Comment on Mastercard Incorporated; Matter No. 201 0011

Commissioners,

I am an expert on the law & economics of payment cards and have written extensively the subject.[1] I am submitting this comment on behalf of the International Center for Law & Economics (ICLE) because we have concerns regarding the effects that the consent order may have on the functioning of and innovation in payment systems.

Among there are that the agreement will undermine the security of payments made using single-message systems; set a precedent that, if applied more broadly, would undermine the security of payments more generally; and discourage investment in innovation, especially in the development of new, secure, tokenized payment systems that have the potential to reduce fraud, theft, and other forms of counterparty risk. Such an outcome would be, in our view, entirely detrimental to the future of the U.S. payment system.

To elaborate those concerns, we attach a paper we recently produced that discusses the regulation of single-message payment systems and, in particular, the regulation of routing on such networks. We hope this work will help to inform your deliberations on the matter.

[1] See, e.g., Julian Morris & Todd J. Zywicki, Regulating Routing in Payment Networks, International Center for Law & Economics (Aug. 18, 2022), https://laweconcenter.org/resources/regulating-routing-in-payment-networks; Julian Morris, Central Banks and Real-Time Payments: Lessons From Brazil’s Pix, International Center for Law & Economics (Jun. 1, 2022), https://laweconcenter.org/resources/central-banks-and-real-time-payments-lessons-from-brazils-pix; Julian Morris, Regulating Payment-Card Fees: International Best Practices And Lessons For Costa Rica, International Center for Law & Economics (May 25, 2022), https://laweconcenter.org/resources/regulating-payment-card-fees-international-best-practices-and-lessons-for-costa-rica; Todd J. Zywicki, Julian Morris, & Geoffrey A. Manne, The Effects Of Price Controls On Payment-Card Interchange Fees: A Review And Update, International Center for Law & Economics (Mar. 4, 2022), https://laweconcenter.org/resources/the-effects-of-price-controls-on-payment-card-interchange-fees-a-review-and-update.

 

Top Twitter threads from ICLE scholars on current topics.

NEW PAPER ALERT: happy to share the paper (with @MarcoCappai5) “Applying ne bis in idem in the aftermath of bpost and Nordzucker: the case of EU competition policy in digital markets”, forthcoming in Common Market Law Review https://t.co/xeO2RyGjsl pic.twitter.com/OibBBMsT3U

— Giuseppe Colangelo (@GiuColangelo) January 31, 2023

1/25 Those who would sacrifice procedural safeguards and rights of defense for the sake of "effective" enforcement will end up with neither. A belated ? on the Commission's Draft Implementing Regulation (DIR) of the DMA, and a warning to regulators.https://t.co/dfpIWZbPfX

— Lazar Radic (@laz_radic) January 26, 2023

1/ I've spent the past few years of my life steeped in the digital advertising market and Google's role in it.

I've looked at the relevant market (or markets).https://t.co/fUsHMjFRMS

— Eric Fruits, Ph.D. (@ericfruits) January 25, 2023

As an economist, I'm used to thinking about collusion or mergers.

Now the FTC wants to focus more on "unfair methods of competition." Unfair??? Oh boy. This sounds like a can of worms.

Luckily, @DanielJGilman1 and @geoffmanne have 2 new tl;drs (2 pages each) to help ?

— Brian Albrecht (@BrianCAlbrecht) January 25, 2023

1/ Legal regulation of MEV extraction is one of the largest threats to decentralized, permissionless crypto that almost no one is talking about. This is not just about “? > straight to jail”. Imagine compulsory licensing for block producers or prosecutions of validators…

— Miko?aj Barczentewicz (@0xMikolaj) January 25, 2023

Given the news that @JusticeATR has filed suit against @Google charging anticompetitive practices in its digital advertising business, we wanted to share some @LawEconCenter resources on the law & economics of the "adtech" market.

— Int'l Ctr Law & Econ (@LawEconCenter) January 24, 2023

Don't ban noncompetes.

Economists have done amazing research on noncompetes over the past decade, much of it negative about noncompetes.

Still, I'm not convinced a national ban by the FTC is warranted.

Here's why ?https://t.co/iHfMg1tYAK

— Brian Albrecht (@BrianCAlbrecht) January 19, 2023

A new amicus brief filed with the 7th Circuit by @LawEconCenter and 20 distinguished scholars of law & economics highlights the importance of market definition in labor markets, as well as the proper antitrust approach to franchise-agreement terms.https://t.co/YUVvkJh58M

— Int'l Ctr Law & Econ (@LawEconCenter) January 12, 2023

"The [Robinson-Patman Act] is highly technical and hasn’t been enforced by the FTC in decades."

One of these statements is true.

A ?, for non-lawyers from a non-lawyer, on the Robinson-Patman Acthttps://t.co/5qj6VPz8Jp

— Brian Albrecht (@BrianCAlbrecht) January 12, 2023

Is the problem a competitive edge resulting from??access to data, targeted ads, or the supposed lack of choice given to users to opt-out of data processing? These are three different questions – but in Sec.19a GWB and the??statement of objections, they are intermeshed.? https://t.co/AXnK1lBJB9

— Lazar Radic (@laz_radic) January 11, 2023

Per Brian Albrecht, in issuing its noncompetes NPRM, the FTC "went from doing hardly any work on noncompetes to a total ban. In no optimal policy model where the benevolent regulator is responding to information is that how a regulator would process and act on information."

— Alden Abbott (@AldenAbbott1) January 9, 2023

1/19 While we may disagree about the merits of digital-markets regulation, appropriate procedural rules that safeguard parties’ rights are essential. WRT the timing and content of the Commission's Implementing Regulation underscores broader problems with the DMA.?

— Lazar Radic (@laz_radic) January 6, 2023

New rules proposed by the @FTC to ban noncompete agreements both exceed the commission’s rulemaking authority and threaten to erase the benefits that such agreements may provide to workers and firms alike, according to @LawEconCenter scholars.https://t.co/rNzTbwdBdp

— Int'l Ctr Law & Econ (@LawEconCenter) January 5, 2023

Many people have a visceral reaction to non-competes. How can a former employer block a worker from a new job? That's not their choice.

Whatever the optimal policy is (I'd say something far short of a ban), we need to understand why non-competes exist.

A short thread: https://t.co/nHSbl1JhV0

— Brian Albrecht (@BrianCAlbrecht) January 5, 2023

 

 

ICLE Academic Affiliate Adam Mossoff was a guest on National Public Radio’s Planet Money podcast to discuss the purpose and value of patents in the economy.  The full episode is embedded below.

MALONE: Adam Mossoff – law professor at George Mason University, patent expert, and knows a lot about how patents get turned into actual, you know, money.

MOSSOFF: You know, patents are property rights, and they, like all property rights, might lead to great success or may not.

MALONE: Property rights. And Adam gave us this comparison that I find really useful. He said, you know, a patent is just an idea sketched out and then legally tied to the inventor. And that really is kind of like somebody who say, you know, just owns a piece of vacant land.

BERAS: Yeah. Adam says vacant land isn’t inherently a business. Its owner would have to figure out what to do with it.

MOSSOFF: They can sit and wait for the land to grow in value. They can lease it out and become a landlord. They can build a factory on it. They can build an office building on it. They can build a home. And then, they can sell that home.

 

In the world of video games, the process by which players train themselves or their characters in order to overcome a difficult “boss battle” is called “leveling up.” I find that the phrase also serves as a useful metaphor in the context of corporate mergers. Here, “leveling up” can be thought of as acquiring another firm in order to enter or reinforce one’s presence in an adjacent market where a larger and more successful incumbent is already active.

Read the full piece here.

Abstract

The battle over rules governing 5.9 GHz airwaves offers important lessons in both the creation of property rights and applied public choice. Set aside in 1999, the 75 MHz “Car Band” band was designated by the U.S. Federal Communications Commission (FCC) to support emerging vehicle telematics and computerized driving. Transportation regulators and automakers, including General Motors, Ford, and BMW, claimed this would efficiently promote road safety, fuel savings, and collision avoidance, as dedicated bandwidth would operate under a “spectrum commons” regime designed to favor such applications. While anticipated services gradually developed, the 5.9 GHz band did not. Spectrum inputs outside the “Car Band” accommodated driving applications, while the general development of wireless networks shifted social priorities. Eventually, Internet services companies such as Comcast, Google and Microsoft claimed the 75 MHz allocation was wastefully large and that switching access rules to favor WiFi would generate net benefits. Suggested for possible reallocation by the U.S. Department of Commerce since 2012, the FCC issued an order in 2020 to split the baby: 45 MHz of the band would be shifted to Wi-Fi, with 30 MHz remaining dedicated for Intelligent Transportation Systems. The FCC’s 2020 “Cost Benefit Analysis” purports to quantify the trade-offs involved, but upon scrutiny fails to plausibly value Wi-Fi services or to even consider the relevant opportunity costs. The costly, delay-intensive and ad hoc policy process (whose costs are additionally ignored by the FCC) begs for further development of auction mechanisms to rationalize alternative rights assignments.

Not only have digital-image generators like Stable Diffusion, DALL-E, and Midjourney—which make use of deep-learning models and other artificial-intelligence (AI) systems—created some incredible (and sometimes creepy – see above) visual art, but they’ve engendered a good deal of controversy, as well. Human artists have banded together as part of a fledgling anti-AI campaign; lawsuits have been filed; and policy experts have been trying to think through how these machine-learning systems interact with various facets of the law.

Read the full piece here.

In our previous post on Gonzalez v. Google LLC, which will come before the U.S. Supreme Court for oral arguments Feb. 21, Kristian Stout and I argued that, while the U.S. Justice Department (DOJ) got the general analysis right (looking to Roommates.com as the framework for exceptions to the general protections of Section 230), they got the application wrong (saying that algorithmic recommendations should be excepted from immunity).

Read the full piece here.

At the Jan. 26 Policy in Transition forum—the Mercatus Center at George Mason University’s second annual antitrust forum—various former and current antitrust practitioners, scholars, judges, and agency officials held forth on the near-term prospects for the neo-Brandeisian experiment undertaken in recent years by both the Federal Trade Commission (FTC) and the U.S. Justice Department (DOJ). In conjunction with the forum, Mercatus also released a policy brief on 2022’s significant antitrust developments.

Read the full piece here.