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Scholarship Abstract We study the trade-offs faced by Internet Service Providers (ISPs) that serve as platforms through which consumers access both television and internet services. As . . .
We study the trade-offs faced by Internet Service Providers (ISPs) that serve as platforms through which consumers access both television and internet services. As online streaming video improves, these providers may respond by attempting to steer consumers away from streaming video toward their own TV services, or by attempting to capture surplus from this improved internet content. We augment the standard mixed bundling model to demonstrate the trade-offs the ISP faces when dealing with streaming video, and we show how these trade-offs change with the pricing options available to the ISP. Next, we use unique household-level panel data and the introduction of usage-based pricing (UBP) in a subset of markets to measure consumers’ responses and to evaluate quantitatively the ISP’s trade-offs. We find that the introduction of UBP led consumers to upgrade their internet service plans and lower overall internet usage. Our findings suggest that while steering consumers towards TV services is possible, it is likely costly for the ISP and therefore unlikely to be profitable. This is especially true if the ISP can offer rich pricing menus that allow it to capture some of the surplus generated by a better internet service. The results suggest that policies like UBP can increase ISPs’ incentive to maintain open access to new internet content.
Scholarship This Article makes the case in support of the current consumer welfare standard and against a sweeping set of unsupported populist antitrust reforms.
Populist antitrust notions suddenly are fashionable again. At their core is the view that antitrust law is responsible for a myriad of purported socio-political problems plaguing society today, including but not limited to rising income inequality, declining wages, and increasing economic and political concentration. Seizing on Americans’ fears about changes to the modern US economy, proponents of populist antitrust policies assert the need to fundamentally reshape how we apply our nation’s competition laws in order to implement a variety of prescriptions necessary to remedy these perceived social ills. The proposals are varied and expansive but have the unifying theme of returning antitrust to the “big-is-bad” enforcement era prevalent in the first half of the twentieth century.
But the criticisms populist antitrust proponents raise are generally unsupported and often dramatized, and the resulting policy proposals are, accordingly, fatally flawed. There is sparse evidence today suggesting that the underlying trends these critics purportedly identify are real or in any way linked to lax antitrust enforcement. Ironically, populist antitrust proponents ignore that antitrust law debated over 50 years ago the same proposals that they are raising anew today. At that time, leading jurists, economists, enforcers, and practitioners from across the political spectrum rejected the use of liability standards that seek to evaluate a variety of vague and often contradictory socio-political goals or that condemn conduct based simply on the size of a company. They recognized that these tests led to incoherent and paradoxical results that often did more to hinder than to promote competition by undermining the rule of law and fostering corporate welfare. Instead, antitrust evolved the elegant “consumer welfare standard” that simplified the core issue of what constitutes harm to competition into a straightforward question: does the conduct at issue harm consumers?
Today, the consumer welfare standard offers a rigorous, objective, and evidence-based framework for antitrust analysis. It leverages developments in modern economics more reliably to predict when conduct is likely to harm consumers as a result of harm to competition. It offers a tractable test that is broad enough to contemplate a variety of evidence related to consumer welfare but also sufficiently objective and clear to cabin discretion and honor the principle of the rule of law. Perhaps most significantly, it is inherently an economic approach to antitrust that benefits from new economic learning and is capable of evaluating an evolving set of commercial practices and business models. These virtues are precisely the target of the new populist antitrust movement, which seeks to reject economics in favor of mere supposition.
This Article makes the case in support of the current consumer welfare standard and against a sweeping set of unsupported populist antitrust reforms. There is significant room for debate within the consumer welfare model for what types of conduct should face antitrust scrutiny, what evidence is relevant, and where liability standards should be drawn. Such debate is healthy and to the benefit of antitrust enforcement. But it does not require abandoning decades of experience and economic learning that would turn back the hands of time and return us to an era where antitrust enforcement was incoherent and deleterious.
Scholarship Abstract This article uses recent literature on Public-Private Partnerships (P3s) to argue that “Regulation as Partnership” is often a more productive approach to regulation than . . .
This article uses recent literature on Public-Private Partnerships (P3s) to argue that “Regulation as Partnership” is often a more productive approach to regulation than the more common adversarial and transactional approaches common to the contemporary regulatory environment. Partnerships, in which public entities engage the private sector to serve some government purpose (often to construct infrastructure) in exchange to some ownership interest derived from that purpose, have become popular since the 1980s. They are most often thought of as an alternative vehicle for financing public projects. But they primarily operate (and are most effective when) by aligning the incentives between the public and private project participants. This alignment of incentives stands in stark contrast to the often adversarial and transactional approach to much regulation – with regulation of the tech sector highlighted as an example in this article.
Scholarship When Congress expands executive power for purposes of protecting the nation against an emergency—whether real or imagined—that power is often turned against vulnerable, marginalized populations that are easily scapegoated as threats to the state.
On February 15, 2019, President Donald Trump issued Proclamation 9844 pursuant to the National Emergencies Act of 19761 (NEA), declaring a “National Emergency Concerning the Southern Border of the United States.” On February 27, the House of Representatives voted 245–182 to overturn the declaration of national emergency; on March 14, the Senate agreed with the House in a 59–41 vote. The following day, the President vetoed the joint resolution. Neither house of Congress was able to override the veto and so, more than a year later, the emergency remains in place.
The border wall emergency declared by President Trump has awakened strident opposition in Congress, which is a historical anomaly. And yet, although virtually none of the previous declarations engendered the vehement outcry that accompanied the border wall emergency declaration, they were substantially different only in scope, not in kind. Including Trump’s border wall emergency declaration and four subsequent emergency declarations, Presidents going back to Jimmy Carter have declared a total of 57 emergencies under the NEA. Thirty-four of these are still active. And all but four of them could hardly be called emergencies. Even without the partisan political context of the border wall dispute, any of these should have been sufficient to raise the question of whether and how to rein in presidential power.
ICLE Issue Brief PPI Director of Technology Policy, Alec Stapp reviews the antitrust cases against IBM, AT&T, and Microsoft and discusses what we can learn from them today. He explains the relevant concepts necessary for understanding the history of market competition in the tech industry.
Alec Stapp, current Director of Technology Policy at Progressive Policy Institute, and former Research Fellow, Law & Economics at International Center for Law & Economics (ICLE), reviews the antitrust cases against IBM, AT&T, and Microsoft and discusses what we can learn from them today. He explains the relevant concepts necessary for understanding the history of market competition in the tech industry.
Big Tech continues to be mired in “a very antitrust situation,” as President Trump so eloquently put it in 2018. Advocates for more aggressive antitrust enforcement in the tech industry often justify their proposals by pointing to the cases against IBM, AT&T, and Microsoft. In announcing her plan to break up the tech giants, Elizabeth Warren highlighted the case against Microsoft in particular:
The government’s antitrust case against Microsoft helped clear a path for Internet companies like Google and Facebook to emerge. The story demonstrates why promoting competition is so important: it allows new, groundbreaking companies to grow and thrive — which pushes everyone in the marketplace to offer better products.
Tim Wu, a law professor at Columbia University, summarized the overarching narrative recently (emphasis added):
If there is one thing I’d like the tech world to understand better, it is that the trilogy of antitrust suits against IBM, AT&T, and Microsoft played a major role in making the United States the world’s preeminent tech economy. The IBM-AT&T-Microsoft trilogy of antitrust cases each helped prevent major monopolists from killing small firms and asserting control of the future (of the 80s, 90s, and 00s, respectively). A list of products and firms that owe at least something to the IBM-AT&T-Microsoft trilogy. (1) IBM: software as product, Apple, Microsoft, Intel, Seagate, Sun, Dell, Compaq (2) AT&T: Modems, ISPs, AOL, the Internet and Web industries (3) Microsoft: Google, Facebook, Amazon
If there is one thing I’d like the tech world to understand better, it is that the trilogy of antitrust suits against IBM, AT&T, and Microsoft played a major role in making the United States the world’s preeminent tech economy.
The IBM-AT&T-Microsoft trilogy of antitrust cases each helped prevent major monopolists from killing small firms and asserting control of the future (of the 80s, 90s, and 00s, respectively).
A list of products and firms that owe at least something to the IBM-AT&T-Microsoft trilogy.
(1) IBM: software as product, Apple, Microsoft, Intel, Seagate, Sun, Dell, Compaq (2) AT&T: Modems, ISPs, AOL, the Internet and Web industries (3) Microsoft: Google, Facebook, Amazon
In other words, by breaking up the current crop of dominant tech companies, we can sow the seeds for the next one. But this reasoning depends on an incorrect — albeit increasingly popular — reading of the history of the tech industry.
Click here to read the full issue brief.
Regulatory Comments On behalf of the International Center for Law & Economics, I offer the following reply comments in support of the Federal Communications Commission’s (FCC) Notice . . .
On behalf of the International Center for Law & Economics, I offer the following reply comments in support of the Federal Communications Commission’s (FCC) Notice of Proposed Rulemaking (NPRM) to expand and enhance the use of the 5.850 – 5.925 GHz spectrum band.
In previously submitted comments, I offered support for the FCC’s proposed reallocation of the lower 45 MHz of the 5.9 GHz band based on the spectrum’s current underuse relative to its value in the context of Wi-Fi. Since those comments were submitted, subsequent studies have estimated that opening the lower 45 MHz of the 5.9 GHz band would result in $28.14 billion in economic value by 2025. These findings lend further support to the FCC’s proposed plan of action. Yet, opposition from elements of the transportation sector persists. Those opponents have offered, broadly, four justifications for delaying, modifying and/or abandoning elements of the FCC’s 5.9 GHz NPRM. ICLE’s reply comments will address and rebut each, in turn.
Click here to read the full comments.
Regulatory Comments In order to maximize the benefits of broadband to society, including through the provision of public safety communications and services, public policy must promote the . . .
In order to maximize the benefits of broadband to society, including through the provision of public safety communications and services, public policy must promote the proper incentives for broadband buildout. Both the 2015 Title II Open Internet Order (the “OIO”) and the 2017 Restoring Internet Freedom Order (the “RIFO”) were premised on this. But each adopted a different approach to accomplishing this objective.
The OIO premised its rules on the theory that ISPs are “gatekeepers,” poised to kill the golden goose of demand for broadband by adopting business practices that could reduce edge innovation.
The key insight of the virtuous cycle is that broadband providers have both the incentive and the ability to act as gatekeepers standing between edge providers and consumers. As gatekeepers, they can block access altogether; they can target competitors, including competitors to their own video services; and they can extract unfair tolls. Such conductwould, as the Commission concluded in 2010, “reduce the rate of innovation at the edge and, in turn, the likely rate of improvements to network infrastructure.” In other words, when a broadband provider acts as a gatekeeper, it actually chokes consumer demand for the very broadband product it can supply.
The RIFO, on the other hand, properly conceives of ISPs as intermediaries in a two-sided market that aim to maximize the value of the market by adopting practices, like pricing structures and infrastructure investment, that increase the value for both sides of the market.
We find it essential to take a holistic view of the market(s) supplied by ISPs. ISPs, as well as edge providers, are important drivers of the virtuous cycle, and regulation must be evaluated accounting for its impact on ISPs’ capacity to drive that cycle, as well as that of edge providers. The underlying economic model of the virtuous cycle is that of a two- sided market. In a two-sided market, intermediaries—ISPs in our case—act as platforms facilitating interactions between two different customer groups, or sides of the market— edge providers and end users. . . . The key characteristic of a two-sided market, however, is that participants on each side of the market value a platform service more as the number and/or quality of participants on the platform’s other side increases. (The benefits subscribers on one side of the market bring to the subscribers on the other, and vice versa, are called positive externalities.) Thus, rather than a single side driving the market, both sides generate network externalities, and the platform provider profits by inducing both sides of the market to use its platform. In maximizing profit, a platform provider sets prices and invests in network extension and innovation, subject to costs and competitive conditions, to maximize the gain both sides of the market obtain from interacting across the platform. The more competitive the market, the larger the net gains to subscribers and edge providers. Any analysis of such a market must account for each side of the market and the platform provider.
In other words, the fundamental difference of approach between the two Orders turns on whether it is edge innovation, pushing against ISP incentives to expropriate value from edge providers, that primarily drives network demand and thus encourages investment, or whether optimization decisions by both ISPs and the edge are drivers of network value. The RIFO rightly understands that ISPs have sharp incentives both to innovate as platforms (and thus continue to attract and retain end users), as well as to continue to make their services useful to edge providers (and, by extension, the consumers of those edge providers’ services).
The D.C. Circuit upheld RIFO’s fundamental rationale as a supportable basis for the FCC’s rules in Mozilla v. FCC. But it also accepted that three specific concerns were insufficiently examined in the RIFO, and remanded the case to the FCC to address them. Among these was the question of the RIFO’s implications for public safety. In its Public Notice seeking to refresh the record on the remanded issues, the Wireline Competition Bureau asks (among other things):
These are the questions to which this comment is primarily addressed.
In Part I, we discuss how the RIFO fosters investment in broadband buildout, in particular by enabling prioritization and by reducing the effects of policy uncertainty. In Part II, we describe how that network investment benefits public safety both in both direct and indirect ways. In Part III, we highlight the benefits to public safety from prioritization, in particular, which is facilitated by the RIFO.
Read the full comments here.
Regulatory Comments The purpose of this submission is to highlight some of the findings of the relevant scholarship to help to inform the ACCC’s work, and to highlight some of the problems that may arise during the course of the study, given the misconceptions about competition between advertising-funded digital platforms that are common in the media and popular debate today.
The International Center for Law and Economics (ICLE) welcomes the opportunity to make a submission to the Australian Competition and Consumer Commission’s (ACCC) Digital Advertising Services Inquiry. As a nonprofit, nonpartisan research center, ICLE works with academics around the world to promote scholarship into the intersection of law and economics.
The purpose of this submission is to highlight some of the findings of the relevant scholarship to help to inform the ACCC’s work, and to highlight some of the problems that may arise during the course of the study, given the misconceptions about competition between advertising-funded digital platforms that are common in the media and popular debate today.
This submission will focus on three areas raised by the Issues Paper: concentration of market power in digital advertising, unequal access to data acting as a potentially anti-competitive barrier to entry, and the effect of vertical integration on competition and innovation.
Click here to read the submission.
Written Testimonies & Filings On Friday, April 17, 2020, ICLE President and Founder, Geoffrey A. Manne, submitted written testimony to the U.S. House of Representatives Committee on the Judiciary, Subcommittee on Antitrust, Commercial, and Administrative Law.
On Friday, April 17, 2020, ICLE President and Founder, Geoffrey A. Manne, submitted written testimony to the U.S. House of Representatives Committee on the Judiciary, Subcommittee on Antitrust, Commercial, and Administrative Law. Mr. Manne contends that underlying much of the contemporary antitrust debate are two visions of how an economy should work.
One vision, which tends to favor more intervention and regulation than the status quo, sees the economy and society as being constructed from above by laws and courts. In this view, suspect business behavior must be justified to be permitted, and . . . the optimal composition of markets can be known and can be designed by well-intentioned judges and legislators. On the other hand, there is the view of individual and company behavior as emerging from each person’s actions within a framework of property rights and the rule of law. This view sees the economy as a messy discovery process, with business behavior often being experimental in nature. This second conception often sees government intervention as risky, because it assumes a level of knowledge about the dynamics of markets that is impossible to obtain.
One vision, which tends to favor more intervention and regulation than the status quo, sees the economy and society as being constructed from above by laws and courts. In this view, suspect business behavior must be justified to be permitted, and . . . the optimal composition of markets can be known and can be designed by well-intentioned judges and legislators.
On the other hand, there is the view of individual and company behavior as emerging from each person’s actions within a framework of property rights and the rule of law. This view sees the economy as a messy discovery process, with business behavior often being experimental in nature. This second conception often sees government intervention as risky, because it assumes a level of knowledge about the dynamics of markets that is impossible to obtain.
In Manne’s view,
Antitrust law and enforcement policy should, above all, continue to adhere to the error-cost framework, which informs antitrust decision-making by considering the relative costs of mistaken intervention compared with mistaken non-intervention. Specific cases should be addressed as they come, with an implicit understanding that, especially in digital markets, precious few generalizable presumptions can be inferred from the previous case. The overall stance should be one of restraint, reflecting the state of our knowledge. We may well be able to identify anticompetitive harm in certain cases, and when we do, we should enforce the current laws. But dramatic new statutes that undo decades of antitrust jurisprudence or reallocate burdens of proof with the stroke of a pen are unjustified.
Manne goes on to address several of the most important and common misperceptions that seem to be fueling the current drive for new and invigorated antitrust laws. These misperceptions are that:
See his full testimony, here.
