Articles by Geoffrey Manne

Geoff is the founder and Executive Director of the International Center for Law and Economics (ICLE) in Portland, Oregon. He is also a Lecturer in Law at Lewis & Clark Law School in Portland and a Contributor to the Hoover Institution's Project on Commercializing Innovation.


Did Apple conspire with e-book publishers to raise e-book prices?  That’s what DOJ argues in a lawsuit filed yesterday. But does that violate the antitrust laws?  Not necessarily—and even if it does, perhaps it shouldn’t.

Antitrust’s sole goal is maximizing consumer welfare.  While that generally means antitrust regulators should focus on lower prices, the situation is more complicated when we’re talking about markets for new products, where technologies for distribution and consumption are evolving rapidly along with business models.  In short, the so-called Agency pricing model Apple and publishers adopted may mean (and may not mean) higher e-book prices in the short run, but it also means more variability in pricing, and it might well have facilitated Apple’s entry into the market, increasing e-book retail competition and promoting innovation among e-book readers, while increasing funding for e-book content creators.

The procompetitive story goes something like the following.  (As always with antitrust, the question isn’t so much which model is better, but that no one really knows what the right model is—least of all antitrust regulators—and that, the more unclear the consumer welfare effects of a practice are, as in rapidly evolving markets, the more we should err on the side of restraint). Continue reading →

Yesterday, the International Center for Law and Economics and TechFreedom jointly filed comments [pdf] with the FCC on the Verizon SpectrumCo deal.  In the comments, ICLE Executive Director Geoffrey Manne and TechFreedom President Berin Szoka counter the primary arguments against the deal:

Critics lament the concentration of spectrum in the hands of one of the industry’s biggest players, but the assumption that concentration will harm to consumers is unsupported and misplaced.  Concentration of spectrum has not slowed the growth of the market; rather, the problem is that growth in demand has dramatically outpaced capacity.  What’s more: prices have plummeted even as the industry has become more concentrated.

While the FCC undeniably has authority to review the license transfers, the argument that the separate but related commercial agreements would reduce competition is properly the province of the Department of Justice.  That argument is best measured under the antitrust laws, not by the FCC under its vague “public interest” standard.  Indeed, if the FCC can assert jurisdiction over the commercial agreements as part of its public interest review, its authority over license transfers will become a license to regulate all aspects of business.  This is a recipe for certain mischief.

The need for all competitors, including Verizon, to obtain sufficient spectrum to meet increasing demand demonstrates that the deal is in the public interest and should be approved.

Six months may not seem a great deal of time in the general business world, but in the Internet space it’s a lifetime as new websites, tools and features are introduced every day that change where and how users get and share information. The rise of Facebook is a great example: the social networking platform that didn’t exist in early 2004 filed paperwork last month to launch what is expected to be one of the largest IPOs in history. To put it in perspective, Ford Motor went public nearly forty years after it was founded.

This incredible pace of innovation is seen throughout the Internet, and since Google’s public disclosure of its Federal Trade Commission antitrust investigation just this past June, there have been many dynamic changes to the landscape of the Internet Search market. And as the needs and expectations of consumers continue to evolve, Internet search must adapt – and quickly – to shifting demand.

One noteworthy development was the release of Siri by Apple, which was introduced to the world in late 2011 on the most recent iPhone. Today, many consider it the best voice recognition application in history, but its potential really lies in its ability revolutionize the way we search the Internet, answer questions and consume information. As Eric Jackson of Forbes noted, in the future it may even be a “Google killer.”

Of this we can be certain: Siri is the latest (though certainly not the last) game changer in Internet search, and it has certainly begun to change people’s expectations about both the process and the results of search. The search box, once needed to connect us with information on the web, is dead or dying. In its place is an application that feels intuitive and personal. Siri has become a near-indispensible entry point, and search engines are merely the back-end. And while a new feature, Siri’s expansion is inevitable. In fact, it is rumored that Apple is diligently working on Siri-enabled televisions – an entirely new market for the company.

The past six months have also brought the convergence of social media and search engines, as first Bing and more recently Google have incorporated information from a social network into their search results. Again we see technology adapting and responding to the once-unimagined way individuals find, analyze and accept information. Instead of relying on traditional, mechanical search results and the opinions of strangers, this new convergence allows users to find data and receive input directly from people in their social world, offering results curated by friends and associates. Continue reading →

By Geoffrey Manne and Berin Szoka

Back in September, the Senate Judiciary Committee’s Antitrust Subcommittee held a hearing on “The Power of Google: Serving Consumers or Threatening Competition?” Given the harsh questioning from the Subcommittee’s Chairman Herb Kohl (D-WI) and Ranking Member Mike Lee (R-UT), no one should have been surprised by the letter they sent yesterday to the Federal Trade Commission asking for a “thorough investigation” of the company. At least this time the danger is somewhat limited: by calling for the FTC to investigate Google, the senators are thus urging the agency to do . . . exactly what it’s already doing.

So one must wonder about the real aim of the letter. Unfortunately, the goal does not appear to be to offer an objective appraisal of the complex issues intended to be addressed at the hearing. That’s disappointing (though hardly surprising) and underscores what we noted at the time of the hearing: There’s something backward about seeing a company hauled before a hostile congressional panel and asked to defend itself, rather than its self-appointed prosecutors being asked to defend their case.

Senators Kohl and Lee insist that they take no position on the legality of Google’s actions, but their lopsided characterization of the issues in the letter—and the fact that the FTC is already doing what they purport to desire as the sole outcome of the letter!—leaves little room for doubt about their aim: to put political pressure on the FTC not merely to investigate, but to reach a particular conclusion and bring a case in court (or simply to ratchet up public pressure from its bully pulpit). Continue reading →

[Cross posted at Truth on the Market]

As everyone knows by now, AT&T’s proposed merger with T-Mobile has hit a bureaucratic snag at the FCC. The remarkable decision to refer the merger to the Commission’s Administrative Law Judge (in an effort to derail the deal) and the public release of the FCC staff’s internal, draft report are problematic and poorly considered. But far worse is the content of the report on which the decision to attempt to kill the deal was based.

With this report the FCC staff joins the exalted company of AT&T’s complaining competitors (surely the least reliable judges of the desirability of the proposed merger if ever there were any) and the antitrust policy scolds and consumer “advocates” who, quite literally, have never met a merger of which they approved.

In this post I’m going to hit a few of the most glaring problems in the staff’s report, and I hope to return again soon with further analysis.

As it happens, AT&T’s own response to the report is actually very good and it effectively highlights many of the key problems with the staff’s report. While it might make sense to take AT&T’s own reply with a grain of salt, in this case the reply is, if anything, too tame. No doubt the company wants to keep in the Commission’s good graces (it is the very definition of a repeat player at the agency, after all). But I am not so constrained. Using the company’s reply as a jumping off point, let me discuss a few of the problems with the staff report. Continue reading →

[Cross posted at Truthonthemarket]

As I have posted before, I was disappointed that the DOJ filed against AT&T in its bid to acquire T-Mobile.  The efficacious provision of mobile broadband service is a complicated business, but it has become even more so by government’s meddling.  Responses like this merger are both inevitable and essential.  And Sprint and Cellular South piling on doesn’t help — and, as Josh has pointed out, further suggests that the merger is actually pro-competitive.

Tomorrow, along with a great group of antitrust attorneys, I am going to pick up where I left off in that post during a roundtable discussion hosted by the American Bar Association.  If you are in the DC area you should attend in person, or you can call in to listen to the discussion–but either way, you will need to register here.  There should be a couple of people live tweeting the event, so keep up with the conversation by following #ABASAL.

Panelists:
Richard Brunell, Director of Legal Advocacy, American Antitrust Institute, Boston
Allen Grunes, Partner, Brownstein Hyatt Farber Schreck, Washington
Glenn Manishin, Partner, Duane Morris LLP, Washington
Geoffrey Manne, Lecturer in Law, Lewis & Clark Law School, Portland
Patrick Pascarella, Partner, Tucker Ellis & West, Cleveland

Location: 
Wilson Sonsini Goodrich & Rosati, P.C. 1700 K St. N.W. Fifth Floor Washington, D.C. 20006

For more information, check out the flyer here.

Milton Mueller responded to my post Wednesday on the DOJ’s decision to halt the AT&T/T-Mobile merger by asserting that there was no evidence the merger would lead to “anything innovative and progressive” and claiming “[t]he spectrum argument fell apart months ago, as factual inquiries revealed that AT&T had more spectrum than Verizon and the mistakenly posted lawyer’s letter revealed that it would be much less expensive to expand its capacity than to acquire T-Mobile.”  With respect to Milton, I think he’s been suckered by the “big is bad” crowd at Public Knowledge and Free Press.  But he’s hardly alone and these claims — claims that may well have under-girded the DOJ’s decision to step in to some extent — merit thorough refutation.

To begin with, LTE is ”progress” and “innovation” over 3G and other quasi-4G technologies.  AT&T is attempting to make an enormous (and risky) investment in deploying LTE technology reliably and to almost everyone in the US–something T-Mobile certainly couldn’t do on its own and something AT&T would have been able to do only partially and over a longer time horizon and, presumably, at greater expense.  Such investments are exactly the things that spur innovation across the ecosystem in the first place.  No doubt AT&T’s success here would help drive the next big thing–just as quashing it will make the next big thing merely the next medium-sized thing.

The “Spectrum Argument”

The spectrum argument that Milton claims “fell apart months ago” is the real story here, the real driver of this merger, and the reason why the DOJ’s action yesterday is, indeed, a blow to progress.  That argument, unfortunately, still stands firm.  Even more, the irony is that to a significant extent the spectrum shortfall is a product of the government’s own making–through mismanagement of spectrum by the FCC, political dithering by Congress, and local government intransigence on tower siting and co-location–and the notion of the government now intervening here to “fix” one of the most significant private efforts to make progress despite these government impediments is really troubling.

Anyway, here’s what we know about spectrum:  There isn’t enough of it in large enough blocks and in bands suitable for broadband deployment using available technology to fully satisfy current–let alone future–demand.

Continue reading →

[Cross posted at Truthonthemarket]

As Josh noted, the DOJ filed a complaint today to block the merger. I’m sure we’ll have much, much more to say on the topic, but here are a few things that jump out at me from perusing the complaint:

  • The DOJ distinguishes between the business (“Enterprise”) market and the consumer market. This is actually a good play on their part, on the one hand, because it is more sensible to claim a national market for business customers who may be purchasing plans for widely-geographically-dispersed employees. I would question how common this actually is, however, given that, I’m sure, most businesses that buy group cell plans are not IBM but are instead pretty small and pretty local, but still, it’s a good ploy.
  • But it has one significant problem: The DOJ also seems to be stressing a coordinated effects story, making T-Mobile out to be a disruptive maverick disciplining the bigger carriers. But–and this is, of course an empirical matter I will have to look in to–I highly doubt that T-Mobile plays anything like this role in the Enterprise market, at least for those enterprises that fit the DOJ’s overly-broad description. In fact, the DOJ admits as much in para. 43 of its Complaint. Of course, the DOJ claims this was all about to change, but that’s not a very convincing story coupled with the fact that DT, T-Mobile’s parent, was reducing its investment in the company anyway. The reality is that Enterprise was not a key part of T-Mobile’s business model–if it occupied any cognizable part of it at all– and it can hardly be considered a maverick in a market in which it doesn’t actually operate.
  • On coordinated effects, I think the claim that T-Mobile is a maverick is pretty easily refuted, and not only in the Enterprise realm. As Josh has pointed out in his Congressional testimony, a maverick is a term of art in antitrust, and it’s just not enough that a firm may be offering products at a lower price–there is nothing “maverick-y” about a firm that offers a different, less valuable product at a lower price. I have seen no evidence to suggest that T-Mobile offered the kind of pricing constraint on AT&T that would be required to make it out to be a maverick.

Continue reading →

[By Geoffrey Manne and Joshua Wright.  Cross-posted at TOTM]

Our search neutrality paper has received some recent attention.  While the initial response from Gordon Crovitz in the Wall Street Journal was favorablecritics are now voicing their responses.  Although we appreciate FairSearch’s attempt to engage with our paper’s central claims, its response is really little more than an extended non-sequitur and fails to contribute to the debate meaningfully.

Unfortunately, FairSearch grossly misstates our arguments and, in the process, basic principles of antitrust law and economics.  Accordingly, we offer a brief reply to correct a few of the most critical flaws, point out several quotes in our paper that FairSearch must have overlooked when they were characterizing our argument, and set straight FairSearch’s various economic and legal misunderstandings.

We want to begin by restating the simple claims that our paper does—and does not—make.

Our fundamental argument is that claims that search discrimination is anticompetitive are properly treated skeptically because:  (1) discrimination (that is, presenting or ranking a search engine’s own or affiliated content more prevalently than its rivals’ in response to search queries) arises from vertical integration in the search engine market (i.e., Google responds to a query by providing not only “10 blue links” but also perhaps a map or video created Google or previously organized on a Google-affiliated site (YouTube, e.g.)); (2) both economic theory and evidence demonstrate that such integration is generally pro-competitive; and (3) in Google’s particular market, evidence of intense competition and constant innovation abounds, while evidence of harm to consumers is entirely absent.  In other words, it is much more likely than not that search discrimination is pro-competitive rather than anticompetitive, and doctrinal error cost concerns accordingly counsel great hesitation in any antitrust intervention, administrative or judicial.  As we will discuss, these are claims that FairSearch’s lawyers are quite familiar with.

FairSearch, however, grossly mischaracterizes these basic points, asserting instead that we claim

“that even if Google does [manipulate its search results], this should be immune from antitrust enforcement due to the difficulty of identifying ‘bias’ and the risks of regulating benign conduct.”

This statement is either intentionally deceptive or betrays a shocking misunderstanding of our central claim for at least two reasons: (1) we never advocate for complete antitrust immunity, and (2) it trivializes the very real—and universally-accepted–difficulty of distinguishing between pro- and anticompetitive conduct.

Continue reading →

[By Geoffrey Manne & Joshua Wright.  Cross-posted at Truth on the Market]

No surprise here.  The WSJ announced it was coming yesterday, and today Google publicly acknowledged that it has received subpoenas related to the Commission’s investigation.  Amit Singhal of Google acknowledged the FTC subpoenas at the Google Public Policy Blog:

At Google, we’ve always focused on putting the user first. We aim to provide relevant answers as quickly as possible—and our product innovation and engineering talent have delivered results that users seem to like, in a world where the competition is only one click away. Still, we recognize that our success has led to greater scrutiny. Yesterday, we received formal notification from the U.S. Federal Trade Commission that it has begun a review of our business. We respect the FTC’s process and will be working with them (as we have with other agencies) over the coming months to answer questions about Google and our services.

It’s still unclear exactly what the FTC’s concerns are, but we’re clear about where we stand. Since the beginning, we have been guided by the idea that, if we focus on the user, all else will follow. No matter what you’re looking for—buying a movie ticket, finding the best burger nearby, or watching a royal wedding—we want to get you the information you want as quickly as possible. Sometimes the best result is a link to another website. Other times it’s a news article, sports score, stock quote, a video or a map.

It is too early to know the precise details of the FTC’s interest.  However, We’ve been discussing various aspects of the investigation here and at TOTM for the last year.  Indeed, we’ve written two articles focused upon framing and evaluating a potential antitrust case against Google as well as the misguided attempts to use the antitrust laws to impose “search neutrality.”  We’ve also written a number of blog posts on Google and antitrust (see here for an archive).

For now, until more details become available, it strikes us that the following points should be emphasized: Continue reading →