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Popular Media The Wall Street Journal reports major conflicts between the DOJ and the FTC over antitrust jurisdiction. There are only two of them, and they are . . .
The Wall Street Journal reports major conflicts between the DOJ and the FTC over antitrust jurisdiction. There are only two of them, and they are not subject to rules against collusion and open agreements. Nonetheless, they can’t get along and they cannot decide on market division. Maybe they will take this as information about difficulties of collusion, even in duopoly situations.
Filed under: antitrust, cartels, federal trade commission
Popular Media Josh and I have just completed a white paper on search neutrality/search bias and the regulation of search engines. The paper is this year’s first . . .
Josh and I have just completed a white paper on search neutrality/search bias and the regulation of search engines. The paper is this year’s first in the ICLE Antitrust & Consumer Protection White Paper Series:
In this paper we evaluate both the economic and non-economic costs and benefits of search bias. In Part I we define search bias and search neutrality, terms that have taken on any number of meanings in the literature, and survey recent regulatory concerns surrounding search bias. In Part II we discuss the economics and technology of search. In Part III we evaluate the economic costs and benefits of search bias. We demonstrate that search bias is the product of the competitive process and link the search bias debate to the economic and empirical literature on vertical integration and the generally-efficient and pro-competitive incentives for a vertically integrated firm to discriminate in favor of its own content. Building upon this literature and its application to the search engine market, we conclude that neither an ex ante regulatory restriction on search engine bias nor the imposition of an antitrust duty to deal upon Google would benefit consumers. In Part V we evaluate the frequent claim that search engine bias causes other serious, though less tangible, social and cultural harms. As with the economic case for search neutrality, we find these non-economic justifications for restricting search engine bias unconvincing, and particularly susceptible to the well-known Nirvana Fallacy of comparing imperfect real world institutions with romanticized and unrealistic alternatives
Search bias is not a function of Google’s large share of overall searches. Rather, it is a feature of competition in the search engine market, as evidenced by the fact that its rivals also exercise editorial and algorithmic control over what information is provided to consumers and in what manner. Consumers rightly value competition between search engine providers on this margin; this fact alone suggests caution in regulating search bias at all, much less with an ex ante regulatory schema which defines the margins upon which search providers can compete. The strength of economic theory and evidence demonstrating that regulatory restrictions on vertical integration are costly to consumers, impede innovation, and discourage experimentation in a dynamic marketplace support the conclusion that neither regulation of search bias nor antitrust intervention can be justified on economic terms. Search neutrality advocates touting the non-economic virtues of their proposed regime should bear the burden of demonstrating that they exist beyond the Nirvana Fallacy of comparing an imperfect private actor to a perfect government decision-maker, and further, that any such benefits outweigh the economic costs.
Filed under: announcements, antitrust, economics, error costs, essential facilities, exclusionary conduct, google, law and economics, markets, monopolization, technology, truth on the market Tagged: antitrust, foundem, google, search, search bias, Search Engines, search neutrality, tradecomet, Vertical integration
Popular Media The press release is here. Notably, the settlement obligates Google to continue product development and to license ITA software on commercially-reasonable terms, seemingly for 5 years. . . .
The press release is here. Notably, the settlement obligates Google to continue product development and to license ITA software on commercially-reasonable terms, seemingly for 5 years. Frankly, I can’t imagine Google wouldn’t have done this anyway, so the settlement is not likely much of a binding constraint.
Also notable is what the settlement doesn’t seem to do: Impose any remedies intended to “correct” (or even acknowledge) so-called search neutrality issues. This has to be considered a huge victory for Google and for common sense. I’m sure Josh and I will have more to say once the pleadings and settlement are available. Later today or tomorrow we will post a paper we have just completed on the issue of search neutrality.
Unfortunately, this settlement doesn’t put the matter to rest, and we still have to see what the FTC has in store now. But for now, this is, as I said, a huge victory for Google . . . and for all of us who travel!
Filed under: antitrust, google, mergers & acquisitions Tagged: Federal Trade Commission, google, ITA Software, mergers, search, Search Engines, United States Department of Justice
Popular Media Larry makes a strong argument below for why the proposed SEC rules changes reported today in the WSJ should not be heralded as some great . . .
Larry makes a strong argument below for why the proposed SEC rules changes reported today in the WSJ should not be heralded as some great opening up of US securities markets, but that the changes are little more than political posturing to prevent addressing the real problem of the costs imposed by securities regulation more generally. I don’t disagree that the proposed rules changes Larry targets are, at best, window dressing to release some (well-justified) pressure created by innovative market-based solutions to circumvent the rules that lie more at the root of the securities market problem. So long as the costs associated with “public” placements are so high, investors and issuers will continue to look for ways to expand their access to capital within the “private” placement market, which by definition excludes many (especially smaller) investors.
That said, I will point out that one of the quotes in the article bemoaning this proposal comes from an institutional investor–one of the groups that is more likely to benefit from the current 500 entity cap. If raising the cap would not open up the market meaningfully to new potential investors, I wouldn’t expect to see such negative comments from one of the groups who will face this greater competition in the supply of private equity. So while the proposed changes certainly don’t address the real problem, it seems they may make the market a bit more open (and less subject to contrived and costly work-arounds like special purpose vehicles) than it currently is.
However, among the rules changes being proposed is one that should open up the market to greater access even to smaller investors (up to whatever new cap might replace the current 500 entity rule). And it’s a rule change that appears a direct response to something Larry blogged about here just earlier this year.
According to the WSJ report, the SEC “is considering relaxing a strict ban on private companies publicizing share issues, known as the ‘general solicitation’ ban.” The current regulations are currently under Constitutional scrutiny as a potential violation of 1st Amendment speech rights, as a result of a case by Bulldog Investors that Larry discussed in his earlier post. Again, how far will the ‘relaxing’ go and will it be a substantive change in the underlying problem, or just another hanging of curtains? But there should be no doubt that more open communication about private equity investment opportunities should further open the market to smaller investors.
All this to say, I believe Larry is on point for the big picture, but the proposed regulation changes don’t seem to be all bad. Of course, the devil is in the details–so we’ll have to reserve judgment until the specifics are revealed before having more confidence in that conclusion.
Filed under: disclosure regulation, IPOs, securities regulation, Sykuta
Popular Media Does anyone really still believe that the threat of antitrust enforcement doesn’t lead to undesirable caution on the part of potential defendants? Whatever you may . . .
Does anyone really still believe that the threat of antitrust enforcement doesn’t lead to undesirable caution on the part of potential defendants?
Whatever you may think of the merits of the Google/ITA merger (and obviously I suspect the merits cut in favor of the merger), there can be no doubt that restraining Google’s (and other large companies’) ability to acquire other firms will hurt those other firms (in ITA’s case, for example, they stand to lose $700 million). There should also be no doubt that this restraint will exceed whatever efficient level is supposed by supporters of aggressive antitrust enforcement. And the follow-on effect from that will be less venture funding and thus less innovation. Perhaps we have too much innovation in the economy right now?
Reuters fleshes out the point in an article titled, “Google’s M&A Machine Stuck in Antitrust Limbo.” That about sums it up.
Here are the most salient bits:
Not long ago, selling to Google offered one of the best alternatives to an initial public offering for up-and-coming technology startups. . . . But Google’s M&A machine looks to be gumming up. * * * The problem is antitrust limbo. * * * Ironically that may make it less appealing to sell to Google. The company has announced just $200 million of acquisitions in 2011 — the smallest sum since the panic of 2008. * * * The ITA acquisition has sent a warning signal to the venture capital and startup communities. Patents may still be available. But no fast-moving entrepreneur wants to get stuck the way ITA has since agreeing to be sold last July 1. * * * For a small, growing business the risks are huge. * * * That doesn’t exclude Google as an exit option. But the regulatory risk needs to be hedged with a huge breakup fee. . . . With Google’s rising antitrust issues, however, the fee needs to be as big as the purchase price.
Not long ago, selling to Google offered one of the best alternatives to an initial public offering for up-and-coming technology startups. . . . But Google’s M&A machine looks to be gumming up.
* * *
The problem is antitrust limbo.
Ironically that may make it less appealing to sell to Google. The company has announced just $200 million of acquisitions in 2011 — the smallest sum since the panic of 2008.
The ITA acquisition has sent a warning signal to the venture capital and startup communities. Patents may still be available. But no fast-moving entrepreneur wants to get stuck the way ITA has since agreeing to be sold last July 1.
For a small, growing business the risks are huge.
That doesn’t exclude Google as an exit option. But the regulatory risk needs to be hedged with a huge breakup fee. . . . With Google’s rising antitrust issues, however, the fee needs to be as big as the purchase price.
Filed under: antitrust, business, cost-benefit analysis, google, law and economics, merger guidelines, mergers & acquisitions, technology Tagged: error costs, google, ITA, Venture capital
Popular Media Fred McChesney is leaving Northwestern (where he is Haddad Professor of Law) for a chair at the University of Miami (HT: Leiter). As Leiter notes, . . .
Fred McChesney is leaving Northwestern (where he is Haddad Professor of Law) for a chair at the University of Miami (HT: Leiter). As Leiter notes, this is a major pickup for Miami. McChesney is a first-rate scholar and has done pioneering work in law and economics, public choice, corporate law, and antitrust. With more and more specialization in law and economics, the number of scholars who make significant contributions using economic theory, empirical work, and understanding of legal institutions is falling over time. Fred does it all. And he does it remarkably well. Congratulations to both Fred and Miami.
Filed under: antitrust, economics, law and economics, law school, markets
Popular Media Commentators who see Trinko as an impediment to the claim that antitrust law can take care of harmful platform access problems (and thus that prospective rate . . .
Commentators who see Trinko as an impediment to the claim that antitrust law can take care of harmful platform access problems (and thus that prospective rate regulation (i.e., net neutrality) is not necessary), commit an important error in making their claim–and it is a similar error committed by those who advocate for search neutrality regulation, as well. In both cases, proponents are advocating for a particular remedy to an undemonstrated problem, rather than attempting to assess whether there is really a problem in the first place. In the net neutrality context, it may be true that Trinko would prevent the application of antitrust laws to mandate neutral access as envisioned by Free Press, et al. But that is not the same as saying Trinko precludes the application of antitrust laws. In fact, there is nothing in Trinko that would prevent regulators and courts from assessing the anticompetitive consequences of particular network management decisions undertaken by a dominant network provider. This is where the concerns do and should lie–not with an aesthetic preference for a particular form of regulation putatively justified as a response to this concern. Indeed, “net neutrality” as an antitrust remedy, to the extent that it emanates from essential facilities arguments, is and should be precluded by Trinko.
But the Court seems to me to be pretty clear in Trinko that an antitrust case can be made, even against a firm regulated under the Telecommunications Act:
Section 601(b)(1) of the 1996 Act is an antitrust-specific saving clause providing that “nothing in this Act or the amendments made by this Act shall be construed to modify, impair, or supersede the applicability of any of the antitrust laws.” This bars a finding of implied immunity. As the FCC has put the point, the saving clause preserves those “claims that satisfy established antitrust standards.” But just as the 1996 Act preserves claims that satisfy existing antitrust standards, it does not create new claims that go beyond existing antitrust standards; that would be equally inconsistent with the saving clause’s mandate that nothing in the Act “modify, impair, or supersede the applicability” of the antitrust laws.
Section 601(b)(1) of the 1996 Act is an antitrust-specific saving clause providing that “nothing in this Act or the amendments made by this Act shall be construed to modify, impair, or supersede the applicability of any of the antitrust laws.” This bars a finding of implied immunity. As the FCC has put the point, the saving clause preserves those “claims that satisfy established antitrust standards.”
But just as the 1996 Act preserves claims that satisfy existing antitrust standards, it does not create new claims that go beyond existing antitrust standards; that would be equally inconsistent with the saving clause’s mandate that nothing in the Act “modify, impair, or supersede the applicability” of the antitrust laws.
There is no problem assessing run of the mill anticompetitive conduct using “established antitrust standards.” But that doesn’t mean that a net neutrality remedy can be constructed from such a case, nor does it mean that precisely the same issues that proponents of net neutrality seek to resolve with net neutrality are necessarily cognizable anticompetitive concerns.
For example, as Josh noted the other day, quoting Tom Hazlett, proponents of net neutrality seem to think that it should apply indiscriminately against even firms with no monopoly power (and thus no ability to inflict consumer harm in the traditional antitrust sense). Trinko (along with a vast quantity of other antitrust precedent) would prevent the application of antitrust laws to reach this conduct–and thus, indeed, antitrust and net neutrality as imagined by its proponents are not coextensive. I think this is very much to the good. But, again, nothing in Trinko or elsewhere in the antitrust laws would prohibit an antitrust case against a dominant firm engaged in anticompetitive conduct just because it was also regulated by the FCC.
Critics point to language like this in Trinko to support their contrary claim:
One factor of particular importance is the existence of a regulatory structure designed to deter and remedy anticompetitive harm. Where such a structure exists, the additional benefit to competition provided by antitrust enforcement will tend to be small, and it will be less plausible that the antitrust laws contemplate such additional scrutiny.
But I don’t think that helps them at all. What the Court is saying is not that one regulatory scheme precludes the other, but rather that if a regulatory scheme mandates conduct that makes the actuality of anticompetitive harm less likely, then the application of necessarily-imperfect antitrust law is likely to do more harm than good. Thus the Court notes that
The regulatory framework that exists in this case demonstrates how, in certain circumstances, “regulation significantly diminishes the likelihood of major antitrust harm.”
But this does not say that regulation precludes the application of antitrust law. Nor does it preclude the possibility that antitrust harm can still exist; nor does it suggest that any given regulatory regime reduces the likelihood of any given anticompetitive harm–and if net neutrality proponents could show that the regulatory regime did not in fact diminish the likelihood of antitrust harm, nothing in Trinko would suggest that antitrust should not apply.
So let’s get out there and repeal that FCC net neutrality order and let antitrust deal with any problems that might arise.
Filed under: antitrust, essential facilities, exclusionary conduct, monopolization, net neutrality, technology Tagged: Competition law, FCC, Federal Communications Commission, Free Press, Monopoly, net neutrality, Network neutrality, regulation, Telecommunications Act
Popular Media Do the 2010 Horizontal Merger Guidelines require market definition? Will the agencies define markets in cases they bring? Are they required to do so by . . .
Do the 2010 Horizontal Merger Guidelines require market definition? Will the agencies define markets in cases they bring? Are they required to do so by the Guidelines? By the Clayton Act?
Here is Commissioner Rosch in the FTC Annual Report (p.18):
“A significant development in 2010 was the issuance of updated Horizontal Merger Guidelines by the federal antitrust agencies. The 2010 Guidelines advance merger analysis by eliminating the need to define a relevant market and determine industry concentration at the outset.”
Compare with Commissioner Rosch’s reported remarks at the Spring Meeting:
“I want to emphasise: I don’t care what the 2010 guidelines say, you can never do away with market definition,” Rosch said.
Does the latter statement assert that the HMGs do not require market definition at all? If so, the statement in the former that the agencies don’t need to do it first certainly follows. And why is it an “advance” to eliminate the need to define a market first but seems to be a bad thing to eliminate it altogether in certain cases? Of course, as DOJ (and, importantly, UCLA Bruin) economist Ken Heyer points on in his remarks at the same Spring Meeting event, and I’ve written about here and here, most expect the agencies to continue defining markets because federal courts expect it, may require it, and failure to do so will harm the agencies’ ability to successfully bring enforcement actions. Nonetheless, the statements do not provide much clarity on the Commissioner’s (or, for that matter, Commission’s) views with respect to the new HMGs and the role of market definition.
Over at the DOJ, on the other hand, former Chief Economist Carl Shapiro — congratulations to the newly appointed Fiona Scott Morton — made clear that agencies’ stance on the role of market definition:
“The Division recognizes the necessity of defining a relevant market as part of any merger challenge we bring.”
No such announcement from the FTC. And Commissioner Rosch’s remarks do not clarify matters. On the one hand they seem to indicate the FTC will always define markets; on the other, they imply that they do so despite the fact that the Guidelines say they don’t have to. With Shapiro gone, the DOJ view is unclear at the moment. Perhaps all of this is much ado about nothing as a practical matter — though I’m not sure of that. But if the Agencies both consider market definition a “necessity,” why not just say so? Why not write: “market definition is required by Section 7 of the Clayton Act and the agencies will, at some point in the analysis, define a relevant market”?
Market definition requirement aside, my views on the positive developments in the new Merger Guidelines and the larger problem they present — asymmetrically updating theories of competitive harm without doing so on the efficiencies side — articulated in this forthcoming paper.
Filed under: antitrust, economics Tagged: antitrust, doj, ftc, market definition, merger guidelines
Popular Media Congressman Mica’s mission to oust the Federal Trade Commission from its current digs continues. Mica is the chairman of the House Transportation and Infrastructure Committee, . . .
Congressman Mica’s mission to oust the Federal Trade Commission from its current digs continues. Mica is the chairman of the House Transportation and Infrastructure Committee, and has made the move top priority (Washington Post):
“You won’t believe me, but this is my only priority as chairman,” he says — a fact that has the commissioners sputtering. “I know the commissioners have fourth-floor balconies with great views of the Capitol,” Mica says dismissively.
Commissioner Rosch responds:
“I have no view,” exclaims Commissioner Tom Rosch, pointing out that (a) he is a Republican and (b) his term will expire before any eviction could take place. “And I suspect that Mica has a bigger office than I do.” “We need to examine this gentleman’s motives,” Rosch continues. “Is it because he has a grudge against us? . . . Is it that he would like his picture emblazoned on their brochure? . . . Is it ego? . . . I don’t know.”
The text of the bill (HR 690) is available here.
(HT: Steve Salop)
Filed under: antitrust, art, federal trade commission, politics
