Category Archives: Antitrust

Monopoly Is Not the Same as Big

Ball State University economist Steve Horwitz posted to YouTube an excellent clarification/gentle rant about the difference between having a monopoly and being big. Though aimed at one his undergraduate classes in which many students were making repeated slips, it is a good reminder for just about everyone. This is what good teaching looks like.

The seven-minute video is here. It is even shorter than that if, as I often do, you play the video at 1.5x speed or so.

Why Facebook’s Antitrust Cases Should Be Dropped

Facebook filed today to dismiss antitrust lawsuits against it today by the Federal Trade Commission (FTC) and several state attorneys general. One of the reasons they should be dismissed is that both cases rely on a textbook example of defining a company’s relevant market artificially narrowly in order to make the company look more dominant than it is.

In its Facebook complaint, the FTC argues that Facebook dominates the market for “personal social networking services.” The states’ case uses the same term. They made it up just for this case. Its specialized definition omits competitors such as TikTok and Twitter. It also omits emerging competitors such as Discord and Clubhouse, and more like them that are sprouting up all over the Internet, a point that will only grow more important as the Facebook case proceeds.

Of course Facebook dominates a market definition that intentionally leaves out most of the competition! Arguments this weak have no place in a courtroom. Any of these competitors could take away Facebook’s market share the same way Facebook supplanted MySpace.

Even this is not the full extent of Facebook’s relevant market. Facebook competes for consumers’ attention against other uses of people’s leisure time, such as Netflix, podcasts, and even in-person socializing. As more people get vaccinated, restaurants, sporting events, movie theaters, and other activities will resume competing against Facebook for peoples’ attention.

Facebook also competes in the advertising market. A common test for market power is whether a company can jack up prices while restricting supply. Facebook does not have market power in the advertising market. Digital ad prices went down by half between 2009 and 2019. Over that same period, print ad prices doubled. In fact, the antitrust complaints argue that Facebook executives worried in internal correspondence that Instagram and WhatsApp would drive down ad prices even farther or faster. Due to the evidence they provide in their own complaints, the FTC and the states will have a difficult time arguing that Facebook had the market power to raise ad prices. In soccer, this is called an own-goal.

Apple and Google, for example, are Facebook’s largest competitors in the ad market. They are both in the process of changing their privacy policies to differentiate themselves from Facebook’s approach, in the hope of luring consumers and ad buyers away from Facebook. Meanwhile, other websites and apps, as well as real-life entertainment options, will never stop competing with Facebook for consumer attention.

In a competitive market like this, Facebook does not have the power to control its fate—consumers do. Facebook and its competitors are engaged in an ongoing discovery process to see what appeals to their customers.

The market process resembles a moving picture that is constantly changing and evolving. Antitrust cases are more like still images of a single frame. A decade ago, critics complained that MySpace was a natural monopoly that could drive out all competition. Now people are making similar arguments against one of those competitors, Facebook. A decade from now, Facebook might still be the largest social network company. Or it might not. Either way, it will not be the same product it is today. It must either continue to adapt its privacy, content moderation, and newsfeed algorithms in ways that people like, or it will lose its dominance. If it stays on top, it is because people like its product. Either way, consumers are in charge. To claim otherwise is unrealistic.

Whether it’s in “personal social networking services,” or an arbitrarily narrow definition of the advertising market, Facebook does not have monopoly power. Nor is there proof of consumer harm. One reason Facebook’s user services are free is because users would flee to other free sites if Facebook were to begin charging them.

Facebook is also unable to stop ad prices from declining. With the ad market essentially on a permanent 50 percent off sale compared to when Facebook became big, the company clearly does not have the ability to set a floor on ad prices. Even if it were to try, prices would continue to fall through their floor because of the competitiveness of the market.

The FTC and the states are unlikely to win on the merits, so they are instead turning to semantic arguments. The FTC and the states should drop their cases. If they don’t, courts should dismiss them.

For more, see a statement from CEI experts, my earlier blog post, Iain Murray’s Fortune article, Wayne Crews’s and my paper “The Case against Antitrust Law,” and CEI’s dedicated antitrust website, antitrust.cei.org.

CEI Experts: Courts Should Dismiss Antitrust Lawsuits against Facebook

This press release was originally posted at cei.org.

Facebook today asked courts to dismiss antitrust lawsuits brought by the Federal Trade Commission and state attorneys general, an outcome supported by the Competitive Enterprise Institute for legal and consumer freedom reasons.

Statement by Kent Lassman, CEI President:

“When neither the facts nor the law are on your side, the only thing left is political muscle. The lawsuits by the FTC and state attorneys general are dangerous political posturing, unrooted in economics or law. They fail on economics because there is no demonstrated consumer harm. They fail on the law because the acquisitions were previously approved and remedies are only available for ongoing, not previous, conduct. Crucially, they fail the test of common sense. Consumers continue to benefit from investment, innovation, and new entrants into the marketplace. Americans have had enough of power poses and posturing. Dismissal of these cases would help renew confidence in free enterprise and the rule of law.”

Statement by Jessica Melugin, Director of CEI’s Center for Technology & Innovation:

“The only question worth asking about Facebook’s acquisitions of Instagram and WhatsApp is: how did consumers fare? U.S antitrust law is based on consumer harm, and there’s none of that to be found in the lawsuits brought by Federal Trade Commission or state attorneys general against the social media giant. Facebook made WhatsApp free and improved the Instagram app to the tune of a billion satisfied users. No prices have been raised, no output has been restricted, and no consumer has been harmed by these acquisitions. Both lawsuits should be dismissed.”

Statement by Ryan Young, CEI Senior Fellow:

“The Facebook case is a classic example of the relevant market fallacy. The FTC made up its own boutique term for Facebook’s market, ‘personal social networking services,’ which excludes Twitter, TikTok, and other competitors, as well as emerging competitors like Discord and Clubhouse. Of course Facebook dominates a market definition that intentionally leaves out most of the competition! But any of them could take away Facebook’s market share, like Facebook did with MySpace.”

Related analysis:

Commentary: Antitrust Litigation Usually Causes More Harm Than Good. Big Tech Is No Different

Statements: State AG and FTC Antitrust Actions against Facebook Fail to Prove Consumer Harm or Anticompetitive Behavior

Report: U.S. Antitrust’s Greatest Misses

The Case For Repealing Antitrust Law by Fred L. Smith, Jr. (1999)

Proposed European Tech Regulations Will Backfire, Badly

The European Union recently proposed two major tech regulation bills aimed at America’s tech industry, the Digital Markets Act (DMA) and the Digital Services Act (DSA). While American antitrust law is flawed, European competition policy is arguably more so. On purpose or not, DMA/DSA would add trade barriers in a world that already has too many. They are costly. And they won’t increase competition. In fact, they would help to lock in the big U.S. companies’ dominance.

How would they do this? They would block self-preferencing, such as Amazon promoting self-branded products in its search results, or Google and Apple giving their own apps special treatment in their app stores. Retailers and grocery stores already have been doing this for the last century or so, and those markets are highly competitive. It is no different when a company does the same thing online.

Companies would face stricter content moderation policies. If the EU says to take down certain content, companies would have a short time frame to either remove it or be fined. European companies would not face these same compliance costs, presumably giving them a leg up, though without improving their products.

Tech platforms would be liable for user-posted content, rather than the users themselves. This essentially copies President Trump’s position in the Section 230 controversy. Besides chilling speech, this would give popular services a reason to avoid the European market. It would also lock in dominant players. Facebook can afford to hire armies of content moderators, but startup competitors cannot. Repeat offenders risk fines of up to 10 percent of global revenue.

Breaking up companies is another option, though the practical politics of the EU breaking up a U.S.-based company likely make this unrealistic.

Unlike most legislation, DMA/DSA would not apply to everyone. They would only apply to “gatekeepers,” a new term defined in just such a way that it applies only to a handful of major U.S. tech companies. In practice, DMA/DSA is simple extraction from successful companies, without proof of consumer harm.

Swiss competition commissioner Henrique Schneider argues in a recent Competitive Enterprise Institute paper that, even if that EU officials understand basic economics—no sure thing—they “choose to disregard it in order to advance two political aims—protectionism and consumer welfare (as they conceive the latter).” And, as he predicted, things are getting worse.

Beyond Spotify, it is hard to even name a major European tech company. This is not for a lack of talent and good ideas in Europe. It is because of a broken regulatory culture that prefers tearing down over building up. Taking foreigners down a notch is very different from allowing homegrown entrepreneurs to build and innovate.

DMA/DSA is trade protectionism under another name. U.S.-EU trade relations are already strained because of President Trump’s misguided trade war, Europe’s equally misguided retaliation, and a long-running dispute over subsidies to Boeing and Airbus. President Biden is likely to further raise trade barriers, as my colleague Iain Murray points out. Some kind of major U.S.-EU trade agreement is likely necessary in the next few years as a diplomatic and economic counterweight against China. DMA/DSA would aggravate tensions between allies at precisely a point when they can be somewhat smoothed.

Finally, DSA/DMA wouldn’t actually take down the big American companies, but lock in their dominance. They can afford massive fines and compliance costs; smaller startups can’t. And if a smaller competitor nears the threshold of becoming a “gatekeeper,” it may decide to stay small on purpose, leaving most of the market to big incumbents. This would harm consumers, who would pay more to have fewer choices and lower-quality services.

If the DMA/DSA bills are enacted—no sure thing—it will be a long process. According to CNBC, Margrethe Vestager, the EU’s top competition policy official wants them enacted “as fast as possible,” meaning about two years. More realistically, the process will be delayed by tech company lobbying efforts and squabbles between Brussels and the EU’s 27 national governments. By then, the tech market will likely look very different.

If the Digital Markets Act and the Digital Services Act are accurate statements of where EU regulators stand on tech policy and innovation, then Europe’s tech sector will remain second-class. Along the way EU regulators would make global trade less free, help to lock in today’s big tech companies’ dominance, and harm consumers around the world.

Book Review: Marc Levinson – The Great A&P and the Struggle for Small Business in America

Marc Levinson – The Great A&P and the Struggle for Small Business in America

This is an excellent history that is playing out again in today’s antitrust revival. A&P was the first nationwide grocery store chain. Though it barely exists today, in its prime it was the nation’s largest retailer. A&P inspired fear among its competitors and outrage among populists.

People made many of the same arguments against A&P in the popular press and in antitrust cases that people make today against Walmart, Amazon, and other big companies. The word choices, hyperbole, and breathless tone are almost identical. And yet, A&P was no match for consumer preferences, which eventually shifted elsewhere. The company chose not to adapt, and today exists on roughly the same scale as Blockbuster Video, which is down to a single store in Oregon.

Some of the very same charges, such as A&P’s selling self-branded products at lower prices than outside brands, are being revived today against Amazon. A&P-era arguments are even being repurposed to argue against Apple and Google’s app stores and search results. Not only were their business practices never anti-competitive, they clearly weren’t enough to save A&P from the competitive process. Nor will it be enough to save today’s big tech companies. Consumers are harsh sovereigns, and as soon as someone does it better, they’ll move on.

History does not repeat itself, but it often rhymes. Levinson digs up some of the lost stanzas of a poem being rebooted all over Washington today. There are lots of lessons here for people on both sides of the antitrust revival.

On the Radio: Antitrust, Jobs, and More

On Monday, I talked about antitrust policy on Paul Molloy’s Freedom Works show based in Tampa, FL.

I also taped a conversation on Rick Trader’s Conservative Commandos show today where we discussed today’s jobs report, the COVID-19 recovery, antitrust policy, and other topics. It should air sometime soon.

I’ll post links to audio (and video for the Conservative Commandos segment) if I find them online.

Third Antitrust Suit against Google since October Based on Flawed Argument

This press release was originally posted on cei.org.

A coalition of more than 30 states and territories today filed an antitrust lawsuit against Google, alleging the search engine has abused its power in markets ranging from voice assistants to digital advertising in an attempt to maintain a monopoly over internet searches. The antitrust lawsuit is the third filed against Google since October.

CEI Senior Fellow Ryan Young said:

“Today’s antitrust lawsuit, the third against Google since October, has a major flaw: the dozen keystrokes argument. It is not difficult to type bing.com or duckduckgo.com into your browser. Google pays Apple as much as $12 billion per year to Apple to have Google be its default search engine. This is apparently not enough to prevent Apple from reportedly building up its own search engine.

“Nor was Microsoft’s similar default status for its Internet Explorer browser enough to stave off competition from Firefox, Google Chrome, Apple Safari, and other browsers. Just as Microsoft never actually controlled the browser market, Google does not control the search market. Consumers do.”

Read more:

Recent Media Appearances

In early November, I was invited on Bob Zadek’s show for a thoughtful hour-long conversation on antitrust law. Audio and an AI-generated transcript are here.

In late October, I was on Jim Blasingame’s Small Business Advocates radio show, also to talk about antitrust.

Earlier this week, I spoke to One News Now’s Chris Woodward about regulations.

Texas Antitrust Case Against Google would Harm Consumers and Small Businesses

This is a press statement originally posted at cei.org.

The State of Texas announced today it is filing an antitrust lawsuit against Google, alleging the company’s online advertising platform harms competition and allows Google to fix prices for advertising.

CEI senior fellow Ryan Young said:

“A company has monopoly power if it can raise prices, restrict supply, and still keep its dominance. Despite Google’s growth, digital ad prices have fallen by half over the last decade. At the same time, print ad prices have been increasing. Some newspapers have doubled their rates. Google and Facebook, which hold similar market shares, have made the ad market more competitive. Their innovation and price-cutting has made advertising more affordable than ever for small businesses who are struggling to find customers at a difficult time. Attorney General Paxton’s lawsuit would harm consumers and small businesses—precisely the opposite of what antitrust regulation is intended to do.”

Director of CEI’s Center for Technology and Innovation Jessica Melugin said:

“It’s hard to take seriously Attorney General Paxton’s claim that Google has, ‘harmed every person in America.’ Consumers have benefited from Google’s products, services and innovations, often for free. This suit is costly solution in search of a problem.”

Read more:

New EU Tech Rules will Chill Innovation and Harm Consumers

This is a press statement originally posted at cei.org.

The European Union today announced new rules it claims will change the way technology companies operate. The EU says the Digital Services Act and the Digital Markets Act “will create a safer digital space for users” and “level the playing field so that digital businesses can grow.”

Vice President for Strategy Iain Murray said:

“The European Union’s proposed new powers allow it to treat American tech firms as cash cows, to be fined whenever it finds them guilty of providing too much discretion to consumers or allowing too much speech. Its proposed veto on acquisitions will also chill innovation in the European tech sector as it will make the prospect of significant rewards for an acquisition-based business strategy less likely. Europe will act as an anchor on tech innovation, slowing progress and reducing consumer welfare worldwide. The incoming Biden administration should avoid making the same mistakes.”

Senior Fellow Ryan Young said:

“The European Union’s two proposed tech regulation bills have two fatal flaws. One is that, on purpose or not, they are trade protectionism under another name. Many of their provisions are aimed at the large U.S. tech companies. Taking them down a notch would give an opening to EU-based tech companies, the thinking goes. As with President Trump’s trade wars, this will harm consumers without actually helping the industry. The two bills also leave in place the EU’s stifling regulatory culture that is the root cause of Europe’s lack of tech sector innovation.

“The second fatal flaw is that the EU’s proposals would actually lock in the existing American firms’ dominance. They are the only companies that can afford the massive content moderation costs the EU is demanding, or the large fines. Startups that might one day dethrone today’s giants cannot afford these costs, and may not even bother trying to compete.”

Read more: