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TOTM While the dog days of August have sent many people to the pool to cool off, the Telecom Hootenanny dance floor is heating up. We’ve . . .
While the dog days of August have sent many people to the pool to cool off, the Telecom Hootenanny dance floor is heating up. We’ve got hiccups in BEAD deployment, a former Federal Communications Commission (FCC) member urging the agency to free-up 12 GHz spectrum for fixed wireless, and another former FCC commissioner urging a rewrite of the rules governing low-earth orbit (LEO) satellites.
It’s been less than two months since the National Telecommunications and Information Administration (NTIA) announced state funding under the Broadband Equity Access and Deployment (BEAD) program. Already, states are grumbling about implementation headaches.
Read the full piece here.
TOTM In 2020, an academic paper suggested that more than 80% of U.S. physicians mistakenly thought that nicotine was a carcinogen. The implication of this finding was that . . .
In 2020, an academic paper suggested that more than 80% of U.S. physicians mistakenly thought that nicotine was a carcinogen. The implication of this finding was that perhaps physicians thought vaping (and even nicotine-replacement therapy) to be almost as dangerous as smoking. But physicians are busy people and I suggest that some, maybe most, might have misunderstood the question in the survey and assumed the researchers were asking about smoking.
To test this hypothesis, I surveyed physicians to learn more about their actual knowledge and opinion. Additionally, the UK government is more supportive of vaping and other nontraditional nicotine-replacement therapies than U.S. government, so a comparison of UK and U.S. physicians was undertaken to see if government policy and advice affects physician knowledge and opinion.
I find that most physicians correctly recognize that nicotine does not cause cancer, but that far more U.S. physicians than UK physicians still believe that it is carcinogenic. Additionally, vaping is viewed far more positively as a smoking-cessation tool by the surveyed UK physicians than surveyed U.S. physicians, and this is partly caused by the mistaken stance by U.S. health authorities.
TOTM A market with 1,000 tiny sellers is not some ideal market. Concentration can be extremely beneficial, leading to economies of scale and stiffer competition to . . .
A market with 1,000 tiny sellers is not some ideal market. Concentration can be extremely beneficial, leading to economies of scale and stiffer competition to win a big share of the market.
Yet the Federal Trade Commission (FTC) and U.S. Justice Department’s (DOJ) draft merger guidelines double down on the idea that concentration is inherently a problem. They add new structural presumptions against concentration, for both horizontal and vertical mergers. Even worse, the agencies won’t recognize any efficiencies “if they will accelerate a trend toward concentration.”
The problem? Concentration is not a good proxy for competition. This post will go through some of the empirical work that generally finds that competition increases concentration. The FTC/DOJ are completely at odds with the economic literature on this point.
Read the whole piece here.
TOTM In our recent issue brief, Geoffrey Manne, Kristian Stout, and I considered the antitrust economics of state-owned enterprises—specifically the local power companies (LPCs) that are government-owned . . .
In our recent issue brief, Geoffrey Manne, Kristian Stout, and I considered the antitrust economics of state-owned enterprises—specifically the local power companies (LPCs) that are government-owned under the authority of the Tennessee Valley Authority (TVA).
While we noted that electricity cooperatives (co-ops) do not receive antitrust immunities and could therefore be subject to antitrust enforcement, we didn’t spend much time considering the economics of co-ops. This is important, because electricity co-ops themselves own a large number of poles and attaching to those poles at reasonable rates will be important to effectuate congressional intent to deploy broadband quickly in the rural areas those co-ops generally serve.
Scholarship Abstract The EC has proposed a regulatory framework for SEPs, the heart of which is the establishment of a regulatory authority—a “competence center”—charged with maintaining . . .
The EC has proposed a regulatory framework for SEPs, the heart of which is the establishment of a regulatory authority—a “competence center”—charged with maintaining a registry of SEPs with detailed information drawn from required submissions by SEP holders and “administering a system for essentiality checks and processes for aggregate royalty determination and FRAND determination.” The proposal’s stated aim is to facilitate licensing negotiations between SEP holders and implementers, applying a balanced approach towards the bargaining parties. The approach is highly unbalanced, however. It would sharpen incentives for holdout by implementers and thereby substantially weaken SEP holders’ ability to appropriate the value of their IP. In particular, implementers would be empowered to substantially delay requests by SEP holders for injunctive relief against infringement in national courts of law. It is a truism that justice delayed is justice denied. Likewise, IP rights delayed are IP rights denied. Beyond delay, the Proposal would entirely bar the recovery of some losses from infringement in certain circumstances. As a result, the practical effect of the Proposal would be to induce licensing disputes where there would otherwise have been none, supplanting private bargaining with a less well-informed and inefficient administrative process that would materially depress incentives for innovation and standardization.
TOTM In a recent piece for the Financial Times, Brendan Greeley argues that the misnamed Credit Card Competition Act would reduce inflation. In it, Greeley recycles numerous myths about the nature . . .
In a recent piece for the Financial Times, Brendan Greeley argues that the misnamed Credit Card Competition Act would reduce inflation. In it, Greeley recycles numerous myths about the nature of credit-card markets that have long been rebutted by serious economic research. Both theory and ample evidence from the United States and other countries shows that attempting artificially to force down interchange fees is bad for consumers—especially those with lower incomes and those who revolve their balances. Moreover, these interventions simply redistribute the costs of operating the payment-card system; they do not eliminate them. As a result, they won’t reduce inflation, as Greeley imagines.
TL;DR Background: In October 2022, supermarkets Kroger and Albertsons announced their intent to merge in a $24.6 billion deal. The combined company would be the third-largest . . .
Background: In October 2022, supermarkets Kroger and Albertsons announced their intent to merge in a $24.6 billion deal. The combined company would be the third-largest food and grocery retailer, behind Walmart and Amazon, and would account for roughly 9% of nationwide sales. Based on the Federal Trade Commission’s (FTC) recently released draft merger guidelines and comments by FTC Chair Lina Khan, it appears likely that the agency will move to block the merger, even if the companies offer to divest stores to competing chains.
But… If the FTC does seek to block the deal, it will face an uphill battle. The retail industry has changed dramatically over the past few decades. Partly due to the tremendous growth of supercenters, club stores, and online retail, U.S. consumers are no longer “one-stop shoppers.” These market changes have placed tremendous competitive pressure on traditional retail.
Some of the deal’s critics have also raised concerns about the prospect of monopsony power in labor markets, but these claims are speculative at best and unlikely to hold up in court.
The FTC has for decades clung to a narrow definition of supermarkets that includes only those stores that allow consumers to buy nearly all of their weekly food and grocery needs in a single trip. This definition encompasses traditional food and grocery retailers, such as Kroger and Albertsons, as well as supercenters with grocery sections, such as some Walmart and Target stores. But critically, the FTC’s definition excludes warehouse clubs like Costco and e-commerce services like Amazon.
The FTC’s hypothetical customer is no longer typical. Grocery shopping has shifted toward more frequent shopping trips across various formats, including not only warehouse clubs and e-commerce services, but online-delivery platforms like Instacart; limited-assortment stores like Trader Joe’s and Aldi; natural and organic markets like Whole Foods; and ethnic-specialty stores like H Mart.
Due to these enormous changes, the market definition used in earlier FTC consent orders likely will be, and should be, challenged. This means there are fewer geographic areas where the deal would lead to problematic post-merger market positions.
Over the past 25 years or so, warehouse clubs and supercenters like Walmart have doubled their share of retail sales, while supermarkets’ share has dropped by more than 25%. Indeed, according to data from the industry magazine Progressive Grocer, if the merger goes through, Kroger/Albertsons will still be about 50% smaller than Walmart.
Along similar lines, online shopping and home delivery have grown from niche services that served only 10,000 households nationwide a quarter century ago to a scenario in which 12.5% of U.S. consumers now purchase groceries mostly or exclusively online.
Amazon is now the second-largest food and grocery retailer in the United States. Meanwhile, millions of consumers use delivery services like Instacart to purchase food and groceries from supermarkets, supercenters, club stores, wholesalers, and ethnic markets.
These new businesses place significant competitive pressure on traditional retailers, making the prospect of post-merger market power even more unlikely.
Some opponents of the merger argue that it would lead to monopsony power in labor markets and depress supermarket employee wages. But these concerns are overblown and will be nearly impossible to demonstrate if the merger were to be litigated.
The market for labor in the retail sector is highly competitive, with workers having a wide range of alternative employment options. More importantly, both Kroger and Albertsons are highly unionized firms. Through their collective-bargaining agreements, these unions exert their own market power.
Finally, some point to Haggen’s disastrous acquisition of stores spun-off from the Albertsons/Safeway merger as evidence that divestitures don’t work. But several factors idiosyncratic to Haggen and its acquisition strategy led to that failure, rather than the divestiture itself.
Before it acquired the stores, Haggen was a small regional chain with only 18 stores, mostly in Washington State. In addition, buying the stores left Haggen’s owners heavily in debt.
These issues could—and should—have been addressed when the FTC and the merging parties were negotiating their consent order. Today’s enforcers should thus learn from the Haggen experience—by devising workable remedies—rather than view it as a justification to reject reasonable divestiture options.
For more on this issue, see the International Center for Law & Economics (ICLE) issue brief “Five Problems with a Potential FTC Challenge to the Kroger/Albertsons Merger.”
Scholarship Abstract Previous iterations of the DOJ/FTC Merger Guidelines have articulated a clear, rigorous, and transparent methodology for balancing the pro-competitive benefits of mergers against their . . .
Previous iterations of the DOJ/FTC Merger Guidelines have articulated a clear, rigorous, and transparent methodology for balancing the pro-competitive benefits of mergers against their anticompetitive costs. By describing agency practice, guidelines facilitate compliance, ensure consistent and reasonable enforcement, increase public understanding and confidence, and promote international cooperation.
But the 2023 Draft Merger Guidelines do not. They go to great lengths to articulate the potential anticompetitive costs of mergers but with no way to gauge “substantiality.” Most significantly, they ignore potential benefits, which eliminates the need for balancing. In other words, the Draft Guidelines provide very little guidance about current practice which adds risk, which deters mergers, which seems to be the point. We offer specific recommendations for Horizontal, Vertical, and Tech Mergers that do a better job differentiating procompetitive mergers from anticompetitive ones.
TL;DR Background: Artificial intelligence—or “AI”—is everywhere these days. It powers our smartphones, cars, homes, and entertainment. It helps us diagnose diseases, teach children, and create art. . . .
Background: Artificial intelligence—or “AI”—is everywhere these days. It powers our smartphones, cars, homes, and entertainment. It helps us diagnose diseases, teach children, and create art. It promises to revolutionize every aspect of our lives, for better or worse.
But … How should public policy respond to this powerful and rapidly evolving force? How should we ensure that AI serves our interests and values, rather than undermining or subverting them?
Some observers and policymakers fear that AI could pose existential threats to humanity, such as unleashing rogue superintelligences, triggering mass job losses, or sparking global wars. They argue that governments should take a prescriptive approach to AI regulation to preempt speculated threats.
Some argue that we need to impose strict and specific rules on AI development and deployment, before it is too late. In a recent U.S. Senate Judiciary Committee hearing, OpenAI CEO Sam Altman suggested that the United States needs a central regulator for AI.
However … This approach is likely to be both misguided and counterproductive. Overregulation could stifle innovation and competition, depriving us of the benefits and opportunities that AI offers. It could put some countries at a disadvantage relative to those that pursue AI openly and aggressively. It could also stifle learning from AI and developing better AI.
A more sensible and effective approach to oversight is to pursue an adaptive framework that relies on existing laws and institutions, rather than creating new regulations, agencies, and enforcement mechanisms.
There are already laws, policies, agencies, and courts in place to address actual harms and risks, rather than hypothetical or speculative ones. This is what we’ve done with earlier transformative technologies like biotech, nanotech, and the internet. Each has been regulated by applying existing laws and principles, such as antitrust, torts, contracts, and consumer protection.
In addition, an adaptive approach would foster international dialogue and cooperation, which have been essential for establishing norms and standards for emerging technologies.
Pursuing an adaptive approach does not mean that we should be complacent or naive about AI. Where the technology is misused or causes harm, there should be actionable legal consequences. For example, if a real-estate developer intentionally used AI tools to screen out individuals from purchasing homes on the basis of protected characteristics, that should be actionable. If a criminal found a novel way to use ChatGPT to commit fraud, that should be actionable. If generative AI is used to create “deep fakes” that amounts to libel, that should be actionable. But in each of these cases, it is not the AI itself that is the relevant unit of legal analysis, but the actions of criminals and the harms they cause.
Ultimately, it would be fruitless to try to build a regulatory framework that would make it impossible for bad actors to misuse AI. Bad actors will always find ways to misuse tools, and heavy-handed regulatory requirements would chill the development of the very AI tools that could combat misuse.
If history is any guide, it is likely that AI tools will allow firms and individuals to do more with less, expanding their productivity and improving their incomes.
By freeing capital from easily automated tasks, existing firms and new entrepreneurs could better focus on their core business missions. For example, investments in marketing or HR could be redeployed to R&D. At this point, we have little idea how AI will be used by people and firms. And more importantly, neither do politicians, policymakers, or regulators.
Overly burdensome AI regulation would likely hinder the entry and growth of new AI firms. For example, as an established player in the AI market, it should be no surprise that OpenAI’s CEO would favor a strong central regulator that can impose entry barriers on newcomers. It is well-known in both law and economics that incumbent firms can profit from raising their rivals’ regulatory costs.
This dynamic can create strong strategic incentives for industry incumbents to promote regulation and can lead to a cozy relationship between agencies and incumbent firms in a process known as “regulatory capture.”
The key challenge confronting policymakers lies in navigating the dichotomy of mitigating actual risks posed by AI, while simultaneously fostering the substantial benefits it offers.
To be sure, AI will bring about disruption and may provide a conduit for bad actors, just as technologies like the printing press and the internet have done in the past. This does not, however, merit taking an overly cautious stance that would suppress many of the potential benefits of AI.
Policymakers must eschew dystopian science-fiction narratives and instead base policy on realistic scenarios. Moreover, they should recognize the laws, policies, and agencies that already have enormous authority and power to find and punish those who misuse AI.
For more on this issue, see the International Center for Law & Economics’ (ICLE) response to the National Telecommunications and Information Administration’s AI Accountability Policy, as well as ICLE’s response to the similar inquiry from the White House Office of Science and Technology Policy.
