Corbin Barthold invited me on Tech Freedom’s “Tech Policy Podcast” to discuss the history of antitrust and competition policy over the past half century. We covered a huge range of cases and controversies, including: the DOJ’s mega cases against IBM & AT&T, Blockbuster and Hollywood Video’s derailed merger, the Sirius-XM deal, the hysteria over the AOL-Time Warner merger, the evolution of competition in mobile markets, and how we finally ended that dreaded old MySpace monopoly!
What does the future hold for Google, Facebook, Amazon, and Netflix? Do antitrust regulators at the DOJ or FTC have enough to mount a case against these firms? Which case is most likely to have legs?
Corbin and I also talked about the of progress more generally and the troubling rise of more and more Luddite thinking on both the left and right. I encourage you to give it a listen:
Here’s a new animated explainer video that I narrated for the Federalist Society’s Regulatory Transparency Project. The 3-minute video discusses how earlier “tech giants” rose and fell as technological innovation and new competition sent them off to what the New York Times once appropriately called “The Hall of Fallen Giants.” It’s a continuing testament to the power of “creative destruction” to upend and reorder markets, even as many pundits insist that there’s no possibility change can happen.
Franklin Foer’s article in the Atlantic on Jeff Bezos’s master plan offers insight into the mind of the famed CEO, but his argument that Amazon is all-powerful is flawed. Foer overlooks the role of consumers in shaping Amazon’s narrative. In doing so, he overestimates the actual autonomy of Bezos and the power of Amazon over its consumers.
The article falls prey to an atomistic theory of Amazon. The thinking goes like this: I am an atom, and Amazon is a (much) larger atom. Because Amazon is so much larger than I am, I need some intervening force to ensure that Amazon does not prey on me. This intervening force must belong to an even larger atom (the U.S. government) in order to check Amazon’s power. The atomistic lens sees individuals as interchangeable and isolated from each other, able to be considered one at a time.
Foer’s application of this theory appears in his treatment of Hayek, one of the staunchest opponents of aggregation and atomism. For example, when he summarizes Hayek’s paper “The Use of Knowledge in Society,” he phrases Hayek’s argument as that “…no bureaucracy could ever match the miracle of markets, which spontaneously and efficiently aggregate the knowledge of a society.” Hayek found the notion of aggregation highly problematic, as seen in another of his articles, “Competition as a Discovery Procedure,” in which he criticizes the idea of a “scientific” objective approach to measuring market variables. His argument against trying to build a science on macroeconomic variables notes that “…the coarse structure of the economy can exhibit no regularities that are not the results of the fine structure… and that those aggregate or mean values… give us no information about what takes place in the fine structure.”
Neither Amazon nor the market can aggregate the knowledge of a society. We can try to speak of the market in aggregate terms, but we end up summing up all of the differences between individuals and concealing the action and agency of the individuals at the bottom. We cannot speak of market activity without reference to the patterns of individual interactions. It is best to think of the market as an emergent, unintended outcome of a constellation of individual actors, not atoms, each of whom have different talents, wants, knowledge, and resources. Actors enter into exchanges with each other and form complicated, semi-rigid, multi-leveled social networks.
“He’s making a list and checking it twice. Gonna find out who’s naughty and nice.”
With the Christmas season approaching, apparently it’s not just Santa who is making a list. The Trump Administration has just asked whether a long list of emerging technologies are naughty or nice — as in whether they should be heavily regulated or allowed to be developed and traded freely.
If they land on the naughty list, these technologies could be subjected to complex export control regulations, which would limit research and development efforts in many emerging tech fields and inadvertently undermine U.S. innovation and competitiveness. Worse yet, it isn’t even clear there would be any national security benefit associated with such restrictions.
From Light-Touch to a Long List
Generally speaking, the Trump Administration has adopted a “light-touch” approach to the regulation of emerging technology and relied on more flexible “soft law” approaches to high-tech policy matters. That’s what makes the move to impose restrictions on the trade and usage of these emerging technologies somewhat counter-intuitive. On November 19, the Department of Commerce’s Bureau of Industry and Security launched a “Review of Controls for Certain Emerging Technologies.” The notice seeks public comment on “criteria for identifying emerging technologies that are essential to U.S. national security, for example because they have potential conventional weapons, intelligence collection, weapons of mass destruction, or terrorist applications or could provide the United States with a qualitative military or intelligence advantage.” Continue reading →
Recently, Noah Smith explored an emerging question in tech. Is there a kill zone where new and innovative upstarts are being throttled by the biggest players? He explains,
Facebook commissioned a study by consultant Oliver Wyman that concluded that venture investment in the technology sector wasn’t lower than in other sectors, which led Wyman to conclude that there was no kill zone.
But economist Ian Hathaway noted that looking at the overall technology industry was too broad. Examining three specific industry categories — internet retail, internet software and social/platform software, corresponding to the industries dominated by Amazon, Google and Facebook, respectively — Hathaway found that initial venture-capital financings have declined by much more in the past few years than in comparable industries. That suggests the kill zone is real.
A recent paper by economists Wen Wen and Feng Zhu reaches a similar conclusion. Observing that Google has tended to follow Apple in deciding which mobile-app markets to enter, they assessed whether the threat of potential entry by Google (as measured by Apple’s actions) deters innovation by startups making apps for Google’s Android platform. They conclude that when the threat of the platform owner’s entry is higher, fewer app makers will be interested in offering a product for that particular niche. A 2014 paper by the same authors found similar results for Amazon and third-party merchants using its platform.
So, are American tech companies making it difficult for startups? Perhaps, but there are some other reasons to be skeptical. Continue reading →
In recent essays and papers, I have discussed the growth of “innovation arbitrage,” which I defined as, “The movement of ideas, innovations, or operations to those jurisdictions that provide a legal and regulatory environment more hospitable to entrepreneurial activity.” A new Economist article about “Why startups are leaving Silicon Valley,” discusses innovation arbitrage without calling it such. The article notes that, for a variety of reasons, Valley innovators and investors are looking elsewhere to set up shop or put money into new ventures. The article continues:
Other cities are rising in relative importance as a result. The Kauffman Foundation, a non-profit group that tracks entrepreneurship, now ranks the Miami-Fort Lauderdale area first for startup activity in America, based on the density of startups and new entrepreneurs. Mr Thiel is moving to Los Angeles, which has a vibrant tech scene. Phoenix and Pittsburgh have become hubs for autonomous vehicles; New York for media startups; London for fintech; Shenzhen for hardware. None of these places can match the Valley on its own; between them, they point to a world in which innovation is more distributed.
If great ideas can bubble up in more places, that has to be welcome. There are some reasons to think the playing-field for innovation is indeed being levelled up. Capital is becoming more widely available to bright sparks everywhere: tech investors increasingly trawl the world, not just California, for hot ideas. There is less reason than ever for a single region to be the epicentre of technology. Thanks to the tools that the Valley’s own firms have produced, from smartphones to video calls to messaging apps, teams can work effectively from different offices and places.
In preparation for a Federalist Society teleforum call that I participated in today about the compliance costs of the EU’s General Data Protection Regulation (GDPR), I gathered together some helpful recent articles on the topic and put together some talking points. I thought I would post them here and try to update this list in coming months as I find new material. (My thanks to Andrea O’Sullivan for a major assist on coming up with all this.)
Key Points:
GDPR is no free lunch; compliance is very costly
All regulation entails trade-offs, no matter how well-intentioned rules are
$7.8 billion estimated compliance cost for U.S. firms already
Punitive fees can range from €20 million to 4 percent of global firm revenue
Vagueness of language leads to considerable regulatory uncertainty — no one knows what “compliance” looks like
Even EU member states do not know what compliance looks like: 17 of 24 regulatory bodies polled by Reuters said they were unprepared for GDPR
GDPR will hurt competition & innovation; favors big players over small
Google, Facebook & others beefing up compliance departments. (“ EU official, Vera Jourova: “They have the money, an army of lawyers, an army of technicians and so on.”)
Smaller firms exiting or dumping data that could be used to provide better, more tailored services
PwC survey found that 88% of companies surveyed spent more than $1 million on GDPR preparations, and 40% more than $10 million.
Before GDPR, half of all EU ad spend went to Google. The first day after it took effect, an astounding 95 percent went to Google.
In essence, with the GDPR, the EU is surrendering on the idea of competition being possible going forward
The law will actually benefit the same big companies that the EU has been going after on antitrust grounds. Meanwhile, the smaller innovators and innovations will suffer.
On March 19th, I had the chance to debate Franklin Foer at a Patrick Henry College event focused on the question, “Is Big Tech Big Brother?” It was billed as a debate over the role of technology in American society and whether government should be regulating media and technology platforms more generally. [The full event video is here.] Foer is the author of the new book, World Without Mind: The Existential Threat of Big Tech, in which he advocates a fairly expansive regulatory regime for modern information technology platforms. He is open to building on regulatory ideas from the past, including broadcast-esque licensing regimes, “Fairness Doctrine”-like mandates for digital intermediaries, “fiduciary” responsibilities, beefed-up antitrust intervention, and other types of controls. In a review of the book for Reason, and then again during the debate at Patrick Henry University, I offered some reflections on what we can learn from history about how well ideas like those worked out in practice.
My closing statement of the debate, which lasted just a little over three minutes, offers a concise summation of what that history teaches us and why it would be so dangerous to repeat the mistakes of the past by wandering down that disastrous path again. That 3-minute clip is posted below. (The audience was polled before and after the event and asked the same question each time: “Do large tech companies wield too much power in our economy, media and personal lives and if so, should government(s) intervene?” Apparently at the beginning, the poll was roughly Yes – 70% and No – 30%, but after the debated ended it has reversed, with only 30% in favor of intervention and 70% against. Glad to turn around some minds on this one!)
If the techno-pessimists are right and robots are set to take all the jobs, shouldn’t employment in Amazon warehouses be plummeting right now? After all, Amazon’s sorting and fulfillment centers have been automated at a rapid pace, with robotic technologies now being integrated into almost every facet of the process. (Just watch the video below to see it all in action.)
And yet according to this
Wall Street Journal story by Laura Stevens, Amazon is looking to immediately fill 50,000 new jobs, which would mean that its U.S. workforce “would swell to around 300,000, compared with 30,000 in 2011.” According to the article, “Nearly 40,000 of the promised jobs are full-time at the company’s fulfillment centers, including some facilities that will open in the coming months. Most of the remainder are part-time positions available at Amazon’s more than 30 sorting centers.”
How can this be? Shouldn’t the robots have eaten all those jobs by now?
Today, the Supreme Court declined to review a Second Circuit decision that held Apple violated the antitrust laws by fixing ebook prices when, in preparing to launch its own iBookstore, it negotiated a deal with publishers that would allow them to set prices above Amazon’s one-size-fits-all $9.99 price. The appeals court reached its decision by applying the strict per se rule, which ignores any procompetitive justifications of a challenged business practice. The dissent had argued that Apple “was unwilling to [enter the ebook market] on terms that would incur a loss on e-book sales (as would happen if it met Amazon’s below-cost price),” and thus that Apple’s agreement with major publishers actually benefitted consumers by facilitating competition in the ebooks market, even if it meant higher prices for some ebooks.
The Supreme Court’s refusal to hear the case means the 2013 verdict against Apple, resulting in a $450 million dollar class-action settlement, will stand. The case began in 2010 when Apple negotiated with five major publishers, adopting an agency pricing model in which the publishers set a book’s price and gave a sales commission to Apple. This pricing model is distinct from Amazon’s previously dominant model, where t was allowed to unilaterally set e-book prices — often for below cost as a loss leader strategy to encourage sales of its own Kindle reader and promote the overall Amazon platform. The Justice Department claimed that Apple’s agency model amounted to antitrust conspiracy — and the Second Circuit agreed. Meanwhile, Apple’s entry reduced Amazon’s share of the ebooks market from 90% to 60%.
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The question here wasn’t actually whether Apple should win, but whether Apple should even be allowed to argue that its arrangement could benefit consumers,” said TechFreedom President Berin Szoka. “Apple made a strong case that its deal with publishers was critical to allowing it compete with Amazon. The Supreme Court might or might not have found those arguments convincing, but it should have at least weighed them under antitrust’s flexible rule of reason. By letting the rigid per se deal stand as the controlling legal standard, the Court has ensured that antitrust law in general will put obsolete legal precedents from the pre-digital era above consumer welfare.”
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Business model innovation is no less essential for progress than technological innovation,” concluded Szoka. “Indeed, the two usually go hand in hand. And new business models are usually essential to unseating the first mover in new markets like ebook publishing, especially when the first mover sets artificially low prices. Categorically banning deals that attempt to rebalance pricing power between distributors and publishers in multi-sided markets likely means strangling competition in its crib. Unfortunately, the real costs of today’s decision will go unseen: without an opportunity to defend new business models, innovative companies like Apple will be less likely to attempt to disrupt the dominance of entrenched incumbents. Consumers will simply never know how much today’s decision cost them.”
Read more about the argument for reversing the Second Circuit and applying a rule of reason to novel business arrangements in the amicus brief filed by the International Center for Law & Economics and eleven leading antitrust scholars. Truth on the Market, a blog dedicated to law and economics, held ablog symposium on the case last month.
The Technology Liberation Front is the tech policy blog dedicated to keeping politicians' hands off the 'net and everything else related to technology. Learn more about TLF →
The Technology Liberation Front is the tech policy blog dedicated to keeping politicians' hands off the 'net and everything else related to technology.