economics to Professor Jean Tirole in 2014 has generated intense interest about his brainchild theory of two-sided markets. Against this background, this paper explores whether there is such a thing as a unified theory of two-sided markets and whether the two-sided markets literature can readily be applied by antitrust agencies, regulatory authorities and courts.

Summary

The award of the Nobel Prize in Economics to Professor Jean Tirole in 2014 has generated intense interest about his brainchild theory of two-sided markets. Against this background, this paper explores whether there is such a thing as a unified theory of two-sided markets and whether the two-sided markets literature can readily be applied by antitrust agencies, regulatory authorities and courts. This paper vindicates caution. The buzz surrounding two-sided markets could mask the fact that, in many cases, the policy implications of the theory are not yet clear, and that divergences among its proponents are often underplayed. In that regard, the paper notably stresses that one of the key conditions of market two-sidedness identified by Rochet and Tirole in their seminal paper of 2003 – the unavailability of Coasian bargaining between both sides of a platform – has often disappeared from subsequent scholarship. This omission threatens the coherent implementation of the theory of two-sided markets. Without this qualification, markets are often mischaracterized as two-sided, as soon as they display prima facie signs of indirect network externalities.

Read the entire piece here

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Antitrust & Consumer Protection