What They’ve Said: Experts On FTC’s Competition & Consumer Protection Panels
This week, the Federal Trade Commission kicks off a series of hearings on competition in the 21st century economy with a look at the consumer welfare standard in antitrust. We’ve gathered the facts most critical to the conversation, as noted by the antitrust experts who will be on the panel discussions.
Key items to keep in mind:
—Misapplying antitrust could have a negative impact on competition, innovation, and the economy.
—Focusing solely on concentration ignores both the facts and the benefits of the tech industry.
—Expanding or changing antitrust would eventually harm consumers and risks politicization.
Misapplying antitrust could have a negative impact on competition, innovation, and the economy.
Timothy Muris, former FTC Chair, and Jonathan Nuechterlein, former FTC General Counsel: Antitrust could be misused to destroy the very competition it is meant to promote. “If ‘[t]hose who cannot remember the past are condemned to repeat it,’ the story of A&P should be remembered, now more than ever, as a cautionary tale of what can happen when antitrust is divorced from an economically rigorous focus on consumer welfare. The stakes are high; without that focus, antitrust can easily be misused to destroy the very competition it was meant to promote.”
Joshua Wright, former FTC Commissioner, and Geoffrey Manne, Executive Director of the International Center for Law and Economics: Tech critics hold a “dangerous” view that antitrust interventions will not hinder economic growth. “In the United States, two of the most significant characteristics of the ‘new’ antitrust approach have been a more intense focus on innovative companies in high-tech industries and a weakening of long standing concerns that erroneous antitrust interventions will hinder economic growth. But this focus is dangerous, and these concerns should not be dismissed so lightly.”
Daniel Crane, Law Professor at University of Michigan: The consumer welfare standard looks at evidence to prove availability of quality, variety, and innovation. “Some Neo-Brandeisians seem to think that the consumer welfare standard is narrowly focused on price effects and hence fails to take into account other important values such as quality, variety, and innovation. That is a misunderstanding. As the 2010 Horizontal Merger Guidelines make clear, generic principles of antitrust analysis are often expressed in price terms ‘[f]or simplicity of exposition,’ but all other factors affecting consumer welfare including ‘product quality, reduced product variety, reduced service, or diminished innovation’ should also be taken into effect. If current antitrust analysis is too focused on static efficiency, there is nothing within the frame of the consumer welfare standard that prevents pushing it in the direction of dynamic efficiency or some other aspect of consumer value.”
Gene Kimmelman, Consumer Protection Advocate and Public Knowledge President: It’s necessary to examine the “underlying economics” behind tech sector challenges, rather than simply calling for antitrust action. “And invariably we’re talking about areas where we want consumers to have more choices. We don’t want platforms to dictate our expression, our choices, our ability to speak, our ability to receive information and engage in commercial activities. But if size is the problem, but breaking them up could lead to some other combination that could be a similar problem, you have to look at it and say, is the better way to deal with this to prevent discrimination in that function? Should we prevent a Google favoring itself in search as opposed to saying it shouldn’t be allowed to have this much search? So these are just different policy tools that align with different goals that we would have and I would say fundamentally need to align with the underlying economics.”
Maureen Ohlhausen, FTC Commissioner: Antitrust enforcement should be grounded in economics. “Today, the case law in the United States generally reflects the contours of a broad, bipartisan consensus that antitrust should be used to protect consumers, and that our enforcement work should be well grounded in modern economic analysis. Despite some discrete criticism at the margins, that consensus remains alive and well, and it continues to govern much of the routine decision-making within the agency.”
Focusing solely on concentration ignores both the facts and the benefits of the tech industry.
Michael Mandel, Progressive Policy Institute: Labor share in the tech sector has increased, while gross margins have decreased, bucking a national trend and illustrating the sector’s non-monopolistic tendencies. “Based on new ‘digital economy’ data from a recent BEA working paper, we calculate that the labor share of the digital sector has risen since 2007, while gross margin of the digital sector has fallen over the same period. This result is consistent with strong competition in the digital product and labor markets.”
Timothy Muris, former FTC Chair, and Jonathan Nuechterlein, former FTC General Counsel: Modern criticisms of tech services grossly overstate market concentration. “There is no antitrust market for ‘commerce’ or even ‘e-commerce.’ There are instead numerous separate markets for particular goods and services.”
Carl Shapiro, former Obama DOJ Antitrust Attorney: Increases in concentration is merely a sign of increasing efficiency and “reflects the competitive process at work.” “But the bigger question is what do we make of the increases in concentration that we observe. There are two very different interpretations. One interpretation is that when a market gets more concentrated, that means it’s less competitive, so we have a problem. That is not a new view; it was a fairly popular view in the ’50s and ’60s. And many people seem to be taking that view without even realizing that there is a perfectly coherent alternative view. The alternative view attributes increases in concentration to growing economies of scale, which means that the larger companies tend to be more efficient than the smaller ones. In that situation, over time the larger companies will tend to edge out their smaller rivals. That is what happens naturally when firms compete and there are substantial scale economies. When you have scale economies and some firms are more efficient than others those firms are going to get bigger and take over and you could very well see increasing concentration. Plus, it’s well understood by industrial organization economists that many markets are naturally rather concentrated. So that’s the alternative explanation: at least some of the increasing concentration we are seeing reflects the competitive process at work.”
Geoffrey Manne, President of the International Center for Law & Economics: Today’s antitrust advocates are often “conflating size with market power, and market power with political power.” “If the underlying basis for antitrust enforcement is extended beyond economic welfare effects, how long can we expect to resist calls to restrain enforcement precisely to further those goals? All of a sudden the effort and ability to get exemptions will be massively increased as the persuasiveness of the claimed justifications for those exemptions, which already encompass non-economic goals, will be greatly enhanced. We might even find, again, that we end up with even more concentration because the exceptions could subsume the rules. All of which of course highlights the fundamental, underlying problem: If you make antitrust more political, you’ll get less democratic, more politically determined, results—precisely the opposite of what proponents claim to want.”
Jim Pethokoukis, Policy Analyst at American Enterprise Institute: Leading tech services don’t act like monopolies, instead investing large amounts in R&D. “Now when you look at these companies in terms of their market share and the scale that they have you are looking at big organizations; hence the temptation to say those companies are monopolies. But when you look at what those companies do it seems very different from what the old school textbook monopolist would do. These companies spend a ton of money in R&D; maybe not all of them spend as much but there is a sense in which companies like Google or Facebook spend a ton of dollars in R&D. These companies provide goods that are nominally free even though we know we pay to some extent in terms of the data we are transferring to these companies. But at any rate, we get quite a good deal, at least if you look at the consumer behavior we observe in spite of the scandals. These companies also introduce products all the time, which is not what a monopolist would do. They increase their output all the time and their costs as well are increasing.”
Expanding or changing antitrust would eventually harm consumers.
Timothy Muris, former FTC Chair, and Jonathan Nuechterlein, former FTC General Counsel: The antitrust doctrine “does not need an overhaul.” The doctrine is “well-calibrated to serve its central function: promoting consumer welfare. It does so not only by prohibiting conduct that harms consumers in the long run, but also by avoiding interference with conduct that might appear problematic to non-economists but that demonstrably benefits consumers over time. The advocates of doctrinal overhaul cannot show that consumers would benefit if we ripped up the current antitrust rulebook and replaced it with a more impressionistic ‘big is bad’ doctrine.”
James Cooper, Deputy Director for Economic Analysis in the Bureau of Consumer Protection at the FTC: Arguments for ignoring the structure of multi-sided markets “would untether antitrust law from rigorous economic analysis and harm consumers by increasing significantly the risk of error in lower courts.” “Acquiescing to Petitioners’ vague conception of a plaintiff’s prima facie burden would untether antitrust law from rigorous economic analysis and harm consumers by increasing significantly the risk of error in lower courts. This would leave litigants with little to no certainty regarding what evidence they should introduce, let alone what evidence a court would find persuasive in any given case, and no clarity as to what businesses can and cannot do.”
Maureen Ohlhausen, FTC Commissioner: Adopting a new antitrust approach that disregards consumer benefits in pursuit of other “perhaps even conflicting goals” is concerning. “Given the clear consumer benefits of technology-driven innovation, I am concerned about the push to adopt an approach that will disregard consumer benefits in the pursuit of other perhaps even conflicting goals. But believing that consumer welfare is the appropriate goal of antitrust does not mean being passive or embracing the view that antitrust in the pursuit of consumer welfare cannot be improved. Antitrust law has changed as our understanding of market dynamics has gotten more sophisticated, and it should continue to evolve as we refine our predictive tools. If those tools suggest that competition will be harmed and consumers made worse off from the behavior of any firm, even a platform, antitrust enforcers should act.”