Category Archives: Law

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.

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:

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.

Report on the Digital Economy

George Mason University’s Global Antitrust Institute has released a 1,361-page Report on the Digital Economy.

EU’s Antitrust Charges against Amazon at Odds with Reality

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

The European Commission today announced it was charging Amazon with antitrust violations, accusing the retailer of using data from third-party sellers to benefit its own retail offerings.

CEI senior fellow Ryan Young said:

“Whether intentionally or not, the EU’s antitrust case against Amazon is trade protectionism by another name, at a time when the global economy cannot afford it.

“It also falls for the relevant market fallacy. This is using fancy terminology to say that Amazon dominates an unrealistically narrow market. In this case, the EU argues that Amazon dominates ‘marketplace services’ and ‘online platforms.’ Amazon is, in fact, a low-margin retailer. And it has a roughly 1 percent global market share. It sells things in a variety of ways, and people can buy them in a variety of ways—or not, as they choose.

“Amazon has made retail more competitive. Amazon’s third-party seller services give smaller businesses access to a global market they did not previously have. Traditional large retailers, such as Walmart and Target in the U.S., have expanded their online options to compete against Amazon. So have grocery stores—which is important in the age of COVID. It is difficult to make an argument that these developments have harmed consumers or producers.”

Read more:

On the Radio: The Google Antitrust Case

This Sunday, November 8, I’ll be on the Bob Zadek Show to talk about the Google antitrust case. I’ll be on for the whole hour, starting at 8:00 AM PT/11:00 ET.

Bob’s website is here. If audio is put online afterwards, I’ll post a link.

New CEI Paper: Antitrust Policy in Europe, Lessons for America

Today, CEI is releasing a new paper on antitrust policy in the European Union by Swiss competition commissioner Henrique Schneider. Europe’s approach to competition policy, as antitrust policy is known there, tends to be more active than in the United States. Schneider provides some useful lessons for policy makers in the U.S. as enforcement ramps up on this side of the Atlantic.

One lesson is a version of the relevant market fallacy, the EU’s bizarre distinction between online and offline businesses. A second lesson is that reversing the burden of proof in court cases is a bad idea—which the EU does to many online businesses in competition cases. A third lesson is that antitrust policy can have protectionist effects, even if that is not the intention.

With a Google case already filed, a Facebook case likely on the way, and other companies such as Amazon and Apple also being investigated, Schneider’s description of European policy gives an example of what the U.S. should avoid.

Strangely, European antitrust policy treats companies differently based on whether or not their business model is online-based. Nearly every business is at some in-between point on the spectrum between being entirely online and entirely offline. More fundamentally, being online or offline does not change the nature of business transactions. People exchange value through buying and selling—and that’s it. Whether they are done in person or on a computer does not matter. Exchange is exchange.

Companies also move along the spectrum over time. Many traditional brick-and-mortar retailers are expanding their online presence, especially during the COVID-19 era. Amazon, on the other hand, is expanding its offline presence through its Whole Foods grocery stores and experiments with retail stores.

The real purpose of the EU’s online-offline distinction is likely not accuracy. It is to define a company’s market more narrowly. This makes it easier to find a monopoly. Left unsaid, of course, is that such a narrow monopoly does not cover the entire relevant market. This is another version of the relevant market fallacy.

That’s the first lesson. The second lesson concerns the burden of proof. For antitrust purposes, the EU’s online-offline distinction determines who bears the burden of proof. In most liberal countries, the accused are innocent until proven guilty. For digital businesses in EU competition cases, the burden is reversed. They are presumed guilty unless they can prove their innocence.

This is where antitrust policy unexpectedly intersects with trade policy. This is Schneider’s third lesson. Europe and the U.S. are already involved in a years-long trade spat, about which I’ve written here. The result so far has been tariffs added to more than $10 billion of goods from both sides. Schneider shows how, intentionally or not, antitrust enforcement can raise trade barriers without raising tariffs.

Most of the EU’s competition cases against digital companies have been against American companies such as Microsoft and Google. By fining companies, forcing product alterations, and other penalties, one effect of EU competition policy is to make EU-based technology firms relatively more competitive. In absolute terms, the market becomes less competitive. One company has been taken down, rather than another company building itself up. At best, this policy is misguided. At worst, it is a form of corporate welfare and trade protectionism.

As both Europe and the U.S. embark on a new era of more aggressive antitrust enforcement, officials on both sides should learn those three lessons about false distinctions and the relevant market fallacy, the burden of proof, and protectionist effects. Not only should the United States not be like Europe on antitrust matters, neither should Europe.

Schneider’s full paper is here. Wayne Crews’s and my paper on U.S. antitrust law is here. CEI’s dedicated antitrust website is antitrust.cei.org.

Not the Strongest Case: DOJ’s Google Antitrust Complaint

On Tuesday, the Department of Justice (DOJ) filed an antitrust complaint against Google. It marks the beginning of the first major monopolization case since the 1998-2002 Microsoft case. The filing’s timing and content are heavily politicized, and the quality of the complaint reflects this.

My colleague Jessica Melugin has a piece about the case in the Financial Times. Besides arguments about regulatory capture and the difficulty of sorting competitive from anticompetitive behavior, she points out an embarrassing shortcoming in the DOJ’s case:

It takes three steps to switch the default search on an iPhone from Google to another search engine. If, as is alleged, Google is acting as a gatekeeper to the internet, three clicks is not a very robust gate. 

Over at National Review’s Capital Matters site, I share some of my initial findings on the complaint. Their case does not look very rigorous:

Language matters. According to the complaint, Google doesn’t monopolize search, but rather “general search.” This phrasing allows the government to elide major portions of Google’s relevant market.

This is the relevant market fallacy. To strengthen their case, regulators often accuse a company of monopolizing a market far narrower than its actual relevant market.

In this case, the complaint even gives its own examples, on pages 9-10. 

Read Jessica’s Financial Times piece here. My National Review piece is here.

See also the recent CEI studies “The Case against Antitrust Law” and “Terrible Tech 2.0,” and CEI’s dedicated antitrust web site, antitrust.cei.org.

The House Judiciary’s Antitrust Reports and Predatory Pricing

It is human nature to fear what we do not understand. And if there is anything politicians do not understand, it is markets. This is clearly shown in the 449-page report issued this week by the House Judiciary Committee’s antitrust subcommittee, headed by Democratic Rep. David Cicilline, and its 19-page companion report from Republican Rep. Ken Buck.

The current state of affairs in Washington reflects what the Nobel economist Ronald Coase wrote in his 1972 paper “Industrial Organization: Proposal for Research,” before the revolution in law and economics scholarship became mainstream:

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.

In that spirit, the Democratic report advocates for breaking up the biggest tech companies, expanding antitrust laws with new legislation, banning most tech mergers, and flipping the burden of proof to presumption of guilt in many instances. The Republican report doesn’t go quite that far, but as is often the case in the Trump era, the difference between Republican and Democratic policies is pretty small.

This post will focus on predatory pricing. My colleagues and I will discuss other facets of antitrust policy elsewhere.

Predatory pricing involves selling products deliberately at a loss in order to force competitors out of the market. When the predator has the market to itself, it can then raise the price to unfair levels. Apple, Google, Facebook, and Amazon have all been accused of predatory pricing at some point.

Predatory pricing is already illegal. But the Supreme Court admitted in the 1986 Matsushita case that it has never been able to find an instance of it. After that, courts essentially gave up on their quest. The law in that area is now unenforced, on purpose.

The Democratic report seeks to bring it back by amending the Sherman Act to specifically ban predatory pricing. The Republican report shares the Democrats’ goal, but only recommends “a thoughtful plan,” which it does not specify, and “further committee hearings.”

There is a reason the Supreme Court has never found proof of predatory pricing. That reason is math. A predator has to lose money. The larger that predator’s market share, the more money it has to lose before driving competitors out. And as soon as the predator raises its prices, it also raises an opening for competitors to come back into the market.

It’s easy for many former competitors to reenter the market when the predator’s price goes back up. They already know what they’re doing, and have the infrastructure. And if the predator raises its prices super-high in order to make back its losses, the door opens to even more new competitors who take note of the predator’s unusually high profit margins.

In order for the predator to take back its monopoly, it will once again have to lose money, then raise prices to recoup the losses, which lets competitors back in. And on it goes in a potentially endless loop.

The counterargument goes that a company can sustain predatory prices forever if it subsidizes its losses with profits from elsewhere in the company. But this makes the company less competitive in those other markets. And taking resources away from a profitable product to subsidize a loss-making product is not exactly a profit-maximizing strategy.

So, despite progressives and populist conservative wishes, the Supreme Court’s Matsushita decision’s despair at the lack of predatory pricing is unlikely to change. That is, unless the definition of “predatory pricing” itself is changed via new legislation or what the Nobel economist Oliver Williamson called “creative lawyering” in the courts. That is what to look out for.

For more on antitrust policy, see Wayne Crews’s and my paper, and CEI’s dedicated antitrust site at antitrust.cei.org.

In the News: Antitrust Hearings

Young Voices’ Casey Givens quotes me on the antitrust hearings in an otherwise-excellent Washington Times op-ed:

Rep. Cicilline was perhaps the worst offender on the former point. As the Competitive Enterprise Institute’s Ryan Young points out, the congressman claimed that “Amazon controls 70 percent of ‘online marketplaces,’” when in fact that is, “equivalent to about 4 or 5 percent of retail sales.” The congressman also made some questionable claims about Google’s market share, conflating its search engine with all searches on the internet.

Read the whole thing here.