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[The following is a guest post by Thomas McCarthy on the Supreme Court’s recent Amex v. Italian Colors Restaurant decision. Tom is a partner at Wiley Rein, LLP and a George Mason Law grad. He is/was also counsel for, among others,

So he’s had a busy week….]

The Supreme Court’s recent opinion in American Express Co. v. Italian Colors Restaurant (June 20, 2013) (“Amex”) is a resounding victory for freedom-of-contract principles.  As it has done repeatedly in recent terms (see AT&T Mobility LLC v. Concepcion (2011); Marmet Health Care Center, Inc. v. Brown (2012)), the Supreme Court reaffirmed that the Federal Arbitration Act (FAA) makes arbitration “a matter of contract,” requiring courts to “rigorously enforce arbitration agreements according to their terms.”  Amex at 3.  In so doing, it rejected the theory that class procedures must remain available to claimants in order to ensure that they have sufficient financial incentive to prosecute federal statutory claims of relatively low value.  Consistent with the freedom-of-contract principles enshrined in the FAA, an arbitration agreement must be enforced—even if the manner in which the parties agreed to arbitrate leaves would-be claimants with low-value claims that are not worth pursuing.

In Amex, merchants who accept American Express cards filed a class action against Amex, asserting that Amex violated Section 1 of the Sherman Act by “us[ing] its monopoly power in the market for charge cards to force merchants to accept credit cards at rates approximately 30% higher than the fees for competing credit cards.”  Amex at 1-2.  And, of course, the merchants sought treble damages for the class under Section 4 of the Clayton Act.  Under the terms of their agreement with American Express, the merchants had agreed to resolve all disputes via individual arbitration, that is, without the availability of class procedures.  Consistent with that agreement, American Express moved to compel individual arbitration, but the merchants countered that the costs of expert analysis necessary to prove their antitrust claims would greatly exceed the maximum recovery for any individual plaintiff, thereby precluding them from effectively vindicating their federal statutory rights under the Sherman Act.  The Second Circuit sided with the merchants, holding that the prohibitive costs the merchants would face if they had to arbitrate on an individual basis rendered the class-action waiver in the arbitration agreement unenforceable.

In a 5-3 majority (per Justice Scalia), the Supreme Court reversed.  The Court began by highlighting the Federal Arbitration Act’s freedom-of-contract mandate—that “courts must rigorously enforce arbitration agreements according to their terms, including terms that specify with whom [the parties] choose to arbitrate their disputes, and the rules under which that arbitration will be conducted.”  Amex at 2-3 (internal quotations and citations omitted).  It emphasized that this mandate applies even to federal statutory claims, “unless the FAA’s mandate has been overridden by a contrary congressional command.”  Amex at 3 (internal quotations and citations omitted).  The Court then briefly explained that no contrary congressional command exists in either the federal antitrust laws or Rule 23 of the Federal Rules of Civil Procedure (which allows for class actions in certain circumstances).

Next, the Court turned to the merchants’ principal argument—that the arbitration agreement should not be enforced because enforcing it (including its class waiver provision) would preclude plaintiffs from effectively vindicating their federal statutory rights.  The Court noted that this “effective vindication” exception “originated as dictum” in prior cases and that the Court has only “asserted [its] existence” without ever having applied it in any particular case.  Amex at 6.  The Court added that this exception grew out of a desire to prevent a “prospec­tive waiver of a party’s right to pursue statutory reme­dies,” explaining that it “would certainly cover a provision in an arbitration agreement forbidding the assertion of certain statutory rights.”  The Court added that this exception might “perhaps cover filing and administrative fees attached to arbitration that are so high as to make access to the forum impracticable,” Amex at 6, but emphasized that, whatever the scope of this exception, the fact that the manner of arbitration the parties contracted for might make it “not worth the expense” to pursue a statutory remedy “does not constitute the elimination of the right to pursue that remedy.”  Amex at 7.

The Court closed by noting that its previous decision in AT&T Mobility v. Concepcion “all but resolves this case.”  Amex at 8.  In Concepcion, the Court had invalidated a state law “conditioning enforcement of arbitration on the availability of class procedures because that law ‘interfere[d] with fundamental attributes of arbitration.’”   As the Court explained, Concepcion specifically rejected the argument “that class arbitration was necessary to prosecute claims ‘that might otherwise slip through the legal system’” thus establishing “that the FAA’s command to enforce arbitration agreements trumps any interest in ensuring the prosecution of low value claims.”  Amex at 9 (quoting Concepcion).  The Court made clear that, under the FAA, courts are to hold parties to the deal they struck—arbitration pursuant to the terms of their arbitration agreements, even if that means that certain claims may go unprosecuted.  Responding to a dissent penned by Justice Kagan, who complained that the Court’s decision would lead to “[l]ess arbitration,” contrary to the pro-arbitration policies of the FAA, Amex dissent at 5, the Court doubled down on this point, emphasizing that the FAA “favor[s] the absence of litigation when that is the consequence of a class-action waiver, since its ‘principal purpose’ is the enforcement of arbitration agreements according to their terms.”  Amex at 9 n.5 (emphasis added).

By holding parties to the deal they struck regarding the resolution of their disputes, the Court properly vindicates the FAA’s freedom-of-contract mandates.  And even assuming the dissenters are correct that there will be less arbitration in individual instances, the opposite is true on a macro level.  For where there is certainty in contract enforcement, parties will enter into contracts.  Amex thus should promote arbitration by eliminating uncertainty in contracting and thereby removing a barrier to swift and efficient resolution of disputes.

By Geoffrey Manne & Berin Szoka

As Democrats insist that income taxes on the 1% must go up in the name of fairness, one Democratic Senator wants to make sure that the 1% of heaviest Internet users pay the same price as the rest of us. It’s ironic how confused social justice gets when the Internet’s involved.

Senator Ron Wyden is beloved by defenders of Internet freedom, most notably for blocking the Protect IP bill—sister to the more infamous SOPA—in the Senate. He’s widely celebrated as one of the most tech-savvy members of Congress. But his latest bill, the “Data Cap Integrity Act,” is a bizarre, reverse-Robin Hood form of price control for broadband. It should offend those who defend Internet freedom just as much as SOPA did.

Wyden worries that “data caps” will discourage Internet use and allow “Internet providers to extract monopoly rents,” quoting a New York Times editorial from July that stirred up a tempest in a teapot. But his fears are straw men, based on four false premises.

First, US ISPs aren’t “capping” anyone’s broadband; they’re experimenting with usage-based pricing—service tiers. If you want more than the basic tier, your usage isn’t capped: you can always pay more for more bandwidth. But few users will actually exceed that basic tier. For example, Comcast’s basic tier, 300 GB/month, is so generous that 98.5% of users will not exceed it. That’s enough for 130 hours of HD video each month (two full-length movies a day) or between 300 and 1000 hours of standard (compressed) video streaming. Continue Reading…

Free Uber

Josh Wright —  6 September 2012

From the NY Times:

Uber, a company based in San Francisco, is introducing a smartphone app to New York that allows available taxi drivers and cab-seeking riders to find one another. The company said the service would begin operating on Wednesday in 105 cabs — a bit less than 1 percent of the city’s more than 13,000 yellow cabs. Uber added that it hoped to recruit 100 new drivers each week.

But the program may have a significant problem: Taxi officials say that Uber’s service may not be legal since city rules do not allow for prearranged rides in yellow taxis. They also forbid cabbies from using electronic devices while driving and prohibit any unjustified refusal of fares. (Under Uber’s policy, once a driver accepts a ride through the app, no other passenger can be picked up.)

So, who else might be interested in fighting the rise of Uber and similar services?

The influx of apps appears to have created a moment of unity among yellow-taxi, livery and black-car operators, all of whom have raised concerns about the apps’ legality. Some industry officials said the commission was not acting forcefully enough; the result, said Avik Kabessa, the chief executive of Carmel Car and Limousine Service and a member of the board of the Livery Roundtable, a group representing livery drivers, is a New York City version of “the Wild West.”  An analysis conducted by the Metropolitan Taxicab Board of Trade, which represents yellow-taxi operators, identified what it deemed to be 11 potential violations of taxi guidelines in Uber’s model. These included charging a tip automatically, not allowing for cash payments and turning away passengers while being on duty.

Uber and similar services face similar threats in other cities, including here in DC, where Uber faced the “Uber Amendments” which would require Uber to charge five times the price of a cab!  At least the DC Commission was incredibly clear about the role of the regulation: to suppress competition and harm consumers:

Explanation and Rationale
· This section would clarify how sedan services operate.

· Sedans would be required to charge a minimum fare of 5 times the drop rate for taxicabs.

· Sedans would be required to charge time and distance rates that are greater as those for taxicabs.

· These requirements would ensure that sedan service is a premium class of service with a substantially higher cost that does not directly compete with or undercut taxicab service.

Here is Uber’s response to the DC Council:

The Council’s intention is to prevent Uber from being a viable alternative to taxis by enacting a price floor to set Uber’s minimum fare at today’s rates and no less than 5 times a taxi’s minimum fare. Consequently they are handicapping a reliable, high quality transportation alternative so that Uber cannot offer a high quality service at the best possible price. It was hard for us to believe that an elected body would choose to keep prices of a transportation service artificially high – but the goal is essentially to protect a taxi industry that has significantexperience in influencing local politicians. They want to make sure there is no viable alternative to a taxi in Washington DC, and so on Tuesday (tomorrow!), the DC City Council is going to formalize that principle into law.

There appears to be subsequent history, including a temporary shelving of the Amendment with the potential to bring it back on its own in the future.  Councilwoman and George Washington Law Prof Mary Cheh is a force behind the Uber Amendment and complained that a settlement could not be reached with Uber that would shed the requirement of having prices 5 times higher, but retain a price differential in the name of shielding taxi cabs from competition (emphasis my own):

Establishing a minimum fare is important to distinguish premium sedan service from traditional taxicab service and to prevent sedans from directly competing with or undercuting taxicabs.  Taxi companies want minimum fares that are much higher than what I am proposing in my amendment.  However, I believe that simply preserving the status quo is appropriate and reasonable.

I am deeply disappointed that Uber has decided that it no longer supports this amendment that we negotiated in good faith.  The taxi industry is one that has been regulated for a very long time.  If Uber wishes to operate taxis, then it is free to do so, but it should then be subject to the same regulations and requirements of taxis.

As I frequently point out on the blog, local barriers to entry cause substantially greater dissipation of consumer surplus than is conventionally acknowledged (e.g., here, here, and here).

HT: Hal Singer.

Our greatly lamented colleague Lary Ribstein was a movie buff. Some time ago he wrote an encyclopedic article on business in the movies, “Wall Street and Vine: Hollywood’s View of
Business.”  At the time of his death, he and I were in discussions about publishing this article in the journal I edit, Managerial and Decison Economics.  After his tragic death, I contacted his widow, Ann, and received permission to publish the article.  It is now published in the June issue of MDE.  (If your library does not subscribe to MDE, the article is still available on SSRN.)  Anyone with any interest in the movies and their perception of business must read this article. Given the volume of Larry’s scholarship, it is amazing that he had time to see as many movies as he discusses in this article.

Richard Epstein replies to Judge Posner’s Apple v. Motorola opinion and follow-up article in The Atlantic.

The anti-patent sentiment has just been fueled by a remarkable opinion by Judge Richard Posner, my long-time colleague at the University of Chicago, sitting as a trial judge in the major case, Apple v. Motorola. The high-profile case concerns five patents—four by Apple and one by Motorola—that are involved in mobile phone technology, and it has drawn more than its fair share of attention. Judge Posner took the extraordinary step of dismissing the claims of both sides with prejudice—meaning, the case cannot be filed again elsewhere—on the grounds that neither side could make good on its argument for either damages or injunctions.

Thus, when the dust settled, there was no reason at all to have a trial on whether either side had infringed the patents of the other. In a subsequent piece written for The Atlantic, grandly entitled “Why There are Too Many Patents in America,” Posner delivered a general critique of the patent system, discussing the broader issues involved in his judicial decision.

There is much of interest, as always, in Epstein’s column.  But the closing section on damages and injunctions is where the action is:

What is so striking about Posner’s relentless dissection of the imprecision in these claims was that he could apply it with equal conviction in any patent software dispute. The estimates of damages under the law are not confined to a single standard, but often involve an uncertain choice between reasonable royalties for licensing the patent and actual damages that were incurred because the patents were not licensed. The injunctive relief is (or at least should be) awarded precisely because it is so difficult to figure out what those damages really ought to be.

But Posner said that he would not allow an injunction if the best that the plaintiffs could garner was $1 in nominal damages. That surely seems over the top, because if there is infringement, the one number that is manifestly wrong is $1. A more sensible approach here, therefore, is to mix and marry the two remedies, so that the injunction does not pull the past product off the market, but awards some damages for past losses, while giving the infringer some period of time—say three to six months—to invent around the patent for future output. This then sets the stage for a negotiated license if that is cheaper.

By putting the remedial cart before the liability horse, we have the odd situation that no one can find out anything about the strength of the patent or the potential range of damages. If that is done on a common basis, then we will have knocked out the entire patent system for software, without having the slightest idea of the relative strength of the Apple and Motorola contentions.

The Posner decision looks doubly worrisome against the backdrop of his ominous Atlantic column, which shows his ill-concealed disdain for a complex industry with which he has had no direct engagement. It is an odd way to make patent policy. Right now, a similar Apple-Samsung dispute is before Judge Lucy Koh, which will involve a real trial. The Posner opinion is already on the fast track to appeal before the Federal Circuit, which will give us more information as to whether these submarine assaults on the patent system will take hold. Let us hope that Posner’s mysterious patent adventurism dies a quick and deserved death.

Do go read the whole thing.  For interested readers, here is Posner’s Atlantic column.

Food trucks must remain at least 200 feet away from restaurants under the new Chicago regulation (HT: Reason).  It also appears food trucks must carry a GPS that will allow detection of violations (parking within 200 feet of a restaurant — apparently, any restaurant) which carry a fine of up to $2,000.  Protection of restaurants is the obvious and apparently express rationale for the restraint imposed upon food trucks:

“We see no health or safety justification behind the 200-foot rule, and the city has never offered one,” says Kregor. “The only explanation for the rule is the restaurants’ demand for protectionism and the city government’s deference to those demands.”  That’s no exaggeration. Even supporters of the new regulations freely admit they’re designed to protect brick-and-mortar restaurants.  “We want food trucks to make money, but we don’t want to hurt brick-and-mortar restaurants,” says Alderman Walter Burnett.

Chicago’s Institute for Justice has more.

I continue to think, as I’ve mentioned here previously, the consumer welfare losses associated with local and city barriers to entry are greatly underestimated.

Here.

Apple has filed its response to the DOJ Complaint in the e-books case.  Here is the first paragraph of the Answer:

The Government’s Complaint against Apple is fundamentally flawed as a matter of fact and law. Apple has not “conspired” with anyone, was not aware of any alleged “conspiracy” by others, and never “fixed prices.” Apple individually negotiated bilateral agreements with book publishers that allowed it to enter and compete in a new market segment – eBooks. The iBookstore offered its customers a new outstanding, innovative eBook reading experience, an expansion of categories and titles of eBooks, and competitive prices.

And the last paragraph of the Answer’s introduction:

The Supreme Court has made clear that the antitrust laws are not a vehicle for Government intervention in the economy to impose its view of the “best” competitive outcome, or the “optimal” means of competition, but rather to address anticompetitive conduct. Apple’s entry into eBook distribution is classic procompetitive conduct, and for Apple to be subject to hindsight legal attack for a business strategy well-recognized as perfectly proper sends the wrong message to the market, and will discourage competitive entry and innovation and harm consumers.

A theme that runs throughout the Answer is that the “pre-Apple” world of e-books was characterized by little or no competition and that the agency agreements were necessary for its entry, which in turn has resulted in a dramatic increase in output.  The Answer is available here.  While commentary has focused primarily upon the important question of the competitive effects of the move to the agency model, including Geoff’s post here, my hunch is that if the case is litigated its legacy will be as an “agreement” case rather than what it contributes to rule of reason analysis.  In other words, if Apple gets to the rule of reason, the DOJ (like most plaintiffs in rule of reason cases) are likely to lose — especially in light of at least preliminary evidence of dramatic increases in output.  The critical question — I suspect — will be about proof of an actual naked price fixing agreement among publishers and Apple, and as a legal matter, what evidence is sufficient to establish that agreement for the purposes of Section 1 of the Sherman Act.  The Complaint sets forth the evidence the DOJ purports to have on this score.  But my hunch — and it is no more than that — is that this portion of the case will prove more important than any battle between economic experts on the relevant competitive effects.

Hating Capitalism

Paul H. Rubin —  13 May 2012

One topic that has long interested me is the source of dislike or hatred of capitalism; my Southern Economics Journal article “Folk Economics” (ungated version)  dealt in part with this topic. Today’s New York Times has an op-ed, “Capitalists and Other Psychopaths” by William Deresiewicz, who has taught English at Yale and Columbia, that both illustrates and explains this hatred.  What is interesting about this column is that it is entirely about the character and behavior of “the rich” including entrepreneurs.  The job creating function of business is briefly mentioned but most of the article focuses on “fraud, tax evasion, toxic dumping, product safety violations, bid rigging, overbilling, perjury.”

What is nowhere mentioned is anything to do with the goods and services produced by business.  This is a common attitude of critics of capitalism.  In many cases, capitalists may suffer the same personality defects as the rest of us.  And, as Mr. Deresiewicz points out, scientists, artists and scholars may also be hard working and smart.  But capitalism does not reward moral worth or hard work.  Capitalism rewards providing stuff  that other people are willing to pay for.  While is is easy to point out the stupidity of the critique (Mr. Deresiewicz has written and seems proud of his book, published by a capitalist publisher and available from various capitalist booksellers) that is not my point.  Rather, this column is interesting in that it is a pristine example of a totally irrelevant critique of capitalism, written by what is a smart person.  He does cite Adam Smith, but seems to misunderstand the basic functioning of markets.  Markets reward what one does, not what one is.

The pending wireless spectrum deal between Verizon Wireless and a group of cable companies (the SpectrumCo deal, for short) continues to attract opprobrium from self-proclaimed consumer advocates and policy scolds.  In the latest salvo, Public Knowledge’s Harold Feld (and other critics of the deal) aren’t happy that Verizon seems to be working to appease the regulators by selling off some of its spectrum in an effort to secure approval for its deal.  Critics are surely correct that appeasement is what’s going on here—but why this merits their derision is unclear.

For starters, whatever the objections to the “divestiture,” the net effect is that Verizon will hold less spectrum than it would under the original terms of the deal and its competitors will hold more.  That this is precisely what Public Knowledge and other critics claim to want couldn’t be more clear—and thus neither is the hypocrisy of their criticism.

Note that “divestiture” is Feld’s term, and I think it’s apt, although he uses it derisively.  His derision seems to stem from his belief that it is a travesty that such a move could dare be undertaken by a party acting on its own instead of under direct diktat from the FCC (with Public Knowledge advising, of course).  Such a view—that condemns the private transfer of spectrum into the very hands Public Knowledge would most like to see holding it for the sake of securing approval for a deal that simultaneously improves Verizon’s spectrum position because it is better for the public to suffer (by Public Knowledge’s own standard) than for Verizon to benefit—seems to betray the organization’s decidedly non-public-interested motives.

But Feld amasses some more specific criticisms.  Each falls flat.

For starters, Feld claims that the spectrum licenses Verizon proposes to sell off (Lower (A and B block) 700 MHz band licenses) would just end up in AT&T’s hands—and that doesn’t further the scolds’ preferred vision of Utopia in which smaller providers end up with the spectrum (apparently “small” now includes T-Mobile and Sprint, presumably because they are fair-weather allies in this fight).  And why will the spectrum inevitably end up in AT&T’s hands?  Writes Feld:

AT&T just has too many advantages to reasonably expect someone else to get the licenses. For starters, AT&T has deeper pockets and can get more financing on better terms. But even more importantly, AT&T has a network plan based on the Lower 700 MHz A &B Block licenses it acquired in auction 2008 (and from Qualcomm more recently). It has towers, contracts for handsets, and everything else that would let it plug in Verizon’s licenses. Other providers would need to incur these expenses over and above the cost of winning the auction in the first place.

Allow me to summarize:  AT&T will win the licenses because it can make the most efficient, effective and timely use of the spectrum.  The horror!

Feld has in one paragraph seemingly undermined his whole case.  If approval of the deal turns on its effect on the public interest, stifling the deal in an explicit (and Quixotic) effort to ensure that the spectrum ends up in the hands of providers less capable of deploying it would seem manifestly to harm, not help, consumers.

And don’t forget that, whatever his preferred vision of the world, the most immediate effect of stopping the SpectrumCo deal will be that all of the spectrum that would have been transferred to—and deployed by—Verizon in the deal will instead remain in the hands of the cable companies where it now sits idly, helping no one relieve the spectrum crunch.

But let’s unpack the claims further.  First, a few factual matters.  AT&T holds no 700 MHz block A spectrum.  It bought block B spectrum in the 2008 auction and acquired spectrum in blocks D and E from Qualcomm.

Second, the claim that this spectrum is essentially worthless, especially  to any carrier except AT&T, is betrayed by reality.  First, despite the claimed interference problems from TV broadcasters for A block spectrum, carriers are in fact deploying on the A block and have obtained devices to facilitate doing so effectively.

Meanwhile, Verizon had already announced in November of last year that it planned to transfer 12 MHz of A block spectrum in Chicago to Leap (note for those keeping score at home: Leap is notAT&T) in exchange for other spectrum around the country, and Cox recently announced that it is selling its own A and B block 700 MHz licenses (yes, eight B block licenses would go to AT&T, but four A block licenses would go to US Cellular).

Pretty clearly these A and B block 700 MHz licenses have value, and not just to AT&T.

Feld does actually realize that his preferred course of action is harmful.  According to Feld, even though the transfer would increase spectrum holdings by companies that aren’t AT&T or Verizon, the fact that it might also facilitate the SpectrumCo deal and thus increase Verizon’s spectrum holdings is reason enough to object.  For Feld and other critics of the deal the concern is over concentrationin spectrum holdings, and thus Verizon’s proposed divestiture is insufficient because the net effect of the deal, even with the divestiture, would be to increase Verizon’s spectrum holdings.  Feld writes:

Verizon takes a giant leap forward in its spectrum holding and overall spectrum efficiency, whereas the competitors improve only marginally in absolute terms. Yes, compared to their current level of spectrum constraint, it would improve the ability of competitors [to compete] . . . [b]ut in absolute terms . . . the difference is so marginal it is not helpful.

Verizon has already said that they have no plans (assuming they get the AWS spectrum) to actually use the Lower MHz 700 A & B licenses, so selling those off does not reduce Verizon’s lead in the spectrum gap. So if we care about the spectrum gap, we need to take into account that this divestiture still does not alleviate the overall problem of spectrum concentration, even if it does improve spectrum efficiency.

But Feld is using a fantasy denominator to establish his concentration ratio.  The divestiture only increases concentration when compared to a hypothetical world in which self-proclaimed protectors of the public interest get to distribute spectrum according to their idealized notions of a preferred market structure.  But the relevant baseline for assessing the divestiture, even on Feld’s own concentration-centric terms, is the distribution of licenses under the deal without the divestiture—against which the divestiture manifestly reduces concentration, even if only “marginally.”

Moreover, critics commit the same inappropriate fantasizing when criticizing the SpectrumCo deal itself.  Again, even if Feld’s imaginary world would be preferable to the post-deal world (more on which below), that imaginary world simply isn’t on the table.  What is on the table if the deal falls through is the status quo—that is, the world in which Verizon is stuck with spectrum it is willing to sell and foreclosed from access to spectrum it wants to buy; US Cellular, AT&T and other carriers are left without access to Verizon’s lower-block 700 MHz spectrum; and the cable companies are saddled with spectrum they won’t use.

Perhaps, compared to this world, the deal does increase concentration.  More importantly, compared to this world the deal increases spectrum deployment.  Significantly.  But never mind:  The benefits of actual and immediate deployment of spectrum can never match up in the scolds’ minds to the speculative and theoretical harms from increased concentration, especially when judged against a hypothetical world that does not and will not ever exist.

But what is most appalling about critics’ efforts to withhold valuable spectrum from consumers for the sake of avoiding increased concentration is the reality that increased concentration doesn’t actually cause any harm.

In fact, it is simply inappropriate to assess the likely competitive effects of this or any other transaction in this industry by assessing concentration based on spectrum holdings.  Of key importance here is the reality that spectrum alone—though essential to effective competitiveness—is not enough to amass customers, let alone confer market power.  In this regard it is well worth noting that the very spectrum holdings at issue in the SpectrumCo deal, although significant in size, produce precisely zero market share for their current owners.

Even the FCC recognizes the weakness of reliance upon market structure as an indicator of market competitiveness in its most recent Wireless Competition Report, where the agency notes that highly concentrated markets may nevertheless be intensely competitive.

And the DOJ, in assessing “Economic Issues in Broadband Competition,” has likewise concluded both that these markets are likely to be concentrated and that such concentration does not raisecompetitive concerns.  In large-scale networks “with differentiated products subject to large economies of scale (relative to the size of the market), the Department does not expect to see a large number of suppliers.”  Rather, the DOJ cautions against “striving for broadband markets that look like textbook markets of perfect competition, with many price-taking firms.  That market structure is unsuitable for the provision of broadband services.”

Although commonly trotted out as a conclusion in support of monopolization, the fact that a market may be concentrated is simply not a reliable indicator of anticompetitive effect, and naked reliance on such conclusions is inconsistent with modern understandings of markets and competition.

As it happens, there is detailed evidence in the Fifteenth Wireless Competition Report on actual competitive dynamics; market share analysis is unlikely to provide any additional insight.  And the available evidence suggests that the tide toward concentration has resulted in considerable benefits and certainly doesn’t warrant a presumption of harm in the absence of compelling evidence to the contrary specific to this license transfer.  Instead, there is considerable evidence of rapidly falling prices, quality expansion, capital investment, and a host of other characteristics inconsistent with a monopoly assumption that might otherwise be erroneously inferred from a structural analysis like that employed by Feld and other critics.

In fact, as economists Gerald Faulhaber, Robert Hahn & Hal Singer point out, a simple plotting of cellular prices against market concentration shows a strong inverse relationship inconsistent with an inference of monopoly power from market shares:

Today’s wireless market is an arguably concentrated but remarkably competitive market.  Concentration of resources in the hands of the largest wireless providers has not slowed the growth of the market; rather the central problem is one of spectrum scarcity.  According to the Fifteenth Report, “mobile broadband growth is likely to outpace the ability of technology and network improvements to keep up by an estimated factor of three, leading to a spectrum deficit that is likely to approach 300 megahertz within the next five years.”

Feld and his friends can fret about the phantom problem of concentration all they like—it doesn’t change the reality that the real problem is the lack of available spectrum to meet consumer demand.  It’s bad enough that they are doing whatever they can to stop the SpectrumCo deal itself which would ensure that spectrum moves from the cable companies, where it sits unused, to Verizon, where it would be speedily deployed.  But when they contort themselves to criticize even the re-allocation of spectrum under the so-called divestiture, which would directly address the very issue they hold so dear, it is clear that these “protectors of consumer rights” are not really protecting consumers at all.

[Cross-posted at Forbes]