Articles by Joshua Wright

Joshua Wright is a Professor of Law at George Mason University School of Law and holds a courtesy appointment in the Department of Economics. Professor Wright was recently appointed as the inaugural Scholar in Residence at the Federal Trade Commission Bureau of Competition, where he served until Fall 2008. Professor Wright was a Visiting Professor at the University of Texas School of Law and was a Visiting Fellow at the Searle Center at the Northwestern University School of Law during the 2008-09 academic year. Professor Wright also regularly lectures on economics, empirical methods, and antitrust economics to state and federal judges through the George Mason University Law and Economics Center Judicial Education Program. Professor Wright received both a J.D. and a Ph.D. in economics from UCLA, where he was managing editor of the UCLA Law Review, and a B.A. in economics with highest departmental honors at the University of California, San Diego. Before coming to George Mason University School of Law, Professor Wright clerked for the Honorable James V. Selna of the Central District of California and taught at the Pepperdine University Graduate School of Public Policy. Professor Wright's areas of expertise include antitrust law and economics, consumer protection, empirical law and economics, intellectual property and the law and economics of contracts. His publications have appeared in leading academic journals, including the Journal of Law and Economics, Antitrust Law Journal, Competition Policy International, Northwestern Law Review, Supreme Court Economic Review, Yale Journal on Regulation, Journal of Competition Law and Economics, Review of Industrial Organization, Review of Law and Economics, and the UCLA Law Review. Professor Wright is also the co-editor of Pioneers of Law and Economics (Elgar Publishing) and Competition Policy and Patent Law under Uncertainty: Regulating Innovation (Cambridge Press). Professor Wright has also testified at the joint Department of Justice/ Federal Trade Commission Hearings on Section 2 of the Sherman Act, the Federal Trade Commission’s FTC at 100 Conference, and the DOJ/ FTC Hearings on the 2010 Horizontal Merger Guidelines.

The DOJ’s recent press release on the Google/Motorola, Rockstar Bidco, and Apple/ Novell transactions struck me as a bit odd when I read it.  As I’ve now had a bit of time to digest it, I’ve grown to really dislike it.  For those who have not followed Jorge Contreras had an excellent summary of events at Patently-O.

For those of us who have been following the telecom patent battles, something remarkable happened a couple of weeks ago.  On February 7, the Wall St. Journal reported that, back in November, Apple sent a letter[1] to the European Telecommunications Standards Institute (ETSI) setting forth Apple’s position regarding its commitment to license patents essential to ETSI standards.  In particular, Apple’s letter clarified its interpretation of the so-called “FRAND” (fair, reasonable and non-discriminatory) licensing terms that ETSI participants are required to use when licensing standards-essential patents.  As one might imagine, the actual scope and contours of FRAND licenses have puzzled lawyers, regulators and courts for years, and past efforts at clarification have never been very successful.  The next day, on February 8, Google released a letter[2] that it sent to the Institute for Electrical and Electronics Engineers (IEEE), ETSI and several other standards organizations.  Like Apple, Google sought to clarify its position on FRAND licensing.  And just hours after Google’s announcement, Microsoft posted a statement of “Support for Industry Standards”[3] on its web site, laying out its own gloss on FRAND licensing.  For those who were left wondering what instigated this flurry of corporate “clarification”, the answer arrived a few days later when, on February 13, the Antitrust Division of the U.S. Department of Justice (DOJ) released its decision[4] to close the investigation of three significant patent-based transactions:  the acquisition of Motorola Mobility by Google, the acquisition of a large patent portfolio formerly held by Nortel Networks by “Rockstar Bidco” (a group including Microsoft, Apple, RIM and others), and the acquisition by Apple of certain Linux-related patents formerly held by Novell.  In its decision, the DOJ noted with approval the public statements by Apple and Microsoft, while expressing some concern with Google’s FRAND approach.  The European Commission approved Google’s acquisition of Motorola Mobility on the same day.
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[Cross posted at]

Tomorrow is the deadline for Eric Schmidt to send his replies to the Senate Judiciary Committee’s follow up questions from his appearance at a hearing on Google antitrust issues last month.  At the hearing, not surprisingly, search neutrality was a hot topic, with representatives from the likes of Yelp and Nextag, as well as Expedia’s lawyer, Tom Barnett (that’s Tom Barnett (2011), not Tom Barnett (2006-08)), weighing in on Google’s purported bias.  One serious problem with the search neutrality/search bias discussions to date has been the dearth of empirical evidence concerning so-called search bias and its likely impact upon consumers.  Hoping to remedy this, I posted a study this morning at the ICLE website both critiquing one of the few, existing pieces of empirical work on the topic (by Ben Edelman, Harvard economist) as well as offering up my own, more expansive empirical analysis.  Chris Sherman at Search Engine Land has a great post covering the study.  The title of his article pretty much says it all:  “Bing More Biased Than Google; Google Not Behaving Anti-competitively.”

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[I am participating in an online “debate” at the American Constitution Society with Professor Ben Edelman.  The debate consists of an opening statement and concluding responses.  Professor Edelman’s opening statement is here.  I have also cross-posted the opening statement at Truthonthemarket and Tech Liberation Front. This is my closing statement, which is also cross-posted at Truthonthemarket.]

Professor Edelman’s opening post does little to support his case.  Instead, it reflects the same retrograde antitrust I criticized in my first post.

Edelman’s understanding of antitrust law and economics appears firmly rooted in the 1960s approach to antitrust in which enforcement agencies, courts, and economists vigorously attacked novel business arrangements without regard to their impact on consumers.  Judge Learned Hand’s infamous passage in the Alcoa decision comes to mind as an exemplar of antitrust’s bad old days when the antitrust laws demanded that successful firms forego opportunities to satisfy consumer demand.  Hand wrote:

we can think of no more effective exclusion than progressively to embrace each new opportunity as it opened, and to face every newcomer with new capacity already geared into a great organization, having the advantage of experience, trade connections and the elite of personnel.

Antitrust has come a long way since then.  By way of contrast, today’s antitrust analysis of alleged exclusionary conduct begins with (ironically enough) the U.S. v. Microsoft decision.  Microsoft emphasizes the difficulty of distinguishing effective competition from exclusionary conduct; but it also firmly places “consumer welfare” as the lodestar of the modern approach to antitrust:

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[I am participating in an online “debate” at the American Constitution Society with Professor Ben Edelman.  The debate consists of an opening statement and concluding responses.  Professor Edelman’s opening statement is here.  I have also cross-posted this opening statement at Truthonthemarket.]

The theoretical antitrust case against Google reflects a troubling disconnect between the state of our technology and the state of our antitrust economics.  Google’s is a 2011 high tech market being condemned by 1960s economics.  Of primary concern (although there are a lot of things to be concerned about, and my paper with Geoffrey Manne, “If Search Neutrality Is the Answer, What’s the Question?,” canvasses the problems in much more detail) is the treatment of so-called search bias (whereby Google’s ownership and alleged preference for its own content relative to rivals’ is claimed to be anticompetitive) and the outsized importance given to complaints by competitors and individual web pages rather than consumer welfare in condemning this bias.

The recent political theater in the Senate’s hearings on Google displayed these problems prominently, with the first half of the hearing dedicated to Senators questioning Google’s Eric Schmidt about search bias and the second half dedicated to testimony from and about competitors and individual websites allegedly harmed by Google.  Very little, if any, attention was paid to the underlying economics of search technology, consumer preferences, and the ultimate impact of differentiation in search rankings upon consumers.

So what is the alleged problem?  Well, in the first place, the claim is that there is bias.  Proving that bias exists — that Google favors its own maps over MapQuest’s, for example — would be a necessary precondition for proving that the conduct causes anticompetitive harm, but let us be clear that the existence of bias alone is not sufficient to show competitive harm, nor is it even particularly interesting, at least viewed through the lens of modern antitrust economics.

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[Cross posted at Truthonthemarket]

So, the AT&T / T-Mobile transaction gets more and more interesting.  Sprint has filed a complaint challenging the transaction.  I’ve been commenting on the weakness of the DOJ complaint and in particular, its heavy reliance on market structure to make inferences about competitive effects.  The heavy dose of structural presumption in the DOJ complaint — especially in light of the DOJ / FTC’s new Horizontal Merger Guidelines which stress reducing that emphasis because it is grounded in outdated economic thinking in favor of analysis of actual competitive effects — reads more like a 1960s complaint than a modern post-2010 Guidelines approach.

There is a question that jumps out here.  What does Sprint get for jumping into full litigation mode rather than free-riding upon the DOJ’s case?  They could certainly free-ride and retain some influence over the DOJ case with economic submissions.  The DOJ is not a passive plaintiff.  This is the DOJ of “reinvigorated” antitrust enforcement.  There is an even more obvious cost to getting involved.  The conventional antitrust wisdom requires skepticism of private suits by rivals for the reasons I discussed here.   Rivals often have a financial incentive to sue more efficient competitors.  Various substantive and procedural stands of antitrust attempt to minimize the costs of providing rivals with generous remedies and a private right of action under the antitrust laws.  Suffice it to say, a rival suit doesn’t get the same attention as one brought by the DOJ or FTC.

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[Cross posted at Truthonthemarket]

I don’t think so.

Let’s start from the beginning.  In my last post, I pointed out that simple economic theory generates some pretty clear predictions concerning the impact of a merger on rival stock prices.  If a merger is results in a more efficient competitor, and more intense post-merger competition, rivals are made worse off while consumers benefit.  On the other hand, if a merger is is likely to result in collusion or a unilateral price increase, the rivals firms are made better off while consumers suffer.

I pointed to this graph of Sprint and Clearwire stock prices increasing dramatically upon announcement of the merger to illustrate the point that it appears rivals are doing quite well:

The WSJ reports the increases at 5.9% and 11.5%, respectively.  In reaction to the WSJ and other stories highlighting this market reaction to the DOJ complaint, I asked what I think is an important set of questions:

How many of the statements in the DOJ complaint, press release and analysis are consistent with this market reaction?  If the post-merger market would be less competitive than the status quo, as the DOJ complaint hypothesizes, why would the market reward Sprint and Clearwire for an increased likelihood of facing greater competition in the future?

A few of our always excellent commenters argued that the analysis above was either incomplete or incorrect.  My claim was that the dramatic increase in stock market prices of Sprint and Clearwire were more consistent with a procompetitive merger than the theories in the DOJ complaint.

Commenters raised three important points and I appreciate their thoughtful responses. Continue reading →

[Cross posted at Truthonthemarket]

Basic economic theory underlies the conventional antitrust wisdom that if a merger makes the merging party a more effective competitor by lowering its costs, rivals facing this more effective competitor post-merger are made worse off, but consumers benefit. On the other hand, if a merger is likely to result in collusion or a unilateral price increase, the rival firm is made better off while consumers suffer. In the latter case — the one the DOJ complaint asserts we are experiencing with respect to the proposed AT&T merger — marketwide coordination or reduction of competition resulting in higher prices makes the non-merging rival better off.

Basic economic theory thus generates a set of clear testable implications for the DOJ’s theory of the transaction:

  1. events that the merger more likely should have a negative impact upon non-merging rivals’ stock prices when the merger is procompetitive (reflecting the likelihood the firm will face a more efficient, lower-cost rival in the future);
  2. events that make a merger less likely should have a positive impact upon non-merging rivals’ stock prices when the merger is procompetitive (reflecting the reduced likelihood that the merger will face the more efficient competitor in the future)
  3. by similar economic logic, events that make an anticompetitive merger more likely to occur should result in increase non-merging rivals’ stock prices (who will benefit from higher market prices) while events that make an anticompetitive merger less likely should decrease non-merging rivals’ stock prices.

The DOJ complaint clearly stakes out its position that the merger will be anticompetitive, and result in higher market prices. Paragraph 36 of the DOJ’s complaint focuses upon potential post-merger coordination:

The substantial increase in concentration that would result from this merger, and the reduction in the number of nationwide providers from four to three, likely will lead to lessened competition due to an enhanced risk of anticompetitive coordination. … Any anti competitive coordination at a national level would result in higher nationwide prices (or other nationwide harm) by the remaining national providers, Verizon, Sprint, and the merged entity. Such harm would affect consumers all across the nation, including those in rural areas with limited T-Mobile presence.

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[Cross-Posted at]

I did not intend for this to become a series (Part I), but I underestimated the supply of analysis simultaneously invoking “search bias” as an antitrust concept while waving it about untethered from antitrust’s institutional commitment to protecting consumer welfare.  Harvard Business School Professor Ben Edelman offers the latest iteration in this genre.  We’ve criticized his claims regarding search bias and antitrust on precisely these grounds.

For those who have not been following the Google antitrust saga, Google’s critics allege Google’s algorithmic search results “favor” its own services and products over those of rivals in some indefinite, often unspecified, improper manner.  In particular, Professor Edelman and others — including Google’s business rivals — have argued that Google’s “bias” discriminates most harshly against vertical search engine rivals, i.e. rivals offering search specialized search services.   In framing the theory that “search bias” can be a form of anticompetitive exclusion, Edelman writes:

Search bias is a mechanism whereby Google can leverage its dominance in search, in order to achieve dominance in other sectors.  So for example, if Google wants to be dominant in restaurant reviews, Google can adjust search results, so whenever you search for restaurants, you get a Google reviews page, instead of a Chowhound or Yelp page. That’s good for Google, but it might not be in users’ best interests, particularly if the other services have better information, since they’ve specialized in exactly this area and have been doing it for years.

I’ve wondered what model of antitrust-relevant conduct Professor Edelman, an economist, has in mind.  It is certainly well known in both the theoretical and empirical antitrust economics literature that “bias” is neither necessary nor sufficient for a theory of consumer harm; further, it is fairly obvious as a matter of economics that vertical integration can be, and typically is, both efficient and pro-consumer.  Still further, the bulk of economic theory and evidence on these contracts suggest that they are generally efficient and a normal part of the competitive process generating consumer benefits.  Continue reading →

[Cross-posted at]

There is an antitrust debate brewing concerning Google and “search bias,” a term used to describe search engine results that preference the content of the search provider.  For example, Google might list Google Maps prominently if one searches “maps” or Microsoft’s Bing might prominently place Microsoft affiliated content or products.

Apparently both antitrust investigations and Congressional hearings are in the works; regulators and commentators appear poised to attempt to impose “search neutrality” through antitrust or other regulatory means to limit or prohibit the ability of search engines (or perhaps just Google) to favor their own content.  At least one proposal goes so far as to advocate a new government agency to regulate search.  Of course, when I read proposals like this, I wonder where Google’s share of the “search market” will be by the time the new agency is built.

As with the net neutrality debate, I understand some of the push for search neutrality involves an intense push to discard traditional economically-grounded antitrust framework.  The logic for this push is simple.  The economic literature on vertical restraints and vertical integration provides no support for ex ante regulation arising out of the concern that a vertically integrating firm will harm competition through favoring its own content and discriminating against rivals.  Economic theory suggests that such arrangements may be anticompetitive in some instances, but also provides a plethora of pro-competitive explanations.  Lafontaine & Slade explain the state of the evidence in their recent survey paper in the Journal of Economic Literature:

We are therefore somewhat surprised at what the weight of the evidence is telling us. It says that, under most circumstances, profit-maximizing vertical-integration decisions are efficient, not just from the firms’ but also from the consumers’ points of view. Although there are isolated studies that contradict this claim, the vast majority support it. Moreover, even in industries that are highly concentrated so that horizontal considerations assume substantial importance, the net effect of vertical integration appears to be positive in many instances. We therefore conclude that, faced with a vertical arrangement, the burden of evidence should be placed on competition authorities to demonstrate that that arrangement is harmful before the practice is attacked. Furthermore, we have found clear evidence that restrictions on vertical integration that are imposed, often by local authorities, on owners of retail networks are usually detrimental to consumers. Given the weight of the evidence, it behooves government agencies to reconsider the validity of such restrictions.

Of course, this does not bless all instances of vertical contracts or integration as pro-competitive.  The antitrust approach appropriately eschews ex ante regulation in favor of a fact-specific rule of reason analysis that requires plaintiffs to demonstrate competitive harm in a particular instance. Again, given the strength of the empirical evidence, it is no surprise that advocates of search neutrality, as net neutrality before it, either do not rely on consumer welfare arguments or are willing to sacrifice consumer welfare for other objectives.

I wish to focus on the antitrust arguments for a moment.  In an interview with the San Francisco Gate, Harvard’s Ben Edelman sketches out an antitrust claim against Google based upon search bias; and to his credit, Edelman provides some evidence in support of his claim.

I’m not convinced.  Edelman’s interpretation of evidence of search bias is detached from antitrust economics.  The evidence is all about identifying whether or not there is bias.  That, however, is not the relevant antitrust inquiry; instead, the question is whether such vertical arrangements, including preferential treatment of one’s own downstream products, are generally procompetitive or anticompetitive.  Examples from other contexts illustrate this point.

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[Cross-Posted at]

There has been, as is to be expected, plenty of casual analysis of the AT&T / T-Mobile merger to go around.  As I mentioned, I think there are a number of interesting issues to be resolved in an investigation with access to the facts necessary to conduct the appropriate analysis.  Annie Lowrey’s piece in Slate is one of the more egregious violators of the liberal application of “folk economics” to the merger while reaching some very confident conclusions concerning the competitive effects of the merger:

Merging AT&T and T-Mobile would reduce competition further, creating a wireless behemoth with more than 125 million customers and nudging the existing oligopoly closer to a duopoly. The new company would have more customers than Verizon, and three times as many as Sprint Nextel. It would control about 42 percent of the U.S. cell-phone market.

That means higher prices, full stop. The proposed deal is, in finance-speak, a “horizontal acquisition.” AT&T is not attempting to buy a company that makes software or runs network improvements or streamlines back-end systems. AT&T is buying a company that has the broadband it needs and cutting out a competitor to boot—a competitor that had, of late, pushed hard to compete on price. Perhaps it’s telling that AT&T has made no indications as of yet that it will keep T-Mobile’s lower rates.

Full stop?  I don’t think so.  Nothing in economic theory says so.  And by the way, 42 percent simply isn’t high enough to tell a merger to monopoly story here; and Lowrey concedes some efficiencies from the merger (“buying a company that has the broadband it needs” is an efficiency!).  To be clear, the merger may or may not pose competitive problems as a matter of fact.  The point is that serious analysis must be done in order to evaluate its likely competitive effects.  And of course, Lowrey (H/T: Yglesias) has no obligation to conduct serious analysis in a column — nor do I in a blog post. But this idea that the market concentration is an incredibly useful and — in her case, perfectly accurate — predictor of price effects is devoid of analytical content and also misleads on the relevant economics.

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