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Regulatory Comments The FTC and DOJ's RFI on whether and how to update the antitrust agencies’ merger-enforcement guidelines is based on several faulty premises and appears to presuppose a preferred outcome.
Our comments in response to the agencies’ merger guidelines RFI are broken into two parts. The first raises concerns regarding the agencies’ ultimate intentions as reflected in the RFI, the authority of the assumptions undergirding it, and the agencies’ (mis)understanding of the role of merger guidelines. The second part responds to several of the most pressing and problematic substantive questions raised in the RFI.
With respect to the (for lack of a better term) “process” elements of the agencies’ apparent intended course of action, we argue that the RFI is based on several faulty premises which, if left unchecked, will taint any subsequent soft law proposals based thereon:
First, the RFI seems to presuppose a particular, preferred outcome and does not generally read like an objective request for the best information necessary to reach optimal results. Although some of the language is superficially neutral, the overarching tone is (as Doug Melamed put it) “very tendentious”: the RFI seeks information to support a broad invigoration of merger enforcement. While some certainly contend that strengthening merger-enforcement standards is appropriate, merger guidelines that start from that position can hardly be relied upon by courts as a source of information to differentiate in difficult cases, if and when that may be warranted.
Indeed, the RFI misconstrues the role of merger guidelines, which is to reflect the state of the art in a certain area of antitrust and not to artificially push the accepted scope of knowledge and practice toward a politically preferred and tenuous frontier. The RFI telegraphs an attempt by the agencies to pronounce as settled what are hotly disputed, sometimes stubbornly unresolved issues among experts, all to fit a preconceived political agenda. This not only overreaches the FTC’s and DOJ’s powers, but it also risks galvanizing opposition from the courts, thereby undermining the utility of adopting guidelines in the first place.
Second, underlying the RFI and the agencies’ apparently intended course of action is the uncritical acceptance of a popular, but highly contentious, narrative positing that there is an inexorable trend toward increased concentration, caused by lax antitrust enforcement, that has caused significant harm to the economy. As we explain, however, every element of this narrative withers under closer scrutiny. Rather, the root causes of increased concentration (if it is happening in the first place) are decidedly uncertain; concentration is decreasing in the local markets in which consumers actually make consumption decisions; and there is evidence that, because much increased concentration has been caused by productivity advances rather than anticompetitive conduct, consumers likely benefit from it.
Lastly, the RFI assumes that the current merger-control laws and tools are no longer fit for purpose. Specifically, the agencies imply that current enforcement thresholds and longstanding presumptions, such as the HHI levels that trigger enforcement, allow too many anticompetitive mergers to slip through the cracks. We contend that this kind of myopic thinking fails to apply the relevant error-cost framework. In merger enforcement, as in antitrust law, it is not appropriate to focus narrowly on one set of errors in guiding legal and policy reform. Instead, general-purpose tools and presumptions should be assessed with an eye toward reducing the totality of errors, rather than those arising in one segment at the expense of another.
Substantively, our comments address the following issues:
First, the RFI is concerned with the state of merger enforcement in labor markets (and “monopsony” markets more broadly). While some discussion may be welcome regarding new guidelines for how agencies and courts might begin to approach mergers that affect labor markets, the paucity of past actions in this area (the vast bulk of which have been in a single industry: hospitals); the significant dearth of scholarly analysis of relevant market definition in labor markets; and, above all, the fundamental complexities it raises for the proper metrics of harm in mergers that affect multiple markets, all raise the specter that aiming for specific outcomes in labor markets may undermine the standards that support proper merger enforcement overall. If the agencies are to apply merger-control rules to monopsony markets, they must make clear that the relevant market to analyze is the output market, and not (only) the input market. Ultimately, this is the only way to separate mergers that generate efficiencies from those that create monopsony power, since both have the effect of depressing input prices. If antitrust law is to stay grounded in the consumer welfare standard, as it should, it must avoid blocking mergers that are consumer-facing simply because they decrease the price of an input. The issue of monopsony is further complicated by the fact that many inputs are highly substitutable across a wide range of industries, rendering the relevant market even more difficult to pin down than in traditional product markets.
Second, there is not enough evidence to create the presumption of a negative relationship between market concentration and innovation, or between market concentration and investment. In fact, as we show, it may often be the case that the opposite is true. The agencies should thus be wary of drawing any premature conclusions—let alone establishing any legal presumptions—on the connection between market structure and non-price effects, such as innovation and investment.
Third, the RFI blurs what has hitherto been a clear demarcation—and rightly so—between vertical and horizontal mergers by stretching the meaning of “potential competition” beyond any reasonable limits. In doing, it ascribes stringent theories of harm based on far-fetched hypotheticals to otherwise neutral or benign business conduct. This “horizontalization” of vertical mergers, if allowed to translate into policy, is likely to have chilling effects on procompetitive merger activity to the detriment of consumers and, ultimately, society as a whole. As we show, there is no legal or empirical justification to abandon the time-honed differentiation between horizontal and vertical mergers, or to impose a heightened burden of proof on the latter. The 2018 AT&T merger illustrates this.
Fourth, and despite some facially attractive rhetoric, data should not receive any special treatment under the merger rules. Instead, it should be treated as any other intangible asset, such as reputation, IP, know-how, etc.
Finally, the notion of “attention markets” is not ready to be applied in a merger-control context, as the attention-market scholarship fails to offer objective, let alone quantifiable, criteria that might enable authorities to identify firms that are unique competitors for user attention.
Read the full comments here.
Scholarship Abstract Competition policy generally prohibits coordination among buyers or sellers, especially coordination on price, price-related inputs, and output. In licensing markets for standard-essential patents (“SEPs”), . . .
Competition policy generally prohibits coordination among buyers or sellers, especially coordination on price, price-related inputs, and output. In licensing markets for standard-essential patents (“SEPs”), it has been periodically proposed that this rule should be relaxed to permit the formation of licensing negotiation groups (“LNGs”), which is expected to reduce transaction costs and the purportedly “excessive” royalties paid to SEP licensors. Based on the economic structure of wireless technology markets, and empirical evidence from over three decades of SEP licensing, this policy intervention is likely to degrade, rather than enhance, competitive conditions in wireless communications and other 5G-enabled markets encompassed by the “Internet of Things.” In the short term, LNGs would most likely result in a redistributive (not an efficiency) effect that shifts economic value from innovators to implementers in the wireless technology supply chain without necessarily passing on cost-savings to consumers. In the medium to longer term, LNGs are liable to impose significant efficiency losses by endangering the viability of licensing-based monetization models that have funded continuous R&D investment, promoted broad dissemination of technology inputs, facilitated robust entry in device production, and enabled transformative business models across a wide range of industries. While LNGs may reduce the transaction costs of SEP licensing, pooling structures have a demonstrated record of having achieved the same objective in patent-intensive information technology markets at a substantially lower risk of competitive harm.
TOTM Barry Schwartz’s seminal work “The Paradox of Choice” has received substantial attention since its publication nearly 20 years ago. In it, Schwartz argued that, faced . . .
Barry Schwartz’s seminal work “The Paradox of Choice” has received substantial attention since its publication nearly 20 years ago. In it, Schwartz argued that, faced with an ever-increasing plethora of products to choose from, consumers often feel overwhelmed and seek to limit the number of choices they must make.
Read the full piece here.
TOTM The States brought an antitrust complaint against Facebook alleging that various conduct violated Section 2 of the Sherman Act. The ICLE brief addresses the States’ . . .
The States brought an antitrust complaint against Facebook alleging that various conduct violated Section 2 of the Sherman Act. The ICLE brief addresses the States’ allegations that Facebook refused to provide access to an input, a set of application-programming interfaces that developers use in order to access Facebook’s network of social-media users (Facebook’s Platform), in order to prevent those third parties from using that access to export Facebook data to competitors or to compete directly with Facebook.
TOTM The Federal Trade Commission (FTC) is at it again, threatening new sorts of regulatory interventions in the legitimate welfare-enhancing activities of businesses—this time in the . . .
The Federal Trade Commission (FTC) is at it again, threatening new sorts of regulatory interventions in the legitimate welfare-enhancing activities of businesses—this time in the realm of data collection by firms.
TOTM A raft of progressive scholars in recent years have argued that antitrust law remains blind to the emergence of so-called “attention markets,” in which firms compete by . . .
A raft of progressive scholars in recent years have argued that antitrust law remains blind to the emergence of so-called “attention markets,” in which firms compete by converting user attention into advertising revenue. This blindness, the scholars argue, has caused antitrust enforcers to clear harmful mergers in these industries.
Popular Media The antitrust debate on app store practices is all over the news almost every day. Last month, the Paris Commercial Court fined Google for abusive . . .
The antitrust debate on app store practices is all over the news almost every day. Last month, the Paris Commercial Court fined Google for abusive dealings with developers, while the Dutch competition authority issued a tenth weekly penalty payment against Apple for failing to comply with its decision to allow dating apps on its App Store to use non-Apple methods of payment. Yet, the US Court of Appeals for the Ninth Circuit will soon rule in Epic’s appeal over the Californian District Court ruling in its case against Apple.
TOTM Federal Trade Commission (FTC) competition rulemakings, like spring, are in the air. But do they make policy or legal sense? Read the full piece here.
Federal Trade Commission (FTC) competition rulemakings, like spring, are in the air. But do they make policy or legal sense?
Amicus Brief In this brief for the 9th U.S. Circuit Court of Appeals, ICLE and 26 distinguished scholars of law & economics argue that the district court in a suit brought by Epic Games rightly found that Apple’s procompetitive justifications outweigh any purported anticompetitive effects in the market for mobile-gaming transactions.
The International Center for Law & Economics (“ICLE”) is a nonprofit, non- partisan global research and policy center aimed at building the intellectual foundations for sensible, economically grounded policy. ICLE promotes the use of law & economics methodologies to inform public policy debates and has longstanding expertise in the evaluation of antitrust law and policy.
Amici also include 26 scholars of antitrust, law, and economics at leading universities and research institutions around the world. Their names, titles, and academic affiliations are listed in Addendum A. All have longstanding expertise in, and copious research on, antitrust law and economics.
Amici have an interest in ensuring that antitrust promotes the public interest by remaining grounded in sensible legal rules informed by sound economic analysis. Amici believe that Epic’s arguments deviate from that standard and promote the private interests of slighted competitors at the expense of the public welfare.
Epic challenges Apple’s prohibition of third-party app stores and in-app payments (“IAP”) systems from operating on its proprietary, iOS platform as a violation of the antitrust laws. But, as the district court concluded, Epic’s real concern is its own business interests in the face of Apple’s business model—in particular, the commission charged for the use of Apple’s IAP system. See Order at 1-ER22, Epic Games, Inc. v. Apple Inc., No. 4:20-CV-05640 (N.D. Cal. Sept. 10, 2021), ECF No. 812 (1-ER3–183). In essence, Epic is trying to recast its objection to Apple’s 30% commission for use of Apple’s optional IAP system as a harm to consumers and competition more broadly.
Epic takes issue with the district court’s proper consideration of Apple’s procompetitive justifications and its finding that those justifications outweigh any anticompetitive effects of Apple’s business model. But Epic’s case fails at step one of the rule of reason analysis. Indeed, Epic did not demonstrate that Apple’s app distribution and IAP practices caused the significant market-wide effects that the Supreme Court in Ohio v. Am. Express Co. (“Amex”) deemed necessary to show anticompetitive harm in cases involving two-sided transaction markets. 138 S. Ct. 2274, 2285–86 (2018). While the district court found that Epic demonstrated some anticompetitive effects, Epic’s arguments below focused only on the effects that Apple’s conduct had on certain app developers and failed to appropriately examine whether consumers were harmed overall. This is fatal. Without further evidence of the effect of Apple’s app distribution and IAP practices on consumers, no conclusions can be reached about the competitive effects of Apple’s conduct.
Nor can an appropriate examination of anticompetitive effects ignore output. It is critical to consider whether the challenged app distribution and IAP practices reduce output of market-wide app transactions. Yet Epic did not seriously challenge that output increased by every measure, and Epic’s Amici ignore output altogether.
Moreover, the district court examined the one-sided anticompetitive harms presented by Epic, but rightly found that Apple’s procompetitive justifications outweigh any purported anticompetitive effects in the market for mobile gaming transactions. The court recognized that the development and maintenance of a closed iOS system and Apple’s control over IAP confers enormous benefits on users and app developers.
Finally, Epic’s reliance on the theoretical existence of less restrictive alternatives (“LRA”) to Apple’s business model is misplaced. Forcing Apple to adopt the “open” platform that Epic champions would reduce interbrand competition, and improperly permit antitrust plaintiffs to commandeer the judiciary to modify routine business conduct any time a plaintiff’s attorney or district court can imagine a less restrictive version of a challenged practice, irrespective of whether the practice promotes consumer welfare. See NCAA v. Alston, 141 S. Ct. 2141, 2161 (2021) (“[C]ourts should not second-guess ‘degrees of reasonable necessity’ so that ‘the lawfulness of conduct turn[s] upon judgments of degrees of e?ciency.’”). Particularly in the context of two-sided platform businesses, such an approach would sacrifice interbrand, systems-level competition for the sake of a superficial increase in competition among a small subset of platform users.
Read the full brief here.
