WTAS: Experts On Competition Ahead Of Senate Subcommittee Hearing On Antitrust
On October 3, the Senate Judiciary Committee’s Subcommittee on Antitrust, Competition Policy and Consumer Rights will hold its hearing on “Oversight of the Enforcement of the Antitrust Laws” with DOJ Antitrust Division Assistant Attorney General Makan Delrahim and FTC Chairman Joseph Simons. This hearing comes on the heels of new polling that indicates Republicans overwhelmingly disagree with calls to break up leading tech services.
As the Subcommittee reviews antitrust policy, the consumer welfare standard, and policy implementation, here are a few key facts to keep in mind:
1. The tech sector experiences robust competition.
2. The consumer welfare standard is driven by fact-based evidence and is apolitical.
3. The tech sector bucks economy-wide trends when it comes to labor share and gross margins, indicating non-monopolistic behavior.
The tech sector experiences robust competition.
Economist David Evans: Tech leaders compete across 27 different categories and face competition from disruptive innovation. “Online platforms face dynamic competition as a result of: disruptive innovation that provides opportunities for entry; competition from online platforms that have secured a toehold in one area but compete across multiple areas; the fragility of category leadership resulting from the fact that network effects are reversible and entry costs are low; and the prevalence of ad-supported models, which result in seemingly disparate firms competing for consumer attention and advertiser dollars.”
eMarketer research predicts leading tech services’ share of digital ads will fall as smaller rivals grow quickly, “seeking a larger share of the pie.” “In its latest forecast, research company eMarketer predicts the combined U.S. digital ad market share of Alphabet Inc.’s Google and Facebook will fall for the first time this year, shrinking to 56.8% from 58.5% last year. At the same time, overall digital ad spending in the country is likely to grow nearly 19% to $107 billion in 2018. To be sure, Google and Facebook are still increasing their total ad revenue significantly, and no other competitor even cracks 5% market share. But those smaller rivals are growing more quickly than expected and are seeking a larger share of the pie.”
Kleiner Perkins’ Mary Meeker‘s annual Internet Trends presentation stands in stark contrast tech critics’ arguments. “Robust R&D and industry investment, lower consumer prices, dynamic search and advertising markets, and competition from China undermine critics’ arguments for breaking up America’s leading tech services.”
Oliver Wyman finds venture investment in the tech sector is vibrant and leading tech services’ success does not, in fact, lead to the mythical “kill-zone” in startup investment. “The global venture-investing market has seen broadly uninterrupted growth in total deal value since the dot-com crisis. The market is at record levels, with about $150 billion of venture investment in 2017, compared to about $55 billion prior to the dot-com crisis. Growth has come from both technology and other sectors, with technology experiencing marginally higher growth in recent years.”
David Doty writes that the ad tech industry is doing just fine, with leading tech services actually attracting more competitors to the space. “In addition [to competitors like Adobe, Hulu, Roku, Salesforce, Snapchat, Viacom, Vox Media/Concert and many more], there is a burgeoning marketplace in smaller, niche offerings and a healthy startup environment, frequently led by executives who’ve left successful careers at larger digital advertising players. The list of startups would include Beeswax, BounceX, Celtra, Open Slate, Sprinklr, Yieldbot… and that’s just scraping the surface. One primary driver of the new entrants in ad tech is the ongoing revolution and ever-growing market in streaming video. Despite some of the bearish predictions, the ad tech industry is doing just fine. Odd as it may seem to some, the success of Google and Facebook has actually attracted many others to compete in ad tech.”
The consumer welfare standard is driven by evidence and is apolitical in nature.
Rep. Erik Paulsen (R-MN) noted that, in the U.S., one needs to prove consumer harm and evidence of harmful market dominance to levy fines, unlike in the European Commission. “In the latest example of targeting U.S. technology firms, the European Commission (EC) has accused Google of using its Android Operating System (OS) to prevent the use of other search engines. However, the EC has provided little evidence that Google has market dominance or consumers have been harmed by Google’s practices. Google’s record fine and a myriad of other hefty fines levied on U.S. tech companies suggest that the EC is attempting to curb U.S. participation in the EU market.”
Former FTC Commissioner Maureen Ohlhausen: 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.”
U.S. Chamber of Commerce’s Neil Bradley argues it is not the role of the DOJ Antitrust Division to address social issues. “Critics of U.S. antitrust law believe that antitrust enforcement should address issues as varied as income inequality to concentration of political power within industry. Congress is the best body to address these and other policy questions, not the Commission or the Antitrust Division of the Department of Justice. It is important to hold true to the traditional role of antitrust enforcement, as the Commission’s planned policy hearings will undoubtedly draw multiple perspectives. The Commission should question whether it would be best to address some of these views as a matter of antitrust enforcement. This is particularly true given the Department of Justice enforces the same antitrust standards, but does not appear to have a formal role in these Commission policy hearings.”
Sen. Mike Lee (R-UT) pointed out in a Judiciary Committee hearing that the consumer welfare standard provides certainty founded in evidence, not politics. “The consumer welfare standard ensures relatively consistent antitrust enforcement and provides certainty to businesses, which can then operate knowing the laws will not drastically change from one administration to the other depending on who’s in power and which political party to which they belong.”
David Balto notes that, in healthy markets, success attracts competition and that claims of monopoly power are unlikely to hold water. “The current advertising market is not one that is in strong need of regulatory intervention. While it would be unwise to not monitor these markets for so-called per se offenses (offenses, like collusion, that have no redeeming competitive value), larger antitrust claims of monopoly power are unlikely to hold water.”
The tech sector actually bucks economy-wide trends with respect to labor share and gross margins, indicating non-monopolistic behavior.
Economist Michael Mandel has found that labor share in the tech sector has increased, while gross margins have decreased, bucking a national trend. “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.”
Recode reports leaders in the tech industry held all top five spots for R&D spending last year. Tech companies claimed the top five spots in the U.S. for research and development spending again last year, investing a combined total of $76 billion. Chart:
Economist John Van Reenen writes tech critics’ conclusion that higher concentration has led to falling labor share of GDP “is premature.” “In recent years firm heterogeneity appears to have increased rather than narrowed. These increasing differences are most obvious in terms of size: sales concentration has mushroomed across most US industries, but it is also discernible in terms of wages and productivity. Increased concentration brings with it the concern of market power and indeed, some have argued that many of the economic ills we face today in terms of sluggish productivity and real wage growth are due to rising monopoly power. My view is that this conclusion is premature. Rising aggregate markups and concentration may also reflect changes in the nature of competition where superstar firms are rewarded with greater market share in “winner take most” markets. I have offered some evidence more in line with the nuanced superstar firm model than a general fall in competition due to anti-trust and regulation. But this is for sure not the final paper in this area, however, and there are substantial uncertainties.”