Archives For United States House Committee on the Judiciary

Critics of big tech companies like Google and Amazon are increasingly focused on the supposed evils of “self-preferencing.” This refers to when digital platforms like Amazon Marketplace or Google Search, which connect competing services with potential customers or users, also offer (and sometimes prioritize) their own in-house products and services. 

The objection, raised by several members and witnesses during a Feb. 25 hearing of the House Judiciary Committee’s antitrust subcommittee, is that it is unfair to third parties that use those sites to allow the site’s owner special competitive advantages. Is it fair, for example, for Amazon to use the data it gathers from its service to design new products if third-party merchants can’t access the same data? This seemingly intuitive complaint was the basis for the European Commission’s landmark case against Google

But we cannot assume that something is bad for competition just because it is bad for certain competitors. A lot of unambiguously procompetitive behavior, like cutting prices, also tends to make life difficult for competitors. The same is true when a digital platform provides a service that is better than alternatives provided by the site’s third-party sellers. 

It’s probably true that Amazon’s access to customer search and purchase data can help it spot products it can undercut with its own versions, driving down prices. But that’s not unusual; most retailers do this, many to a much greater extent than Amazon. For example, you can buy AmazonBasics batteries for less than half the price of branded alternatives, and they’re pretty good.

There’s no doubt this is unpleasant for merchants that have to compete with these offerings. But it is also no different from having to compete with more efficient rivals who have lower costs or better insight into consumer demand. Copying products and seeking ways to offer them with better features or at a lower price, which critics of self-preferencing highlight as a particular concern, has always been a fundamental part of market competition—indeed, it is the primary way competition occurs in most markets. 

Store-branded versions of iPhone cables and Nespresso pods are certainly inconvenient for those companies, but they offer consumers cheaper alternatives. Where such copying may be problematic (say, by deterring investments in product innovations), the law awards and enforces patents and copyrights to reward novel discoveries and creative works, and trademarks to protect brand identity. But in the absence of those cases where a company has intellectual property, this is simply how competition works. 

The fundamental question is “what benefits consumers?” Services like Yelp object that they cannot compete with Google when Google embeds its Google Maps box in Google Search results, while Yelp cannot do the same. But for users, the Maps box adds valuable information to the results page, making it easier to get what they want. Google is not making Yelp worse by making its own product better. Should it have to refrain from offering services that benefit its users because doing so might make competing products comparatively less attractive?

Self-preferencing also enables platforms to promote their offerings in other markets, which is often how large tech companies compete with each other. Amazon has a photo-hosting app that competes with Google Photos and Apple’s iCloud. It recently emailed its customers to promote it. That is undoubtedly self-preferencing, since other services cannot market themselves to Amazon’s customers like this, but if it makes customers aware of an alternative they might not have otherwise considered, that is good for competition. 

This kind of behavior also allows companies to invest in offering services inexpensively, or for free, that they intend to monetize by preferencing their other, more profitable products. For example, Google invests in Android’s operating system and gives much of it away for free precisely because it can encourage Android customers to use the profitable Google Search service. Despite claims to the contrary, it is difficult to see this sort of cross-subsidy as harmful to consumers.

Self-preferencing can even be good for competing services, including third-party merchants. In many cases, it expands the size of their potential customer base. For example, blockbuster video games released by Sony and Microsoft increase demand for games by other publishers because they increase the total number of people who buy Playstations and Xboxes. This effect is clear on Amazon’s Marketplace, which has grown enormously for third-party merchants even as Amazon has increased the number of its own store-brand products on the site. By making the Amazon Marketplace more attractive, third-party sellers also benefit.

All platforms are open or closed to varying degrees. Retail “platforms,” for example, exist on a spectrum on which Craigslist is more open and neutral than eBay, which is more so than Amazon, which is itself relatively more so than, say, Walmart.com. Each position on this spectrum offers its own benefits and trade-offs for consumers. Indeed, some customers’ biggest complaint against Amazon is that it is too open, filled with third parties who leave fake reviews, offer counterfeit products, or have shoddy returns policies. Part of the role of the site is to try to correct those problems by making better rules, excluding certain sellers, or just by offering similar options directly. 

Regulators and legislators often act as if the more open and neutral, the better, but customers have repeatedly shown that they often prefer less open, less neutral options. And critics of self-preferencing frequently find themselves arguing against behavior that improves consumer outcomes, because it hurts competitors. But that is the nature of competition: what’s good for consumers is frequently bad for competitors. If we have to choose, it’s consumers who should always come first.

Congressman Buck’s “Third Way” report offers a compromise between the House Judiciary Committee’s majority report, which proposes sweeping new regulation of tech companies, and the status quo, which Buck argues is unfair and insufficient. But though Buck rejects many of the majority’s reports proposals, what he proposes instead would lead to virtually the same outcome via a slightly longer process. 

The most significant majority proposals that Buck rejects are the structural separation to prevent a company that runs a platform from operating on that platform “in competition with the firms dependent on its infrastructure”, and line-of-business restrictions that would confine tech companies to a small number of markets, to prevent them from preferencing their other products to the detriment of competitors.

Buck rules these out, saying that they are “regulatory in nature [and] invite unforeseen consequences and divert attention away from public interest antitrust enforcement by our antitrust agencies.” He goes on to say that “this proposal is a thinly veiled call to break up Big Tech firms.”

Instead, Buck endorses, either fully or provisionally, measures including revitalising the essential facilities doctrine, imposing data interoperability mandates on platforms, and changing antitrust law to prevent “monopoly leveraging and predatory pricing”. 

Put together, though, these would amount to the same thing that the Democratic majority report proposes: a world where platforms are basically just conduits, regulated to be neutral and open, and where the companies that run them require a regulator’s go-ahead for important decisions — a process that would be just as influenced lobbying and political considerations, and insulated from market price signals, as any other regulator’s decisions are.

Revitalizing the essential facilities doctrine

Buck describes proposals to “revitalize the essential facilities doctrine” as “common ground” that warrant further consideration. This would mean that platforms deemed to be “essential facilities” would be required to offer access to their platform to third parties at a “reasonable” price, except in exceptional circumstances. The presumption would be that these platforms were anticompetitively foreclosing third party developers and merchants by either denying them access to their platforms or by charging them “too high” prices. 

This would require the kind of regulatory oversight that Buck says he wants to avoid. He says that “conservatives should be wary of handing additional regulatory authority to agencies in an attempt to micromanage platforms’ access rules.” But there’s no way to avoid this when the “facility” — and hence its pricing and access rules — changes as frequently as any digital platform does. In practice, digital platforms would have to justify their pricing rules and decisions about exclusion of third parties to courts or a regulator as often as they make those decisions.

If Apple’s App Store were deemed an essential facility such that it is presumed to be foreclosing third party developers any time it rejected their submissions, it would have to submit to regulatory scrutiny of the “reasonableness” of its commercial decisions on, literally, a daily basis.

That would likely require price controls to prevent platforms from using pricing to de facto exclude third parties they did not want to deal with. Adjudication of “fair” pricing by courts is unlikely to be a sustainable solution. Justice Breyer, in Town of Concord v. Boston Edison Co., considered this to be outside the courts’ purview:

[H]ow is a judge or jury to determine a ‘fair price?’ Is it the price charged by other suppliers of the primary product? None exist. Is it the price that competition ‘would have set’ were the primary level not monopolized? How can the court determine this price without examining costs and demands, indeed without acting like a rate-setting regulatory agency, the rate-setting proceedings of which often last for several years? Further, how is the court to decide the proper size of the price ‘gap?’ Must it be large enough for all independent competing firms to make a ‘living profit,’ no matter how inefficient they may be? . . . And how should the court respond when costs or demands change over time, as they inevitably will?

In practice, infrastructure treated as an essential facility is usually subject to pricing control by a regulator. This has its own difficulties. The UK’s energy and water infrastructure is an example. In determining optimal access pricing, regulators must determine the price that weighs competing needs to maximise short-term output, incentivise investment by the infrastructure owner, incentivise innovation and entry by competitors (e.g., local energy grids) and, of course, avoid “excessive” pricing. 

This is a near-impossible task, and the process is often drawn out and subject to challenges even in markets where the infrastructure is relatively simple. It is even less likely that these considerations would be objectively tractable in digital markets.

Treating a service as an essential facility is based on the premise that, absent mandated access, it is impossible to compete with it. But mandating access does not, on its own, prevent it from extracting monopoly rents from consumers; it just means that other companies selling inputs can have their share of the rents. 

So you may end up with two different sets of price controls: on the consumer side, to determine how much monopoly rent can be extracted from consumers, and on the access side, to determine how the monopoly rents are divided.

The UK’s energy market has both, for example. In the case of something like an electricity network, where it may simply not be physically or economically feasible to construct a second, competing network, this might be the least-bad course of action. In such circumstances, consumer-side price regulation might make sense. 

But if a service could, in fact, be competed with by others, treating it as an essential facility may be affirmatively harmful to competition and consumers if it diverts investment and time away from that potential competitor by allowing other companies to acquire some of the incumbent’s rents themselves.

The HJC report assumes that Apple is a monopolist, because, among people who own iPhones, the App Store is the only way to install third-party software. Treating the App Store as an essential facility may mean a ban on Apple charging “excessive prices” to companies like Spotify or Epic that would like to use it, or on Apple blocking them for offering users alternative in-app ways of buying their services.

If it were impossible for users to switch from iPhones, or for app developers to earn revenue through other mechanisms, this logic might be sound. But it would still not change the fact that the App Store platform was able to charge users monopoly prices; it would just mean that Epic and Spotify could capture some of those monopoly rents for themselves. Nice for them, but not for consumers. And since both companies have already grown to be pretty big and profitable with the constraints they object to in place, it seems difficult to argue that they cannot compete with these in place and sounds more like they’d just like a bigger share of the pie.

And, in fact, it is possible to switch away from the iPhone to Android. I have personally switched back and forth several times over the past few years, for example. And so have many others — despite what some claim, it’s really not that hard, especially now that most important data is stored on cloud-based services, and both companies offer an app to switch from the other. Apple also does not act like a monopolist — its Bionic chips are vastly better than any competitor’s and it continues to invest in and develop them.

So in practice, users switching from iPhone to Android if Epic’s games and Spotify’s music are not available constrains Apple, to some extent. If Apple did drive those services permanently off their platform, it would make Android relatively more attractive, and some users would move away — Apple would bear some of the costs of its ecosystem becoming worse. 

Assuming away this kind of competition, as Buck and the majority report do, is implausible. Not only that, but Buck and the majority believe that competition in this market is impossible — no policy or antitrust action could change things, and all that’s left is to regulate the market like it’s an electricity grid. 

And it means that platforms could often face situations where they could not expect to make themselves profitable after building their markets, since they could not control the supply side in order to earn revenues. That would make it harder to build platforms, and weaken competition, especially competition faced by incumbents.

Mandating interoperability

Interoperability mandates, which Buck supports, require platforms to make their products open and interoperable with third party software. If Twitter were required to be interoperable, for example, it would have to provide a mechanism (probably a set of open APIs) by which third party software could tweet and read its feeds, upload photos, send and receive DMs, and so on. 

Obviously, what interoperability actually involves differs from service to service, and involves decisions about design that are specific to each service. These variations are relevant because they mean interoperability requires discretionary regulation, including about product design, and can’t just be covered by a simple piece of legislation or a court order. 

To give an example: interoperability means a heightened security risk, perhaps from people unwittingly authorising a bad actor to access their private messages. How much is it appropriate to warn users about this, and how tight should your security controls be? It is probably excessive to require that users provide a sworn affidavit with witnesses, and even some written warnings about the risks may be so over the top as to scare off virtually any interested user. But some level of warning and user authentication is appropriate. So how much? 

Similarly, a company that has been required to offer its customers’ data through an API, but doesn’t really want to, can make life miserable for third party services that want to use it. Changing the API without warning, or letting its service drop or slow down, can break other services, and few users will be likely to want to use a third-party service that is unreliable. But some outages are inevitable, and some changes to the API and service are desirable. How do you decide how much?

These are not abstract examples. Open Banking in the UK, which requires interoperability of personal and small business current accounts, is the most developed example of interoperability in the world. It has been cited by former Chair of the Council of Economic Advisors, Jason Furman, among others, as a model for interoperability in tech. It has faced all of these questions: one bank, for instance, required that customers pass through twelve warning screens to approve a third party app to access their banking details.

To address problems like this, Open Banking has needed an “implementation entity” to design many of its most important elements. This is a de facto regulator, and it has taken years of difficult design decisions to arrive at Open Banking’s current form. 

Having helped write the UK’s industry review into Open Banking, I am cautiously optimistic about what it might be able to do for banking in Britain, not least because that market is already heavily regulated and lacking in competition. But it has been a huge undertaking, and has related to a relatively narrow set of data (its core is just two different things — the ability to read an account’s balance and transaction history, and the ability to initiate payments) in a sector that is not known for rapidly changing technology. Here, the costs of regulation may be outweighed by the benefits.

I am deeply sceptical that the same would be the case in most digital markets, where products do change rapidly, where new entrants frequently attempt to enter the market (and often succeed), where the security trade-offs are even more difficult to adjudicate, and where the economics are less straightforward, given that many services are provided at least in part because of the access to customer data they provide. 

Even if I am wrong, it is unavoidable that interoperability in digital markets would require an equivalent body to make and implement decisions when trade-offs are involved. This, again, would require a regulator like the UK’s implementation entity, and one that was enormous, given the number and diversity of services that it would have to oversee. And it would likely have to make important and difficult design decisions to which there is no clear answer. 

Banning self-preferencing

Buck’s Third Way would also ban digital platforms from self-preferencing. This typically involves an incumbent that can provide a good more cheaply than its third-party competitors — whether it’s through use of data that those third parties do not have access to, reputational advantages that mean customers will be more likely to use their products, or through scale efficiencies that allow it to provide goods to a larger customer base for a cheaper price. 

Although many people criticise self-preferencing as being unfair on competitors, “self-preferencing” is an inherent part of almost every business. When a company employs its own in-house accountants, cleaners or lawyers, instead of contracting out for them, it is engaged in internal self-preferencing. Any firm that is vertically integrated to any extent, instead of contracting externally for every single ancillary service other than the one it sells in the market, is self-preferencing. Coase’s theory of the firm is all about why this kind of behaviour happens, instead of every worker contracting on the open market for everything they do. His answer is that transaction costs make it cheaper to bring certain business relationships in-house than to contract externally for them. Virtually everyone agrees that this is desirable to some extent.

Nor does it somehow become a problem when the self-preferencing takes place on the consumer product side. Any firm that offers any bundle of products — like a smartphone that can run only the manufacturer’s operating system — is engaged in self-preferencing, because users cannot construct their own bundle with that company’s hardware and another’s operating system. But the efficiency benefits often outweigh the lack of choice.

Self-preferencing in digital platforms occurs, for example, when Google includes relevant Shopping or Maps results at the top of its general Search results, or when Amazon gives its own store-brand products (like the AmazonBasics range) a prominent place in the results listing.

There are good reasons to think that both of these are good for competition and consumer welfare. Google making Shopping results easily visible makes it a stronger competitor to Amazon, and including Maps results when you search for a restaurant just makes it more convenient to get the information you’re looking for.

Amazon sells its own private label products partially because doing so is profitable (even when undercutting rivals), partially to fill holes in product lines (like clothing, where 11% of listings were Amazon private label as of November 2018), and partially because it increases users’ likelihood to use Amazon if they expect to find a reliable product from a brand they trust. According to Amazon, they account for less than 1% of its annual retail sales, in contrast to the 19% of revenues ($54 billion) Amazon makes from third party seller services, which includes Marketplace commissions. Any analysis that ignores that Amazon has to balance those sources of revenue, and so has to tread carefully, is deficient. 

With “commodity” products (like, say, batteries and USB cables), where multiple sellers are offering very similar or identical versions of the same thing, private label competition works well for both Amazon and consumers. By Amazon’s own rules it can enter this market using aggregated data, but this doesn’t give it a significant advantage, because that data is easily obtainable from multiple sources, including Amazon itself, which makes detailed aggregated sales data freely available to third-party retailers

Amazon does profit from sales of these products, of course. And other merchants suffer by having to cut their prices to compete. That’s precisely what competition involves — competition is incompatible with a quiet life for businesses. But consumers benefit, and the biggest benefit to Amazon is that it assures its potential customers that when they visit they will be able to find a product that is cheap and reliable, so they keep coming back.

It is even hard to argue that in aggregate this practice is damaging to third-party sellers: many, like Anker, have built successful businesses on Amazon despite private-label competition precisely because the value of the platform increases for all parties as user trust and confidence in it does.

In these cases and in others, platforms act to solve market failures on the markets they host, as Andrei Hagiu has argued. To maximize profits, digital platforms need to strike a balance between being an attractive place for third-party merchants to sell their goods and being attractive to consumers by offering low prices. The latter will frequently clash with the former — and that’s the difficulty of managing a platform. 

To mistake this pro-competitive behaviour with an absence of competition is misguided. But that is a key conclusion of Buck’s Third Way: that the damage to competitors makes this behaviour harmful overall, and that it should be curtailed with “non-discrimination” rules. 

Treating below-cost selling as “predatory pricing”

Buck’s report equates below-cost selling with predatory pricing (“predatory pricing, also known as below-cost selling”). This is mistaken. Predatory pricing refers to a particular scenario where your price cut is temporary and designed to drive a competitor out of business, so that you can raise prices later and recoup your losses. 

It is easy to see that this does not describe the vast majority of below-cost selling. Buck’s formulation would describe all of the following as “predatory pricing”:

  • A restaurants that gives away ketchup for free;
  • An online retailer that offers free shipping and returns;
  • A grocery store that sells tins of beans for 3p a can. (This really happened when I was a child.)

The rationale for offering below-cost prices differs in each of these cases. Sometimes it’s a marketing ploy — Tesco sells those beans to get some free media, and to entice people into their stores, hoping they’ll decide to do the rest of their weekly shop there at the same time. Sometimes it’s about reducing frictions — the marginal cost of ketchup is so low that it’s simpler to just give it away. Sometimes it’s about reducing the fixed costs of transactions so more take place — allowing customers who buy your products to return them easily may mean more are willing to buy them overall, because there’s less risk for them if they don’t like what they buy. 

Obviously, none of these is “predatory”: none is done in the expectation that the below-cost selling will drive those businesses’ competitors out of business, allowing them to make monopoly profits later.

True predatory pricing is theoretically possible, but very difficult. As David Henderson describes, to successfully engage in predatory pricing means taking enormous and rising losses that grow for the “predatory” firm as customers switch to it from its competitor. And once the rival firm has exited the market, if the predatory firm raises prices above average cost (i.e., to recoup its losses), there is no guarantee that a new competitor will not enter the market selling at the previously competitive price. And the competing firm can either shut down temporarily or, in some cases, just buy up the “predatory” firm’s discounted goods to resell later. It is debatable whether the canonical predatory pricing case, Standard Oil, is itself even an example of that behaviour.

Offering a product below cost in a multi-sided market (like a digital platform) can be a way of building a customer base in order to incentivise entry on the other side of the market. When network effects exist, so additional users make the service more valuable to existing users, it can be worthwhile to subsidise the initial users until the service reaches a certain size. 

Uber subsidising drivers and riders in a new city is an example of this — riders want enough drivers on the road that they know they’ll be picked up fairly quickly if they order one, and drivers want enough riders that they know they’ll be able to earn a decent night’s fares if they use the app. This requires a certain volume of users on both sides — to get there, it can be in everyone’s interest for the platform to subsidise one or both sides of the market to reach that critical mass.

The slightly longer road to regulation

That is another reason for below-cost pricing: someone other than the user may be part-paying for a product, to build a market they hope to profit from later. Platforms must adjust pricing and their offerings to each side of their market to manage supply and demand. Epic, for example, is trying to build a desktop computer game store to rival the largest incumbent, Steam. To win over customers, it has been giving away games for free to users, who can own them on that store forever. 

That is clearly pro-competitive — Epic is hoping to get users over the habit of using Steam for all their games, in the hope that they will recoup the costs of doing so later in increased sales. And it is good for consumers to get free stuff. This kind of behaviour is very common. As well as Uber and Epic, smaller platforms do it too. 

Buck’s proposals would make this kind of behaviour much more difficult, and permitted only if a regulator or court allows it, instead of if the market can bear it. On both sides of the coin, Buck’s proposals would prevent platforms from the behaviour that allows them to grow in the first place — enticing suppliers and consumers and subsidising either side until critical mass has been reached that allows the platform to exist by itself, and the platform owner to recoup its investments. Fundamentally, both Buck and the majority take the existence of platforms as a given, ignoring the incentives to create new ones and compete with incumbents. 

In doing so, they give up on competition altogether. As described, Buck’s provisions would necessitate ongoing rule-making, including price controls, to work. It is unlikely that a court could do this, since the relevant costs would change too often for one-shot rule-making of the kind a court could do. To be effective at all, Buck’s proposals would require an extensive, active regulator, just as the majority report’s would. 

Buck nominally argues against this sort of outcome — “Conservatives should be wary of handing additional regulatory authority to agencies in an attempt to micromanage platforms’ access rules” — but it is probably unavoidable, given the changes he proposes. And because the rule changes he proposes would apply to the whole economy, not just tech, his proposals may, perversely, end up being even more extensive and interventionist than the majority’s.

Other than this, the differences in practice between Buck’s proposals and the Democrats’ proposals would be trivial. At best, Buck’s Third Way is just a longer route to the same destination.

This guest post is by Corbin K. Barthold, Senior Litigation Counsel at Washington Legal Foundation.

A boy throws a brick through a bakeshop window. He flees and is never identified. The townspeople gather around the broken glass. “Well,” one of them says to the furious baker, “at least this will generate some business for the windowmaker!”

A reasonable statement? Not really. Although it is indeed a good day for the windowmaker, the money for the new window comes from the baker. Perhaps the baker was planning to use that money to buy a new suit. Now, instead of owning a window and a suit, he owns only a window. The windowmaker’s gain, meanwhile, is simply the tailor’s loss.

This parable of the broken window was conceived by Frédéric Bastiat, a nineteenth-century French economist. He wanted to alert the reader to the importance of opportunity costs—in his words, “that which is not seen.” Time and money spent on one activity cannot be spent on another.

Today Bastiat might tell the parable of the harassed technology company. A tech firm creates a revolutionary new product or service and grows very large. Rivals, lawyers, activists, and politicians call for an antitrust probe. Eventually they get their way. Millions of documents are produced, dozens of depositions are taken, and several hearings are held. In the end no concrete action is taken. “Well,” the critics say, “at least other companies could grow while the firm was sidetracked by the investigation!”

Consider the antitrust case against Microsoft twenty years ago. The case ultimately settled, and Microsoft agreed merely to modify minor aspects of how it sold its products. “It’s worth wondering,” writes Brian McCullough, a generally astute historian of the internet, “how much the flowering of the dot-com era was enabled by the fact that the most dominant, rapacious player in the industry was distracted while the new era was taking shape.” “It’s easy to see,” McCullough says, “that the antitrust trial hobbled Microsoft strategically, and maybe even creatively.”

Should we really be glad that an antitrust dispute “distracted” and “hobbled” Microsoft? What would a focused and unfettered Microsoft have achieved? Maybe nothing; incumbents often grow complacent. Then again, Microsoft might have developed a great search engine or social-media platform. Or it might have invented something that, thanks to the lawsuit, remains absent to this day. What Microsoft would have created in the early 2000s, had it not had to fight the government, is that which is not seen.

But doesn’t obstructing the most successful companies create “room” for new competitors? David Cicilline, the chairman of the House’s antitrust subcommittee, argues that “just pursuing the [Microsoft] enforcement action itself” made “space for an enormous amount of additional innovation and competition.” He contends that the large tech firms seek to buy promising startups before they become full-grown threats, and that such purchases must be blocked.

It’s easy stuff to say. It’s not at all clear that it’s true or that it makes sense. Hindsight bias is rampant. In 2012, for example, Facebook bought Instagram for $1 billion, a purchase that is now cited as a quintessential “killer acquisition.” At the time of the sale, however, Instagram had 27 million users and $0 in revenue. Today it has around a billion users, it is estimated to generate $7 billion in revenue each quarter, and it is worth perhaps $100 billion. It is presumptuous to declare that Instagram, which had only 13 employees in 2012, could have achieved this success on its own.

If distraction is an end in itself, last week’s Big Tech hearing before Cicilline and his subcommittee was a smashing success. Presumably Jeff Bezos, Tim Cook, Sundar Pichai, and Mark Zuckerberg would like to spend the balance of their time developing the next big innovations and staying ahead of smart, capable, ruthless competitors, starting with each other and including foreign firms such as ByteDance and Huawei. Last week they had to put their aspirations aside to prepare for and attend five hours of political theater.

The most common form of exchange at the hearing ran as follows. A representative asks a slanted question. The witness begins to articulate a response. The representative cuts the witness off. The representative gives a prepared speech about how the witness’s answer proved her point.

Lucy Kay McBath, a first-term congresswoman from Georgia, began one such drill with the claim that Facebook’s privacy policy from 2004, when Zuckerberg was 20 and Facebook had under a million users, applies in perpetuity. “We do not and will not use cookies to collect private information from any users,” it said. Has Facebook broken its “promise,” McBath asked, not to use cookies to collect private information? No, Zuckerberg explained (letting the question’s shaky premise slide), Facebook uses only standard log-in cookies.

“So once again, you do not use cookies? Yes or no?” McBath interjected. Having now asked a completely different question, and gotten a response resembling what she wanted—“Yes, we use cookies [on log-in features]”—McBath could launch into her canned condemnation. “The bottom line here,” she said, reading from her page, “is that you broke a commitment to your users. And who can say whether you may or may not do that again in the future?” The representative pressed on with her performance, not noticing or not caring that the person she was pretending to engage with had upset her script.

Many of the antitrust subcommittee’s queries had nothing to do with antitrust. One representative fixated on Amazon’s ties with the Southern Poverty Law Center. Another seemed to want Facebook to interrogate job applicants about their political beliefs. A third asked Zuckerberg to answer for the conduct of Twitter. One representative demanded that social-media posts about unproven Covid-19 treatments be left up, another that they be taken down. Most of the questions that were at least vaguely on topic, meanwhile, were exceedingly weak. The representatives often mistook emails showing that tech CEOs play to win, that they seek to outcompete challengers and rivals, for evidence of anticompetitive harm to consumers. And the panel was often treated like a customer-service hotline. This app developer ran into a difficulty; what say you, Mr. Cook? That third-party seller has a gripe; why won’t you listen to her, Mr. Bezos?

In his opening remarks, Bezos cited a survey that ranked Amazon one of the country’s most trusted institutions. No surprise there. In many places one could have ordered a grocery delivery from Amazon as the hearing started and had the goods put away before it ended. Was Bezos taking a muted dig at Congress? He had every right to—it is one of America’s least trusted institutions. Pichai, for his part, noted that many users would be willing to pay thousands of dollars a year for Google’s free products. Is Congress providing people that kind of value?

The advance of technology will never be an unalloyed blessing. There are legitimate concerns, for instance, about how social-media platforms affect public discourse. “Human beings evolved to gossip, preen, manipulate, and ostracize,” psychologist Jonathan Haidt and technologist Tobias Rose-Stockwell observe. Social media exploits these tendencies, they contend, by rewarding those who trade in the glib put-down, the smug pronouncement, the theatrical smear. Speakers become “cruel and shallow”; “nuance and truth” become “casualties in [a] competition to gain the approval of [an] audience.”

Three things are true at once. First, Haidt and Rose-Stockwell have a point. Second, their point goes only so far. Social media does not force people to behave badly. Assuming otherwise lets individual humans off too easy. Indeed, it deprives them of agency. If you think it is within your power to display grace, love, and transcendence, you owe it to others to think it is within their power as well.

Third, if you really want to see adults act like children, watch a high-profile congressional hearing. A hearing for Attorney General William Barr, held the day before the Big Tech hearing and attended by many of the same representatives, was a classic of the format.

The tech hearing was not as shambolic as the Barr hearing. And the representatives act like sanctimonious halfwits in part to concoct the sick burns that attract clicks on the very platforms built, facilitated, and delivered by the tech companies. For these and other obvious reasons, no one should feel sorry for the four men who spent a Wednesday afternoon serving as props for demagogues. But that doesn’t mean the charade was a productive use of time. There is always that which is not seen.

The goal of US antitrust law is to ensure that competition continues to produce positive results for consumers and the economy in general. We published a letter co-signed by twenty three of the U.S.’s leading economists, legal scholars and practitioners, including one winner of the Nobel Prize in economics (full list of signatories here), to exactly that effect urging the House Judiciary Committee on the State of Antitrust Law to reject calls for radical upheaval of antitrust law that would, among other things, undermine the independence and neutrality of US antitrust law. 

A critical part of maintaining independence and neutrality in the administration of antitrust is ensuring that it is insulated from politics. Unfortunately, this view is under attack from all sides. The President sees widespread misconduct among US tech firms that he believes are controlled by the “radical left” and is, apparently, happy to use whatever tools are at hand to chasten them. 

Meanwhile, Senator Klobuchar has claimed, without any real evidence, that the mooted Uber/Grubhub merger is simply about monopolisation of the market, and not, for example, related to the huge changes that businesses like this are facing because of the Covid shutdown.

Both of these statements challenge the principle that the rule of law depends on being politically neutral, including in antitrust. 

Our letter, contrary to the claims made by President Trump, Sen. Klobuchar and some of the claims made to the Committee, asserts that the evidence and economic theory is clear: existing antitrust law is doing a good job of promoting competition and consumer welfare in digital markets and the economy more broadly, and concludes that the Committee should focus on reforms that improve antitrust at the margin, not changes that throw out decades of practice and precedent.

The letter argues that:

  1. The American economy—including the digital sector—is competitive, innovative, and serves consumers well, contrary to how it is sometimes portrayed in the public debate. 
  2. Structural changes in the economy have resulted from increased competition, and increases in national concentration have generally happened because competition at the local level has intensified and local concentration has fallen.
  3. Lax antitrust enforcement has not allowed systematic increases in market power, and the evidence simply does not support out the idea that antitrust enforcement has weakened in recent decades.
  4. Existing antitrust law is adequate for protecting competition in the modern economy, and built up through years of careful case-by-case scrutiny. Calls to throw out decades of precedent to achieve an antitrust “Year Zero” would throw away a huge body of learning and deliberation.
  5. History teaches that discarding the modern approach to antitrust would harm consumers, and return to a situation where per se rules prohibited the use of economic analysis and fact-based defences of business practices.
  6. Common sense reforms should be pursued to improve antitrust enforcement, and the reforms proposed in the letter could help to improve competition and consumer outcomes in the United States without overturning the whole system.

The reforms suggested include measures to increase transparency of the DoJ and FTC, greater scope for antitrust challenges against state-sponsored monopolies, stronger penalties for criminal cartel conduct, and more agency resources being made available to protect workers from anti-competitive wage-fixing agreements between businesses. These are suggestions for the House Committee to consider and are not supported by all the letter’s signatories.

Some of the arguments in the letter are set out in greater detail in the ICLE’s own submission to the Committee, which goes into detail about the nature of competition in modern digital markets and in traditional markets that have been changed because of the adoption of digital technologies. 

The full letter is here.

I will be testifying tomorrow before the House Judiciary Committee’s Subcommittee on Courts and Competition Policy on competition in the digital marketplace.  My testimony won’t be surprising to readers of this blog–in fact some of it was lifted directly from blog posts that have appeared here.  Also on the panel are Richard Feinstein from the FTC, Edward Black from CCIA, Morgan Reed from ACT, Scott Cleland from Precursor LLP and Mark Cooper from the Consumer Federation of America.

For some reason the links to written testimony on the House website don’t seem to be working, but my testimony is available here.

A taste for those who prefer not to devour the whole thing:

In brief, given the link between innovation and economic growth, the stakes of “getting it right” are high.  Caution and humility are warranted in light of both the historical hostility towards innovative business practices by competition policy as well as the large gaps of empirically-validated theory in the economic literature on competition and innovation.  The traditional problem of identifying and distinguishing pro-competitive from anticompetitive conduct faced by enforcers and courts in all antitrust cases is a difficult one.  But those difficulties are exacerbated in innovative industries.

Both product and business innovations involve novel practices, and such practices generally result in monopoly explanations from the economics profession followed by hostility from the courts (though sometimes in reverse order) and then a subsequent, more nuanced economic understanding of the business practice usually recognizing its pro-competitive virtues.  This sequence and outcome is exactly what one might expect in a world where economists’ career incentives skew in favor of generating models that demonstrate inefficiencies and debunk the economics status quo, while defendants engaged in business practices that have evolved over time through trial and error have a difficult time articulating a justification that fits one of a court’s checklist of acceptable answers.  In the words of Nobel economist Ronald Coase,

[i]f an economist finds something—a business practice of one sort or another—that he does not understand, he looks for a monopoly explanation.  And as in this field we are rather ignorant, the number of un-understandable practices tends to be rather large, and the reliance on monopoly explanations frequent.”

From an error-cost perspective, the critical point is that antitrust scrutiny of innovation and innovative business practices is likely to be biased in the direction of assigning higher likelihood that a given practice is anticompetitive than the subsequent literature and evidence will ultimately suggest is reasonable or accurate.

I look forward to mixing it up again with Scott Cleland.  Last time we met it was over similar issues (specifically revolving around Google), and the audio of that event is available here.