Category Archives: Competition

Court Rules Apple App Store Rules Do Not Violate Antitrust Laws

This press release was originally posted on cei.org.

A federal district court today ruled that Apple’s rules regarding payments on its App Store do not violate antitrust laws. The case, brought by video game maker Epic Games, alleged Apple violated antitrust laws by requiring purchases be made on its own system.

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

“With a court finding it is not a monopoly, the decision is largely a victory for Apple. The company will mostly continue to operate their private property, the Apple App Store, by the rules it wishes. Apple will not be forced to allow outside payment systems from developers and the App Store can remain the exclusive app download method on iPhones and iPads. The finding that Apple is in violation of California state law under the software giant’s prohibition on developers telling users there are alternative and cheaper payment options is along the lines of concessions it has already started to make with internal policy changes and legal settlement offers. Consumers will continue to benefit from Apple’s intact security, convenience and reliability at the App Store.”    

Senior Fellow Ryan Young said:

“The wisdom of Apple’s business practices is constantly being put to the test by consumers. Their size does not protect them from flops like the Newton tablet, its failed Ping social network, or its forgotten Pippin gaming console. Same goes for the App Store’s payment and commission policies.

“The separate question of whether Apple’s App Store is a monopoly is less debatable. Making that case requires defining Apple’s market so narrowly that real-world consumers can escape its boundaries with a dozen keystrokes or less. Before Apple booted Epic’s Fortnite game from its App Store in August 2020, roughly 90 percent of Fortnite downloads came through non-App Store vendors. Epic tried to define Apple’s market this way; the court disagreed.

“Any market is a monopoly if you define it narrowly enough. But those types of language games don’t always hold up in court. Real-world considerations keep getting in the way.” 

FTC Re-Files Facebook Antitrust Complaint

See also a CEI news release with statements from Jessica Melugin and me.

The Federal Trade Commission (FTC) submitted a revised antitrust complaint against Facebook today. In June, a judge threw out the initial complaint for not providing evidence that Facebook had a monopoly in anything. The FTC had until today to give it another try. The text of the amended complaint is here.

The new complaint has the same problem, and relies heavily on wordplay. The FTC argues that Facebook dominates the market for “personal social networking services,” which it defines in a way that excludes TikTok, Twitter, Clubhouse, Discord, YouTube, and others. By the FTC’s boutique market definition, Facebook’s biggest competitor is Snapchat.

Any market is a monopoly if you define it narrowly enough, and that is the only thing the FTC’s complaint successfully proves.

Real-world monopolies, as opposed to semantic monopolies, are characterized by rising prices, restricted supply, and slowed innovation. Facebook and its competitors show none of these characteristics. They are largely free to consumers. Advertisers pay to show their ads on Facebook and competing networks, but the prices they pay have fallen by half over the last decade—akin to a permanent 50 percent off sale compared to before Facebook got big.

Facebook is not able to restrict the supply of social networking services. New social networks are constantly rising, falling, and evolving, and Facebook cannot stop people from using them. Signing up for a competing service takes a minute or two and maybe a few dozen keystrokes. Many people also have multiple accounts on multiple social networks—how many people do you know who use both Facebook and Twitter, for example?

As for innovation, Facebook spent $21 billion on research and development over the past year. It is constantly experimenting with new features on its site in an ongoing trial-and-error process—because its competitors are, too. This is not monopoly behavior.

Nobody but lawyers are benefiting from the FTC’s ideologically charged word games. For example, a 2019 Inspector General report found that the FTC routinely pays outside experts as much as $750 per hour. In years-long antitrust cases, that can add up to millions of dollars, without creating any consumer value.

Another concern is regulatory capture. An antitrust settlement against Facebook would likely include expensive new policies involving privacy, content moderation, and more. Facebook can absorb these compliance costs; smaller startups cannot.

Facebook, with its aging user base, and seeing people under 25 moving to TikTok and other competitors, would likely be happy to negotiate such a settlement down the road. In the world of regulation, intentions and results are often very different things. Antitrust policy is no exception. The FTC’s ideological campaign is harming both consumers and the competitive process. At the very least, it should drop the Facebook case, if a judge doesn’t drop it first again.

Longer term, it is time to reconsider antitrust regulation altogether.

One of Google’s Antitrust Cases Dismissed, for Now

A District judge on Thursday dismissed a private antitrust case against Google brought by a group of advertisers. It does not affect separate cases brought by state attorneys general and the federal Department of Justice.

The dismissal is rooted in the relevant market fallacy. Essentially, the advertisers’ lawyers defined Google’s relevant market too narrowly, which leaves out important details. As the judge writes, “The Court is particularly concerned that Plaintiffs’ market excludes social media display advertising and direct negotiations.”

Essentially, the attorneys argued that Google has a monopoly over Google ads. This is true, in the same way that Ford has a monopoly over Ford-branded cars. But just as car buyers can easily buy a Toyota or a Chevy despite this monopoly, advertisers can easily turn to other options, both online and in print.

The plaintiff’s lawyers until June 14 to revise and resubmit their lawsuit with a more realistic definition of Google’s relevant market.

The other antitrust complaints against Google commit their own versions of the relevant market fallacy, as I’ve noted before:

Google’s relevant market is larger than a traditional search engine page. Every Uber ride involves an Internet search to pair riders and drivers. These searches do not use a Google algorithm, and would not work if their customers’ information was “being concentrated in one company.” Netflix, Hulu, and Spotify searches do not use Google. Nor do dating sites, which compete with each other based on proprietary search algorithms, as do many other popular search-based Internet services.

The relevant market fallacy also applies to allegations of anti-conservative bias against Google. If Google acquires even the reputation of serving unreliable search results, consumers can turn to competing options by simply typing a web address into their browser. And the relevant competitive market, as noted above, is not limited to search engines. News aggregators, consumer review sites, and other relevant content sites are legion, and easy to find, even for relatively uninformed users.

I call this the dozen keystrokes argument, because that’s roughly how difficult it is to type in another website’s address.

It will be months before court dates are set in any of the Google antitrust suits. They are still in the process of deciding relevant market definitions for the purposes of the cases. As we’ve seen, plaintiffs often try to bias antitrust cases in their favor by suggesting unrealistically narrow market definitions. It is good that at least one judge is wise to this semantic trick.

Hawley Antitrust Plan Would Limit Innovation and Harm Consumers

This news release was originally posted at cei.org.

Senator Josh Hawley (R-MO) today touted a new proposal he calls a “trust busting plan” that calls for a new standard for antitrust intervention to replace the legal principle of consumer harm. While the plan is not accompanied by specific legislation, Competitive Enterprise Institute experts weighed in on the Senator’s proposal.

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

“Senator Hawley claims that allowing the tech industry to operate in a relatively free market ‘hasn’t been a success for the American consumer,’ but if there’s consumer harm to point to, why does he advocate for abandoning the consumer harm standard in U.S. antitrust law? Perhaps it’s because consumers have enjoyed consistent innovations in products and services from ‘big tech,’ especially while quarantining during the pandemic and often at no monetary cost to them.  Similarly, his claims that the industry, ‘hasn’t been a success…for the American economy,’ don’t ring true for so many Americans that are employed by or invested in these economic powerhouses, not to mention the millions of consumers who enjoy tech products.”

Senior Fellow Ryan Young said:

“One of the most problematic parts of Sen. Hawley’s antitrust plan is its proposed ban of mergers and acquisitions for companies larger than $100 billion in annual revenues. Startups need capital to compete in the big leagues. But financial regulations, especially in the post-Dodd-Frank era, make it difficult for smaller companies to hold IPOs or attract other forms of investment. So, they instead get their capital by being bought out by one of the big tech companies.

“The regulatory situation is so bad that many promising startups are founded with the explicit goal of selling out to a bigger company. If Sen. Hawley wants fewer acquisitions by big companies, he should focus on the root cause of bad financial regulations, rather than the feel-good populism of banning mergers and acquisitions.

“Then again, the feel-good populism is likely the point. Hawley’s proposal is unlikely to become law. For him, antitrust policy is just another culture war issue. He wants to fire up his base and provoke his opponents. In this sense, his antitrust proposal is no different than his similarly unserious proposals to ban infinite scrolling in social media apps and to have the federal government regulate political speech.”

For more information on CEI’s position on antitrust, please visit cei.org/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.

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.

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:

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:

A Big-Picture View of the Antitrust Debate

In this month’s issue of Reason magazine, I have a feature-length article on the bipartisan push to revive antitrust enforcement. If you don’t have the print edition, it is now online. Here is the introduction:

Mark Zuckerberg was having one of 2020’s worst Zoom meetings. It was July 29, and one of the most influential men in the world was sitting, pale and perspiring, in a sparse white room getting attacked by members of Congress from both parties. Rep. Matt Gaetz, a Florida Republican and close ally of President Donald Trump, was scolding the Facebook CEO about the “content moderators that you employ [who] are out there disadvantaging conservative content.”

But before Zuckerberg could offer much in the way of a response, he was attacked from the left, as Rhode Island Democrat Rep. David Cicilline castigated Zuckerberg for not taking down the same content. For Cicilline, “the problem is Facebook is profiting off and amplifying disinformation that harms others because it’s profitable.”

For good measure, Rep. Jim Sensenbrenner, a Wisconsin Republican, asked Zuckerberg why Facebook temporarily took down Donald Trump Jr.’s account over a post promoting hydroxychloroquine as a COVID-19 treatment. Zuckerberg pointed out that the incident happened on Twitter.

After discussing how conservatives’ and progressives’ ideological priors are warping the antitrust debate, I point to a better way: abolish antitrust regulation outright. Or at the very least, require proof of consumer harm before unleashing it.

Read the whole thing here. See also CEI’s dedicated antitrust site, antitrust.cei.org.

Tit-for-Tat Tariffs Don’t Work: Boeing and Airbus Show Why

A 16 year-long aerospace subsidies dispute between the United States and the European Union began another round this week. The U.S. claims that the EU’s Airbus subsidies are unfair. The EU argues that America’s Boeing subsidies are unfair. Both sides are right. But neither wants to admit that the other side has a point, too. The result has been tit-for-tat tariff increases and no subsidy reforms.

Today, the World Trade Organization (WTO) ruled that the EU may impose tariffs on up to $3.99 billion of American goods, because Boeing’s favorable tax treatment violates WTO rules.

This follows a 2019 decision allowing the U.S. to impose tariffs on up to $7.5 billion of EU goods due to the EU’s Airbus subsidies.

Boeing called today’s decision “irrelevant.” Last year, Washington state repealed the tax provision at the center of this decision. However, the larger sticking point in the dispute remains. Yes, this one tax break is gone, but Boeing still receives massive subsidies. That means the EU will not stop pressing the matter. Nor has the EU reformed Airbus’ special treatment. That means the U.S. won’t stop, either.

In addition to being ineffective, the tariffs are causing collateral damage to other industries that have nothing to do with the dispute, from French wines to American motorcycles. This deadweight loss matters at a time when the world economy is already hurting due to COVID-19.

The lesson both sides need to learn is, don’t copy other people’s mistakes. Instead, set a better example. Subsidized companies grow soft and lose their competitive edge. There is a reason why so much aerospace innovation these days, from space travel to supersonic flight, is happening outside of Boeing and Airbus’ subsidized comfort.

The right thing to do is for governments to stop subsidizing private businesses—even if the other side doesn’t. Set the right example. Boeing would likely do just fine without subsidies. They would certainly have far more incentive to improve their products and address their safety concerns than they do now.

And if Boeing can’t survive without subsidies, there is no shortage of entrepreneurs capable of unleashing engineering and manufacturing talent.

Either way, consumers and taxpayers win. Europe and Airbus can then either follow America’s positive example or be content with subsidized mediocrity. Realistically, they will very likely choose the subsidies. But we cannot let Europe’s mistakes be our own. The U.S. has been doing that for at least 16 years now, and we know it doesn’t work.

A modest starting point on the U.S. side would be closing the Export-Import Bank, which often devotes half of its business to securing below-market financing rates for Boeing’s customers, many of whom are state-owned. Boeing set record profits while Ex-Im was mothballed from 2014-2019, so we already know the company will do just fine without that multi-billion-dollar program.

For more on that idea, see my most recent Ex-Im paper.