ICLE’s invitation-only Big Ideas Workshop series brings together early- and mid-career scholars to discuss important ideas in law & economics. This workshop will explore some . . .
In March 2023, the Commission announced new guidelines on exclusionary abuses and amended its 2008 Guidance on enforcement priorities concerning exclusionary abuses. According to the . . .
The European Commission has adopted its GDPR adequacy decision for the U.S., creating a new basis for data transfers to the U.S., like those for . . .
IN THE MEDIA
Bloomberg Law – ICLE President Geoffrey Manne quoted in a Bloomberg Law story about the striking Hollywood guilds asking the Federal Trade Commission to investigate consolidation . . .
Bloomberg Law – ICLE President Geoffrey Manne quoted in a Bloomberg Law story about the striking Hollywood guilds asking the Federal Trade Commission to investigate consolidation among the Hollywood studios. You can read full piece here.
But the issues with the “feedback loop” are inherent to the new paradigm of streaming and have nothing to do with concentration, said Geoffrey Manne, the president of the nonprofit research group International Center for Law and Economics.
“It’s just that there is no good data anymore,” Manne said. Streaming services are struggling to determine how much their profits—mostly generated via subscribers—are attributable to any given TV show, he said.
“It’s not because the companies are trying to take advantage of anyone,” Manne said. “They may also be doing that, but that’s the Occam’s razor”—the simplest—assessment.
… Regardless of future FTC investigations, Manne predicted, the knowledge that Khan has taken a personal interest in the strikes will have a deterrent effect on industry mergers.
“It’s impossible to think that if any studios are planning a merger, they’re going through it with same assessment of potential risk they were before,” Manne said. “At the margin, some mergers that were being contemplated might be affected by this tension.”
Axios – ICLE Chief Economist Brian Albrecht was quoted in a story in Axios about private-equity firm Roark Capital’s proposed acquisition of the Subway chain of . . .
Axios – ICLE Chief Economist Brian Albrecht was quoted in a story in Axios about private-equity firm Roark Capital’s proposed acquisition of the Subway chain of restaurants. You can read full piece here.
One question is if Roark will have too much power over vendors who service restaurants, says Brian Albrecht, chief economist at the International Center for Law & Economics.
Clarion-Ledger – ICLE Academic Affiliate Joshua R. Hendrickson was quoted by the Clarion-Ledger in a story about a recent survey finding that the Mississippi cities of . . .
Clarion-Ledger – ICLE Academic Affiliate Joshua R. Hendrickson was quoted by the Clarion-Ledger in a story about a recent survey finding that the Mississippi cities of Jackson and Hattiesburg are among the places where the cost of living has risen the most in the past year. You can read full piece here.
However, University of Mississippi’s Chair of the Department of Economics Joshua Hendrickson said there must be more than meets the eye.
“These cost-of-living changes are largely driven by inflation. The variation by location is typically determined by local conditions,” Hendrickson said. “However, with regard to Jackson, there does not appear to be a particular component that is driving the cost-of-living higher.”
… “What is likely going on here is that places like Jackson and Hattiesburg have a lower cost-of-living than the average city in the U.S.,” Hendrickson said. “When there is significant inflation, many prices of goods and services rise uniformly across geographic locations. These result in higher percentage increases in lower cost-of-living areas. This seems to be the case here since 13 of the 15 cities listed began below the national average.”
Hendrickson pointed to several statistics in regard to Jackson, Hattiesburg and Mississippi in general.
Medium – ICLE Chief Economist Brian Albrecht and Academic Affiliate Thom Lambert were cited by Adam Kovacevich in a story published by Medium about the role . . .
Medium – ICLE Chief Economist Brian Albrecht and Academic Affiliate Thom Lambert were cited by Adam Kovacevich in a story published by Medium about the role of self-preferencing in the U.S. Justice Department’s upcoming Google case. You can read full piece here.
As Brian Albrecht noted:
In the case of retail trade promotions, a promotional space given to Coca-Cola makes it marginally easier for consumers to pick Coke, and therefore some consumers will switch from Pepsi to Coke. But it does not reduce any consumer’s choice. The store will still have both items.
…In other words, regulators or courts banning search default deals or slotting fees would likely only reaffirm the market-leading position of both Google and Oreos — but result in decreased revenue for the access points, Mozilla and Kroger. Or as Thom Lambert put it:
“The government’s success in its challenge to Google’s Apple payments would benefit Google at the expense of consumers: Google would almost certainly remain the default search engine on Apple products, as it is most preferred by consumers and no rival could pay to dislodge it; Google would not have to pay a penny to retain its default status; and Apple would lose revenues that it likely passes along to consumers in the form of lower prices.”
DOJ is likely to argue, as Lambert previewed, that Google’s deals give it higher search volume, which creates a “data barrier to entry” for Bing and DuckDuckGo — they don’t have enough scale to compete. As Lambert notes:
“In the government’s view, Google is legally obligated to forego opportunities to make its own product better so as to give its rivals a chance to improve their own offerings.”
But, he continues:
“This is inconsistent with U.S. antitrust law. Just as firms are not required to hold their prices high to create a price umbrella for their less efficient rivals, they need not refrain from efforts to improve the quality of their own offerings so as to give their rivals a foothold.”
…As Brian Albrecht put it:
Despite all the bells and whistles of the Google case…from an economic point of view, the contracts that Google signed are just trade promotions. No more, no less. And trade promotions are well-established as part of a competitive process that ultimately helps consumers.
Yahoo Finance – ICLE Senior Scholar Eric Fruits was quoted by Yahoo Finance in a story about the benefits of allowing supermarkets Kroger and Albertsons to . . .
Growth of supercenters like Walmart, along with club stores like BJ’s (BJ) and Costco (COST), could be the biggest “long-run story” in the food and grocery industry, Eric Fruits, senior scholar at the International Center for Law & Economics, told Yahoo Finance. Fruits also highlighted Amazon’s (AMZN) purchase of Whole Foods for $13.7 billion as another deal that further intensified competition within the industry.
Reason – ICLE Chief Economist Brian Albrecht was cited in a story in Reason about the Biden administration’s attempts to shift the standards of antitrust law. . . .
Consumer welfare should be the sole standard for antitrust law. Economist Brian Albrecht wrote in National Review last December about the shift from the “Government always wins” antitrust standard that was successfully pushed by progressives until abandoned in the late 1970s. An emphasis on tangible economic reasoning allowed a consistent framework to take shape, including “the elevation of consumer welfare as antitrust regulation’s fundamental concern.” Chair Khan is trying to turn back the clock to a standard that will again allow the FTC and DOJ to always win.
KOIN – ICLE Senior Scholar Eric Fruits was quoted by Portland, Oregon television station KOIN in a story about the merger of Oregon Health & Science . . .
KOIN – ICLE Senior Scholar Eric Fruits was quoted by Portland, Oregon television station KOIN in a story about the merger of Oregon Health & Science University and Legacy Health. You can read full piece here.
“This is certainly something that the feds are going to look at if they are going to do a merger review between OHSU and Legacy. They may even mandate that Legacy or OHSU don’t close any facilities or do better on price transparency,” said Eric Fruits, from the International Center for Law & Economics in Portland.
…“There should be some scrutiny about whether a merger such as this might exacerbate some of those issues such as higher prices or reduced services,” said Fruits.
City Journal – ICLE President Geoffrey Manne and Director of Law & Economics Programs Gus Hurwitz were cited in a post at City Journal about the . . .
City Journal – ICLE President Geoffrey Manne and Director of Law & Economics Programs Gus Hurwitz were cited in a post at City Journal about the Federal Trade Commission and U.S. Justice Department’s recently unveiled draft merger guidelines. You can read full piece here.
The FTC has had a busy summer. It proposed severe new disclosure requirements for parties seeking to merge. Joining forces with the Justice Department, it moved to de-modernize the government’s merger guidelines. (“Weighted by the number of citations,” observe Gus Hurwitz and Geoff Manne, “the average year of the 50 cases the FTC and Justice Department cite in support of their approach is 1975—ages ago in antitrust law.”) The agency launched an investigation of OpenAI, maker of ChatGPT, and signaled its intent to regulate artificial intelligence more broadly. It accused Amazon of using so-called dark patterns to trick users into subscribing to Amazon Prime. (It also claims that Prime is too hard to quit. Never mind that one can do so in fewer clicks than it takes to file a comment with the FTC.) And any day now, Khan is expected to file her biggest lawsuit of all: her long-planned quest to break up Amazon.
WCPO – ICLE Senior Scholar Eric Fruits was quoted by Cincinnati television station WCPO in a story about a petition from several state attorneys general asking . . .
WCPO – ICLE Senior Scholar Eric Fruits was quoted by Cincinnati television station WCPO in a story about a petition from several state attorneys general asking the Federal Trade Commission to challenge to the merger of Kroger and Albertsons. You can read full piece here.
Kroger has a 75% chance of completing the proposed merger, but it might have to fight the FTC in court to get the deal done, said Eric Fruits, an antitrust expert and senior scholar for the International Center for Law & Economics in Portland Oregon.
“For the past 25-30 years, almost every single grocery merger has been allowed to go through with these spinoffs, or what are known as divestitures,” said Fruits, a Sycamore High School graduate who recently co-authored a detailed analysis of the likely legal arguments in the case. “My guess is that’s what Kroger and Albertsons are going to offer. The real question is whether or not the Federal Trade Commission will take that offer. And if they don’t, they could go to court and the judge could say, ‘This seems like a reasonable remedy. We’ll let you spin off the stores.’”
When Kroger announced the planned merger last October, it said it hoped to complete the deal by early next year. Fruits doesn’t think that can happen if the case goes to court.
“I would think that there’s bigger fish to fry than the Kroger-Albertsons merger,” said Fruits. “But you just don’t know what sort of political pressure these federal trade commissioners are under to try to show that they’re doing something big. And this is something big that they can try to block.”
ABC News – ICLE Academic Affiliate James Huffman was quoted by the ABC News in a story about the latest developments in a lawsuit by young . . .
ABC News – ICLE Academic Affiliate James Huffman was quoted by the ABC News in a story about the latest developments in a lawsuit by young plaintiffs who seek to overturn a Montana law that prohibits the consideration of greenhouse-gas emissions in evaluating whether to grant permits. You can read full piece here.
“The ruling really provides nothing beyond emotional support for the many cases seeking to establish a public trust right, human right or a federal constitutional right” to a healthy environment, said James Huffman, dean emeritus at Lewis & Clark Law School in Portland.
CoStar – ICLE Editor-in-Chief R.J. Lehmann was quoted by CoStar in a story about the impact of recent spates of natural disasters on the insurance market . . .
CoStar – ICLE Editor-in-Chief R.J. Lehmann was quoted by CoStar in a story about the impact of recent spates of natural disasters on the insurance market for commercial properties. You can read full piece here.
“It’s raised alarms for the insurance industry and property owners because now people are thinking about the effects of things like rising ocean levels and the effects that saltwater exposure can have on some of these older properties,” said Ray Lehmann, a Miami-based senior fellow with the International Center for Law & Economics, a nonpartisan and nonprofit research organization that tracks issues including business risks associated with climate change.
Lehmann told CoStar News that commercial property insurers in California generally have more leeway to negotiate pricing with customers than exists in other states, including Florida. But those insurers’ rising costs for their own reinsurance are making it difficult to earn profits from policies without being able to pass on those costs to California commercial customers in the face of escalating wildfire, flooding and other risks.
Lehmann said those risks are also making it difficult for insurers to profit from previously lucrative, high-end commercial and residential policies that were offered for many years in California hubs of the wealthy, like Malibu and Santa Barbara, now increasingly prone to fires and other damaging weather events.
Cowboy State Daily – ICLE Academic Affiliate George Mocsary was quoted by Cowboy State Daily in a story about a U.S. Supreme Court’s order allowing the . . .
Cowboy State Daily – ICLE Academic Affiliate George Mocsary was quoted by Cowboy State Daily in a story about a U.S. Supreme Court’s order allowing the Biden administration’s regulation of so-called “ghost guns” to remain in force while legal challenges play out. You can read full piece here.
The term “ghost guns” is “kind of silly name. It tends to illicit an emotional reaction rather than an intellectual one,” University of Wyoming law professor George Mocsary, director of UW’s Firearms Research Center.
The Biden administration and others have made “ghost guns” out to be a serious problem because they are supposedly fueling a wave of armed crime with untraceable weapons.
That’s simply not the case, Mocsary said.
“Criminals are not making their own firearms. The equipment to make your own firearm at home isn’t just a small piece of equipment,” he said. “The entire ‘ghost gun’ regulation is just a lot of noise to get attention. The number of those firearms used in crime is miniscule compared to the number of regular firearms used in crimes.”
Axios – ICLE Chief Economist Brian Albrecht was quoted in a story in Axios about the pending merger between supermarkets Kroger and Albertsons. You can read . . .
In court, it’s likely to be a “bread-and-butter” argument over market definition, market share nationally and in local markets, and which companies are considered competitors, says Brian Albrecht, chief economist at the International Center for Law & Economics.
…But there’s a good argument that wholesale clubs like Costco, which have been excluded in the past, and Amazon, which operates both online and increasingly physical stores, should also be included as rivals, says Albrecht.
He says that stores located farther away that can now deliver via online-delivery platforms such as Instacart could be added to the list.
Whether Dollar Stores should be included is debatable, Albrecht says.
Townhall – ICLE Chief Economist Brian Albrecht was cited in an op-ed in Townhall about the new merger guidelines. You can read full piece here. The . . .
The DOJ and FTC are unequivocally trying to prevent mergers, lowering the bar for what is considered presumptively illegal. The guidelines redefine thresholds, classifying more markets as concentrated while also stating that a market share of over 30 percent presents a threat of undue concentration. The goal, according to economist Brian Albrecht, is to “stop more mergers of every kind without regard for economic argument or recent law.”
Axios – ICLE Chief Economist Brian Albrecht was quoted in a story in Axios in a story about the Federal Trade Commission’s emerging approach to mergers. . . .
Brian Albrecht, chief economist at the International Center for Law & Economics, predicts the FTC will challenge the deal in court, but it will be approved based on precedents.
- Precedents suggest the transaction would be assessed through the lens of traditional market definitions, competition within local markets, and which retailers are or are not considered competitors.
Between the lines: While industry watchers like Albrecht predict the transaction gets completed, the source close to the FTC says that view disregards considerations like protecting small businesses.
The Dispatch – ICLE Chief Economist Brian Albrecht was cited by The Dispatch in a story about the Federal Trade Commission and U.S. Justice Department’s new . . .
The Dispatch – ICLE Chief Economist Brian Albrecht was cited by The Dispatch in a story about the Federal Trade Commission and U.S. Justice Department’s new draft merger guidelines. You can read full piece here.
Earlier this year, for example, Albrecht and his colleagues at the International Center for Law and Economics wrote a terrific report documenting some of the biggest “doomsday mergers” that fizzled out – or, like beer industry consolidation, actually improved the market’s competitiveness and consumer surplus – in retrospect. This includes Amazon/Whole Foods, Bayer/Monsanto, Google/Fitbit, Facebook/Instagram/Whatsapp, and Ticketmaster/Live Nation. In each case, antitrust hawks wrongly predicted competitive destruction (e.g., Amazon/Whole Foods) or ignored the merger at the time it occurred and only claimed it was an obvious problem years later (e.g., Facebook/Instagram).
Arizona Republic – A recent ICLE issue brief on the proposed merger between Kroger and Albertsons was cited by the Arizona Republic. You can read full . . .
The issue of divesting stores could emerge as a key negotiation point in any legal settlement or agreement with regulators, and this could be a relatively easy issue to resolve, according to a recent analysis of the merger by the nonpartisan International Center for Law & Economics.
…“The upshot is the food and grocery industry is arguably as competitive as it has ever been,” said the report on the merger, written by Brian Albrecht and three other analysts at the International Center for Law and Economics.
…If anything, raising prices would make Kroger and Albertsons stores less appealing against low-cost rivals. The proliferation of wholesale clubs, e-commerce options and other competition “significantly constrains” the supermarkets’ ability to raise prices, argued the report from the International Center for Law & Economics.
…State attorneys general can enforce many federal antitrust laws, and they often sign onto federal lawsuits filed by the the FTC or Justice Department, said Brian Albrecht, one of the authors of the International Center for Law & Economics report.
He predicts the FTC will bring a case and some state AGs will get behind it.
“The FTC will do the heavy lifting on everything, but the AGs can go back to their voters and say they are doing something,” Albrecht said in an email to the Arizona Republic.
Executive Summary Electronic peer-to-peer (P2P) payments can serve as an effective alternative to other payment methods, such as cash and checks. Real-time payments (RTPs)—originally developed . . .
Electronic peer-to-peer (P2P) payments can serve as an effective alternative to other payment methods, such as cash and checks. Real-time payments (RTPs)—originally developed to reduce settlement times and thereby lower float costs—have come into their own as means to facilitate interoperability between otherwise-closed P2P payments systems. That likely explains why 62 new RTP systems were created in the past decade, compared with a total of 22 in the prior four decades.
P2P payments and associated RTP rails are well-suited for payments where immediacy and finality are required, where the goods or services have already been delivered or are being supplied by a trusted provider, and where the payor is satisfied that the warranties provided by the payee are adequate and easily enforced. For such transactions, P2P payments are in many ways superior to cash, checks, or older EFT-based online debit transactions.
By contrast, P2P payments in general—including those made over RTP rails—are poorly suited to transactions where immediacy and/or finality are not required and where there are significant risks of nonperformance by the payee. This is because the speed and finality of P2P payments made over RTP rails makes it more difficult to detect, prevent, and rectify fraud, theft, and mistake. P2P-RTPs are thus particularly poorly suited to transactions where goods and services are delivered after payment has been sent and the payor does not have an established trust relationship with the merchant. In such circumstances, closed-loop or dual-message open-loop payment cards will typically be superior.
Organizations designing and implementing P2Ps and RTPs would do well to bear these lessons in mind and not pursue overly ambitious and impractical goals. Where those organizations are governmental entities—such as central banks—that have a remit to regulate payments, it is essential that they implement measures to mitigate potential conflicts of interest.
This is the first in a series of ICLE issue briefs that will investigate innovations in and the regulation of payments technologies, with a particular focus on their effects on financial inclusion. The aim of this paper is to offer an overview of two important and related payment systems: peer-to-peer (P2P) and real-time payments (RTPs). Subsequent papers in the series will look at specific aspects of these systems in greater detail.
In traditional payment systems, funds sent from one account to another can take from hours to days to clear and settle. These delays have an opportunity cost: once funds have been debited from a sender’s account, they are not available for use until they are credited at the recipient’s account. In addition, delays in clearing and settlement can contribute to counterparty risk for recipients. At the same time, there are tradeoffs between the speed and finality of payments and counterparty risk for senders.
In principle, P2P and RTPs hold significant potential to increase financial inclusion and enhance economic efficiency. But to do so successfully, such tradeoffs must be acknowledged and factored into system designs. Relatedly, it is important for system designers and regulators to understand both the likely use cases for P2P and RTP systems and the uses to which they are poorly suited. For example, some P2P and RTP evangelists have argued that they will replace credit cards. As explored below, this seems unlikely for two reasons: first, credit cards have more effective mechanisms to address counterparty risk for consumers and, second, in many cases, credit cards better enable consumers to address timing mismatches between income and consumption.
P2Ps and RTPs come in various guises. Some are purely private systems, including P2Ps offered by Venmo, Zelle, and PayPal, and RTPs operated by The Clearing House, Visa, Mastercard, and PayUK. Some RTPs (such as India’s Unified Payments Interface, or UPI) are public-private partnerships. Other RTPs—such as Brazil’s Pix and the forthcoming FedNow system in the United States—are run by central banks. These various systems have adopted different approaches to implementation. By considering the particular system designs and the consequences of those differences, this paper offers tentative best practices for P2P and RTP design. Future papers will explore these issues in greater detail.
In order to put P2Ps and RTPs into the broader context of payment systems as they have evolved, Section II describes the means by which payments are cleared and settled, starting with an account of the basic process, followed by descriptions of some of the primary payment-settlement systems, including automated clearing houses, faster-payment systems, P2Ps, and RTPs. Section III considers the benefits and drawbacks to P2Ps and RTPs. Finally, Section IV offers concluding remarks.
II. Clearing and Settlement Systems
Bank accounts are essentially ledgers that record credits and debits. When funds move from account A to account B, a debit is recorded on account A and a credit recorded in account B. This is typically a four-stage process: authorization, verification, clearing, and settlement:
- Authorization is the process by which the sender authorizes a payment from A to B.
- Verification is the process by which the sender’s payment authorization is verified.
- Clearing is the process by which the banks reconcile the ledgers of accounts A and B. If there are insufficient funds in A to facilitate the payment, the transaction will not clear. (In some definitions, clearing is taken to comprise, in addition, the two steps above.)
- Settlement is the process by which funds are transferred, either individually or in batches (often netted—see below), and the ledgers are updated.
Historically, this was primarily done through the use of checks and deposit slips. The signed check authorizes the transfer from the sender (debitor) account (A) and the deposit slip authorizes the receipt of funds by the creditor account (B). The bank—or banks, if the accounts are with different depository institutions—then verify the authenticity of the checks and deposit slips and clear the funds to be transferred. Finally, the bank(s) adjust the ledgers in each account, recording a debit in account A and a credit in account B.
Consider the simple case of a two-bank system with only one account holder in each bank. The owner of account A in bank X writes and signs a check to the owner of account B in bank Y authorizing the transfer of funds from A to B. In this case, X confirms the authenticity of the check signed by the owner of A and clears funds to be transferred to B. Meanwhile, settlement requires funds to be moved from X to Y, which entails the recording of a debit in X’s master ledger and a credit in Y’s master ledger. To avoid counterparty risk, while a debit will be recorded in A after clearing, a credit will only appear in B after settlement.
Now, consider the slightly more complicated case of multiple accountholders in each of the two banks. In this case, numerous accountholders in each bank write checks to account holders in the other bank. These checks are first cleared. Then, at the end of the day, the total amount of funds cleared between all accounts in X and Y would be calculated and any difference in the net amount would be settled by adjusting the ledgers of the two banks. As before, funds debited from senders’ accounts only appear as credits in recipients’ accounts following settlement.
In practice, there are many banks and many accountholders within each bank. On any day, some number of accountholders in each bank write checks to accountholders in other banks. It is therefore more efficient for clearing and settlement to occur on a multiparty basis. This led to the establishment of clearing houses, which are independent intermediaries that facilitate clearing and settlement. In 1863, the largest U.S. banks formed The Clearing House (TCH) for this purpose. The process is still essentially the same, however, with settlement occurring following the netting of amounts owed between each bank in the system.
A. Automated Clearing and Settlement
Electronic payments enable more rapid funds transfer. The earliest such payments were “wires,” which began in the 19th century, with information about the sender and recipient being sent between individual banks over telegraph wires. In 1970, TCH established the Clearing House Interbank Payment Services (CHIPS) to clear and settle wire payments for eight of its largest members. Membership was subsequently expanded to banks across the United States and internationally.
During the 1950s and 1960s, banks introduced computers and gradually shifted from paper-based ledgers to electronic ledgers. As the cost of computers and telecommunications fell, it became increasingly efficient to send information relating to smaller-value payments electronically, which in turn facilitated automation of the entire payments system. In 1968, UK banks introduced the first automated electronic clearing house, called Bankers’ Automated Clearing System (BACS). In 1972, a group of California banks established the first automated clearing-house (ACH) network in the United States to clear and settle accounts electronically. Other regional networks and the Federal Reserve (FedACH) followed and, in 1974, these networks established the National Automated Clearing House Association (NACHA). Similar networks were developed in many other countries, typically supported by—and, in many cases, run by—central banks.
B. Settlement Times
In the United States, settlement over NACHA and CHIPS originally took two to three days. Settlement on payment systems in other jurisdictions, such as BACS in the United Kingdom, typically occurred on similar timeframes. Over time, settlement times for payment systems have gradually been reduced. Most U.S. settlements now take only a day or less. Since 2010, FedACH has offered a same-day clearing/settlement service, while NACHA has offered a similar same-day clearing/settlement service since 2016. CHIPS settles at the end of the day over Fedwire.
Separate from the ACH systems, real-time gross-settlement (RTGS) systems, such as Fedwire, are used for settling large-value payments between banks without netting. These typically settle immediately upon receipt, during hours of operation. Because there is no netting, banks must either ensure they have sufficient reserves to send funds, or borrow funds to cover outgoing payments. Potential mismatches between outgoing and expected incoming funds can lead to cash hoarding, driving up demands for intraday borrowing, as occurred during the 2008 financial crisis.
C. Fast Payments, Faster Payments, and Real-Time Payments
So-called “fast payments” or “faster payments” systems are RTGS systems designed to clear and settle smaller sums quickly between accounts. In general, such systems have the following features: (1) payment messages transmit and clear sufficiently quickly that payor and payee can see changes in their respective account balances more-or-less instantly (practically speaking, that means under a minute); (2) payment is final and irrevocable.
In 1973, Japan introduced Zengin, the first nationwide fast-payments system, and many others have followed suit in the ensuing half-century. An early driver of fast payments’ introduction of was the desire to reduce float (see Section III Part B below). More recently, interoperability among P2P payment networks has become a major driver, leading to the introduction of systems that operate continuously. Such round-the-clock fast-payment systems are typically referred to as real-time payments (RTPs). (Various other labels, including “instant payments,” are also used.)
With improvements in the speed and capacity of data processing and transfer, settlement times have gradually fallen. Indeed, some RTPs, such as TCH’s RTP, settle instantly. This requires payment service providers (PSPs) to maintain a balance with the settlement provider sufficient to “pre-fund” any payment (similar to RTGS). Indeed, some proponents of RTPs argue that instantaneous settlement is a defining feature of such systems. Other fast-payment systems, such as the UK’s Faster Payments Service (FPS), continue to operate on a deferred-settlement basis but are nevertheless referred to as RTPs because the other criteria are met. For the purposes of this primer, a payment system is considered an RTP if transactions using the system:
- enable the payor and payee to see changes in their respective account balances instantly;
- result in final and irrevocable transfers of funds from payor to payee; and
- may be made 24 hours a day, seven days a week.
D. Peer-to-Peer Payments
As noted, one of the drivers leading to the introduction of RTPs has been peer-to-peer (P2P) payments. Most P2P payments systems began as closed systems. While transfers within these P2P systems would often occur in real time, transfers into and out of the system—including to other P2P systems—could take days. RTPs offer a solution to this problem, enabling interoperability among different P2P systems, as well as interoperability between traditional bank accounts and P2P systems.
The first electronic peer-to-peer (P2P) payment system was M-Pesa, a pilot of which was established in Kenya in 2005 by Safaricom, a cellphone-service provider, and subsequently rolled out nationwide in 2007. M-Pesa was inspired by the sharing of air-time credits by cellphone users in various sub-Saharan African countries. Realizing that such air-time credit sharing was effectively acting as a form of money transmission and had the potential to enhance financial inclusion and associated economic development, the UK Department for International Development provided a challenge grant to Vodafone to support the development of more formal systems. Initially, Vodafone worked with its Kenyan affiliate, Safaricom, to offer subscribers the ability to purchase M-Pesa funds at registered retailers in exchange for cash, thereby effectively turning their cell phones into mobile wallets. Users could send funds to others via SMS. Over time, M-Pesa expanded into other markets and built numerous service offerings, including online payments and savings and loans. It now enables funding of accounts via online bank debits.
Numerous companies subsequently built wallet applications for smartphones that enable users to link their bank accounts. This allows them to add funds by debiting those accounts and to deposit funds by sending credit to their accounts. Users of these wallets can send funds directly to other users of the same wallet. Examples include Venmo, Zelle, PayPal, Google Pay, Apple Pay Cash, Cash App, Paytm (India), WhatsAppPay (currently in India and Brazil), ViberPay (currently in Greece and Germany), and China’s AliPay and WeChatPay.
More recently, several bank associations and clearing houses have established RTP systems that facilitate interbank payments in real time, thereby in principle enabling interoperability between P2P systems. In some cases, interoperability has been baked in by design. For example, in 2016, the National Payments Corporation of India (NPCI) created the Unified Payments Interface (UPI), which is an RTP with an associated API that facilitates “push” credit payments and requests for payment for NPCI member banks. As Figure I shows, around 400 banks are now part of UPI, which sees 8 billion monthly transactions with a total value of 14 trillion Rupees (about $170 billion).
TCH introduced an RTP system for member banks in 2017. As Figure II shows, the RTP has experienced explosive growth over the past three years and many U.S. P2P services now operate over it, effectively turning those P2Ps into RTPs.
In the first quarter of 2023 alone, TCH’s RTP facilitated 50 million transactions with a total value of about $25 billion. While P2Ps operating over TCH’s RTP are not necessarily interoperable, Zelle users can send funds directly to a counterparty’s bank account over RTP, even if that counterparty does not have Zelle installed at the time the payment is sent (they will have to install Zelle to be able to receive the funds).
Central banks have also established and are establishing RTPs. Notable examples include Brazil’s Pix, which was launched in 2020; the U.S. Federal Reserve’s FedNow, which launched in July 2023; and Bank of Canada’s Real Time Rail.
At the time of writing, fast payments systems have been introduced in 72 countries, with several of those jurisdictions having more than one such system. As can be seen in Figure III, the vast majority of fast payment systems were introduced in the past decade; most of those are RTPs.
SOURCE: Based on information from ACI Worldwide
E. Payment Cards
Payment-card networks emerged in the 1950s and have grown rapidly since, becoming the dominant means of retail payment in the United States and other OECD jurisdictions. Figure IV shows the dramatic increase in the proportion of U.S. transactions made using payment cards over the past two decades, which rose from 32% in 2000 to 77% in 2021.
The earliest payment cards—Diners Club and American Express—were and are still largely closed-loop systems, operating separately from bank networks. In the late 1950s, banks began operating their own payment-card networks. Over time, these bank-card networks gradually became more expansive and independent, with Visa and Mastercard becoming the largest such networks in the world, although there remain many competitors, including JCB, China Union Pay, and numerous national schemes.
Today, payment card systems can be divided into three main types:
- Closed-loop (three-party) credit cards
- Open-loop (four-party) dual-message (“signature”) systems
- Open-loop (four-party) single-message (“PIN”) systems
SOURCE: Federal Reserve Payment Study
As the name suggests, closed-loop cards, such as American Express and Discover, operate largely outside the banking system. When a payor uses a closed-loop card to make a purchase, the card issuer decides whether the payment is legitimate (for example, by authenticating the payor and undertaking fraud checks) and whether the payor has sufficient credit; if it passes those checks, the issuer guarantees to pay the payee.
When a payor uses a card operating over an open-loop dual-message (“signature”) payment network, two messages are sent. The first is a request for authorization sent to the issuing bank, which confirms the authenticity of the card and checks whether the cardholder has sufficient credit remaining (for a credit transaction) or funds in their account (for a debit transaction). But the message is also parsed by the network, which is able to monitor for fraud. If authorized, the second message contains information confirming the actual amount of the transaction, which is then either added to the cardholders’ credit-card bill or debited from the cardholder’s account during clearing and settlement, as appropriate.
In this sense, the dual-message settlement process is analogous to a check, in that there is some delay in the posting and clearing of the transaction. The ability to put a “hold” on a dual-message card payment enables merchants to delay payment (sometimes by as much as several days), thereby reducing the likelihood of fraud and associated chargebacks.
Single-message debit networks generally rely on the personal identification number (PIN) programmed on the card to authenticate a transaction. As a result, the only message that is required is a notification to the issuing bank to debit the account of the cardholder in the amount they have authorized, and to credit that amount to the account of the merchant—less the discount fee, which is paid to the acquiring bank. Because of the nature of the transaction, settlement can be effected over banks’ electronic-funds-transfer (EFT) networks, which were initially built to settle transactions at shared ATMs, and subsequently over networks of ATMs. As with an ATM transaction, single-message debit transactions settle and funds are transferred more or less immediately from the consumer’s account.
One of the major advantages of card payments has always been that merchants are guaranteed payment (on the condition that they comply with the payment-card rules). The closed-loop systems and dual-message open-loop systems are not RTPs, however, because they do not settle instantly. As discussed below, this has certain advantages. Open-loop single-message systems, by contrast, can and increasingly do operate over RTPs for debit payments. For example, Visa Now and Mastercard Send enable debit-card holders to make real-time payments.
III. Benefits and Drawbacks of P2Ps and RTPs
P2Ps and RTPs have some significant advantages over other payment systems. In particular, they can reduce counterparty risk for recipients, decrease opportunity costs of funds, and facilitate more advanced bilateral messaging between payor and payee. But they also have some drawbacks. Most notably, they entail high counterparty risk for payors; have engendered new types of fraud and theft risk; and lack any built-in credit facility. This section discusses these benefits (parts A, B, and C) and drawbacks (parts D, E, and F).
A. Reduced Counterparty Risk for Payees
Transfers sent using a system that nets payments, such as ACH or BACS, take some time to settle. As such, use of these payment systems creates a risk for recipients that payments will not arrive. This is particularly problematic for large-value transactions, such as home purchases, and for retail payments where the purchaser takes possession of the goods before the payment settles.
One way to reduce such payee counterparty risk is to use escrow (whereby funds are held on trust by a third party until the transaction is completed), banker’s drafts (also known as teller’s checks), or same-day wires. But these are all relatively costly solutions and hence only viable for larger-value transactions, such as the purchase of a car or a house. Wire transfers are clearly not suitable for transactions where the goods or services are of relatively low value, especially in cases where the purchaser will have left the premises before the wire has arrived, which would typically be the case for retail sales.
In comparison to wires, banker’s drafts, and escrow, credit and debit cards offer a lower-cost solution to counterparty risk. In both cases, payment is effectively guaranteed by the issuer (if the merchant complies with the card-network rules). In order to be able to accept credit or debit cards, however, the payee must establish a merchant account with an acquiring bank. While the costs and difficulty of establishing such an account has fallen with the introduction of modern payment-processing technologies, it can still be a barrier for merchants selling relatively small amounts of lower-valued items and is unlikely to make sense for individuals who make only occasional sales.
In contrast to these other payment methods, RTPs essentially eliminate counterparty risk for payees through the simple expedient of finality. This means that payees can see that funds have arrived nearly the moment that they are sent and know that the payment cannot be reversed. Meanwhile, when associated with a P2P system, RTPs can have very low setup costs, making them attractive for individuals and low-volume merchants.
B. Reduced Opportunity Costs
RTPs also eliminate the opportunity cost associated with funds that take time to settle. Compared with some other forms of payment—such as checks or credit cards, which can take a day or more to settle—the instantaneous settlement available with RTPs can create significant benefits for payees.
The Federal Reserve estimates that approximately 12 billion checks were written in 2021, with a total value of $27.47 trillion. Of those, approximately 800 million, with a value of $240 billion, were converted to ACH. This means that the remainder—i.e., 11.2 billion checks, with a combined value of $27.23 trillion—were processed through conventional clearing. It typically takes about two business days for a check to clear and settle, which means that U.S. businesses require an additional gross daily “collection float” of about $210 billion to cover this lag between payment and settlement. In practice, the net collection float required is far lower, because most checks are paid from one business to another; at any point in time, many businesses will be both debtors and creditors. Nonetheless, the need for even a few billion dollars of collection float is a significant cost, either reducing the amount of cash available for other uses or requiring lines of credit and associated interest payments. Using RTPs in place of checks can eliminate this float and associated costs.
C. Improved Bilateral Messaging
Another advantage of RTPs is improved documentation and bilateral communications. Some RTPs have introduced enhanced bilateral messaging between payer and payee. Among other things, this enables senders to verify the identity of the account to which they are sending funds, which can reduce the incidence of mistakes. In addition, payees can send requests for payment to payors, which can simplify the payment process (but as noted below, can lead to fraud). In addition, messages can include human-readable documents such as invoices and receipts that can improve reconciliation by both parties.
D. Increased Counterparty Risk for Payors
While counterparty risk for payees is low when using a RTP, the opposite is true for those who use RTPs to pay for goods and services—and for largely the same reason: the finality of payments made using an RTP means that, once a payment has been initiated, it cannot be stopped or reversed. This reduces counterparty risk for payees and increases it for payors. If the goods or services purchased using an RTP system are not supplied or do not meet the payor’s expectations, the payor cannot initiate a reversal or chargeback. (The payor could send a request-for-payment to the recipient, but the recipient is under no obligation to comply.)
E. Fraud and Theft
Fraud and theft are perennial problems with payment systems of all kinds. Cash sales are particularly susceptible to “skimming,” whereby the till operator takes some of the cash tended (for example, by overcharging or by failing to ring up the correct amount in the register). Cash is also susceptible to theft while in transit. To reduce such problems, merchants invest in such technologies as product bar codes, which prevent till operators from inputting incorrect prices (as well as improving inventory management) and security firms that use armored vehicles to transport cash.
Non-cash payment methods are not subject to physical theft per se, but criminals have deployed all manner of schemes to use them to steal and defraud. Among other things, checks have been used to steal funds by impersonation of account holders; to defraud merchants by pretending to spend funds that are not available (“bouncing”); and to embezzle funds from companies. To address these problems, merchants introduced requirements like identity confirmation and caps on check amounts, while banks introduced card-based guarantees, and payor companies and banks introduced multi-signature requirements.
Payment cards have suffered some similar problems. In response, issuing banks, merchants, card-payment networks, and other participants in the card-payments ecosystem have introduced rules and technologies designed to prevent fraud and theft. Early solutions included payment-authorization requirements; floor limits (above which authorization is required); and chargebacks (the ability to charge a transaction back to the merchant when an illegitimate transaction has not been authorized). More recent innovations include machine-learning-based systems that monitor individual-payment patterns, with suspicious transactions subject to rejection or additional authorization requirements, as well as tokenized payments, which prevent the collection and transmission of personal account numbers (PANs).
RTP systems are able to reduce some kinds of fraud and mistake. For example, the ability to check the identity of the recipient of the payee should, in principle, reduce the likelihood that a payment is sent to the wrong recipient. Raising the confidence of the payor, however, can also contribute to push-payment fraud. The lack of ability to reverse payments made over an RTP makes such systems particularly prone not only to push-payment fraud, but also to other kinds of frauds, as discussed in the subsections below.
1. Authorized Push-Payment Fraud
One of the most common types of payment fraud is also one of the oldest. A fraudster pretends to offer goods or services (often apparently in the name of a real business) and asks for upfront payment, but never delivers the goods or services. Such cons can take many forms, but increasingly they use online communications (websites, emails, app-based systems) and take advantage of irrevocable electronic transfers of funds.
This is the essence of “authorized push payment” (APP) fraud, which involves a con artist sending a request for payment (RFP) from a fake business (usually with a name that is very similar to that of a real business). The victim, assuming the request is from a legitimate business, then authorizes payment. APP fraud has become particularly prevalent in the United Kingdom since the introduction of the country’s Faster Payment System (FPS) RTP.
2. Lightning Kidnappings, Data Breaches, and Malware Attacks
In some jurisdictions, the immediacy and finality of RTPs has been associated with an increase in other more disturbing crimes. Shortly after the introduction of Pix, Brazil saw a 40% rise in the phenomenon of “lightning kidnappings.”  Traditionally, such kidnappings involved victims being taken to an ATM and forced to take out money to secure their release. In the more recent iteration of the scheme, kidnappers simply demand that victims make a transfer to the kidnapper’s Pix account.
In response, Brazil’s central bank (BCB) capped the value of P2P Pix transactions made between the hours of 8 p.m. and 6 a.m. to R1,000 ($182, at the time). Meanwhile, some Brazilians have taken matters into their own hands, responding to the threat of Pix kidnappings by purchasing secondary “Pix phones.” Users load these mid-range Android phones with banking and Pix apps and leave them at home. Meanwhile, they delete all banking apps from their primary phone. While such an approach allows those who can afford a second phone to prevent criminals from stealing potentially large amounts of money, it is quite a costly solution.
Brazil’s Pix also appears to be particularly susceptible to cybersecurity risks. Over the past 18 months, there have been three significant cybersecurity violations relating to Pix accounts. The first three were data breaches that appear to have arisen as a result of inadequate cybersecurity protections at banks and fintech companies whose account holders had the Pix app installed. One concern is that criminals may be seeking to use data gathered from these account breaches to create fake accounts in the names of real people, which they could then use to receive funds from the hostages they kidnap and/or engage in other criminal activities. They could then launder the money by using Pix to buy goods and, after depleting the account, destroy the phone used to create it.
The fourth breach, identified in late 2022, is by far the largest and potentially most serious, as it involved the use of a piece of malware nicknamed PixPirate, which targets Android versions of the Pix app itself and potentially affects all Pix customers using Android phones. It would appear that PixPirate enables the theft of passwords used to access bank accounts, as well as the interception of SMS messages. In combination, these data could be used to defeat some types of two-factor authentication.
In some respects, the problems of fraud and theft discussed above may be considered part of a wider problem of “governance” of P2P and RTP systems. While space precludes a detailed discussion of this issue here (it will be the subject of a forthcoming paper in this series), from an economic perspective, it is important for payment-network operators’ incentives to be aligned with those of users. Among other things, this means that the operator of a payment network should not also have monopoly powers to regulate all other payment networks and PSPs, since this creates a potential conflict of interest whereby the payment network that the regulator operates is privileged relative to other networks and PSPs, thereby undermining competition and harming users.
In practice, central banks often operate at least part of the payment-network infrastructure and have broad regulatory powers with respect to payment-network operations. In such circumstances, conflicts of interest cannot be entirely avoided, but can at least be mitigated by ensuring that there is separation between the division responsible for operating payments infrastructure and the division charged with regulation. As the BIS Committee on Payment and Settlement Systems has noted:
A central bank needs to be clear when it is acting as regulator and when as owner and/or operator. This can be facilitated by separating the functions into different organisational units, managed by different personnel.
Such best practices are followed by central banks such as the U.S. Federal Reserve and the Reserve Bank of Australia. By contrast, at the Central Bank of Brazil (BCB), the same unit that operates Pix also regulates other private PSPs.
G. No Automatic Credit
One of the key advantages of credit cards is that cardholders can pay for goods and services when they face temporary liquidity constraints—i.e., when they have insufficient funds immediately available to make a purchase. Most credit-cards issuers provide cardholders with interest-free credit from the time of a purchase until the bill is due, which typically ranges from 15 to 45 days, depending on when the purchase was made during the billing cycle. If the bill is settled in full by the due date, then no interest is payable. If the bill is not settled in full by the due date, then interest is payable on the outstanding amount.
Unlike payments made using credit cards, those made using a P2P-RTP do not inherently offer the payor the ability to spend more than they have in their account at the time of a purchase. Some P2P payments platforms have, however, developed credit facilities via buy-now-pay-later (BNPL) providers such as Afterpay (owned by Square), Affirm, Flexpay, Klarna, Sezzle, Splitit, and Zip. BNPLs offer various ways to defer payment. For example, payors may be offered an option to defer the payment for a short period (such as four to eight weeks) at 0% interest, in which case the BNPL typically charges the retailer a transaction fee of between 2% and 8% (depending on the consumer’s credit score and the type of merchant). Square charges the purchaser a standard rate of 6% plus a transaction fee of $0.30. Alternatively, payors may be offered longer-term payment solutions, in which case, the merchant pays a transaction fee and the consumer pays the interest.
Nonetheless, unlike credit cards, which automatically provide credit, BNPLs require the user to make an additional step when making a purchase, slowing the process down. And as noted, BNPLs can end up being more costly to the merchant and/or consumer than using a credit card.
P2Ps and RTPs clearly have both advantages and drawbacks compared to other payment systems. They are well-suited for payments where immediacy and finality are required, where the goods or services have already been delivered or are being supplied by a trusted provider, and where the payor is satisfied that the warranties provided by the payee are adequate and easily enforced. For such transactions, payments made using P2Ps and RTPs are in many ways superior to cash, checks, or older EFT-based online debit transactions.
By offering a means of sending credit in real time between banks operating on the same system, RTP rails have facilitated more widespread use of P2P payments. Indeed, it is likely this characteristic, as much as improved bandwidth and processing speeds for online transactions, that explains the dramatic increase in the number of RTP systems over the course of the past decade.
By contrast, P2Ps and RTPs are poorly suited to transactions where immediacy and/or finality are not required, either because the goods or services have not yet been delivered or because of concerns regarding the quality of those goods or services. This is because the finality of P2P and RTPs makes it more difficult for the systems to detect, prevent, and rectify fraud, theft, and mistake. P2Ps and RTPs are thus poorly suited to transactions where goods and services are delivered after payment has been sent and the payor does not have an established trust relationship with the merchant. That includes many online purchases.
In such circumstances, closed-loop or dual-message open-loop payment cards will typically be superior to P2Ps and RTPs. For example, cardholders may dispute charges and make chargebacks if products have not been received or are defective. Acquirers and/or issuers also may delay payment until fraud checks have been completed, reducing the likelihood of a fraudulent transaction and thereby protecting merchants from chargebacks and protecting cardholders from fraud.
P2Ps and RTPs are also less well-suited to paying for goods or services when the payor does not have adequate funds in their bank account. While BNPLs may offer a solution in such cases, in most cases, it will be quicker and in many cases, it will be less costly to use a credit card. Subsequent papers in this series will look in more detail at issues relating to adoption of P2Ps and RTPs, the problem of APP fraud, and governance of RTPs.
 P2P is sometimes used in a more restrictive sense to mean “person-to-person”; the broader meaning used here includes person-to-person, person-to-business, and business-to-business.
 Marcela Ayres, Brazil’s Central Bank Chief Predicts End of Credit Cards, Reuters (Aug. 12, 2022), https://www.reuters.com/world/americas/brazils-central-bank-chief-says-credit-card-will-cease-exist-soon-2022-08-12.
 For example, the European Central Bank defines clearing as “the process of transmitting, reconciling and, in some cases, confirming transfer orders prior to settlement, potentially including the netting of orders and the establishment of final positions for settlement.” See, All Glossary Entries, European Central Bank, https://www.ecb.europa.eu/services/glossary/html/glossa.en.html (last accessed Aug. 19, 2023).
 History of Bacs, Bacs Payment Schemes Ltd. (Feb. 23, 2015), available at https://www.bacs.co.uk/DocumentLibrary/History_of_Bacs.pdf.
 History of Nacha and the ACH Network, Nacha (Apr. 20, 2019), https://www.nacha.org/content/history-nacha-and-ach-network.
 As recently as 2012, standard settlement over BACS was 3 days. See, Payment, Clearing and Settlement Systems in the United Kingdom (CPSS Red Book), Bank for International Settlement Committee on Payment and Market Infrastructure (2012), at 455, available at https://www.bis.org/cpmi/publ/d105_uk.pdf.
 Press Release, Federal Reserve Announces Posting Rules for New Same-Day Automated Clearing House Service, Federal Reserve (Jun. 21, 2010), https://www.federalreserve.gov/newsevents/pressreleases/other20100621a.htm.
 Fedwire Funds Services, Federal Reserve (May 7, 2021), https://www.federalreserve.gov/paymentsystems/fedfunds_about.htm.
 Gara Alfonso et al., Interbank Payment Timing is Still Closely Coupled, Working Paper (Jun. 2022), available at https://www.dnb.nl/media/raafily1/presentation-session-vii.pdf.
 The Bank for International Settlements offers the following definition: “Fast payments can be defined by two key features: speed and continuous service availability. Based on these features, fast payments can be defined as payments in which the transmission of the payment message and the availability of final funds to the payee occur in real time or near-real time and on as near to a 24-hour and 7-day (24/7) basis as possible.” See, Fast Payments – Enhancing the Speed and Availability of Retail Payments, Bank for International Settlements (Nov. 2016), at 1, available at https://www.bis.org/cpmi/publ/d154.pdf; Meanwhile, the Federal Reserve notes that: “To be classified as a faster payment, the payment option must 1) enable both payer and payee to see the transaction reflected in their respective account balances immediately and 2) provide funds that the payee can use right after the payer initiates the payment. And because of this, the payment is, by its nature, also irrevocable, meaning it cannot be reversed by the payer or the payer’s financial institution (FI) after it is sent.” See, Fast, Faster, Instant Payments: What’s in a Name?, Federal Reserve, https://www.frbservices.org/financial-services/fednow/instant-payments-education/whats-in-a-name.html (last accessed Aug. 19, 2023).
 Alfonso, supra note 12, at 5.
 The Distinctions Between Faster Payments and Real-Time Payments, Payments Journal (Aug. 18, 2020), https://www.paymentsjournal.com/the-distinctions-between-faster-payments-and-real-time-payments.
 The name is an abbreviation of “Mobile Pesa”; Pesa means money in Swahili.
 Mobile Money: From Transferring Cash by SMS to a Digital Payments Ecosystem (2000–20) in Russell Southwood, Africa 2.0, Manchester University Press (2022).
 Nick Hughes & Susie Lonie, M-PESA: Mobile Money for the “Unbanked”, Innovations (Winter and Spring 2007), 63-81, available at https://www.gsma.com/mobilefordevelopment/wp-content/uploads/2012/06/innovationsarticleonmpesa_0_d_14.pdf.
 What is M-PESA?, Vodaphone, https://www.vodafone.com/about-vodafone/what-we-do/consumer-products-and-services/m-pesa (last accessed Aug. 19, 2023).
 M-Pesa: Credit and Savings, Safaricom, https://www.safaricom.co.ke/personal/m-pesa/credit-and-savings (last accessed Aug. 19, 2023).
 Unified Payments Interface (UPI) Overview, NPCI, https://www.npci.org.in/what-we-do/upi/product-overview (last accessed Aug. 19, 2023).
 Frequently Asked Questions, The Clearing House, https://www.theclearinghouse.org/payment-systems/rtp/institution (last accessed Aug. 19, 2023).
 RTP Quarterly Payment Activity (1Q23), The Clearing House, https://www.theclearinghouse.org/payment-systems/rtp.
 Julian Morris, Is Pix Really the End of Credit Cards? Truth on the Market (Sep. 28, 2022), https://truthonthemarket.com/2022/09/28/is-pix-really-the-end-of-credit-cards.
 About the FedNow Service, Federal Reserve Board, https://www.frbservices.org/financial-services/fednow/about.html (last accessed Aug. 19, 2023).
 The Real-Time Rail: Canada’s Fastest Payment System, Payments Canada, https://payments.ca/systems-services/payment-systems/real-time-rail-payment-system (last accessed Aug. 19, 2023).
 Prime Time for Real-Time Global Payments Report, ACI Worldwide (2023), https://www.aciworldwide.com/real-time-payments-report.
 RTP Quarterly Payment Activity (1Q23), The Clearing House, https://www.theclearinghouse.org/payment-systems/rtp (last accessed Aug. 19, 2023).
 Federal Reserve Payments Study (FRPS), Federal Reserve Board (2023), https://www.federalreserve.gov/paymentsystems/fr-payments-study.htm.
 Tyler DeLarm, Credit Card Authorization Hold- How and When to Use, Chargeback Gurus (Dec. 26, 2021), https://www.chargebackgurus.com/blog/credit-card-authorization-holds.
 Stan Sienkiewicz, The Evolution of EFT Networks from ATMs to New On-Line Debit Payment Products, Fed. Rsrv. Bank of Phila (Apr. 2002), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=927473.
 Enable Individuals and Businesses to Move Money Globally, Visa, https://usa.visa.com/run-your-business/visa-direct/use-cases.html (last accessed Aug. 19, 2023); Send Money Quickly, Securely and Simply, Mastercard, https://www.mastercard.us/en-us/business/large-enterprise/grow-your-business/mastercard-send/mc-send-domestic-payments.html (last accessed Aug. 19, 2023).
 Federal Reserve Board, supra note 32.
 It should be noted that on the other side of the equation is “disbursement float,”—i.e., funds that have not yet left the payor’s account and are thus still available to the payor. The float is thus effectively a short-term loan made by the payee to the payor.
 For example, these features will be enabled for FedNow payments. See, The Real Value of Real-Time Payments, J.P. Morgan, https://www.jpmorgan.com/solutions/treasury-payments/insights/real-value-real-time-payments (last accessed Aug. 19, 2023).
 Skimming Fraud, Corporate Finance Institute (Jun. 8, 2020), https://corporatefinanceinstitute.com/resources/esg/skimming-fraud.
 Cash Larceny, Corporate Finance Institute (Jun. 7, 2020), https://corporatefinanceinstitute.com/resources/risk-management/cash-larceny.
 Check Fraud: A Guide to Avoiding Losses, U.S. Office of the Comptroller of the Currency (Feb. 1999), available at https://www.occ.gov/publications-and-resources/publications/banker-education/files/pub-check-fraud.pdf.
 David L Stearns, “Think of it as Money”: A History of the VISA Payment System, 1970–1984, PhD Thesis, University of Edinburgh (Aug. 2007), at 46 and 57-59, available at https://era.ed.ac.uk/bitstream/handle/1842/2672/Stearns%20DL%20thesis%2007.pdf.
 Julian Morris & Todd J. Zywicki, Regulating Routing in Payment Networks, International Center for Law & Economics (Aug. 17, 2022), available at https://laweconcenter.org/wp-content/uploads/2022/08/Regulating-Routing-in-Payment-Networks-final.pdf.
 Card Fraud Losses Dip to $28.58 Billion, Nilson Report (Dec. 2021), 5-7, available at https://nilsonreport.com/upload/content_promo/NilsonReport_Issue1209.pdf.
 Id.; see also, Card-Not-Present (CNP) Fraud Mitigation Techniques, U.S. Payments Forum (2020), available at https://www.uspaymentsforum.org/wp-content/uploads/2020/07/CNP-Fraud-Mitigation-Techniques-WP-FINAL-July-2020.pdf.
 Over £1.2 Billion Stolen Through Fraud In 2022, With Nearly 80 Per Cent of APP Fraud Cases Starting Online, UK Finance (May 11, 2023), https://www.ukfinance.org.uk/news-and-insight/press-release/over-ps12-billion-stolen-through-fraud-in-2022-nearly-80-cent-app.
 Bryan Harris, Brazil’s Criminals Turn to Flash Kidnapping as They Take Advantage of New Tech, Financial Times (Sep. 3, 2021), https://www.ft.com/content/225fd97c-ef82-4dfa-b09b-97b1671e1e00.
 Alana Fernandes, Brasileiros Estão Apostando no Celular do PIX, Edital Concursos Brasil (May 21, 2022), https://editalconcursosbrasil.com.br/noticias/2022/05/brasileiros-estao-apostando-no-celular-do-pix-entenda-o-que-e-e-como-usar.
 The first, in late September 2021, resulted in the theft of information from nearly 400,000 Pix users due to a systems failure at state-owned Bank of the State of Sergipe (Banese). See Angelica Mari, Brazilian Data Protection Authority Investigates First PIX Data Leak, ZDNet (Oct. 6, 2021), https://www.zdnet.com/article/brazilian-data-protection-authority-investigates-first-pix-data-leak. See also Larissa Garcia & Alvaro Campos, New Leak Threatens Pix’s Credibility Central Bank Reports a Third Hacker Attack in Six Months, Now With 2,112 Keys Exposed, Valor International (Feb. 3, 2022). The second breach occurred in late January 2022 and involved the theft of data relating to approximately 160,000 Pix users from Acesso Pagamentos. See Gabriel Shinohara, Banco Central Comunica Vazamento de Dados de 160,1 Mil Chaves Pix da Acesso Pagamentos Segundo o BC, Não Houve Vazamento de Dados Sensíveis Como Senhas e Saldos, O Globo (Jan. 21, 2022), https://oglobo.globo.com/economia/banco-central-comunica-vazamento-de-dados-de-1601-mil-chaves-pix-da-acesso-pagamentos-25362574. The third breach, reported in February 2022 but relating to an incident in early December 2021, involved the theft of data from around 2,100 Pix users from LogBank. See Fernanda Capelli, Central Bank Confirms Another Leak of Pix Keys from Logbank, Programadores Brasil (Feb. 4, 2022), https://programadoresbrasil.com.br/en/2022/02/see-central-bank-confirms-yet-another-logbank-pix-key-leak.
 New Banking Trojan Targeting 100M Pix Payment Platform Accounts, Dark Reading (Feb 7, 2023), https://www.darkreading.com/risk/new-bank-trojan-targeting-100m-pix-payment-platform-accounts; PixPirate: A New Brazilian Banking Trojan, Cleafy (Feb. 3, 2023), https://www.cleafy.com/cleafy-labs/pixpirate-a-new-brazilian-banking-trojan.
 Central Bank Oversight of Payment and Settlement Systems, Bank for International Settlements Committee on Payment and Settlement Systems (May 2005), available at https://www.bis.org/cpmi/publ/d68.pdf.
 Policies: The Federal Reserve in the Payments System, Board of Governors of the Federal Reserve System (Jan. 2001), https://www.federalreserve.gov/paymentsystems/pfs_frpaysys.htm; Managing Potential Conflicts of Interest Arising from the Bank’s Commercial Activities, Reserve Bank of Australia (Feb. 2022), https://www.rba.gov.au/payments-andinfrastructure/payments-system-regulation/conflict-of-interest.html.
 Julian Morris, Central Banks and Real-Time Payments: Lessons from Brazil’s Pix, IInternational Center for Law & Economics (Jun. 1, 2022), at 13, available at https://laweconcenter.org/wp-content/uploads/2022/06/Lessons-from-Brazils-Pix.pdf.
 Erin Gregory, How Does Buy Now Pay Later (BNPL) Work for Businesses?, Tech Radar (Mar. 4, 2022), https://www.techradar.com/features/how-does-buy-now-pay-later-bnpl-work-for-businesses; Jaros?aw ?ci?lak, Top 10 Buy Now Pay Later Companies to Watch in 2022, Code & Pepper (Aug. 5, 2022), https://codeandpepper.com/buy-now-pay-later-2022.
I. Introduction As part of the Infrastructure Investment and Jobs Act (IIJA), signed by President Joe Biden in November 2021, Congress provided $42.5 billion for . . .
As part of the Infrastructure Investment and Jobs Act (IIJA), signed by President Joe Biden in November 2021, Congress provided $42.5 billion for broadband deployment, mapping, and adoption projects through the Broadband Equity, Access, and Deployment (BEAD) program, with the stated goal of directing the funds to close the so-called “digital divide.” But actions by pole owners—such as refusing to allow broadband companies to attach their lines on reasonable and nondiscriminatory terms—threaten to slow broadband deployment significantly.
In a recent letter to Assistant Attorney General Jonathan Kanter, Sen. Mike Lee (R-Utah) put forth the argument that the U.S. Justice Department (DOJ) should take action to address abuses of the pole-attachment process by local power companies (LPCs) regulated by the Tennessee Valley Authority (TVA). His concern is that such abuses threaten to slow broadband deployment, especially to rural areas served by the TVA and the LPCs. Among the abuses he details are:
- Delaying or refusing to negotiate pole-attachment agreements with competitive broadband-service providers, including when the TVA LPC provides broadband service (itself or through a joint venture agreement) or is interested in doing so;
- Initially refusing to negotiate pole-attachment agreements that would enable competitive broadband-service providers to obtain permits in sufficient time to meet federal grant deadlines;
- Refusing to review pole-attachment applications on a scale or at the pace necessary to complete broadband projects in a timeframe required by federal grant programs;
- Refusing to follow the standard industry practice of approving a contractor to process pole-access applications in a timely manner when the utility’s staff is insufficient to do the work, even when the broadband-service provider is willing to pay the entire bill for the contractor; and
- Refusing to process pole-attachment applications at all, and failing to respond to provider outreach regarding the processing of applications for months on end.
Section 224 of the Communications Act exempts municipal and electric-cooperative (“coop”) pole owners, such as the LPCs, from oversight by the Federal Communications Commission (FCC). At the same time, the TVA’s authority over pole attachments is not subject to oversight by state governments. This loophole means that it is the TVA, not the FCC, that sets the rates for pole attachments. The TVA’s rates are significantly higher than those of the FCC,  and the TVA’s LPCs often are able to avoid the access requirements that states and the FCC typically require.
But avoiding state and FCC regulatory oversight is not the only loophole that the TVA and its LPCs can exploit: the TVA and the government-owned LPCs also may not be subject to antitrust law. These entities hold a resource critical for broadband deployment, while it is essentially impossible for private providers to build competing pole infrastructure. In situations like this, government entities that participate as firms in the marketplace—known in the literature as “state-owned enterprises” (SOEs)—should be subject to antitrust law in order to ensure access by private competitors.
Sen. Lee is correct that the DOJ should examine the practices of the TVA and its LPCs under antitrust law. Antitrust clearly applies to those LPCs that are private coops, which have no immunities. But Congress should clarify that the TVA and government-owned LPCs are likewise subject to antitrust law when they act according to their “commercial functions” or as “market participants.” They should also consider bringing the TVA and all of its LPCs under the purview of the FCC’s Section 224 authority over pole attachments.
II. The Law & Economics of State-Owned LPCs and Rural Electrical Cooperatives (RECs)
A. The Competition Economics of State-Owned Enterprises
SOEs’ incentives differ from those of privately owned businesses. Most notably, while a private business must pass the profit-and-loss test, SOEs often are not subject to the same constraints. This difference may manifest through setting up legal SOE monopolies against which no other firm can compete; exempting SOEs from otherwise generally applicable laws; extending explicit subsidies to SOEs, whether in the form of taxpayer-financed appropriations or government-backed bonds (which the government explicitly or implicitly promises to repay, if necessary); or cross-subsidies from other government-owned monopoly businesses.
As a result, SOEs do not need to maximize profits (with Armen Alchian’s caveat that private market participants may be modeled as profit maximizers even if that isn’t their true motivation) and can pursue other goals. In fact, this is exactly why some supporters of SOEs like them so much: they can pursue the so-called “public interest” by providing ostensibly high-quality products and services at what are often below-market prices.
But this freedom comes at a cost: not only can SOEs inefficiently allocate societal resources away from their highest-valued uses, but they may actually have greater incentive to abuse their positions in the marketplace than private entities. As David E.M. Sappington and J. Gregory Sidak put it:
[W]hen an SOE values an expanded scale of operation in addition to profit, it will be less concerned than its private, profit-maximizing counterpart with the extra costs associated with increased output. Consequently, even though an SOE may value the profit that its anticompetitive activities can generate less highly than does a private profit-maximizing firm, the SOE may still find it optimal to pursue aggressively anticompetitive activities that expand its own output and revenue. To illustrate, the SOE might set the price it charges for a product below its marginal cost of production, particularly if the product is one for which demand increases substantially as price declines. If prohibitions on below-cost pricing are in effect, an SOE may have a strong incentive to understate its marginal cost of production or to over-invest in fixed operating costs so as to reduce variable operating costs. A public enterprise may also often have stronger incentives than a private, profit-maximizing firm to raise its rivals’ cost and to undertake activities designed to exclude competitors from the market because these activities can expand the scale and scope of the SOE’s operations.
Here, entities like the TVA and many of the government-owned LPCs that sell the electricity it produces are simply not subject to the same profit-and-loss test that a private power company would be. But even more importantly for the discussion of broadband buildout, many of these government-owned LPCs also provide broadband services (or intend to), effectively using their position as a monopoly provider of electricity to cross-subsidize their entry into the broadband marketplace. Moreover, LPCs often own the electric poles and control decisions about whether and at what rates to rent them to third parties (subject to TVA rate regulations), including to private broadband providers that may compete with the LPCs’ municipal-broadband offerings.
This raises two significant issues for competition policy:
- Because government-owned municipal-broadband providers focus on speed and price, rather than profitability, they can sometimes offer greater speeds at lower prices than private providers, deterring private buildout and competition using what, in other contexts, would be referred to as “predatory pricing” (e., the government can use its unique monopoly advantages to indefinitely set prices too low); and
- LPCs that offer municipal-broadband services can raise rivals’ costs by refusing to deal with private broadband providers that want to attach equipment to their poles (an “essential facility” or “critical input”) or by offering access only on unreasonable and discriminatory terms.
In Verizon Communication Inc. v. Law Offices of Curtis V. Trinko LLP, the U.S. Supreme Court explained the reasoning behind a very limited duty to deal under antitrust law:
Compelling… firms to share the source of their advantage is in some tension with the underlying purpose of antitrust law, since it may lessen the incentive for the monopolist, the rival, or both to invest in those economically beneficial facilities.
In sum, a private market participant is constantly looking to acquire monopoly power by innovating and better serving customers, and temporary monopolies—acquired through a legitimate competitive process—are not unlawful. If successful, this process provides incentive for more innovation and competition, including incentives for competitors to build their own infrastructure.
But this is not so when it comes to SOEs, which can prevent competition in a way that private market participants cannot, due to their special access to legal mechanisms like eminent domain, taxes, below-market-rate loans, government grants of indefinite monopolies, and cross-subsidies from their own monopolies in adjacent markets. As a result, SOEs possess both special ability and incentive to raise rivals’ costs through refusals to deal or predatory pricing.
Ironically, the lack of a profit motive may make SOEs uniquely positioned to harm competition. Thus, it may make sense to impose on SOEs a duty to deal on reasonable and nondiscriminatory terms when it comes to pole attachments.
B. The Economics of Co-Ops
According to the National Rural Electric Cooperative Association, the trade association for rural electricity co-ops (RECs):
- Co-ops serve 56% of the U.S. landmass and 88% of the nation’s counties, including 93% of the 353 persistent poverty counties.
- They account for roughly 13% of all electricity sold in the United States.
- More than 90% of electric co-ops serve territories where the average household income is below the national average. One in six co-op consumer-members live at or below the poverty line.
- Cooperatives serve an average of eight consumer-members per-mile of electric line, but this average masks the extremely low-density population of many co-ops. If the handful of large co-ops near cities were removed, the average would be lower.
- More than 100 electric cooperatives provide broadband service and more than 200 co-ops are exploring the option and conducting feasibility studies to do so.
There are some important differences between electric co-ops and investor-owned power companies. Most importantly, co-ops are owned by their consumers. Economics helps explain why this form of organization could be pro-competitive in some situations, but the history of RECs suggests that government support and corporate rules particular to co-ops are the main reasons that we continue to rely on co-ops to distribute electricity in rural areas of the United States. As a result, RECs—especially those that distribute electricity generated and transmitted by the TVA—have incentives more like those of state-owned enterprises (SEOs) than private firms.
In other words, RECs also have the incentive and ability to act anticompetitively—e.g., by refusing to deal with private broadband providers who wish to attach to the poles they own.
1. Why Do We Have So Many RECs?
The classic law & economics examination of firms’ choice of business organization comes from Henry Hansmann, in his book The Ownership of Enterprise. He explained that the choice of ownership for any firm is driven by costs. The form that is chosen by a particular firm is that which “minimizes the total costs of transactions between the firm and all of its patrons.” These costs include both transaction costs with those patrons who are not owners, and the costs of ownership, such as monitoring and controlling the firm.
Hansmann argued that the form of consumer-owned co-ops predominates in the distribution of electricity in rural areas because it is a response to the threat of natural monopoly, where high barriers to entry and startup costs suggest that one firm is likely to dominate. This is particularly true in geographic areas with low population density, because the costs of building out infrastructure is extremely high per individual consumer. As such, consumers would likely be subject “to serious price exploitation if they were to rely on market contracting with an investor-owned firm.” Thus, the choice is among rate regulation of an investor-owned utility, municipal ownership, or consumer ownership through a co-op.
Hansmann argued that consumer co-ops best align “the firm’s interests with those of its consumers” because they have lower overall costs than other forms of ownership in rural areas. This is because electricity is a “highly homogeneous [commodity] with few important quality variables that affect different users differently.” Moreover, relatively stable farm and nonfarm residential households account for the overwhelming majority of the membership and demand for electricity in rural areas, “creating a dominant group of patrons with relatively homogenous interests.”
As a result, the costs of monitoring and controlling these natural monopolies are relatively lower for the consumers as owners than they would be as citizens overseeing a public utility commission in charge of regulating an investor-owned utility, or a board in charge of a municipally owned utility.
On the other hand, the history of RECs suggests that their formation and persistence may be more due to government intervention than as a market response to consumer demand. As Hansmann himself recognized, RECs received significant public subsidies in the form of below-market loans from the Rural Electrification Administration (REA), though he argues that these loans were not significant subsidies for the first 15 years); exemption from federal corporate income tax; and preferential access to power generated by the TVA. On top of that, the REA essentially organized many co-ops in their early days.
Nonetheless, Hansmann argues:
These subsidies have undoubtedly been important in encouraging the formation and growth of cooperative utilities, and therefore the great proliferation of rural electric cooperatives does not provide an unbiased test of the viability of the cooperative form. Evidently, however, the federal subsidies have not been critical to the success of cooperatives in the electric power industry. Even before the federal programs were enacted, there already existed forty-six rural electric cooperatives operating in thirteen different states. Also, as already noted, there was no net interest subsidy to the cooperatives for the first fifteen years of the REA. And in its early years, the REA also offered low-interest loans to investor-owned utilities that wished to extend service into rural areas, but found little interest in these loans among the latter firms.
In an excellent 2018 law-review article, however, Debra C. Jeter, Randall S. Thomas, & Harwell Wells systematically detail the great lengths to which the REA went to organize co-ops in rural areas. The authors convincingly argue that the co-op model was not adopted as a market response, but primarily due to the REA’s organizational efforts and the subsidies bestowed upon them.
Even if RECs were a market response to natural monopoly in rural areas at the time of their adoption, that does not mean that they would necessarily continue to be the most economically efficient model. At a given point of time, economies of scale and high costs of entry may mean that the market can only support one firm (i.e., natural monopoly). But over the last 80-90 years, underlying conditions that may have made co-ops the most efficient model may have changed. As we argued in a 2021 white paper:
[I]n any given market at a given time, there is likely some optimal number of firms that maximizes social welfare. That optimal number—which is sometimes just one and is never the maximum possible—is subject to change, as technological shocks affect the dominant paradigms controlling the market. The optimal number of firms also varies with the strength of scale economies, such that consumers may benefit from an increase in concentration if economies of scale are strong enough… And it is important to remember that the market process itself is not static. When factors change—whether a change in demographics or population density, or other exogenous shocks that change the cost of deployment—there will be corresponding changes in available profit opportunities. Thus, while there is a hypothetical equilibrium for each market—the point at which the entry of a new competitor could reduce consumer welfare—it is best to leave entry determinations to the market process.
In fact, as Jeter, Thomas, & Wells go on to argue, rules particular to the co-op model make it nearly impossible to change the form of ownership through merger or acquisition. These rules—adopted as part of the model acts promoted by the REA—prevent what the great Henry Manne called “the market for corporate control” that would otherwise discipline co-op managers.
As has been noted by even the strongest supporters of the co-op model—and seemingly undermining Hansmann’s assessment that consumer-ownership is the most effective form of organization for these entities—RECs suffer from a lack of oversight by consumer-owners, with very few ever showing up to even vote for their board of directors:
This lack of oversight from the ownership means that the board of directors can engage in all kinds of abuses, as detailed extensively by Jeter, Thomas, & Wells.
Without sufficient incentives for oversight by consumer-owners or a functioning market for corporate control, there is no basis to conclude that RECs remain the best business model for distributing electricity. Their ubiquity is more due to the REA’s organizational efforts and ongoing government benefits—in the form of subsidies, tax exemptions, and preferences from the TVA—than market demand.
2. The Competition Economics of RECs and Pole Attachments
Due to the privileged position enjoyed by RECs, particularly those that distribute electricity from the TVA, they have a unique ability and incentive to act anticompetitively toward broadband providers that want to attach to the poles they own.
Much like municipally owned electricity distributors, RECs are not motivated solely by profit maximization. RECs also have similar advantages, like access to eminent domain, below-market loans, tax exemptions, and the ability to cross-subsidize entry into a new market (like broadband) from its dominant position in electricity distribution.
On the other hand, unlike municipally owned electricity distributors, RECs can go out of business, and thus must earn sufficient revenues to remain a going concern. This means that the incentives for RECs to act anticompetitively are at least as strong as those of investor-owned firms, and may be even as strong as those of state-owned enterprises. This is especially notable, when so many RECs either have entered or are planning to enter the broadband market.
In such cases, there are strong incentives for RECs to refuse to deal with private broadband providers that are trying to deploy in—and introduce competition to—their rural areas, as Sen. Lee’s (R-Utah) recent letter to the U.S. Justice Department suggests, many of these co-ops have done exactly that.
The economic logic that drives a limited duty to deal under antitrust law is that enforced sharing rarely makes sense because it reduces the incentives to build infrastructure.  But creating new rural infrastructure (like poles) is cost-prohibitive—at least, without the same subsidies, eminent-domain power, and other advantages that RECs have historically enjoyed. Thus, RECs may rightfully have a duty to deal with broadband providers on a reasonable and nondiscriminatory basis.
Moreover, many RECs receive little oversight from rate regulators when it comes to pole attachments. And when they do, like those RECs that distribute electricity from the TVA, the formula allows for much higher rates than the FCC would allow. As a result, pole costs are much higher for broadband companies dealing with poles owned by co-ops and municipalities that are not subject to the FCC’s authority (see Figure II).
III. The Complicated Nature of Antitrust Immunities
There is, however, a complication. In his letter to the DOJ, Sen. Lee rightly complains that:
TVA’s regulatory practices enable such behavior: there is no reason why TVA’s regulation of the pole rental rates charged by its LPCs requires TVA to somehow exempt those LPCs from generally-applicable rules that protect competition by requiring pole owners to provide pole access to third parties on reasonable terms. TVA should be using its authority over LPC distribution contracts to require LPCs to offer reasonable, non-discriminatory, and prompt pole access to third-party broadband providers (particularly recipients of taxpayer-funded broadband grants) in unserved areas, rather than giving its LPCs a free pass from those requirements.
Unfortunately, while Lee’s letter is addressed to the DOJ’s antitrust chief, it isn’t clear whether antitrust laws even apply to the behavior he observes. This is primarily because of two legal doctrines: federal sovereign immunity from lawsuit and state-action immunity from antitrust.
A. Federal Sovereign Immunity and the TVA
Normally, the federal government is immune from lawsuit under the ancient (and deeply flawed) doctrine of sovereign immunity, except where explicitly waived by statute. The TVA is a wholly owned corporate agency and instrumentality of the federal government. Thus, federal courts have typically found that the TVA and other federal entities operating in the marketplace are exempt from antitrust. This is despite the fact that the TVA’s enabling statute states:
Except as otherwise specifically provided in this chapter, the Corporation… may sue and be sued in its corporate name.
There is, needless to say, nothing in the chapter that actually says the agency can’t be sued for antitrust violations. The older cases finding the TVA to be exempt from antitrust are likely to be found wrongly decided under the logic of the U.S. Supreme Court’s most recent case dealing with TVA’s immunity from suit. In 2019, the Court took up Thacker v. TVA, which asked whether the TVA was immune from lawsuits for negligence. The Court rejected the lower court’s reasoning that the TVA was immune for torts arising from its “discretionary functions,” substituting a new test as to whether the TVA was acting pursuant to its governmental function or a commercial function. As the Court stated:
Under the clause—and consistent with our precedents construing similar ones—the TVA is subject to suits challenging any of its commercial activities. The law thus places the TVA in the same position as a private corporation supplying electricity. But the TVA might have immunity from suits contesting one of its governmental activities, of a kind not typically carried out by private parties.
The Court also gave examples to help distinguish the two:
When the TVA exercises the power of eminent domain, taking landowners’ property for public purposes, no one would confuse it for a private company. So too when the TVA exercises its law enforcement powers to arrest individuals. But in other operations—and over the years, a growing number—the TVA acts like any other company producing and supplying electric power. It is an accident of history, not a difference in function, that explains why most Tennesseans get their electricity from a public enterprise and most Virginians get theirs from a private one. Whatever their ownership structures, the two companies do basically the same things to deliver power to customers.
The test to be applied, therefore, is “whether the conduct alleged to be negligent is governmental or commercial in nature… if the conduct is commercial—the kind of thing any power company might do—the TVA cannot invoke sovereign immunity.” Here, that arguably means that, when the TVA is acting pursuant to its commercial function, it should not receive immunity from antitrust suit.
On the other hand, Congress gave the TVA broad ratemaking authority and contractual powers. One federal court (previous to Thacker) rejected an antitrust challenge to the TVA’s ratemaking formula because it was a “valid governmental action and [therefore] exempt from the antitrust laws of the United States.”
As noted above, some LPCs have entered into the municipal-broadband market and act as competitors to private broadband companies who want to attach to poles owned by LPCs. Thus, even though competition economics would suggest that LPCs would have a greater incentive to raise rivals’ costs by charging a monopoly price, the TVA would likely argue that it is acting in its government function when it sets those rates. If courts agree, then antitrust law would not be able to reach that problem.
Consistent with the Court’s reasoning in Thacker, however, courts could find that antitrust law reaches agreements between wholesalers (like the TVA) and retailers (like the LPCs) to charge certain rates for pole attachments to competitors in an adjacent market. This would arguably be an example of the TVA acting as any other power generator would, pursuant to its commercial function, through some type of price-maintenance agreement. As it stands, it isn’t clear which way the courts would go.
Congress should strongly consider clarifying that the TVA is not exempt from antitrust scrutiny when it acts pursuant to a commercial function, including when it sets anticompetitive rates for pole attachments that would slow broadband buildout. This clearly affects the market for access to LPC-owned utility poles.
B. State Action Immunity and the LPCs
Even if the commercial versus government distinction is clarified with respect to the TVA, there is a further wrinkle as it relates to antitrust scrutiny of LPCs. This concerns how the TVA’s actions interact with state-action immunity in antitrust law.
Grounded in the 10th Amendment, the Supreme Court has found there is immunity from antitrust laws for conduct that is the result of “state action.” This doctrine has been interpreted to immunize anticompetitive conduct pursuant to state and local government action from antitrust claims, so long as “the State has articulated a clear … policy to allow the anticompetitive conduct, and second, the State provides active supervision of [the] anticompetitive conduct.” When it comes to municipalities, however, the Court has found that “[o]nce it is clear that state authorization exists, there is no need to require the State to supervise actively the municipality’s execution of what is a properly delegated function.”
The Supreme Court has also left open the possibility of an exception to state-action immunity when government entities themselves are acting as market participants. In one case dealing with a local municipally owned power plant in Louisiana, the Supreme Court did not grant broad immunity from antitrust laws, in part because:
Every business enterprise, public or private, operates its business in furtherance of its own goals. In the case of a municipally owned utility, that goal is likely to be, broadly speaking, the benefit of its citizens. But the economic choices made by public corporations in the conduct of their business affairs, designed as they are to assure maximum benefits for the community constituency, are not inherently more likely to comport with the broader interest of national economic well-being than are those of private corporations acting in furtherance of the interests of the organization and its shareholders.
While there are a few cases applying this distinction in lower federal courts, there is no Supreme Court caselaw determining how to differentiate when, for the purposes of state-action immunity, municipal corporations act as market participants versus when they act as government entities. Jarod Bona and Luke Wake have proposed applying a test similar to the one the courts use in dormant Commerce Clause cases. The distinction made by the Supreme Court in Thacker and discussed above may also be applicable.
Government-owned LPCs are creatures of states or municipalities. As such, they would certainly argue they are immune from antitrust scrutiny, even when they refuse to deal with private broadband providers with whom they compete while withholding a critical input (i.e., the ability to attach to their poles). But there are two problems with this argument.
First, it seems unlikely that the LPCs could argue that they are acting pursuant to a clearly articulated policy of displacing competition when they refuse to deal with broadband providers. As Sen. Lee pointed out in his letter, there are state laws that would impose a duty to deal on reasonable and nondiscriminatory terms, but for any exemptions to that authority due to the TVA. For instance, North Carolina and Kentucky require all pole owners not subject to FCC Section 224 authority to offer nondiscriminatory pole access.
On the other hand, they could appeal to the TVA’s contract authority, in addition to the TVA’s stated policy that its purpose is “to provide for the … industrial development” of the Tennessee Valley. But even if this grants the TVA authority to regulate rates for pole attachments, it doesn’t mean the TVA has enunciated an articulable policy of displacing competition in refusing to deal with broadband providers. It also would appear to be contrary to the purpose of promoting industrial development to forestall broadband deployment in the Tennessee Valley because LPCs that also have municipal-broadband systems don’t want that competition. In other words, their refusal to deal is not protected by an appeal to any articulable policy to displace competition, either by a state or the TVA.
Second, under the caselaw that does exist, government-owned LPCs are market participants that should not receive antitrust immunity. For instance, in one case, a private arena owner challenged under antitrust law an exclusive contract between a municipal-arena owner and LiveNation. The court held that state-action immunity was “less justified” because the municipality’s “entertainment contracts” reflected “commercial market activity,” not “regulatory activity.” Here, the LPCs’ actions as both power companies and municipal-broadband providers reflect commercial-market activity more than regulatory activity. They shouldn’t be able to claim immunity from antitrust for this refusal to deal, any more than a private broadband provider could.
In sum, the LPCs’ anticompetitive refusal to deal appears to be separate from the rates set by the TVA pursuant to its ratemaking authority or contractual powers. They should be subject to antitrust law. But due to uncertainty in this area, Congress should clarify that LPCs are not immune from antitrust scrutiny, and consider codifying the market-participant exception to state-action immunity in antitrust statutes.
IV. Section 224 of the FCC Act
In his letter, Sen. Lee noted that, under Section 224 of the Communications Act, “Congress determined that poles and conduits are essential facilities that lack a viable market-based alternative, which led it to require utilities to extend nondiscriminatory access to utility poles to cable operators and competitive telecommunications providers.” While acknowledging that TVA distributors are not subject to Section 224, Lee argued that “the congressional conclusion that poles are essential facilities that lack a viable market-based alternative holds for all poles.” Lee further noted that the “TVA’s regulation of its LPCs’ pole attachment rates also impedes competition by setting rates well above the rates set by the FCC and deemed compensatory by the U.S. Supreme Court, inflating the cost for competitive broadband providers unaffiliated with TVA LPCs to offer service.”
Theoretically, government-owned LPCs and cooperative LPCs are subject to some oversight when they run services like municipal broadband, either from voters or member-owners. But it is implausible that such oversight can be truly effective, given that these pole owners are not subject to normal market incentives and have their own conflicts of interest that encourage hold-up problems. Combined with their ability to cross-subsidize operations in broadband from their electricity customers, it should be clear that these entities pose a host of potential public-choice problems.
Indeed, as FCC Commissioner Brendan Carr has noted:
I continue to hear concerns from broadband builders about unnecessary delays and costs when they seek to attach to poles that are owned by municipal and cooperative utilities. Unlike what we are doing in today’s item, there is a strong argument that Section 224 does not give us authority to address issues specific to those types of poles. Therefore, I encourage states and Congress to take a closer look at these issues—and revisit the exemption that exists in Section 224—so that we can ensure deployment is streamlined, regardless of the type of pole you are attaching to.
We echo both Sen. Lee’s and Commissioner Carr’s sentiments here. The FCC’s important work on this matter stands to benefit millions of Americans trapped on the wrong side of the digital divide. The co-op and municipal loophole poses a major obstacle to achieving these ends. Insofar as Congress prioritizes quick and efficient broadband buildout, the TVA and its LPCs should not be able to thwart these goals through anticompetitive rates and refusals to deal. Congress should revisit this issue and grant the FCC jurisdiction over these types of pole owners.
Sen. Lee’s letter to the DOJ highlights issues that are extremely important to closing the digital divide. Broadband deployment could be harmed as a result of the practices by the TVA and the LPCs. If DOJ Antitrust Division chief Jonathan Kanter is serious about taking on gatekeeper power, he should start here: with public entities granted a truly unassailable gatekeeper position over private markets. But even more importantly, Sen. Lee’s letter highlights the need to reform antitrust immunities that apply to SOEs. Economics suggests government monopolies are a greater harm to competition than private ones. Antitrust law should reflect that reality.
Appendix A: Sen Mike Lee Letter to DOJ
 47 U.S.C. § 1702(b) (2018).
 See, infra, Appendix A [hereinafter “Lee Letter”].
 Broadband Assessment Report, Tennessee Valley Authority (Dec. 2022), https://www.tva.com/energy/technology-innovation/connected-communities/broadband-assessment-report.
 See Lee Letter, supra note 2, at 1-2.
 See 47 U.S.C. § 224(a)(1) (2018) (“The term ‘utility’ means any person who is a local exchange carrier or an electric, gas, water, steam, or other public utility, and who owns or controls poles, ducts, conduits, or rights-of-way used, in whole or in part, for any wire communications. Such term does not include any railroad, any person who is cooperatively organized, or any person owned by the Federal Government or any State.”).
 See Lee Letter, supra note 2, at n.2.
 Pole Attachment Fee Formulas Adopted by TVA and the FCC, Tennessee Advisory Commission on Intergovernmental Relations (Jan. 2017), available at https://www.tn.gov/content/dam/tn/tacir/commission-meetings/january-2017/2017January_BroadbandAppL.pdf.
 See Lee Letter, supra note 2, at n.4.
 See Armen A. Alchian, Uncertainty, Evolution, and Economic Theory, 58 J. Pol. Econ. 211 (1950).
 See, e.g., Jonathan Sallet, Broadband for America’s Future: A Vision for the 2020s, at 50-51 (Oct. 2019), available at https://www.benton.org/sites/default/files/BBA_full_F5_10.30.pdf.
 David E.M. Sappington & J. Gregory Sidak, Competition Law for State-Owned Enterprises, 71 Antitrust L.J. 479, 499 (2003).
 See Ben Sperry, Islands of Chaos: The Economic Calculation Problem Inherent in Municipal Broadband, Truth on the Market (Sept. 3, 2020), https://truthonthemarket.com/2020/09/03/islands-of-chaos-the-economic-calculation-problem-inherent-in-municipal-broadband.
 540 U.S. 398 (2004).
 Id. at 408-09.
 This section is adapted from Ben Sperry, Broadband Deployment, Pole Attachments, & the Competition Economics of Rural-Electric Co-ops, Truth on the Market (Aug. 16, 2023), https://truthonthemarket.com/2023/08/16/broadband-deployment-pole-attachments-the-competition-economics-of-rural-electric-co-ops.
 See Brian O’Hara, Rural Electrical Cooperatives: Pole Attachment Policies and Issues, at 2, NRECA (Jun. 2019), available at https://www.cooperative.com/programs-services/government-relations/regulatory-issues/documents/2019.06.05%20nreca%20pole%20attachment%20white%20paper_final.pdf.
 Henry Hansmann, The Ownership of Enterprise (2000).
 Id. at 21.
 See id. at 169.
 Id. at 170.
 See id. at 173
 See id.
 See Debra C. Jeter, Randall S. Thomas, & Harwell Wells, Democracy and Dysfunction: Rural Electrical Cooperatives and the Surprising Persistence of the Separation of Ownership and Control, 70 Ala. L. Rev. 316, 372-395 (2018).
 Geoffrey A. Manne, Kristian Stout, & Ben Sperry, A Dynamic Analysis of Broadband Competition: What Concentration Numbers Fail to Capture, at 28, 32 (ICLE White Paper – June 2021), available at https://laweconcenter.org/wp-content/uploads/2021/06/A-Dynamic-Analysis-of-Broadband-Competition.pdf.
 Jeter et al., supra note 27, at 419-39.
 See Henry G. Manne, Mergers and the Market for Corporate Control, 73 J. Pol. Econ. 110 (1965).
 See John Farrell, Matt Grimley, & Nick Stumo-Langer, Report: Re-Member-ing the Electric Cooperative, Inst. For Local Self-Reliance (Mar. 29, 2016), https://ilsr.org/report-remembering-the-electric-cooperative/#Missing%20Members (“More than 70 percent of cooperatives have voter turnouts of less than 10 percent  including Wilson’s Jackson Energy Cooperatives, which averages just under 3 percent turnout.”).
 Jeter et al., supra note 27, at 397-400.
 See Lee Letter, supra note 2, at 1-2.
 See Trinko, 540 U.S. at 408-09.
 See Pole Attachment Fee Formulas Adopted by TVA and the FCC, supra note 7.
 See NCTA, Pole Attachments, https://www.ncta.com/positions/rural-broadband/pole-attachments (last accessed Sept. 4, 2023).
 Lee Letter, supra note 2, at 2.
 See Ben Sperry, When Violations of the Law Have No Remedy: The Case of Warrantless Wiretapping, Competitive Enterprise Institute (Aug. 8, 2012), https://cei.org/blog/when-violations-of-the-law-have-no-remedy-the-case-of-warrantless-wiretapping.
 See, e.g., Webster Cty. Coal v. Tennessee Valley Authority, 476 F.Supp. 529 (W.D. Ky. 1979) (finding the TVA is exempt from antitrust law); Sea-Land Serv. Inc. v. Alaska R.R., 659 F.2d 243 (D.C. Cir. 1981), cert. denied, 455 U.S. 919 (1982) (finding the Alaska Railroad exempt from antitrust law).
 16 U.S.C. §831c(b) (2018).
 139 S. Ct. 1435 (2019).
 Id. at 1439.
 Id. at 1443-44.
 Id. at 1444.
 City of Loudon v. TVA, 585 F.Supp. 83, 87 (E.D. Tenn. Jan. 30, 1984).
 The TVA could also argue that the rate formula for pole attachments that it sets is subject to the filed rate doctrine and thus exempted from antitrust scrutiny. The filed rate doctrine does not allow courts to second-guess agency determinations of rates. See Keogh v. Chicago & Northwest Railway Co., 260 U.S. 156 (1922). While the original case on the filed rate doctrine dealt with the literal situation of regulated entities filing rates which were approved by a regulator, courts have extended the doctrine to other situations where a regulator uses its authority to set rates. Cf. Wortman v. All Nippon Airways, 854 F.3d 606, 611 (9th Cir. 2017) (“While the filed rate doctrine initially grew out of circumstances in which common carriers filed rates that a federal agency then directly approved, we have applied the doctrine in contexts beyond this paradigmatic scheme.”) The unique situation with the TVA is that there is no clear statutory ratemaking authority over pole attachments, but they have asserted the ability to do so under their contract powers, raising the same issue of whether this is a governmental function or market function. See TVA Determination of Regulation on Pole Attachments 2 (Jan. 22, 2016), available at https://tva-azr-eastus-cdn-ep-tvawcm-prd.azureedge.net/cdn-tvawcma/docs/default-source/about-tva/guidelines-reports/determination-on-regulation-of-pole-attachments-7-12-2023.pdf. Even if the filed rate doctrine applies, though, it would not stop an enforcement action aimed at an injunction or declaratory relief by the DOJ, just treble damages sought by a private litigant. See Keogh, 260 U.S. at 162 (“[T]he fact that these rates had been approved by the Commission would not, it seems, bar proceedings by the Government.”).
 See, e.g., Parker v. Brown, 317 U.S. 341 (1943) and its progeny.
 North Carolina State Bd. of Dental Examiners v. FTC, 574 U.S. 494, 506 (2015) (internal citations omitted).
 Town of Hallie v. City of Eau Claire, 471 U.S. 34, 47 (1985).
 See, e.g., City of Columbia v. Omni Outdoor Advertising Inc., 499 U.S. 365, 379 (1991) (“We reiterate that, with the possible market participant exception, any action that qualifies as state action is ‘ipso facto… exempt from the operation of the antitrust laws…’”); FTC v. Phoebe Putney Health Systems Inc., 568 U.S. 216, 226 n.4 (“An amicus curiae contends that we should recognize and apply a ‘market participant’ exception to state-action immunity because Georgia’s hospital authorities engage in proprietary activities… Because this argument was not raised by the parties or passed on by the lower courts, we do not consider it.”).
 City of Lafayette v. Louisiana Power & Light Co., 435 U.S. 389, 403 (1978).
 See, e.g., Edinboro Coll. Park Apartments v. Edinboro Univ. Found., 850 F.3d 567 (3d Cir. 2017); VIBO Corp. v. Conway, 669 F.3d 675 (6th Cir. 2012); Freedom Holdings Inc. v. Cuomo, 624 F.3d 38 (2d Cir. 2010); Hedgecock v. Blackwell Land Co., 52 F.3d 333 (9th Cir. 1995).
 See Jarod M. Bona & Luke A. Wake, The Market-Participant Exception to State-Action Immunity from Antitrust Liability, 23 J. Antitrust & Unfair Comp. L. Section of the State Bar of Ca., Vol. 1 (Spring 2014), available at https://www.theantitrustattorney.com/files/2014/05/Market-Participant-Exception-Article.pdf.
 See Lee Letter, supra note 2, at 2.
 Id. at n.4; N.C. Gen. Stat. § 62-350(a) (requiring all pole owners to offer non-discriminatory pole access); 807 Ky. Admin. Regs. 5:015 § 2(1) (same).
 16 U.S.C. § 831i (2018) (“Board is authorized to include in any contract for the sale of power such terms and conditions, including resale rate schedules, and to provide for such rules and regulations as in its judgment may be necessary or desirable for carrying out the purposes of this Act”).
 16 U.S.C. § 831 (2018).
 See Delta Turner Ltd. v. Grand Rapids-Kent County Convention/Arena Authority, 600 F.Supp.2d 920 (W.D. Mich. 2009).
 Id. at 929.
 Lee Letter, supra note 2, at n.5.
 Id. at n.3.
 See Vincent Ostrom & Elinor Ostrom, Public Goods and Public Choices, in Alternatives for Delivering Public Services: Toward Improved Performance (1979) (“[I]nstitutions designed to overcome problems of market failure often manifest serious deficiencies of their own. Market failures are not necessarily corrected by recourse to public sector solutions.”).
 Accelerating Wireline Broadband Deployment by Removing Barriers to Infrastructure Investment, WC Docket No. 17-84, Second Further Notice of Proposed Rulemaking (March 16, 2022) (Statement of Commissioner Brendan Carr), available at https://docs.fcc.gov/public/attachments/FCC-22-20A3.pdf.
 See, Assistant Attorney General Jonathan Kanter Delivers Opening Remarks at the Second Annual Spring Enforcers Summit, U.S. Justice Department (Mar. 27, 2023), https://www.justice.gov/opa/pr/assistant-attorney-general-jonathan-kanter-delivers-opening-remarks-second-annual-spring (“Gatekeeper power has become the most pressing competitive problem of our generation at a time when many of the previous generations’ tools to assess and address gatekeeper power have become outmoded.”).
SHORT FORM WRITTEN OUTPUT
Among the many public-interest comments submitted on the draft merger guidelines proposed by the U.S. Justice Department (DOJ) and Federal Trade Commission (FTC) were those . . .
Among the many public-interest comments submitted on the draft merger guidelines proposed by the U.S. Justice Department (DOJ) and Federal Trade Commission (FTC) were those of Gregory Werden, who has been a visiting scholar at the Mercatus Center at George Mason University since late 2022.
Why is Greg’s filing special? Simply put, he is the leading expert on the history and technical analysis of modern merger guidelines, having worked on the 1982, 1984, 1992, 1997, and 2010 versions as a senior DOJ antitrust economist. He has authored numerous scholarly articles assessing the competitive analysis of mergers and explaining the content of prior guidelines.
The Federal Trade Commission (FTC) recently announced proposed changes to Hart-Scott-Rodino (HSR) premerger notification form. This proposal, alongside proposed changes to federal merger guidelines, is part of the Biden . . .
The Federal Trade Commission (FTC) recently announced proposed changes to Hart-Scott-Rodino (HSR) premerger notification form. This proposal, alongside proposed changes to federal merger guidelines, is part of the Biden Administration’s more aggressive approach to U.S. merger law. Although the merger guideline revisions are receiving most of the attention, the proposed HSR premerger notification form revisions could well have the more substantial lasting impacts.
Back in 2020, an academic paper suggested that over 80% of US physicians mistakenly thought that nicotine was a carcinogen. The implication of this finding was that . . .
Back in 2020, an academic paper suggested that over 80% of US physicians mistakenly thought that nicotine was a carcinogen. The implication of this finding was that perhaps physicians considered vaping (and even nicotine replacement therapy) almost as dangerous as smoking. But physicians are busy people, and I wondered if some, maybe most, might have misunderstood the question in the survey and assumed the researchers were asking about smoking.
Mark Twain once said “there are three kinds of lies: lies, damned lies, and statistics.” This has never been more true than in the debate . . .
Mark Twain once said “there are three kinds of lies: lies, damned lies, and statistics.”
This has never been more true than in the debate over whether there are disparities in access to broadband internet due to racial discrimination.
In a recent letter to the Federal Communications Commission (FCC), U.S. Sen. Ben Ray Luján, D-N.M., chair of the U.S. Commerce Committee’s broadband subcommittee, urged the commission to move quickly to adopt new rules to prohibit such digital discrimination.
I had thought we were in the dog days of summer, but the Farmer’s Almanac tells me that I was wrong about that. It turns out that . . .
I had thought we were in the dog days of summer, but the Farmer’s Almanac tells me that I was wrong about that. It turns out that the phrase refers to certain specific dates on the calendar, not just to the hot and steamy days that descend on the nation’s capital in . . . well, whenever they do (and not just before Labor Day, that’s for sure). The true dog days, it turns out, are July 3-Aug. 11, no matter the weather. So maybe this is just the cat’s tuches of summer, as if that makes it better.
As part of the $1.2 trillion Infrastructure Investment and Jobs Act that President Joe Biden signed in November 2021, Congress allocated $42.45 billion to create the Broadband . . .
As part of the $1.2 trillion Infrastructure Investment and Jobs Act that President Joe Biden signed in November 2021, Congress allocated $42.45 billion to create the Broadband Equity Access and Deployment program, a moonshot effort to close what has been called the “digital divide.” Alas, BEAD’s tumultuous kickoff is a vivid example of how federal plans can sometimes become a tangled web, impeding the very progress they set out to champion.
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.
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.
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.
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.
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.
There has been growing speculation about whether the Federal Trade Commission will seek to challenge the $24.6 billion merger that Cincinnati-based Kroger and Idaho-based Albertsons announced in . . .
There has been growing speculation about whether the Federal Trade Commission will seek to challenge the $24.6 billion merger that Cincinnati-based Kroger and Idaho-based Albertsons announced in October 2022. The combined company would be the third-largest food and grocery retailer, behind Walmart and Amazon. Based on the draft merger guidelines the FTC recently announced jointly with the U.S. Justice Department, as well as recent comments from FTC Chair Lina Khan, those reading the tea leaves expect the agency will move to block the merger, even if the companies offer to spin off stores to competing chains.
The Telecom Hootenanny is back from a little summer break. As they say on AM radio: “If you miss a little, you miss a lot.” . . .
Over the river, into the woods, and down into the weeds we go. There’s a whole lot of drama going on at the Federal Trade . . .
Over the river, into the woods, and down into the weeds we go.
There’s a whole lot of drama going on at the Federal Trade Commission (FTC), not least because of recent correspondence between the U.S. House Oversight Committee and FTC Chair Lina Khan that might politely—euphemistically, really—be termed “heated.” But I’m not gonna go there today. I had a bit to say about the new draft merger guidelines in my last roundup, but I barely scratched the surface. And I’m not going there either.
The Federal Trade Commission (FTC) is reportedly poised some time within the next month to file a major antitrust lawsuit against Amazon—the biggest yet against . . .
In late June, Sen. Mike Lee (R-Utah) sent a letter to Assistant Attorney General Jonathan Kanter arguing that the U.S. Justice Department (DOJ) needs to investigate the . . .
In late June, Sen. Mike Lee (R-Utah) sent a letter to Assistant Attorney General Jonathan Kanter arguing that the U.S. Justice Department (DOJ) needs to investigate the Tennessee Valley Authority (TVA) and its local power companies (LPCs) on grounds that abuses of the pole-attachment process appear to be slowing broadband deployment.
Financial technology, or so-called “fintech,” is disrupting the financial sector, and that’s a good thing. Fintech services are making finance more digital and more user-friendly. . . .
Financial technology, or so-called “fintech,” is disrupting the financial sector, and that’s a good thing. Fintech services are making finance more digital and more user-friendly. This, in turn, has led to reduced transactions costs and increased levels of competition, innovation, and financial inclusion.
Alas, the emergence of fintech has also been accompanied by a rising chorus of the usual “if it’s good, mandate it; if I don’t like it, forbid it” reasoning that has motivated so many prior waves of regulatory intervention. The resulting regulations may be well-intentioned, but they more often than not lead to unintended consequences.
Definition Law and political economy (hereafter LPE) is a rapidly expanding field grounded on a critical discussion of law and economics (and its “market fundamentalism”) . . .
Law and political economy (hereafter LPE) is a rapidly expanding field grounded on a critical discussion of law and economics (and its “market fundamentalism”) within the legal community. According to Aber and Parker (2022), LPE “is a critical approach to law that is focused on the way that purportedly neutral legal rules shape economic power, disguise the political and ideological choices behind inequality, and insulate “the economy” from democratic control.”
TL;DR: SHORT FORM POLICY INSIGHTS
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.
AMERICANS AREN’T ONE-STOP SHOPPERS
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.
COMPETITION FROM SUPERCENTERS, CLUB STORES, & ONLINE RETAIL
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.
MISPLACED LABOR-MARKET CONCERNS
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.
THE HAGGEN FIASCO: LESSONS LEARNED
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.”
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.
ADOPT AN ADAPTIVE APPROACH
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.
AN ADAPTIVE APPROACH DOES NOT MEAN COMPLACENCY
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.
DON’T NEGLECT THE BENEFITS
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.
OVER-REGULATION WOULD INCREASE MARKET POWER
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.
Brief for Amici Curiae International Center For Law & Economics and 11 Scholars of Antitrust Law and Economics in Support of Defendants’ Opposition to Plaintiffs’ . . .
Brief for Amici Curiae International Center For Law & Economics and 11 Scholars of Antitrust Law and Economics in Support of Defendants’ Opposition to Plaintiffs’ Motion for a Preliminary Injunction
Amici Curiae respectfully submit this brief in support of Defendants’ Opposition to Plaintiffs’ Motion for a Preliminary Injunction (Dkt. 130).
INTEREST OF AMICI CURIAE
The International Center for Law & Economics (“ICLE”) is a nonprofit, nonpartisan, global research and policy center aimed at building the intellectual foundations for sensible, economically grounded policy. ICLE promotes the use of law and economics methodologies, and economic findings, to inform public policy. ICLE has longstanding expertise in antitrust law, and a strong interest in the proper development of antitrust jurisprudence. ICLE thus routinely files amicus briefs in cases, like this one, presenting important issues of antitrust law. ICLE is joined
by 11 scholars of antitrust law and economics (listed in the Appendix to this brief ).
Section 7 of the Clayton Act prohibits mergers where “the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.” 15 U.S.C. § 18. Congress used the word “may” to “indicate that its concern was with probabilities, not certainties.” Brown Shoe Co. v. United States, 370 U.S. 294, 323 (1962). The government thus need not wait for anticompetitive conduct to occur before seeking relief. Id. at 317-18. Still, the government must show a “ ‘reasonable likelihood ’ of a substantial lessening of competition in the relevant market.” United States v. Marine Bancorp., 418 U.S. 602, 622 (1974) (emphasis added).
But—as Yogi Berra might have paraphrased Nils Bohr—it can be “tough to make predictions, especially about the future.” Enforcers and courts thus traditionally approach merger control with caution. Deciding whether to block a merger requires making predictions about its likely impact on competition and consumers. That requires evaluating both the likely future state of the market given the transaction and the “but for” world in which it does not take place, often with limited (but nonetheless sufficiently substantial) information and imperfect (but ideally well-tested) tools.
For decades, courts and enforcers have looked to economic principles to develop a set of considerations to inform and constrain such decision-making. Three of them are especially relevant here: the distinctions among horizontal, vertical, and conglomerate mergers; the distinction between structural and behavioral threats to competition; and the distinction between structural and behavioral remedies. In challenging Amgen’s proposed acquisition of Horizon, the Federal Trade Commission elides all three established distinctions. It instead seeks to block a likely procompetitive conglomerate merger based on harms supposed to arise from a chain of conjectured post-transaction events, where each link in the chain is highly speculative. It is unlikely that they will all come to pass and cause the competitive harm the FTC posits. There is no sound economic basis for blocking the merger here and forfeiting its likely procompetitive benefits. Because the antitrust theory alleged in the complaint lacks merit, the FTC cannot establish the “likelihood of success” necessary for a preliminary injunction. FTC v. Great Lakes Chem. Corp., 528 F. Supp. 84, 86 (N.D. Ill. 1981).
 No party’s counsel authored any part of this brief, and no person other than amici and their counsel made a monetary contribution to fund its preparation or submission.
INTRODUCTION To determine whether the tokens traded on Coinbase and through Prime constitute unregistered “securities,” this Court must determine whether these “unusual instruments not easily . . .
To determine whether the tokens traded on Coinbase and through Prime constitute unregistered “securities,” this Court must determine whether these “unusual instruments not easily characterized as ‘securities,’” Landreth Timber Co. v. Landreth, 471 U.S. 681, 690 (1985), are “investment contracts,” and, as such, are one of the enumerated types of “securities” covered by the Securities Act of 1933, see 15 U.S.C. § 77b(a)(1) (Section 2(a)(1) of the “1933 Act”), and the Exchange Act of 1934, see 15 U.S.C. § 78c(a)(10) (Section 3(a)(10) of the “Exchange Act”).
The answer requires the application of the Supreme Court’s seminal decision in S.E.C. v. W.J. Howey Co., 328 U.S. 293 (1946), which held that an offering in a Florida citrus grove coupled with the right to receive a share of the grove’s profits constituted an “investment contract”—and hence a security—because it “involve[d] an investment of money in a common enterprise with profits to come solely from the efforts of others.” Howey, 328 U.S. at 301; see also Revak v. SEC Realty Corp., 18 F.3d 81, 87 (2d Cir. 1994) (same). This test is meant to “embod[y] the essential attributes” of a “security.” United Hous. Found., Inc. v. Forman, 421 U.S. 837, 852 (1975).
In Howey, the Court held that by including “investment contract” in the federal securities statutes, Congress used a term with a well-settled meaning based on judicial interpretations of state blue-sky laws. As a result, to assist the Court in assessing how “investment contract” was understood by Howey and at the time of the federal securities statutes’ enactment, amici offer their analysis of how the term was interpreted in the state blue-sky laws. That analysis makes clear that an arrangement is an “investment contract” only if the investor receives, in exchange for an investment, a contractual undertaking or right to an enterprise’s income, profits, or assets. That core notion has carried through in the federal cases since Howey.
COMMENTS & STATEMENTS
Joint Letter to State Department, NTIA, & FCC Supporting Changes to Improve LEO Satellite Coexistence
Dear Chairwoman Rosenworcel, Assistant Secretary Davidson, and Ambassador Fick: Through investment and advances in next-generation satellite technologies the American satellite industry is experiencing unprecedented growth. . . .
Dear Chairwoman Rosenworcel, Assistant Secretary Davidson, and Ambassador Fick:
Through investment and advances in next-generation satellite technologies the American satellite industry is experiencing unprecedented growth. Satellites in low earth orbit (LEO) are delivering high-speed broadband and offering connectivity solutions that address the long-standing digital divide in the U.S. and globally. Now more than ever, it is imperative for the federal government to promote this promising technology and continue to support the acceleration of a competitive satellite broadband industry that enables the U.S. to maintain its leadership in space and satellite technology.
Broadband connectivity, both at home and across the globe, is essential for including all communities in the modern digital economy. Millions of Americans continue to lack access to broadband at home. Globally, approximately 3 billion people do not have home internet access. The benefits of universal connectivity would not just be felt by those who lack access now – expanding connectivity creates a “rising tide” phenomenon in communities, encouraging improvement across industries. We believe that LEO satellite broadband offers great potential to help bridge the global digital divide.
Satellite broadband offers particular promise in connecting the unconnected because it now offers high-capacity throughput and a quality user experience without the geographical barriers to deployment that can create high costs and long delays for wireline service. For geographically or topographically difficult-to-reach communities, LEO broadband offers a solution that requires only a customer terminal and access to sky. Additionally, U.S. research and development are leading the way in the advancement of the LEO industry. The U.S. has long been ahead of the curve on space development and exploration, and we are home to a robust private sector space industry.
With such rapid innovation and investment across the satellite space, it is important that the U.S. government continue to strengthen American leadership in this sector. The Federal Communications Commission and National Telecommunications and Information Administration should implement policies that foster competition and innovation that benefit both consumers and the U.S. economy more broadly. Although this technology and market has been pioneered by American companies, LEO constellations are inherently global, making U.S. leadership at bodies like the International Telecommunication Union (ITU) and the Inter-American Telecommunication Commission (CITEL) vital to a thriving industry and U.S. interests.
Accordingly, we urge you to prioritize LEO NGSO systems and policies by expanding spectrum access and leveling the playing field between LEOs and incumbent technologies. For example, LEO systems rely entirely on shared spectrum, which makes it critical to modernize outdated ITU coexistence criteria to ensure more efficient and equitable access to shared spectrum resources for both LEO and GSO networks. Such a policy environment will give consumers more options, promote innovation, lower costs and, most importantly, enable many more people to connect to the internet both at home and globally.
LEO satellite broadband is revolutionizing connectivity and offering a solution for fast, reliable internet to every community. We believe your prioritization of LEO broadband, both at home and abroad, will help unleash a new wave of global connectivity. We look forward to partnering with you to support bridging the digital divide.
PORTLAND, Ore. (Sept. 1, 2023) – In light of Amgen Inc.’s announced agreement with the Federal Trade Commission (FTC) and attorneys general from six U.S. states settling challenges . . .
PORTLAND, Ore. (Sept. 1, 2023) – In light of Amgen Inc.’s announced agreement with the Federal Trade Commission (FTC) and attorneys general from six U.S. states settling challenges to the company’s planned acquisition of Horizon Therapeutics, the International Center for Law & Economics (ICLE) offers the following statement from ICLE President Geoffrey A. Manne:
“This is the result that ICLE and 11 antitrust law and economics scholars recommended in our brief to the court. The FTC suit to stop the merger was clear overreach.
“The FTC had no chance to win. This is a clear admission of that fact. Every recent merger settlement with the FTC has included a provision requiring that all future mergers get prior approval from the FTC. In this settlement, prior approval is required only for those drugs that compete directly with the Horizon drugs. This would never have been allowed anyway, as those drugs have no competitors currently.”
LONG FORM WRITING
Consumer welfare has been a north star of the Federal Trade Commission (FTC), providing an organizing principle for diverse issues under the Commission’s dual . . .
Consumer welfare has been a north star of the Federal Trade Commission (FTC), providing an organizing principle for diverse issues under the Commission’s dual competition and consumer protection missions and, specifically, a uniform ground on which to examine the law and economics of privacy matters and the tradeoffs that privacy policies entail. This paper provides the first contemporary literature synthesis by former FTC staff that brings together the legal and economics literatures on privacy. Our observations are the following: (a) privacy is a complex subject, not a simple attribute of goods and services or a simple state of affairs; (b) privacy policies entail complex tradeoffs for and across individuals; (c) the economic literature finds diverse effects, both intended and unintended, of privacy policies, including on competition and innovation; (d) while there is diverse and growing evidence of the costs of privacy policies, countervailing benefits have been understudied and, as of yet, empirical evidence of such benefits remains slight; and (e) observed costs associated with omnibus policies suggest caution regarding one-size-fits-all regulation.
Major competition regulators, and substantial portions of the scholarly community, have rapidly adopted the view that “killer acquisitions” and “kill zones” constitute significant sources . . .
Major competition regulators, and substantial portions of the scholarly community, have rapidly adopted the view that “killer acquisitions” and “kill zones” constitute significant sources of competitive risk arising from incumbent acquisitions of emerging firms in digital markets. Based on this view, policymakers in the United States, European Union, and other jurisdictions have advocated, and in some cases have taken, substantial changes to merger review policies that would erect significant obstacles to incumbent/startup acquisitions. A review of the relevant body of
evidence finds that these widely-held views concerning incumbent/startup acquisitions rest on meager support, confined to ambiguous evidence drawn from a small portion of the total universe of acquisitions in the pharmaceutical market and theoretical models of acquisition transactions in information technology markets. Moreover, the emergent regulatory and scholarly consensus fails to take into account the rich body of evidence showing the critical function played by incumbent/startup acquisitions in supplying a monetization mechanism that induces venture-capital investment and promotes startup entry in technology markets. The prospect of an acquisition transaction in the case of technical and commercial success generally promotes innovation and competition by providing a transactional device that expands startups’ access to the capital inputs required to undertake R&D and the commercialization services required to convert R&D outputs into commercially viable products. At the same time, these acquisitions enable incumbents to access the specialized innovation capacities of smaller firms. Proposed changes to merger review standards would disrupt these efficient transactional mechanisms and are likely to have counterproductive effects on competitive conditions in innovation markets.
Evidence of rising market power in the U.S. economy has received widespread attention in macroeconomics literature. Recent research has linked trends in measured market . . .
Evidence of rising market power in the U.S. economy has received widespread attention in macroeconomics literature. Recent research has linked trends in measured market power to other secular trends in the U.S., including multi-decade trends of declining rates of job reallocation and business entry (or “business dynamism”). Intuitively, firms with more market power are less responsive to shocks, and industries characterized by market power may have (or create) significant barriers to entry. Both forces predict a negative correlation between market power and business dynamism. However, industry-level data shows zero, or often a positive, correlation between markups and business dynamism; industries that experienced larger increases in markups had smaller decreases in dynamism on average. Those few industries that saw both large declines in markups and large declines in dynamism do not account for a significant share of the aggregate trends in markups and dynamism. Our results suggest that market power does not explain the decline in dynamism.
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.
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.
Interpreting the EU Digital Markets Act Consistently with the EU Charter’s Rights to Privacy and Protection of Personal Data
Depending on implementation details, the EU Digital Markets Act (DMA) may have negative consequences regarding information privacy and security. The DMA’s interoperability mandates are . . .
Depending on implementation details, the EU Digital Markets Act (DMA) may have negative consequences regarding information privacy and security. The DMA’s interoperability mandates are a chief example of this problem. Some of the DMA’s provisions that pose risks to privacy and to the protection of personal data are accompanied either by no explicit safeguards or by insufficient safeguards. The question is then: how to interpret the DMA consistently with Articles 7-8 of the EU Charter of Fundamental Rights which ground the rights to privacy and the protection of personal data? Using the example of the prohibition on restricting users from switching and subscribing to third-party software and services (Article 6(6) DMA), I show that Charter-compatible interpretation of the DMA may depart from the intentions of the DMA’s drafters and even be perceived by some as significantly limiting the effectiveness of the DMA’s primary tools. However, given that—unlike the GDPR—the Charter takes precedence over a mere regulation like the DMA, such policy objections may have limited legal import. Thus, the true legal norms (legal content) of the DMA may be different than what a superficial reading of the text could suggest or, indeed, what the drafters hoped to achieve.
ICLE ON SOCIAL MEDIA
Threads from ICLE scholars on trending issues for the month of August 2023. Another issue in the Commission's Policy Brief on Art.102 (CPB) is the . . .
Threads from ICLE scholars on trending issues for the month of August 2023.
Another issue in the Commission's Policy Brief on Art.102 (CPB) is the attempt to sidestep the indispensability criterion of Bronner by creating a new category of refusal to supply: constructive refusal to supply. https://t.co/upB9ARCCJM 1/5 pic.twitter.com/54FJA6IrTa
— Lazar Radic (@laz_radic) August 29, 2023
Anyone still really into the intersection of broadband deployment, pole attachment policy, antitrust, and the economics of different types of ownership?! Well I got a follow-up blog post for you! A ?
— Ben Sperry (@RBenSperry) August 16, 2023
1/ Last week, Sens. Luján, Warnock, Hirono, Welch, and Warren sent a letter to FCC Chair Rosenworcel, urging the agency to take action on rulemaking regarding digital discrimination. ?https://t.co/gCxgZviaq7
— Eric Fruits, Ph.D. (@ericfruits) August 7, 2023
1/24 The FTC is reportedly poised some time within the next month to file "the" lawsuit against Amazon; the big one they've been working on for years. Structural remedies may be on the table. Some preliminary thoughts.? https://t.co/5uMCsMq2ii
— Lazar Radic (@laz_radic) August 4, 2023
Anyone really into pole attachment policy? Antitrust exemptions for government entities? The Tennessee Valley Authority? The antitrust economics of state-owned enterprises? If so, we at ICLE have just the paper for you! A thread
— Ben Sperry (@RBenSperry) August 2, 2023