Category Archives: Antitrust

Basics of Antitrust Regulation

From p. 69 of Richard Posner’s Antitrust Law, 2nd Ed. (2001):

There is no sound basis in economic theory for thinking that if there are just a few major sellers in a market, competition will disappear automatically.

It’s an empirical question, not an a priori one. Too many analysts and regulators forget that.

 

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CEI Press Release: CEI Criticizes European Union’s Antitrust Decision Against Google

The European Union announced its decision today to fine Google $5 billion in an antitrust case involving the tech giant’s Android operating system. Competitive Enterprise Institute (CEI) regulatory experts lamented the decision.

CEI fellow Ryan Young said the following about the news:

The European Union’s $5 billion antitrust decision against Google’s Android operating system could cause immense consumer harm by requiring Google to provide an inferior product for no good reason.

The decision is reminiscent of the EU’s similarly baseless crusade against Microsoft in the 1990s and 2000s. Not only are Google’s Android operating system, Chrome browser, Maps, Calendar, and other applications already available free of charge to consumers, but Google provides consumers easy access to competitors’ software through its Google Play app store.

Just as consumers used Microsoft’s own Internet Explorer browser to install Firefox and other competing software they liked better, unsatisfied Google users have easy, often free access to competing products. They can also leave the Google ecosystem entirely by buying an Apple iPhone. The real threat to innovation and consumers here is the EU, not Google.

CEI Vice President for Policy Wayne Crews also commented on the decision:

Dominance and popularity are not the same as a coercive monopoly. The European Commission is behaving in protectionist fashion, not in a manner benefitting consumers, and the fines are inappropriate, unwarranted, and plain wrong. Google is no monopoly, as the existence of Apple’s iPhone and other options attest; and there is always some new disruptive technology on the horizon (remember the MySpace monopoly? The AOL one?).

Different vendors have the right to test out different business models without interference from regulatory authorities, and consumers have the right to accept or reject them. And the core justification, the European Commission’s idea that people, otherwise capable of downloading millions of files on Play and iPhone mobile stores, cannot substitute a search engine or other preinstalled app is absurd on its face.

There are many ways that predatory antitrust adventurism, such as that of the European Commission and the United States alike, must be reformed to prevent future damage to the technology sector. The very phrase “competition commissioner” is internally contradictory, and stands in stark contrast to the phrase free enterprise.

Read more from CEI’s Wayne Crews: “European Regulators Wrong on Google Fine, Wrong on Antitrust Policy

A Quick Lesson in Antitrust: Netflix and Comcast

Every time a major corporate merger is announced, pundits predictably warn of impending doom if regulators allow it to happen. Here’s an example from Susan P. Crawford’s 2012 book Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age (Kindle edition location 2098):

The absence of any effective regulatory regime or oversight over the cable giant makes it unlikely that Netflix will ever be able to challenge Comcast. Comcast has a number of options that will make it extremely difficult for independently provided, directly competitive professional online video to challenge its dominance.

Now that a few years have passed and the dust has settled from the Comcast-NBC merger, how has it affected Netflix? Rather differently than Crawford feared, as any student of Schumpeter could have predicted. Here is an excerpt from last week’s cover story in The Economist, “The Tech Giant Everyone is Watching”:

This year its entertainment output will far exceed that of any TV network; its production of over 80 feature films is far larger than any Hollywood studio’s. Netflix will spend $12bn-13bn on content this year, $3bn-4bn more than last year. That extra spending alone would be enough to pay for all of HBO’s programming—or the BBC’s. … Its ascent has mirrored the decline of traditional television viewing: Americans between the ages of 12 and 24 watch half as much pay-TV today as they did in 2010.

Within a year of Crawford’s book, Netflix began producing high-quality original content, an innovation she did not foresee. Her whole project was a waste of time and effort.

The lesson here is that pundits and regulators don’t know any better than you or I how a merger will turn out. And unlike investors and entrepreneurs, they don’t have their own money at stake, so they don’t have any incentive to innovate or react to changing conditions.

Of course, another lesson is that pundits and agencies will not heed that first lesson. As the same Economist story points out, “Some suspect that Netflix harbours ambitions to monopolise tv.” So the cycle repeats itself, and likely for no good reason.

For more antitrust lessons, see Wayne Crews’ study The Antitrust Terrible 10: Why the Most Reviled “Anti-competitive” Business Practices Can Benefit Consumers in the New Economy.

CEI Podcast for August 15, 2013: Justice Department Blocks Airline Merger

american airlines planes
Have a listen here.

On Tuesday, the Justice Department filed an antitrust suit to block the proposed American Airlines and US Airways, alleging that the reduced competition would raise prices and reduce consumer options. Fellow in Land-use and Transportation Studies Marc Scribner thinks the charges are overblown, and has ideas of his own for increasing competition.

The FTC’s Uneasy Relationship with Innovation

The Sherman and Clayton Acts form the backbone of U.S. antitrust policy. But another piece of legislation gives the government the power to regulate business practices on scales smaller than monopoly. In 1914, President Woodrow Wilson signed the Federal Trade Commission Act into law, which created the FTC. In particular, section 5 of the FTC Act  should give pause to America’s entrepreneurs. It states:

“Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices… are hereby declared unlawful.”

Deceptive business practices should be, and are, illegal. Fraud has been against the law for a long time. The worrying part is the term “unfair methods of competition,” which the law never defines.

Congress could have enumerated which business practices were to be made illegal, but it chose not to. FTC Commissioner Joshua Wright, in a recent policy statement, cites (p.3) a Senate Committee Report on the 1914 FTC Act noting “that there were too many unfair practices to define, and after writing 20 of them into the law it would be quite possible to invent others.” So Congress delegated its lawmaking authority over to the new FTC.

Its primary reason for doing so was a then-fashionable Progressive Era emphasis on scientific, expert management. Congressmen, being generalists, lack the specialized knowledge that full-time agency employees have. Since the agencies know better, they should be given wide discretion as to defining what constitutes an unfair business practice.

A public choice theorist might add that delegation also allows Congress to shift blame away from itself when FTC actions prove unpopular. Delegation could also give members plausible deniability if the FTC decides to punish businesses for political or ideological reasons.

Commissioner Wright’s policy statement attempts to give more clarity to what business practices the FTC will and will not allow, and he even addresses some public choice concerns. Some of his major principles:

  • Consumer harm is the rationale for antitrust policies, not competitor harm.
  • Maintaining the competitive process is more important than maintaining certain individual competitors.
  • The FTC is not allowed to punish businesses to advance public policy goals. It may only intervene for economic reasons, such as when the competitive process is in danger.
  • An unfair business practice will have the effect of “increased prices, reduced output, diminished quality, or weakened incentives to innovate.” (p.7)

He goes on to provide several examples of business practices that are and are not allowed.

Wright also cites a wise quote from Ronald Coase, who won the economics Nobel in 1991. It neatly sums up the antitrust enterprise:

“[If] an economist finds something – a business practice of one sort or another – that he does not understand, he looks for a monopoly explanation. And as in this field we are very ignorant, the number of ununderstandable practices tends to be very large, and the reliance on a monopoly explanation, frequent.”

Coase’s observation has consequences for the tech sector, which relies heavily not just on new, continuously evolving technologies, but on new business practices that haven’t been tried before. Without a prior track record of how a practice works, it is difficult for the defendant to prove that it increases efficiency, or or for the plaintiff to prove it is anti-competitive. The result is a lot of legal uncertainty in a sector that already has more uncertainty than most.

Hopefully Wright’s efforts to clarify the FTC’s muddled enforcement criteria will bear some fruit. Until then, watch out, especially if you’re a tech company trying out new, untested business practice. As Coase has warned, It may come back to haunt you.

The Apple E-Book Ruling and Antitrust Absurdity

A recent ruling against Apple over its e-book pricing policies highlights the absurdity of antitrust laws, as I point out in the Daily Caller:

Under American anti-trust laws, there are three things no business should ever do. They are as follows: Charge higher prices than your competitors, charge lower prices than your competitors, and charge the same price as your competitors.

Higher prices mean that you have market power, and you are abusing it. Lower prices mean that you are trying to unfairly undercut your competition. And if you charge the same price as your competitors, that means you are colluding with them (although in economics, it can also be evidence of near-perfect competition).

It goes downhill from there. Read the whole thing here.

CEI Podcast for November 1, 2012: Is Google’s Search Dominance Permanent?


Have a listen here.

Associate Director of Technology Studies Ryan Radia argues that Google’s current dominance as an Internet search engine service is a fragile thing. Creative destruction is everywhere, and its onset cannot be predicted. As soon as something better comes out, consumers will flock to it in droves. Calls for antitrust enforcement should not be answered.