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Entry for Antitrust Policy Blog Symposium on “Competition in Online Search”

by on May 21, 2012 · 1 comment

It’s my great pleasure this week to be participating in a 2-day symposium on “Competition in Online Search” that is being hosted by the Antitrust & Competition Policy Blog.  Daniel Sokol, Associate Professor of Law at the University of Florida Levin College of Law, was kind enough to invite me to join the fun. Professor Sokol is the editor of the Antitrust & Competition Policy Blog. Others participating in this symposium include: James Grimmelman (NY Law); Eugene Volokh (UCLA); Marvin Ammori (Stanford Law); Mark Jamison (Univ. of Florida); Eric Clemons (Wharton School); Dan Crane (Michigan Law); and both Marina Lao and Frank Pasquale (Seton Hall); and more.

My entry is now live. In it, I focus on how dynamically competitive and innovative the digital economy has been over the past 15 years and question to need for intervention at this time, especially of the “public utility” variety. I’ve re-posted my entry below, but make sure to head over to the Antitrust & Competition Policy Blog to read all the contributions to this excellent symposium. Continue reading →

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Smartphones & Schumpeter

by on April 12, 2012 · 0 comments

Two weeks ago, I penned a column for Forbes about the astonishing rise and fall of BlackBerry (“Bye Bye BlackBerry. How Long Will Apple Last?”), which somehow became the most widely-read and retweeted thing I’ve ever written in my life. I argued that BlackBerry’s story — indeed, the story of the entire U.S. smartphone sector — is the living embodiment of Schumpeterian creative destruction. Joseph Schumpeter’s “perennial gales of creative destruction” are blowing harder than ever in today’s tech economy and laying waste to those who don’t innovate fast enough, I argued, and nowhere is that more true than in the smartphone sector. I noted how, just five years ago, “BlackBerry” was virtually synonymous with “smartphones” and was considered one of the tech titans that seemed destined to dominate for many years to come. But now the BlackBerry’s days appear numbered and its parent company Research In Motion Ltd. is struggling for its very survival.

But there’s another company that I ignored in that essay that was also perched atop the mobile handset hill for a long time: Nokia. Here’s the horrifying opening lines from a Wall Street Journal story today about the company (“Nokia Crisis Deepens, Shares Plunge“):

Nokia Corp., long the biggest name in the cellphone business, is scrambling to stay relevant in the smartphone age. On Wednesday the company warned things will get worse before they get better, saying that competitors are rapidly eating into its sales in emerging markets such as China and India. Nokia also said its newest phone in the U.S. had a software glitch that is preventing some users from connecting to the Internet, marring its attempt to fight into the world’s most important smartphone market. The company’s American depositary shares slid 16% to a 15-year low of $4.24 in New York. Its market capitalization now stands at $16 billion, down from $90 billion five years ago.

It gets worse from there. The article continues on to document Nokia’s gradual slide and notes that, “like BlackBerry maker Research In Motion Ltd., Nokia is trying to re-establish its relevance in a market dominated by Apple Inc.’s iPhone and Google-powered devices. Both Nokia and RIM are working on new devices they hope will make a splash, even as Apple and Android work on improvements of their own.”

To put into context how remarkable this rapid reversal of fortunes is, you need to try remember what life was like just five years ago: Continue reading →

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video: Panel on Governance of Social Media & Competition Law

by on November 13, 2011 · 1 comment

On Friday, both Josh Wright and I spoke on a panel at the Michigan State University’s conference on “Governance of Social Media.” Our particular panel focused on emerging competition policy issues affecting social media and social networking sites. Also joining us on the panel were Nicolas Economides of NYU and Michael Altschul of the CTIA. The video of the panel can be found here and I have also embedded it down below. [My remarks begin around the 23-min mark of the video.]

At the event, I presented my forthcoming paper on “The Perils of Classifying Social Media Platforms as Public Utilities,” which is currently out for peer review. I outlined the rising calls for treating social media or social networking sites as public utilities, essential facilities, or natural monopolies. Next, I briefly discussed some basic law and economics of public utility / essential facilities regulation. Third, I detailed six specific problems with efforts to classify these services as such. Finally, I briefly discussed regulatory proposals set forth by Professors Jonathan Zittrain and Tim Wu to apply traditional antitrust or public utility remedies to social media or information platforms. Specifically, I address Zittrain’s call for “API neutrality” (which would apply net neutrality-like principles at the applications and device layer) and Wu’s call for a “Separations Principle” (which would forcibly segregate information providers into three buckets: creators, distributors, and hardware makers). Watch the video for more details and see this for more critiques of the Zittrain and Wu proposals.

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Twitter, the Monopolist? Is this Tim Wu’s “Threat Regime” In Action?

by on July 1, 2011 · 9 comments

According to a report today from SAI Business Insider, “The Federal Trade Commission is actively investigating Twitter and the way it deals with the companies building applications and services for its platform.”  Apparently the agency has reached out to some competing application / platform providers to ask questions about Twitter’s recent efforts to exert more control over the uses of its API by third parties. [The Wall Street Journal confirms the FTC’s interest in Twitter.]

It remains to be seen whether this leads to any serious regulatory action against Twitter by the FTC, but such a move wouldn’t necessarily be surprising considering the more activist tilt of the agency recently. It’s even less surprising considering that Columbia University law professor and prolific cyberlaw scholar Tim Wu was appointed as a senior advisor to the FTC earlier this year. When the announcement of Wu’s appointment was made, the Wall Street Journal kicked off an article with the warning, “Silicon Valley has a new fear factor.”  It seems the Journal may have been on to something!

It’s impossible to know how much of an influence Tim Wu is having on the agency, but as I have noted here before, Prof. Wu is man with a healthy appetite for regulatory activism. [See all my essays about Wu’s work here.] Moreover, he’s a man who has already determined that Twitter is a “monopolist” in his November 13, 2010 Wall Street Journal op-ed, “In the Grip of the New Monopolists.”

That essay prompted a fiery response from me [“Tim Wu Redefines Monopoly“] as well as a far more reasoned essay by antitrust gurus Geoff Manne and Josh Wright [“What’s An Internet Monopolist? A Reply to Professor Wu.”] Prof. Wu was kind enough to swing by the TLF and respond to my criticisms in an essay “On the Definition of Monopoly,” which he said served as a “corrective” to my earlier essay [even though I continue to believe that what I said fairly reflected the last four decades of economic wisdom on competition policy and that it is Wu who is well off the reservation with his expansionist views of antitrust enforcement].

Regardless of what one thinks about that exchange, if the FTC is moving forward with a case against Twitter, three practical questions need to be considered: (1) What’s the relevant market? (2) Where’s the harm? and (3) What’s the remedy?

I’ll briefly discuss each question below but should also mention that I already explored many of these issues in my essay,  “A Vision of (Regulatory) Things to Come for Twitter,” so I apologize in advance for the repetition.  I will then discuss all this in the context of Tim Wu’s latest law review article on “Agency Threats” and what he approvingly refers to as regulatory “threat regimes.” Continue reading →

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A Vision of (Regulatory) Things to Come for Twitter?

by on March 13, 2011 · 2 comments

Twitter could be in for a world of potential pain. Regulatory pain, that is. The company’s announcement on Friday that it would soon be cracking down on the uses of its API by third parties is raising eyebrows in cyberspace and, if recent regulatory history is any indicator, this high-tech innovator could soon face some heat from regulatory advocates and public policy makers. If this thing goes down as I describe it below, it will be one hell of a fight that once again features warring conceptions of “Internet freedom” butting heads over the question of whether Twitter should be forced to share its API with rivals via some sort of “open access” regulatory regime or “API neutrality,” in particular. I’ll explore that possibility in this essay. First, a bit of background.

Understanding Forced Access Regulation

In the field of communications law, the dominant public policy fight of the past 15 years has been the battle over “open access” and “neutrality” regulation. Generally speaking, open access regulations demand that a company share its property (networks, systems, devices, or code) with rivals on terms established by law. Neutrality regulation is a variant of open access regulation, which also requires that systems be used in ways specified by law, but usually without the physical sharing requirements. Both forms of regulation derive from traditional common carriage principles / regulatory regimes. Critics of such regulation, which would most definitely include me, decry the inefficiencies associated with such “forced access” regimes, as we prefer to label them. Forced access regulation also raises certain constitutional issues related to First and Fifth Amendment rights of speech and property. Continue reading →

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More Challenges to the Lessig-Zittrain-Wu Thesis

by on February 27, 2011 · 3 comments

Writing over at Forbes, Bret Swanson notes that the progression of information technology history isn’t going so well for those Net pessimists who, not so long ago, predicted that the sky was set to fall on consumers and that digital innovation was dying. Specifically, Swanson addresses the theories set forth by cyberlaw professors Lessig, Zittrain, and Wu (among others), whose theories about “perfect control,” the death of “generativity,” and the rise of the “master switch,” I have addressed here many time before.  [See this compendium of TLF essays discussing “Problems with the Lessig-Zittrain-Wu Thesis.”] Swanson summarizes what went wrong with their gloomy Chicken Little theories and their predictions of the coming cyber end-times:

As the cloud wars roar, the cyber lawyers simmer. This wasn’t how it was supposed to be. The technology law triad of Harvard’s Lawrence Lessig and Jonathan Zittrain and Columbia’s Tim Wu had a vision. They saw an arts and crafts commune of cyber-togetherness. Homemade Web pages with flashing sirens and tacky text were more authentic. “Generativity” was Zittrain’s watchword, a vague aesthetic whose only definition came from its opposition to the ominous “perfect control” imposed by corporations dictating “code” and throwing the “master switch.” In their straw world of “open” heros and “closed” monsters, AOL’s “walled garden” of the 1990s was the first sign of trouble. Microsoft was an obvious villain. The broadband service providers were  of course dangerous gatekeepers, the iPhone was too sleek and integrated, and now even Facebook threatens their ideal of uncurated chaos. These were just a few of the many companies that were supposed to kill the Internet. The triad’s perfect world would be mostly broke organic farmers and struggling artists. Instead, we got Apple’s beautifully beveled apps and Google’s intergalactic ubiquity. Worst of all, the Web started making money.

Swanson goes on to argue that, despite all the hang-wringing we’re heard from this triumvirate and their many, many disciples in the academic and regulatory activist world, things just keep getting more innovative, more generative, and yes, even more “open.”  Continue reading →

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“Cyber-Collectivism,” “Cyber-Progressivism,” or What?

by on February 14, 2011 · 5 comments

The folks at Reason magazine were kind enough to invite me to submit a review of Tim Wu’s new book, The Master Switch: The Rise and Fall of Information Empires based on my 6-part series on the book that I posted here on the TLF late last year. (Parts 1, 2, 3, 4, 5, 6)  My new essay, which is entitled “The Rise of Cybercollectivism,” has now been posted on the Reason website.

I realize that title will give some readers heartburn, even those who are inclined to agree with me much the time.  After all, “collectivism” is a term that packs some rhetorical punch and leads to quick accusations of red-baiting. I addressed that concern in a Cato Unbound debate with Lawrence Lessig a couple of years ago after he strenuously objected to my use of that term to describe his worldview (and that of Tim Wu, Jonathan Zittrain, and their many colleagues and followers). As I noted then, however, the “collectivism” of which I speak is a more generic type, not the hard-edged Marxist brand of collectivism of modern times. For example, I do not believe that Professors Lessig, Zittrain, or Wu are out to socialize all the information means of production and send us all to digital gulags or anything silly like that. Rather, their “collectivism” is rooted in a more general desire to have–as Declan McCullagh eloquently stated in a critique of Lessig’s Code–rule by “technocratic philosopher kings.” Here’s a passage from my Reason review of Wu’s Master Switch in which I expand upon that notion:

Continue reading →

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Tim Wu to the FTC: What does it mean?

by on February 9, 2011 · 10 comments

As Adam notes, Columbia lawprof and holder of the dubious distinction of having originated the term and concept of Net Neutrality, Tim Wu, is headed to the FTC as a senior advisor.

Curiously, his guest stint runs for only about four and a half months.  As the WSJ reports:

Mr. Wu, 38, will start his new position on Feb. 14 in the FTC’s Office of Policy Planning, and will help the agency to develop policies that affect the Internet and the market for mobile communications and services. The FTC said Mr. Wu will work in the unit until July 31. Mr. Wu, who is taking a leave from Columbia, said that to work after that date he would have to request a further leave from the university.

Mr. Wu’s claim that the source of the date constraint is Columbia doesn’t pass the smell test.  Now, it is possible that what he says is  literally true–and therefore intentionally misleading.  Perhaps he asked only for leave through the end of July and would indeed have to request further leave if he wanted it.  But the implication that Columbia would have trouble granting further leave–especially during the summer!–and thus the short tenure seems very fishy to me.

So what else could be going on, while we’re reading inscrutable tea leaves?  Well, for one thing, it could be that Wu has already signed on for some not-yet-public role at Columbia that he prefers not to imperil.  Maybe associate dean or something like that.

But I have another, completely unsupported speculation.  I think the author of The Master Switch (commented on by Josh and me here) and one of the most capable (as far as that goes) proponents of Internet regulation in the land is being brought in to the FTC to help the agency gin up a case against Google.

I think with Google-ITA seemingly approaching its denouement, the FTC knows or believes that Google is either planning to abandon the merger or else enter into an (insufficiently-restrictive for the FTC) settlement with the DOJ.  In either case, not a full-blown investigation and intervention into Google’s business.  So the FTC is preparing its own Section 5 (and Section 2, but who needs that piker when you have the real deal in Section 5?) (for previous TOTM takes on Section 5, see, e.g., here and here) case and has brought in Wu to help.  Given the switching back and forth between the DOJ and FTC in reviewing Google mergers, it could very well be (I haven’t kept close tabs on Google’s proposed acquisitions) that there’s even already another merger review in waiting at the FTC on which the agency is planning to build its case.

But the phase of the case requiring Wu’s full attention–the conceptual early phase–should be completed by the end of July, so no need to detain him further.

More concretely, I would point out that it says a lot about the agency’s mindset that it is bringing in the likes of Wu to help it with its ongoing forays into the regulation of Internet businesses.  By comparison, I would just point out that Chairman Majoras’ FTC brought in our own Josh Wright as the agency’s first Scholar in Residence.  Sends a very different signal, don’t you think?

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Congrats Tim Wu! But Please Don’t Toss “The Regulatory Switch”

by on February 8, 2011 · 6 comments

Congrats are due to Tim Wu, who’s just been appointed as a senior advisor to the Federal Trade Commission (FTC). Tim is a brilliant and gracious guy; easily one of the most agreeable people I’ve ever had the pleasure of interacting with in my 20 years in covering technology policy. He’s a logical choice for such a position in a Democratic administration since he has been one of the leading lights on the Left on cyberlaw issues over the past decade.

That being said, Tim’s ideas on tech policy trouble me deeply. I’ll ignore the fact that he gave birth to the term “net neutrality” and that he chaired the radical regulatory activist group, Free Press. Instead, I just want to remind folks of one very troubling recommendation for the information sector that he articulated in his new book, The Master Switch: The Rise and Fall of Information Empires. While his book was preoccupied with corporate power and the ability of media and communications companies to posses a supposed “master switch” over speech or culture, I’m more worried about the “regulatory switch” that Tim has said the government should toss.

Tim has suggested that a so-called “Separations Principle” govern our modern information economy. “A Separations Principle would mean the creation of a salutary distance between each of the major functions or layers in the information economy,” he says. “It would mean that those who develop information, those who control the network infrastructure on which it travels, and those who control the tools or venues of access must be kept apart from one another.”  Tim calls this a “constitutional approach” because he models it on the separations of power found in the U.S. Constitution.

I critiqued this concept in Part 6 of my ridiculously long multi-part review of his new book, and I discuss it further in a new Reason magazine article, which is due out shortly. As I note in my Reason essay, Tim’s blueprint for “reforming” technology policy represents an audacious industrial policy for the Internet and America’s information sectors. Continue reading →

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Regulatory Capture: What the Experts Have Found

by on December 19, 2010 · 661 comments

[Note: This post is updated regularly as I discover relevant old or new material.]

“Regulatory capture” occurs when special interests co-opt policymakers or political bodies — regulatory agencies, in particular — to further their own ends.  Capture theory is closely related to the “rent-seeking” and “political failure” theories developed by the public choice school of economics.  Another term for regulatory capture is “client politics,” which according to James Q. Wilson, “occurs when most or all of the benefits of a program go to some single, reasonably small interest (and industry, profession, or locality) but most or all of the costs will be borne by a large number of people (for example, all taxpayers).”  (James Q. Wilson, Bureaucracy, 1989, at 76).

While capture theory cannot explain all regulatory policies or developments, it does provide an explanation for the actions of political actors with dismaying regularity.  Because regulatory capture theory conflicts mightily with romanticized notions of “independent” regulatory agencies or “scientific” bureaucracy, it often evokes a visceral reaction and a fair bit of denialism.  (See, for example, the reaction of New Republic’s Jonathan Chait to Will Wilkinson’s recent Economist column about the prevalence of corporatism in our modern political system.)  Yet, countless studies have shown that regulatory capture has been at work in various arenas: transportation and telecommunications; energy and environmental policy; farming and financial services; and many others.

I thought it might be useful to build a compendium of quotes from various economists and political scientists who have studied the regulatory process throughout history and identified regulatory capture or client politics as a major problem.  I would greatly appreciate having others suggest additional quotes and studies to add to this list since I plan to update it frequently and eventually work all of this into a future paper or book. [ Note: I have updated this compendium over a dozen times since the original post, so please check back for updates.]

The following list is chronological and begins, surprisingly, with the thoughts of progressive hero Woodrow Wilson…

Continue reading →

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