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The populists are on the march, and as the 2018 campaign season gets rolling we’re witnessing more examples of political opportunism bolstered by economic illiteracy aimed at increasingly unpopular big tech firms.

The latest example comes in the form of a new investigation of Google opened by Missouri’s Attorney General, Josh Hawley. Mr. Hawley — a Republican who, not coincidentally, is running for Senate in 2018alleges various consumer protection violations and unfair competition practices.

But while Hawley’s investigation may jump start his campaign and help a few vocal Google rivals intent on mobilizing the machinery of the state against the company, it is unlikely to enhance consumer welfare — in Missouri or anywhere else.  

According to the press release issued by the AG’s office:

[T]he investigation will seek to determine if Google has violated the Missouri Merchandising Practices Act—Missouri’s principal consumer-protection statute—and Missouri’s antitrust laws.  

The business practices in question are Google’s collection, use, and disclosure of information about Google users and their online activities; Google’s alleged misappropriation of online content from the websites of its competitors; and Google’s alleged manipulation of search results to preference websites owned by Google and to demote websites that compete with Google.

Mr. Hawley’s justification for his investigation is a flourish of populist rhetoric:

We should not just accept the word of these corporate giants that they have our best interests at heart. We need to make sure that they are actually following the law, we need to make sure that consumers are protected, and we need to hold them accountable.

But Hawley’s “strong” concern is based on tired retreads of the same faulty arguments that Google’s competitors (Yelp chief among them), have been plying for the better part of a decade. In fact, all of his apparent grievances against Google were exhaustively scrutinized by the FTC and ultimately rejected or settled in separate federal investigations in 2012 and 2013.

The antitrust issues

To begin with, AG Hawley references the EU antitrust investigation as evidence that

this is not the first-time Google’s business practices have come into question. In June, the European Union issued Google a record $2.7 billion antitrust fine.

True enough — and yet, misleadingly incomplete. Missing from Hawley’s recitation of Google’s antitrust rap sheet are the following investigations, which were closed without any finding of liability related to Google Search, Android, Google’s advertising practices, etc.:

  • United States FTC, 2013. The FTC found no basis to pursue a case after a two-year investigation: “Challenging Google’s product design decisions in this case would require the Commission — or a court — to second-guess a firm’s product design decisions where plausible procompetitive justifications have been offered, and where those justifications are supported by ample evidence.” The investigation did result in a consent order regarding patent licensing unrelated in any way to search and a voluntary commitment by Google not to engage in certain search-advertising-related conduct.
  • South Korea FTC, 2013. The KFTC cleared Google after a two-year investigation. It opened a new investigation in 2016, but, as I have discussed, “[i]f anything, the economic conditions supporting [the KFTC’s 2013] conclusion have only gotten stronger since.”
  • Canada Competition Bureau, 2016. The CCB closed a three-year long investigation into Google’s search practices without taking any action.

Similar investigations have been closed without findings of liability (or simply lie fallow) in a handful of other countries (e.g., Taiwan and Brazil) and even several states (e.g., Ohio and Texas). In fact, of all the jurisdictions that have investigated Google, only the EU and Russia have actually assessed liability.

As Beth Wilkinson, outside counsel to the FTC during the Google antitrust investigation, noted upon closing the case:

Undoubtedly, Google took aggressive actions to gain advantage over rival search providers. However, the FTC’s mission is to protect competition, and not individual competitors. The evidence did not demonstrate that Google’s actions in this area stifled competition in violation of U.S. law.

The CCB was similarly unequivocal in its dismissal of the very same antitrust claims Missouri’s AG seems intent on pursuing against Google:

The Bureau sought evidence of the harm allegedly caused to market participants in Canada as a result of any alleged preferential treatment of Google’s services. The Bureau did not find adequate evidence to support the conclusion that this conduct has had an exclusionary effect on rivals, or that it has resulted in a substantial lessening or prevention of competition in a market.

Unfortunately, rather than follow the lead of these agencies, Missouri’s investigation appears to have more in common with Russia’s effort to prop up a favored competitor (Yandex) at the expense of consumer welfare.

The Yelp Claim

Take Mr. Hawley’s focus on “Google’s alleged misappropriation of online content from the websites of its competitors,” for example, which cleaves closely to what should become known henceforth as “The Yelp Claim.”

While the sordid history of Yelp’s regulatory crusade against Google is too long to canvas in its entirety here, the primary elements are these:

Once upon a time (in 2005), Google licensed Yelp’s content for inclusion in its local search results. In 2007 Yelp ended the deal. By 2010, and without a license from Yelp (asserting fair use), Google displayed small snippets of Yelp’s reviews that, if clicked on, led to Yelp’s site. Even though Yelp received more user traffic from those links as a result, Yelp complained, and Google removed Yelp snippets from its local results.

In its 2013 agreement with the FTC, Google guaranteed that Yelp could opt-out of having even snippets displayed in local search results by committing Google to:

make available a web-based notice form that provides website owners with the option to opt out from display on Google’s Covered Webpages of content from their website that has been crawled by Google. When a website owner exercises this option, Google will cease displaying crawled content from the domain name designated by the website owner….

The commitments also ensured that websites (like Yelp) that opt out would nevertheless remain in Google’s general index.

Ironically, Yelp now claims in a recent study that Google should show not only snippets of Yelp reviews, but even more of Yelp’s content. (For those interested, my colleagues and I have a paper explaining why the study’s claims are spurious).

The key bit here, of course, is that Google stopped pulling content from Yelp’s pages to use in its local search results, and that it implemented a simple mechanism for any other site wishing to opt out of the practice to do so.

It’s difficult to imagine why Missouri’s citizens might require more than this to redress alleged anticompetitive harms arising from the practice.

Perhaps AG Hawley thinks consumers would be better served by an opt-in mechanism? Of course, this is absurd, particularly if any of Missouri’s citizens — and their businesses — have websites. Most websites want at least some of their content to appear on Google’s search results pages as prominently as possible — see this and this, for example — and making this information more accessible to users is why Google exists.

To be sure, some websites may take issue with how much of their content Google features and where it places that content. But the easy opt out enables them to prevent Google from showing their content in a manner they disapprove of. Yelp is an outlier in this regard because it views Google as a direct competitor, especially to the extent it enables users to read some of Yelp’s reviews without visiting Yelp’s pages.

For Yelp and a few similarly situated companies the opt out suffices. But for almost everyone else the opt out is presumably rarely exercised, and any more-burdensome requirement would just impose unnecessary costs, harming instead of helping their websites.

The privacy issues

The Missouri investigation also applies to “Google’s collection, use, and disclosure of information about Google users and their online activities.” More pointedly, Hawley claims that “Google may be collecting more information from users than the company was telling consumers….”

Presumably this would come as news to the FTC, which, with a much larger staff and far greater expertise, currently has Google under a 20 year consent order (with some 15 years left to go) governing its privacy disclosures and information-sharing practices, thus ensuring that the agency engages in continual — and well-informed — oversight of precisely these issues.

The FTC’s consent order with Google (the result of an investigation into conduct involving Google’s short-lived Buzz social network, allegedly in violation of Google’s privacy policies), requires the company to:

  • “[N]ot misrepresent in any manner, expressly or by implication… the extent to which respondent maintains and protects the privacy and confidentiality of any [user] information…”;
  • “Obtain express affirmative consent from” users “prior to any new or additional sharing… of the Google user’s identified information with any third party” if doing so would in any way deviate from previously disclosed practices;
  • “[E]stablish and implement, and thereafter maintain, a comprehensive privacy program that is reasonably designed to [] address privacy risks related to the development and management of new and existing products and services for consumers, and (2) protect the privacy and confidentiality of [users’] information”; and
  • Along with a laundry list of other reporting requirements, “[submit] biennial assessments and reports [] from a qualified, objective, independent third-party professional…, approved by the [FTC] Associate Director for Enforcement, Bureau of Consumer Protection… in his or her sole discretion.”

What, beyond the incredibly broad scope of the FTC’s consent order, could the Missouri AG’s office possibly hope to obtain from an investigation?

Google is already expressly required to provide privacy reports to the FTC every two years. It must provide several of the items Hawley demands in his CID to the FTC; others are required to be made available to the FTC upon demand. What materials could the Missouri AG collect beyond those the FTC already receives, or has the authority to demand, under its consent order?

And what manpower and expertise could Hawley apply to those materials that would even begin to equal, let alone exceed, those of the FTC?

Lest anyone think the FTC is falling down on the job, a year after it issued that original consent order the Commission fined Google $22.5 million for violating the order in a questionable decision that was signed on to by all of the FTC’s Commissioners (both Republican and Democrat) — except the one who thought it didn’t go far enough.

That penalty is of undeniable import, not only for its amount (at the time it was the largest in FTC history) and for stemming from alleged problems completely unrelated to the issue underlying the initial action, but also because it was so easy to obtain. Having put Google under a 20-year consent order, the FTC need only prove (or threaten to prove) contempt of the consent order, rather than the specific elements of a new violation of the FTC Act, to bring the company to heel. The former is far easier to prove, and comes with the ability to impose (significant) damages.

So what’s really going on in Jefferson City?

While states are, of course, free to enforce their own consumer protection laws to protect their citizens, there is little to be gained — other than cold hard cash, perhaps — from pursuing cases that, at best, duplicate enforcement efforts already undertaken by the federal government (to say nothing of innumerable other jurisdictions).

To take just one relevant example, in 2013 — almost a year to the day following the court’s approval of the settlement in the FTC’s case alleging Google’s violation of the Buzz consent order — 37 states plus DC (not including Missouri) settled their own, follow-on litigation against Google on the same facts. Significantly, the terms of the settlement did not impose upon Google any obligation not already a part of the Buzz consent order or the subsequent FTC settlement — but it did require Google to fork over an additional $17 million.  

Not only is there little to be gained from yet another ill-conceived antitrust campaign, there is much to be lost. Such massive investigations require substantial resources to conduct, and the opportunity cost of doing so may mean real consumer issues go unaddressed. The Consumer Protection Section of the Missouri AG’s office says it receives some 100,000 consumer complaints a year. How many of those will have to be put on the back burner to accommodate an investigation like this one?

Even when not politically motivated, state enforcement of CPAs is not an unalloyed good. In fact, empirical studies of state consumer protection actions like the one contemplated by Mr. Hawley have shown that such actions tend toward overreach — good for lawyers, perhaps, but expensive for taxpayers and often detrimental to consumers. According to a recent study by economists James Cooper and Joanna Shepherd:

[I]n recent decades, this thoughtful balance [between protecting consumers and preventing the proliferation of lawsuits that harm both consumers and businesses] has yielded to damaging legislative and judicial overcorrections at the state level with a common theoretical mistake: the assumption that more CPA litigation automatically yields more consumer protection…. [C]ourts and legislatures gradually have abolished many of the procedural and remedial protections designed to cabin state CPAs to their original purpose: providing consumers with redress for actual harm in instances where tort and contract law may provide insufficient remedies. The result has been an explosion in consumer protection litigation, which serves no social function and for which consumers pay indirectly through higher prices and reduced innovation.

AG Hawley’s investigation seems almost tailored to duplicate the FTC’s extensive efforts — and to score political points. Or perhaps Mr. Hawley is just perturbed that Missouri missed out its share of the $17 million multistate settlement in 2013.

Which raises the spectre of a further problem with the Missouri case: “rent extraction.”

It’s no coincidence that Mr. Hawley’s investigation follows closely on the heels of Yelp’s recent letter to the FTC and every state AG (as well as four members of Congress and the EU’s chief competition enforcer, for good measure) alleging that Google had re-started scraping Yelp’s content, thus violating the terms of its voluntary commitments to the FTC.

It’s also no coincidence that Yelp “notified” Google of the problem only by lodging a complaint with every regulator who might listen rather than by actually notifying Google. But an action like the one Missouri is undertaking — not resolution of the issue — is almost certainly exactly what Yelp intended, and AG Hawley is playing right into Yelp’s hands.  

Google, for its part, strongly disputes Yelp’s allegation, and, indeed, has — even according to Yelp — complied fully with Yelp’s request to keep its content off Google Local and other “vertical” search pages since 18 months before Google entered into its commitments with the FTC. Google claims that the recent scraping was inadvertent, and that it would happily have rectified the problem if only Yelp had actually bothered to inform Google.

Indeed, Yelp’s allegations don’t really pass the smell test: That Google would suddenly change its practices now, in violation of its commitments to the FTC and at a time of extraordinarily heightened scrutiny by the media, politicians of all stripes, competitors like Yelp, the FTC, the EU, and a host of other antitrust or consumer protection authorities, strains belief.

But, again, identifying and resolving an actual commercial dispute was likely never the goal. As a recent, fawning New York Times article on “Yelp’s Six-Year Grudge Against Google” highlights (focusing in particular on Luther Lowe, now Yelp’s VP of Public Policy and the author of the letter):

Yelp elevated Mr. Lowe to the new position of director of government affairs, a job that more or less entails flying around the world trying to sic antitrust regulators on Google. Over the next few years, Yelp hired its first lobbyist and started a political action committee. Recently, it has started filing complaints in Brazil.

Missouri, in other words, may just be carrying Yelp’s water.

The one clear lesson of the decades-long Microsoft antitrust saga is that companies that struggle to compete in the market can profitably tax their rivals by instigating antitrust actions against them. As Milton Friedman admonished, decrying “the business community’s suicidal impulse” to invite regulation:

As a believer in the pursuit of self-interest in a competitive capitalist system, I can’t blame a businessman who goes to Washington [or is it Jefferson City?] and tries to get special privileges for his company.… Blame the rest of us for being so foolish as to let him get away with it.

Taking a tough line on Silicon Valley firms in the midst of today’s anti-tech-company populist resurgence may help with the electioneering in Mr. Hawley’s upcoming bid for a US Senate seat and serve Yelp, but it doesn’t offer any clear, actual benefits to Missourians. As I’ve wondered before: “Exactly when will regulators be a little more skeptical of competitors trying to game the antitrust laws for their own advantage?”

Unexpectedly, on the day that the white copy of the upcoming repeal of the 2015 Open Internet Order was published, a mobile operator in Portugal with about 7.5 million subscribers is garnering a lot of attention. Curiously, it’s not because Portugal is a beautiful country (Iker Casillas’ Instagram feed is dope) nor because Portuguese is a beautiful romance language.

Rather it’s because old-fashioned misinformation is being peddled to perpetuate doomsday images that Portuguese ISPs have carved the Internet into pieces — and if the repeal of the 2015 Open Internet Order passes, the same butchery is coming to an AT&T store near you.

Much ado about data

This tempest in the teacup is about mobile data plans, specifically the ability of mobile subscribers to supplement their data plan (typically ranging from 200 MB to 3 GB per month) with additional 10 GB data packages containing specific bundles of apps – messaging apps, social apps, video apps, music apps, and email and cloud apps. Each additional 10 GB data package costs EUR 6.99 per month and Meo (the mobile operator) also offers its own zero rated apps. Similar plans have been offered in Portugal since at least 2012.

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These data packages are a clear win for mobile subscribers, especially pre-paid subscribers who tend to be at a lower income level than post-paid subscribers. They allow consumers to customize their plan beyond their mobile broadband subscription, enabling them to consume data in ways that are better attuned to their preferences. Without access to these data packages, consuming an additional 10 GB of data would cost each user an additional EUR 26 per month and require her to enter into a two year contract.

These discounted data packages also facilitate product differentiation among mobile operators that offer a variety of plans. Keeping with the Portugal example, Vodafone Portugal offers 20 GB of additional data for certain apps (Facebook, Instagram, SnapChat, and Skype, among others) with the purchase of a 3 GB mobile data plan. Consumers can pick which operator offers the best plan for them.

In addition, data packages like the ones in question here tend to increase the overall consumption of content, reduce users’ cost of obtaining information, and allow for consumers to experiment with new, less familiar apps. In short, they are overwhelmingly pro-consumer.

Even if Portugal actually didn’t have net neutrality rules, this would be the furthest thing from the apocalypse critics make it out to be.

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Net Neutrality in Portugal

But, contrary to activists’ misinformation, Portugal does have net neutrality rules. The EU implemented its net neutrality framework in November 2015 as a regulation, meaning that the regulation became the law of the EU when it was enacted, and national governments, including Portugal, did not need to transpose it into national legislation.

While the regulation was automatically enacted in Portugal, the regulation and the 2016 EC guidelines left the decision of whether to allow sponsored data and zero rating plans (the Regulation likely classifies data packages at issue here to be zero rated plans because they give users a lot of data for a low price) in the hands of national regulators. While Portugal is still formulating the standard it will use to evaluate sponsored data and zero rating under the EU’s framework, there is little reason to think that this common practice would be disallowed in Portugal.

On average, in fact, despite its strong net neutrality regulation, the EU appears to be softening its stance toward zero rating. This was evident in a recent EC competition policy authority (DG-Comp) study concluding that there is little reason to believe that such data practices raise concerns.

The activists’ willful misunderstanding of clearly pro-consumer data plans and purposeful mischaracterization of Portugal as not having net neutrality rules are inflammatory and deceitful. Even more puzzling for activists (but great for consumers) is their position given there is nothing in the 2015 Open Internet Order that would prevent these types of data packages from being offered in the US so long as ISPs are transparent with consumers.

The FTC will hold an “Informational Injury Workshop” in December “to examine consumer injury in the context of privacy and data security.” Defining the scope of cognizable harm that may result from the unauthorized use or third-party hacking of consumer information is, to be sure, a crucial inquiry, particularly as ever-more information is stored digitally. But the Commission — rightly — is aiming at more than mere definition. As it notes, the ultimate objective of the workshop is to address questions like:

How do businesses evaluate the benefits, costs, and risks of collecting and using information in light of potential injuries? How do they make tradeoffs? How do they assess the risks of different kinds of data breach? What market and legal incentives do they face, and how do these incentives affect their decisions?

How do consumers perceive and evaluate the benefits, costs, and risks of sharing information in light of potential injuries? What obstacles do they face in conducting such an evaluation? How do they evaluate tradeoffs?

Understanding how businesses and consumers assess the risk and cost “when information about [consumers] is misused,” and how they conform their conduct to that risk, entails understanding not only the scope of the potential harm, but also the extent to which conduct affects the risk of harm. This, in turn, requires an understanding of the FTC’s approach to evaluating liability under Section 5 of the FTC Act.

The problem, as we discuss in comments submitted by the International Center for Law & Economics to the FTC for the workshop, is that the Commission’s current approach troublingly mixes the required separate analyses of risk and harm, with little elucidation of either.

The core of the problem arises from the Commission’s reliance on what it calls a “reasonableness” standard for its evaluation of data security. By its nature, a standard that assigns liability for only unreasonable conduct should incorporate concepts resembling those of a common law negligence analysis — e.g., establishing a standard of due care, determining causation, evaluating the costs of and benefits of conduct that would mitigate the risk of harm, etc. Unfortunately, the Commission’s approach to reasonableness diverges from the rigor of a negligence analysis. In fact, as it has developed, it operates more like a strict liability regime in which largely inscrutable prosecutorial discretion determines which conduct, which firms, and which outcomes will give rise to liability.

Most troublingly, coupled with the Commission’s untenably lax (read: virtually nonexistent) evidentiary standards, the extremely liberal notion of causation embodied in its “reasonableness” approach means that the mere storage of personal information, even absent any data breach, could amount to an unfair practice under the Act — clearly not a “reasonable” result.

The notion that a breach itself can constitute injury will, we hope, be taken up during the workshop. But even if injury is limited to a particular type of breach — say, one in which sensitive, personal information is exposed to a wide swath of people — unless the Commission’s definition of what it means for conduct to be “likely to cause” harm is fixed, it will virtually always be the case that storage of personal information could conceivably lead to the kind of breach that constitutes injury. In other words, better defining the scope of injury does little to cabin the scope of the agency’s discretion when conduct creating any risk of that injury is actionable.

Our comments elaborate on these issues, as well as providing our thoughts on how the subjective nature of informational injuries can fit into Section 5, with a particular focus on the problem of assessing informational injury given evolving social context, and the need for appropriately assessing benefits in any cost-benefit analysis of conduct leading to informational injury.

ICLE’s full comments are available here.

The comments draw upon our article, When ‘Reasonable’ Isn’t: The FTC’s Standard-Less Data Security Standard, forthcoming in the Journal of Law, Economics and Policy.

In a recent post at the (appallingly misnamed) ProMarket blog (the blog of the Stigler Center at the University of Chicago Booth School of Business — George Stigler is rolling in his grave…), Marshall Steinbaum keeps alive the hipster-antitrust assertion that lax antitrust enforcement — this time in the labor market — is to blame for… well, most? all? of what’s wrong with “the labor market and the broader macroeconomic conditions” in the country.

In this entry, Steinbaum takes particular aim at the US enforcement agencies, which he claims do not consider monopsony power in merger review (and other antitrust enforcement actions) because their current consumer welfare framework somehow doesn’t recognize monopsony as a possible harm.

This will probably come as news to the agencies themselves, whose Horizontal Merger Guidelines devote an entire (albeit brief) section (section 12) to monopsony, noting that:

Mergers of competing buyers can enhance market power on the buying side of the market, just as mergers of competing sellers can enhance market power on the selling side of the market. Buyer market power is sometimes called “monopsony power.”

* * *

Market power on the buying side of the market is not a significant concern if suppliers have numerous attractive outlets for their goods or services. However, when that is not the case, the Agencies may conclude that the merger of competing buyers is likely to lessen competition in a manner harmful to sellers.

Steinbaum fails to mention the HMGs, but he does point to a US submission to the OECD to make his point. In that document, the agencies state that

The U.S. Federal Trade Commission (“FTC”) and the Antitrust Division of the Department of Justice (“DOJ”) [] do not consider employment or other non-competition factors in their antitrust analysis. The antitrust agencies have learned that, while such considerations “may be appropriate policy objectives and worthy goals overall… integrating their consideration into a competition analysis… can lead to poor outcomes to the detriment of both businesses and consumers.” Instead, the antitrust agencies focus on ensuring robust competition that benefits consumers and leave other policies such as employment to other parts of government that may be specifically charged with or better placed to consider such objectives.

Steinbaum, of course, cites only the first sentence. And he uses it as a launching-off point to attack the notion that antitrust is an improper tool for labor market regulation. But if he had just read a little bit further in the (very short) document he cites, Steinbaum might have discovered that the US antitrust agencies have, in fact, challenged the exercise of collusive monopsony power in labor markets. As footnote 19 of the OECD submission notes:

Although employment is not a relevant policy goal in antitrust analysis, anticompetitive conduct affecting terms of employment can violate the Sherman Act. See, e.g., DOJ settlement with eBay Inc. that prevents the company from entering into or maintaining agreements with other companies that restrain employee recruiting or hiring; FTC settlement with ski equipment manufacturers settling charges that companies illegally agreed not to compete for one another’s ski endorsers or employees. (Emphasis added).

And, ironically, while asserting that labor market collusion doesn’t matter to the agencies, Steinbaum himself points to “the Justice Department’s 2010 lawsuit against Silicon Valley employers for colluding not to hire one another’s programmers.”

Steinbaum instead opts for a willful misreading of the first sentence of the OECD submission. But what the OECD document refers to, of course, are situations where two firms merge, no market power is created (either in input or output markets), but people are laid off because the merged firm does not need all of, say, the IT and human resources employees previously employed in the pre-merger world.

Does Steinbaum really think this is grounds for challenging the merger on antitrust grounds?

Actually, his post suggests that he does indeed think so, although he doesn’t come right out and say it. What he does say — as he must in order to bring antitrust enforcement to bear on the low- and unskilled labor markets (e.g., burger flippers; retail cashiers; Uber drivers) he purports to care most about — is that:

Employers can have that control [over employees, as opposed to independent contractors] without first establishing themselves as a monopoly—in fact, reclassification [of workers as independent contractors] is increasingly standard operating procedure in many industries, which means that treating it as a violation of Section 2 of the Sherman Act should not require that outright monopolization must first be shown. (Emphasis added).

Honestly, I don’t have any idea what he means. Somehow, because firms hire independent contractors where at one time long ago they might have hired employees… they engage in Sherman Act violations, even if they don’t have market power? Huh?

I get why he needs to try to make this move: As I intimated above, there is probably not a single firm in the world that hires low- or unskilled workers that has anything approaching monopsony power in those labor markets. Even Uber, the example he uses, has nothing like monopsony power, unless perhaps you define the market (completely improperly) as “drivers already working for Uber.” Even then Uber doesn’t have monopsony power: There can be no (or, at best, virtually no) markets in the world where an Uber driver has no other potential employment opportunities but working for Uber.

Moreover, how on earth is hiring independent contractors evidence of anticompetitive behavior? ”Reclassification” is not, in fact, “standard operating procedure.” It is the case that in many industries firms (unilaterally) often decide to contract out the hiring of low- and unskilled workers over whom they do not need to exercise direct oversight to specialized firms, thus not employing those workers directly. That isn’t “reclassification” of existing workers who have no choice but to accept their employer’s terms; it’s a long-term evolution of the economy toward specialization, enabled in part by technology.

And if we’re really concerned about what “employee” and “independent contractor” mean for workers and employment regulation, we should reconsider those outdated categories. Firms are faced with a binary choice: hire workers or independent contractors. Neither really fits many of today’s employment arrangements very well, but that’s the choice firms are given. That they sometimes choose “independent worker” over “employee” is hardly evidence of anticompetitive conduct meriting antitrust enforcement.

The point is: The notion that any of this is evidence of monopsony power, or that the antitrust enforcement agencies don’t care about monopsony power — because, Bork! — is absurd.

Even more absurd is the notion that the antitrust laws should be used to effect Steinbaum’s preferred market regulations — independent of proof of actual anticompetitive effect. I get that it’s hard to convince Congress to pass the precise laws you want all the time. But simply routing around Congress and using the antitrust statutes as a sort of meta-legislation to enact whatever happens to be Marshall Steinbaum’s preferred regulation du jour is ridiculous.

Which is a point the OECD submission made (again, if only Steinbaum had read beyond the first sentence…):

[T]wo difficulties with expanding the scope of antitrust analysis to include employment concerns warrant discussion. First, a full accounting of employment effects would require consideration of short-term effects, such as likely layoffs by the merged firm, but also long-term effects, which could include employment gains elsewhere in the industry or in the economy arising from efficiencies generated by the merger. Measuring these effects would [be extremely difficult.]. Second, unless a clear policy spelling out how the antitrust agency would assess the appropriate weight to give employment effects in relation to the proposed conduct or transaction’s procompetitive and anticompetitive effects could be developed, [such enforcement would be deeply problematic, and essentially arbitrary].

To be sure, the agencies don’t recognize enough that they already face the problem of reconciling multidimensional effects — e.g., short-, medium-, and long-term price effects, innovation effects, product quality effects, etc. But there is no reason to exacerbate the problem by asking them to also consider employment effects. Especially not in Steinbaum’s world in which certain employment effects are problematic even without evidence of market power or even actual anticompetitive harm, just because he says so.

Consider how this might play out:

Suppose that Pepsi, Coca-Cola, Dr. Pepper… and every other soft drink company in the world attempted to merge, creating a monopoly soft drink manufacturer. In what possible employment market would even this merger create a monopsony in which anticompetitive harm could be tied to the merger? In the market for “people who know soft drink secret formulas?” Yet Steinbaum would have the Sherman Act enforced against such a merger not because it might create a product market monopoly, but because the existence of a product market monopoly means the firm must be able to bad things in other markets, as well. For Steinbaum and all the other scolds who see concentration as the source of all evil, the dearth of evidence to support such a claim is no barrier (on which, see, e.g., this recent, content-less NYT article (that, naturally, quotes Steinbaum) on how “big business may be to blame” for the slowing rate of startups).

The point is, monopoly power in a product market does not necessarily have any relationship to monopsony power in the labor market. Simply asserting that it does — and lambasting the enforcement agencies for not just accepting that assertion — is farcical.

The real question, however, is what has happened to the University of Chicago that it continues to provide a platform for such nonsense?

My new book, How to Regulate: A Guide for Policymakers, will be published in a few weeks.  A while back, I promised a series of posts on the book’s key chapters.  I posted an overview of the book and a description of the book’s chapter on externalities.  I then got busy on another writing project (on horizontal shareholdings—more on that later) and dropped the ball.  Today, I resume my book summary with some thoughts from the book’s chapter on public goods.

With most goods, the owner can keep others from enjoying what she owns, and, if one person enjoys the good, no one else can do so.  Consider your coat or your morning cup of Starbucks.  You can prevent me from wearing your coat or drinking your coffee, and if you choose to let me wear the coat or drink the coffee, it’s not available to anyone else.

There are some amenities, though, that are “non-excludable,” meaning that the owner can’t prevent others from enjoying them, and “non-rivalrous,” meaning that one person’s consumption of them doesn’t prevent others from enjoying them as well.  National defense and local flood control systems (levees, etc.) are like this.  So are more mundane things like public art projects and fireworks displays.  Amenities that are both non-excludable and non-rivalrous are “public goods.”

[NOTE:  Amenities that are either non-excludable or non-rivalrous, but not both, are “quasi-public goods.”  Such goods include excludable but non-rivalrous “club goods” (e.g., satellite radio programming) and non-excludable but rivalrous “commons goods” (e.g., public fisheries).  The public goods chapter of How to Regulate addresses both types of quasi-public goods, but I won’t discuss them here.]

The primary concern with public goods is that they will be underproduced.  That’s because the producer, who must bear all the cost of producing the good, cannot exclude benefit recipients who do not contribute to the good’s production and thus cannot capture many of the benefits of his productive efforts.

Suppose, for example, that a levee would cost $5 million to construct and would create $10 million of benefit by protecting 500 homeowners from expected losses of $20,000 each (i.e., the levee would eliminate a 10% chance of a big flood that would cause each homeowner a $200,000 loss).  To maximize social welfare, the levee should be built.  But no single homeowner has an incentive to build the levee.  At least 250 homeowners would need to combine their resources to make the levee project worthwhile for participants (250 * $20,000 in individual benefit = $5 million), but most homeowners would prefer to hold out and see if their neighbors will finance the levee project without their help.  The upshot is that the levee never gets built, even though its construction is value-enhancing.

Economists have often jumped from the observation that public goods are susceptible to underproduction to the conclusion that the government should tax people and use the revenues to provide public goods.  Consider, for example, this passage from a law school textbook by several renowned economists:

It is apparent that public goods will not be adequately supplied by the private sector. The reason is plain: because people can’t be excluded from using public goods, they can’t be charged money for using them, so a private supplier can’t make money from providing them. … Because public goods are generally not adequately supplied by the private sector, they have to be supplied by the public sector.

[Howell E. Jackson, Louis Kaplow, Steven Shavell, W. Kip Viscusi, & David Cope, Analytical Methods for Lawyers 362-63 (2003) (emphasis added).]

That last claim seems demonstrably false.   Continue Reading…

Last week the editorial board of the Washington Post penned an excellent editorial responding to the European Commission’s announcement of its decision in its Google Shopping investigation. Here’s the key language from the editorial:

Whether the demise of any of [the complaining comparison shopping sites] is specifically traceable to Google, however, is not so clear. Also unclear is the aggregate harm from Google’s practices to consumers, as opposed to the unlucky companies. Birkenstock-seekers may well prefer to see a Google-generated list of vendors first, instead of clicking around to other sites…. Those who aren’t happy anyway have other options. Indeed, the rise of comparison shopping on giants such as Amazon and eBay makes concerns that Google might exercise untrammeled power over e-commerce seem, well, a bit dated…. Who knows? In a few years we might be talking about how Facebook leveraged its 2 billion users to disrupt the whole space.

That’s actually a pretty thorough, if succinct, summary of the basic problems with the Commission’s case (based on its PR and Factsheet, at least; it hasn’t released the full decision yet).

I’ll have more to say on the decision in due course, but for now I want to elaborate on two of the points raised by the WaPo editorial board, both in service of its crucial rejoinder to the Commission that “Also unclear is the aggregate harm from Google’s practices to consumers, as opposed to the unlucky companies.”

First, the WaPo editorial board points out that:

Birkenstock-seekers may well prefer to see a Google-generated list of vendors first, instead of clicking around to other sites.

It is undoubtedly true that users “may well prefer to see a Google-generated list of vendors first.” It’s also crucial to understanding the changes in Google’s search results page that have given rise to the current raft of complaints.

As I noted in a Wall Street Journal op-ed two years ago:

It’s a mistake to consider “general search” and “comparison shopping” or “product search” to be distinct markets.

From the moment it was technologically feasible to do so, Google has been adapting its traditional search results—that familiar but long since vanished page of 10 blue links—to offer more specialized answers to users’ queries. Product search, which is what is at issue in the EU complaint, is the next iteration in this trend.

Internet users today seek information from myriad sources: Informational sites (Wikipedia and the Internet Movie Database); review sites (Yelp and TripAdvisor); retail sites (Amazon and eBay); and social-media sites (Facebook and Twitter). What do these sites have in common? They prioritize certain types of data over others to improve the relevance of the information they provide.

“Prioritization” of Google’s own shopping results, however, is the core problem for the Commission:

Google has systematically given prominent placement to its own comparison shopping service: when a consumer enters a query into the Google search engine in relation to which Google’s comparison shopping service wants to show results, these are displayed at or near the top of the search results. (Emphasis in original).

But this sort of prioritization is the norm for all search, social media, e-commerce and similar platforms. And this shouldn’t be a surprise: The value of these platforms to the user is dependent upon their ability to sort the wheat from the chaff of the now immense amount of information coursing about the Web.

As my colleagues and I noted in a paper responding to a methodologically questionable report by Tim Wu and Yelp leveling analogous “search bias” charges in the context of local search results:

Google is a vertically integrated company that offers general search, but also a host of other products…. With its well-developed algorithm and wide range of products, it is hardly surprising that Google can provide not only direct answers to factual questions, but also a wide range of its own products and services that meet users’ needs. If consumers choose Google not randomly, but precisely because they seek to take advantage of the direct answers and other options that Google can provide, then removing the sort of “bias” alleged by [complainants] would affirmatively hurt, not help, these users. (Emphasis added).

And as Josh Wright noted in an earlier paper responding to yet another set of such “search bias” charges (in that case leveled in a similarly methodologically questionable report by Benjamin Edelman and Benjamin Lockwood):

[I]t is critical to recognize that bias alone is not evidence of competitive harm and it must be evaluated in the appropriate antitrust economic context of competition and consumers, rather individual competitors and websites. Edelman & Lockwood´s analysis provides a useful starting point for describing how search engines differ in their referrals to their own content. However, it is not useful from an antitrust policy perspective because it erroneously—and contrary to economic theory and evidence—presumes natural and procompetitive product differentiation in search rankings to be inherently harmful. (Emphasis added).

We’ll have to see what kind of analysis the Commission relies upon in its decision to reach its conclusion that prioritization is an antitrust problem, but there is reason to be skeptical that it will turn out to be compelling. The Commission states in its PR that:

The evidence shows that consumers click far more often on results that are more visible, i.e. the results appearing higher up in Google’s search results. Even on a desktop, the ten highest-ranking generic search results on page 1 together generally receive approximately 95% of all clicks on generic search results (with the top result receiving about 35% of all the clicks). The first result on page 2 of Google’s generic search results receives only about 1% of all clicks. This cannot just be explained by the fact that the first result is more relevant, because evidence also shows that moving the first result to the third rank leads to a reduction in the number of clicks by about 50%. The effects on mobile devices are even more pronounced given the much smaller screen size.

This means that by giving prominent placement only to its own comparison shopping service and by demoting competitors, Google has given its own comparison shopping service a significant advantage compared to rivals. (Emphasis added).

Whatever truth there is in the characterization that placement is more important than relevance in influencing user behavior, the evidence cited by the Commission to demonstrate that doesn’t seem applicable to what’s happening on Google’s search results page now.

Most crucially, the evidence offered by the Commission refers only to how placement affects clicks on “generic search results” and glosses over the fact that the “prominent placement” of Google’s “results” is not only a difference in position but also in the type of result offered.

Google Shopping results (like many of its other “vertical results” and direct answers) are very different than the 10 blue links of old. These “universal search” results are, for one thing, actual answers rather than merely links to other sites. They are also more visually rich and attractively and clearly displayed.

Ironically, Tim Wu and Yelp use the claim that users click less often on Google’s universal search results to support their contention that increased relevance doesn’t explain Google’s prioritization of its own content. Yet, as we note in our response to their study:

[I]f a consumer is using a search engine in order to find a direct answer to a query rather than a link to another site to answer it, click-through would actually represent a decrease in consumer welfare, not an increase.

In fact, the study fails to incorporate this dynamic even though it is precisely what the authors claim the study is measuring.

Further, as the WaPo editorial intimates, these universal search results (including Google Shopping results) are quite plausibly more valuable to users. As even Tim Wu and Yelp note:

No one truly disagrees that universal search, in concept, can be an important innovation that can serve consumers.

Google sees it exactly this way, of course. Here’s Tim Wu and Yelp again:

According to Google, a principal difference between the earlier cases and its current conduct is that universal search represents a pro-competitive, user-serving innovation. By deploying universal search, Google argues, it has made search better. As Eric Schmidt argues, “if we know the answer it is better for us to answer that question so [the user] doesn’t have to click anywhere, and in that sense we… use data sources that are our own because we can’t engineer it any other way.”

Of course, in this case, one would expect fewer clicks to correlate with higher value to users — precisely the opposite of the claim made by Tim Wu and Yelp, which is the surest sign that their study is faulty.

But the Commission, at least according to the evidence cited in its PR, doesn’t even seem to measure the relative value of the very different presentations of information at all, instead resting on assertions rooted in the irrelevant difference in user propensity to click on generic (10 blue links) search results depending on placement.

Add to this Pinar Akman’s important point that Google Shopping “results” aren’t necessarily search results at all, but paid advertising:

[O]nce one appreciates the fact that Google’s shopping results are simply ads for products and Google treats all ads with the same ad-relevant algorithm and all organic results with the same organic-relevant algorithm, the Commission’s order becomes impossible to comprehend. Is the Commission imposing on Google a duty to treat non-sponsored results in the same way that it treats sponsored results? If so, does this not provide an unfair advantage to comparison shopping sites over, for example, Google’s advertising partners as well as over Amazon, eBay, various retailers, etc…?

Randy Picker also picks up on this point:

But those Google shopping boxes are ads, Picker told me. “I can’t imagine what they’re thinking,” he said. “Google is in the advertising business. That’s how it makes its money. It has no obligation to put other people’s ads on its website.”

The bottom line here is that the WaPo editorial board does a better job characterizing the actual, relevant market dynamics in a single sentence than the Commission seems to have done in its lengthy releases summarizing its decision following seven full years of investigation.

The second point made by the WaPo editorial board to which I want to draw attention is equally important:

Those who aren’t happy anyway have other options. Indeed, the rise of comparison shopping on giants such as Amazon and eBay makes concerns that Google might exercise untrammeled power over e-commerce seem, well, a bit dated…. Who knows? In a few years we might be talking about how Facebook leveraged its 2 billion users to disrupt the whole space.

The Commission dismisses this argument in its Factsheet:

The Commission Decision concerns the effect of Google’s practices on comparison shopping markets. These offer a different service to merchant platforms, such as Amazon and eBay. Comparison shopping services offer a tool for consumers to compare products and prices online and find deals from online retailers of all types. By contrast, they do not offer the possibility for products to be bought on their site, which is precisely the aim of merchant platforms. Google’s own commercial behaviour reflects these differences – merchant platforms are eligible to appear in Google Shopping whereas rival comparison shopping services are not.

But the reality is that “comparison shopping,” just like “general search,” is just one technology among many for serving information and ads to consumers online. Defining the relevant market or limiting the definition of competition in terms of the particular mechanism that Google (or Foundem, or Amazon, or Facebook…) happens to use doesn’t reflect the extent of substitutability between these different mechanisms.

Properly defined, the market in which Google competes online is not search, but something more like online “matchmaking” between advertisers, retailers and consumers. And this market is enormously competitive. The same goes for comparison shopping.

And the fact that Amazon and eBay “offer the possibility for products to be bought on their site” doesn’t take away from the fact that they also “offer a tool for consumers to compare products and prices online and find deals from online retailers of all types.” Not only do these sites contain enormous amounts of valuable (and well-presented) information about products, including product comparisons and consumer reviews, but they also actually offer comparisons among retailers. In fact, Fifty percent of the items sold through Amazon’s platform, for example, are sold by third-party retailers — the same sort of retailers that might also show up on a comparison shopping site.

More importantly, though, as the WaPo editorial rightly notes, “[t]hose who aren’t happy anyway have other options.” Google just isn’t the indispensable gateway to the Internet (and definitely not to shopping on the Internet) that the Commission seems to think.

Today over half of product searches in the US start on Amazon. The majority of web page referrals come from Facebook. Yelp’s most engaged users now access it via its app (which has seen more than 3x growth in the past five years). And a staggering 40 percent of mobile browsing on both Android and iOS now takes place inside the Facebook app.

Then there are “closed” platforms like the iTunes store and innumerable other apps that handle copious search traffic (including shopping-related traffic) but also don’t figure in the Commission’s analysis, apparently.

In fact, billions of users reach millions of companies every day through direct browser navigation, social media, apps, email links, review sites, blogs, and countless other means — all without once touching Google.com. So-called “dark social” interactions (email, text messages, and IMs) drive huge amounts of some of the most valuable traffic on the Internet, in fact.

All of this, in turn, has led to a competitive scramble to roll out completely new technologies to meet consumers’ informational (and merchants’ advertising) needs. The already-arriving swarm of VR, chatbots, digital assistants, smart-home devices, and more will offer even more interfaces besides Google through which consumers can reach their favorite online destinations.

The point is this: Google’s competitors complaining that the world is evolving around them don’t need to rely on Google. That they may choose to do so does not saddle Google with an obligation to ensure that they can always do so.

Antitrust laws — in Europe, no less than in the US — don’t require Google or any other firm to make life easier for competitors. That’s especially true when doing so would come at the cost of consumer-welfare-enhancing innovations. The Commission doesn’t seem to have grasped this fundamental point, however.

The WaPo editorial board gets it, though:

The immense size and power of all Internet giants are a legitimate focus for the antitrust authorities on both sides of the Atlantic. Brussels vs. Google, however, seems to be a case of punishment without crime.

On July 1, the minimum wage will spike in several cities and states across the country. Portland, Oregon’s minimum wage will rise by $1.50 to $11.25 an hour. Los Angeles will also hike its minimum wage by $1.50 to $12 an hour. Recent research shows that these hikes will make low wage workers poorer.

A study supported and funded in part by the Seattle city government, was released this week, along with an NBER paper evaluating Seattle’s minimum wage increase to $13 an hour. The papers find that the increase to $13 an hour had significant negative impacts on employment and led to lower incomes for minimum wage workers.

The study is the first study of a very high minimum wage for a city. During the study period, Seattle’s minimum wage increased from what had been the nation’s highest state minimum wage to an even higher level. It is also unique in its use of administrative data that has much more detail than is usually available to economics researchers.

Conclusions from the research focusing on Seattle’s increase to $13 an hour are clear: The policy harms those it was designed to help.

  • A loss of more than 5,000 jobs and a 9 percent reduction in hours worked by those who retained their jobs.
  • Low-wage workers lost an average of $125 per month. The minimum wage has always been a terrible way to reduce poverty. In 2015 and 2016, I presented analysis to the Oregon Legislature indicating that incomes would decline with a steep increase in the minimum wage. The Seattle study provides evidence backing up that forecast.
  • Minimum wage supporters point to research from the 1990s that made headlines with its claims that minimum wage increases had no impact on restaurant employment. The authors of the Seattle study were able to replicate the results of these papers by using their own data and imposing the same limitations that the earlier researchers had faced. The Seattle study shows that those earlier papers’ findings were likely driven by their approach and data limitations. This is a big deal, and a novel research approach that gives strength to the Seattle study’s results.

Some inside baseball.

The Seattle Minimum Wage Study was supported and funded in part by the Seattle city government. It’s rare that policy makers go through any effort to measure the effectiveness of their policies, so Seattle should get some points for transparency.

Or not so transparent: The mayor of Seattle commissioned another study, by an advocacy group at Berkeley whose previous work on the minimum wage is uniformly in favor of hiking the minimum wage (they testified before the Oregon Legislature to cheerlead the state’s minimum wage increase). It should come as no surprise that the Berkeley group released its report several days before the city’s “official” study came out.

You might think to yourself, “OK, that’s Seattle. Seattle is different.”

But, maybe Seattle is not that different. In fact, maybe the negative impacts of high minimum wages are universal, as seen in another study that came out this week, this time from Denmark.

In Denmark the minimum wage jumps up by 40 percent when a worker turns 18. The Danish researchers found that this steep increase was associated with employment dropping by one-third, as seen in the chart below from the paper.

3564_KREINER-Fig1

Let’s look at what’s going to happen in Oregon. The state’s employment department estimates that about 301,000 jobs will be affected by the rate increase. With employment of almost 1.8 million, that means one in six workers will be affected by the steep hikes going into effect on July 1. That’s a big piece of the work force. By way of comparison, in the past when the minimum wage would increase by five or ten cents a year, only about six percent of the workforce was affected.

This is going to disproportionately affect youth employment. As noted in my testimony to the legislature, unemployment for Oregonians age 16 to 19 is 8.5 percentage points higher than the national average. This was not always the case. In the early 1990s, Oregon’s youth had roughly the same rate of unemployment as the U.S. as a whole. Then, as Oregon’s minimum wage rose relative to the federal minimum wage, Oregon’s youth unemployment worsened. Just this week, Multnomah County made a desperate plea for businesses to hire more youth as summer interns.

It has been suggested Oregon youth have traded education for work experience—in essence, they have opted to stay in high school or enroll in higher education instead of entering the workforce. The figure below shows, however, that youth unemployment has increased for both those enrolled in school and those who are not enrolled in school. The figure debunks the notion that education and employment are substitutes. In fact, the large number of students seeking work demonstrates many youth want employment while they further their education.

OregonYouthUnemployment

None of these results should be surprising. Minimum wage research is more than a hundred years old. Aside from the “mans bites dog” research from the 1990s, economists were broadly in agreement that higher minimum wages would be associated with reduced employment, especially among youth. The research published this week is groundbreaking in its data and methodology. At the same time, the results are unsurprising to anyone with any understanding of economics or experience running a business.

Regardless of the merits and soundness (or lack thereof) of this week’s European Commission Decision in the Google Shopping case — one cannot assess this until we have the text of the decision — two comments really struck me during the press conference.

First, it was said that Google’s conduct had essentially reduced innovation. If I heard correctly, this is a formidable statement. In 2016, another official EU service published stats that described Alphabet as increasing its R&D by 22% and ranked it as the world’s 4th top R&D investor. Sure it can always be better. And sure this does not excuse everything. But still. The press conference language on incentives to innovate was a bit of an oversell, to say the least.

Second, the Commission views this decision as a “precedent” or as a “framework” that will inform the way dominant Internet platforms should display, intermediate and market their services and those of their competitors. This may fuel additional complaints by other vertical search rivals against (i) Google in relation to other product lines, but also against (ii) other large platform players.

Beyond this, the Commission’s approach raises a gazillion questions of law and economics. Pending the disclosure of the economic evidence in the published decision, let me share some thoughts on a few (arbitrarily) selected legal issues.

First, the Commission has drawn the lesson of the Microsoft remedy quagmire. The Commission refrains from using a trustee to ensure compliance with the decision. This had been a bone of contention in the 2007 Microsoft appeal. Readers will recall that the Commission had imposed on Microsoft to appoint a monitoring trustee, who was supposed to advise on possible infringements in the implementation of the decision. On appeal, the Court eventually held that the Commission was solely responsible for this, and could not delegate those powers. Sure, the Commission could “retai[n] its own external expert to provide advice when it investigates the implementation of the remedies.” But no more than that.

Second, we learn that the Commission is no longer in the business of software design. Recall the failed untying of WMP and Windows — Windows Naked sold only 11,787 copies, likely bought by tech bootleggers willing to acquire the first piece of software ever designed by antitrust officials — or the browser “Choice Screen” compliance saga which eventually culminated with a €561 million fine. Nothing of this can be found here. The Commission leaves remedial design to the abstract concept of “equal treatment”.[1] This, certainly, is a (relatively) commendable approach, and one that could inspire remedies in other unilateral conduct cases, in particular, exploitative conduct ones where pricing remedies are both costly, impractical, and consequentially inefficient.

On the other hand, readers will also not fail to see the corollary implication of “equal treatment”: search neutrality could actually cut both ways, and lead to a lawful degradation in consumer welfare if Google were ever to decide to abandon rich format displays for both its own shopping services and those of rivals.

Third, neither big data nor algorithmic design is directly vilified in the case (“The Commission Decision does not object to the design of Google’s generic search algorithms or to demotions as such, nor to the way that Google displays or organises its search results pages”). In fact, the Commission objects to the selective application of Google’s generic search algorithms to its own products. This is an interesting, and subtle, clarification given all the coverage that this topic has attracted in recent antitrust literature. We are in fact very close to a run of the mill claim of disguised market manipulation, not causally related to data or algorithmic technology.

Fourth, Google said it contemplated a possible appeal of the decision. Now, here’s a challenging question: can an antitrust defendant effectively exercise its right to judicial review of an administrative agency (and more generally its rights of defense), when it operates under the threat of antitrust sanctions in ongoing parallel cases investigated by the same agency (i.e., the antitrust inquiries related to Android and Ads)? This question cuts further than the Google Shopping case. Say firm A contemplates a merger with firm B in market X, while it is at the same time subject to antitrust investigations in market Z. And assume that X and Z are neither substitutes nor complements so there is little competitive relationship between both products. Can the Commission leverage ongoing antitrust investigations in market Z to extract merger concessions in market X? Perhaps more to the point, can the firm interact with the Commission as if the investigations are completely distinct, or does it have to play a more nuanced game and consider the ramifications of its interactions with the Commission in both markets?

Fifth, as to the odds of a possible appeal, I don’t believe that arguments on the economic evidence or legal theory of liability will ever be successful before the General Court of the EU. The law and doctrine in unilateral conduct cases are disturbingly — and almost irrationally — severe. As I have noted elsewhere, the bottom line in the EU case-law on unilateral conduct is to consider the genuine requirement of “harm to competition” as a rhetorical question, not an empirical one. In EU unilateral conduct law, exclusion of every and any firm is a per se concern, regardless of evidence of efficiency, entry or rivalry.

In turn, I tend to opine that Google has a stronger game from a procedural standpoint, having been left with (i) the expectation of a settlement (it played ball three times by making proposals); (ii) a corollary expectation of the absence of a fine (settlement discussions are not appropriate for cases that could end with fines); and (iii) a full seven long years of an investigatory cloud. We know from the past that EU judges like procedural issues, but like comparably less to debate the substance of the law in unilateral conduct cases. This case could thus be a test case in terms of setting boundaries on how freely the Commission can U-turn a case (the Commissioner said “take the case forward in a different way”).

Today I published an article in The Daily Signal bemoaning the European Commission’s June 27 decision to fine Google $2.7 billion for engaging in procompetitive, consumer welfare-enhancing conduct.  The article is reproduced below (internal hyperlinks omitted), in italics:

On June 27, the European Commission—Europe’s antitrust enforcer—fined Google over $2.7 billion for a supposed violation of European antitrust law that bestowed benefits, not harm, on consumers.

And that’s just for starters. The commission is vigorously pursuing other antitrust investigations of Google that could lead to the imposition of billions of dollars in additional fines by European bureaucrats.

The legal outlook for Google is cloudy at best. Although the commission’s decisions can be appealed to European courts, European Commission bureaucrats have a generally good track record in winning before those tribunals.

But the problem is even bigger than that.

Recently, questionable antitrust probes have grown like topsy around the world, many of them aimed at America’s most creative high-tech firms. Beneficial innovations have become legal nightmares—good for defense lawyers, but bad for free market competition and the health of the American economy.

What great crime did Google commit to merit the huge European Commission fine?

The commission claims that Google favored its own comparison shopping service over others in displaying Google search results.

Never mind that consumers apparently like the shopping-related service links they find on Google (after all, they keep using its search engine in droves), or can patronize any other search engine or specialized comparison shopping service that can be found with a few clicks of the mouse.

This is akin to saying that Kroger or Walmart harm competition when they give favorable shelf space displays to their house brands. That’s ridiculous.

Somehow, such “favoritism” does not prevent consumers from flocking to those successful chains, or patronizing their competitors if they so choose. It is the essence of vigorous free market rivalry.  

The commission’s theory of anticompetitive behavior doesn’t hold water, as I explained in an earlier article. The Federal Trade Commission investigated Google’s search engine practices several years ago and found no evidence that alleged Google search engine display bias harmed consumers.

To the contrary, as former FTC Commissioner (and leading antitrust expert) Josh Wright has pointed out, and as the FTC found:

Google likely benefited consumers by prominently displaying its vertical content on its search results page. The Commission reached this conclusion based upon, among other things, analyses of actual consumer behavior—so-called ‘click through’ data—which showed how consumers reacted to Google’s promotion of its vertical properties.

In short, Google’s search policies benefit consumers. Antitrust is properly concerned with challenging business practices that harm consumer welfare and the overall competitive process, not with propping up particular competitors.

Absent a showing of actual harm to consumers, government antitrust cops—whether in Europe, the U.S., or elsewhere—should butt out.

Unfortunately, the European Commission shows no sign of heeding this commonsense advice. The Europeans have also charged Google with antitrust violations—with multibillion-dollar fines in the offing—based on the company’s promotion of its Android mobile operating service and its AdSense advertising service.

(That’s not all—other European Commission Google inquiries are also pending.)

As in the shopping services case, these investigations appear to be woefully short on evidence of harm to competition and consumer welfare.

The bigger question raised by the Google matters is the ability of any highly successful individual competitor to efficiently promote and favor its own offerings—something that has long been understood by American enforcers to be part and parcel of free-market competition.

As law Professor Michael Carrier points outs, any changes the EU forces on Google’s business model “could eventually apply to any way that Amazon, Facebook or anyone else offers to search for products or services.”

This is troublesome. Successful American information-age companies have already run afoul of the commission’s regulatory cops.

Microsoft and Intel absorbed multibillion-dollar European Commission antitrust fines in recent years, based on other theories of competitive harm. Amazon, Facebook, and Apple, among others, have faced European probes of their competitive practices and “privacy policies”—the terms under which they use or share sensitive information from consumers.

Often, these probes have been supported by less successful rivals who would rather rely on government intervention than competition on the merits.

Of course, being large and innovative is not a legal shield. Market-leading companies merit being investigated for actions that are truly harmful. The law applies equally to everyone.

But antitrust probes of efficient practices that confer great benefits on consumers (think how much the Google search engine makes it easier and cheaper to buy desired products and services and obtain useful information), based merely on the theory that some rivals may lose business, do not advance the free market. They retard it.

Who loses when zealous bureaucrats target efficient business practices by large, highly successful firms, as in the case of the European Commission’s Google probes and related investigations? The general public.

“Platform firms” like Google and Amazon that bring together consumers and other businesses will invest less in improving their search engines and other consumer-friendly features, for fear of being accused of undermining less successful competitors.

As a result, the supply of beneficial innovations will slow, and consumers will be less well off.

What’s more, competition will weaken, as the incentive to innovate to compete effectively with market leaders will be reduced. Regulation and government favor will substitute for welfare-enhancing improvement in goods, services, and platform quality. Economic vitality will inevitably be reduced, to the public’s detriment.

Europe is not the only place where American market leaders face unwarranted antitrust challenges.

For example, Qualcomm and InterDigital, U.S. firms that are leaders in smartphone communications technologies that power mobile interconnections, have faced large antitrust fines for, in essence, “charging too much” for licenses to their patented technologies.

South Korea also claimed to impose a “global remedy” that imposed its artificially low royalty rates on all of Qualcomm’s licensing agreements around the world.

(All this is part and parcel of foreign government attacks on American intellectual property—patents, copyrights, trademarks, and trade secrets—that cost U.S. innovators hundreds of billions of dollars a year.)

 

A lack of basic procedural fairness in certain foreign antitrust proceedings has also bedeviled American companies, preventing them from being able to defend their conduct. Foreign antitrust has sometimes been perverted into a form of “industrial policy” that discriminates against American companies in favor of domestic businesses.

What can be done to confront these problems?

In 2016, the U.S. Chamber of Commerce convened a group of trade and antitrust experts to examine the problem. In March 2017, the chamber released a report by the experts describing the nature of the problem and making specific recommendations for U.S. government action to deal with it.

Specifically, the experts urged that a White House-led interagency task force be set up to develop a strategy for dealing with unwarranted antitrust attacks on American businesses—including both misapplication of legal rules and violations of due process.

The report also called for the U.S. government to work through existing international institutions and trade negotiations to promote a convergence toward sounder antitrust practices worldwide.

The Trump administration should take heed of the experts’ report and act decisively to combat harmful foreign antitrust distortions. Antitrust policy worldwide should focus on helping the competitive process work more efficiently, not on distorting it by shacking successful innovators.

One more point, not mentioned in the article, merits being stressed.  Although the United States Government cannot control a foreign sovereign’s application of its competition law, it can engage in rhetoric and public advocacy aimed at convincing that sovereign to apply its law in a manner that promotes consumer welfare, competition on the merits, and economic efficiency.  Regrettably, the Obama Administration, particularly in the latter part of its second term, did a miserable job in promoting a facts-based, empirical approach to antitrust enforcement, centered on hard facts, not on mere speculative theories of harm.  In particular, certain political appointees lent lip service or silent acquiescence to inappropriate antitrust attacks on the unilateral exercise of intellectual property rights.  In addition, those senior officials made statements that could have been interpreted as supportive of populist “big is bad” conceptions of antitrust that had been discredited decades ago – through sound scholarship, by U.S. enforcement policies, and in judicial decisions.  The Trump Administration will have an opportunity to correct those errors, and to restore U.S. policy leadership in support of sound, pro-free market antitrust principles.  Let us hope that it does so, and soon.

I’ll be participating in two excellent antitrust/consumer protection events next week in DC, both of which may be of interest to our readers:

5th Annual Public Policy Conference on the Law & Economics of Privacy and Data Security

hosted by the GMU Law & Economics Center’s Program on Economics & Privacy, in partnership with the Future of Privacy Forum, and the Journal of Law, Economics & Policy.

Conference Description:

Data flows are central to an increasingly large share of the economy. A wide array of products and business models—from the sharing economy and artificial intelligence to autonomous vehicles and embedded medical devices—rely on personal data. Consequently, privacy regulation leaves a large economic footprint. As with any regulatory enterprise, the key to sound data policy is striking a balance between competing interests and norms that leaves consumers better off; finding an approach that addresses privacy concerns, but also supports the benefits of technology is an increasingly complex challenge. Not only is technology continuously advancing, but individual attitudes, expectations, and participation vary greatly. New ideas and approaches to privacy must be identified and developed at the same pace and with the same focus as the technologies they address.

This year’s symposium will include panels on Unfairness under Section 5: Unpacking “Substantial Injury”, Conceptualizing the Benefits and Costs from Data Flows, and The Law and Economics of Data Security.

I will be presenting a draft paper, co-authored with Kristian Stout, on the FTC’s reasonableness standard in data security cases following the Commission decision in LabMD, entitled, When “Reasonable” Isn’t: The FTC’s Standard-less Data Security Standard.

Conference Details:

  • Thursday, June 8, 2017
  • 8:00 am to 3:40 pm
  • at George Mason University, Founders Hall (next door to the Law School)
    • 3351 Fairfax Drive, Arlington, VA 22201

Register here

View the full agenda here

 

The State of Antitrust Enforcement

hosted by the Federalist Society.

Panel Description:

Antitrust policy during much of the Obama Administration was a continuation of the Bush Administration’s minimal involvement in the market. However, at the end of President Obama’s term, there was a significant pivot to investigations and blocks of high profile mergers such as Halliburton-Baker Hughes, Comcast-Time Warner Cable, Staples-Office Depot, Sysco-US Foods, and Aetna-Humana and Anthem-Cigna. How will or should the new Administration analyze proposed mergers, including certain high profile deals like Walgreens-Rite Aid, AT&T-Time Warner, Inc., and DraftKings-FanDuel?

Join us for a lively luncheon panel discussion that will cover these topics and the anticipated future of antitrust enforcement.

Speakers:

  • Albert A. Foer, Founder and Senior Fellow, American Antitrust Institute
  • Profesor Geoffrey A. Manne, Executive Director, International Center for Law & Economics
  • Honorable Joshua D. Wright, Professor of Law, George Mason University School of Law
  • Moderator: Honorable Ronald A. Cass, Dean Emeritus, Boston University School of Law and President, Cass & Associates, PC

Panel Details:

  • Friday, June 09, 2017
  • 12:00 pm to 2:00 pm
  • at the National Press Club, MWL Conference Rooms
    • 529 14th Street, NW, Washington, DC 20045

Register here

Hope to see everyone at both events!