Antitrust & Competition Policy

Sacrificing Consumer Welfare in the Search Bias Debate, Part II

by Joshua Wright on June 28, 2011 · 8 comments

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 →

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The FTC makes its Google investigation official, now what?

by Geoffrey Manne on June 24, 2011 · 6 comments

[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 →

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What’s really motivating the pursuit of Google?

by Geoffrey Manne on June 14, 2011 · 3 comments

I have an op-ed up at Main Justice on FTC Chairman Leibowitz’ recent comment in response the a question about the FTC’s investigation of Google that the FTC is looking for a “pure Section Five case.” With Main Justice’s permission, the op-ed is re-printed here:

There’s been a lot of chatter around Washington about federal antitrust regulators’ interest in investigating Google, including stories about an apparent tug of war between agencies. But this interest may be motivated by expanding the agencies’ authority, rather than by any legitimate concern about Google’s behavior.

Last month in an interview with Global Competition Review, FTC Chairman Jon Leibowitz was asked whether the agency was “investigating the online search market” and he made this startling revelation:

“What I can say is that one of the commission’s priorities is to find a pure Section Five case under unfair methods of competition. Everyone acknowledges that Congress gave us much more jurisdiction than just antitrust. And I go back to this because at some point if and when, say, a large technology company acknowledges an investigation by the FTC, we can use both our unfair or deceptive acts or practice authority and our unfair methods of competition authority to investigate the same or similar unfair competitive behavior . . . . ”

“Section Five” refers to Section Five of the Federal Trade Commission Act. Exercising its antitrust authority, the FTC can directly enforce the Clayton Act but can enforce the Sherman Act only via the FTC Act, challenging as “unfair methods of competition” conduct that would otherwise violate the Sherman Act. Following Sherman Act jurisprudence, traditionally the FTC has interpreted Section Five to require demonstrable consumer harm to apply.

But more recently the commission—and especially Commissioners Rosch and Leibowitz—has been pursuing an interpretation of Section Five that would give the agency unprecedented and largely-unchecked authority. In particular, the definition of “unfair” competition wouldn’t be confined to the traditional measures–reduction in output or increase in price–but could expand to, well, just about whatever the agency deems improper. Continue reading →

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3D Printing: The Future is Here

by Adam Marcus on June 10, 2011 · 649 comments

Have you heard about 3D printing yet? Bre Pettis, founder of Makerbot, a company that sells a $1300 home 3D printer, was Wednesday night’s guest on the The Colbert Report. And back in April, Public Knowledge kicked off what’s sure to be a long public debate over the legal and policy questions raised by 3D printing with a half-day conference here in D.C.

Also called “additive manufacturing,” 3D printing is the process of “printing” a three-dimensional object layer-by-layer with equipment that’s not much different from ink-jet printers. Combine 3D printing with 3D scanning and you’ve got the first real step towards something that seems at first like total science fiction: A Star Trek replicator.

Continue reading →

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Turns out Apple’s walled garden susceptible to market pressure and political pressure

by Jerry Brito on June 9, 2011 · 3 comments

A couple of news items this week have vindicated some opinions I’d previously expressed here, and they’re all about Apple, so how can I can pass up the opportunity to note them, right?

A while back [I wrote](http://techliberation.com/2010/11/04/how-closed-is-apple-anyway/) that as long as iOS devices had a standards-compliant browser, innovation would be safe:

>Apple has come under fire by some supporters of an open internet and open software platforms such as Jonathan Zittrain and Tim Wu, who argue that Apple’s walled garden approach to devices and software will lead us to a more controlled and less innovative world. In particular, they point to the app store and Apple’s zealous control over what apps consumers are allowed to purchase and run on their devices. Here’s the thing, though: Every Apple device comes with a web browser. A web browser is an escape hatch from Apple’s walled garden. And Apple has taken a backseat to no one in nurturing an open web.

This week comes word that the Financial Times, unhappy with having to give Apple a 30% cut of it’s subscription revenues, [has dropped its iOS app in favor of a web app](http://www.macrumors.com/2011/06/07/financial-times-wont-give-apple-a-cut-drops-ios-for-web-app/). Read the story; it’s quite interesting. As far as I can tell, the web app, written in cutting edge HTML5, is as good as the native app.

The second piece of news is that [Apple has quietly backed down](http://www.macrumors.com/2011/06/09/apple-reverses-course-on-in-app-subscriptions/) from its controversial requirement that an in-app newspaper or magazine subscription be the “same price or less than it is offered outside the app”. “Apple also removed the requirement that external subscriptions must be also offered as an in-app purchase.”

What this tells me is that the market works, and when companies make boneheaded moves, they can’t force users or publishers to go along with it by sheer will. Back when the subscription issue was blowing up I wrote that [Apple did not have the market power](http://techliberation.com/2011/02/21/is-apples-digital-subscription-plan-good-or-bad-for-consumers/) to make this stick:

>Digital publishing is very much a contestable market. I hardly need to point out that the day after Apple’s announcement, [Google made public](http://news.cnet.com/8301-17938_105-20032217-1.html) its own very competitive subscription service. And while the iPad is ahead of the game right now, Android tablets are only now beginning to hit the market. If [declining iPhone market share](http://thenextweb.com/apple/2010/02/01/iphone-shedding-market-share-increasingly-competitive-market/) is any indication, Android will nip at Apple’s heels in the tablet space as well. And let’s not forget other formidable (and somewhat-formidable) competitors in the likes of HP’s WebOS, Microsoft-Nokia, and RIM.

Let’s now talk about the real threat to app innovation. There’s news today that Apple has finally [caved in to political pressure](http://bits.blogs.nytimes.com/2011/06/09/apple-will-reject-d-u-i-checkpoints-apps/) from members of Congress and banned DUI checkpoint apps from the app store. RIM had already complied, and Google has yet to respond. You can see, though, how apps are more susceptible to nanny state meddling than to monopolization.

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Libertarianism & Antitrust: A Brief Comment

by Adam Thierer on June 7, 2011 · 6 comments

Over at his blog, our old TLF colleague Tim Lee has been discussing the AT&T – T-Mobile merger and the ways libertarians should think about antitrust more generally. In his latest post, he pushes back against a brief comment I posted on a previous essay. You can head over to his site and read that exchange and then see my latest comment. But I thought I would also post it here for those interested.

____________

Tim… My thinking on antitrust is very much shaped by the choice between ex ante vs. ex post regulation. How much faith should we place in sector-specific regulators to get things right through preemptive, prophylactic regulation versus allowing things to play out and then — on the rare occasions when intolerable monopolies over essential goods develop — letting antitrust regulators devise a remedy?

More than any other economic value, I care about experimentation. I am completely under the sway of the Austrian School of thinking about markets and competition as an ongoing experiment, an evolutionary journey, a discovery process. How are we to know if intolerable monopolies over essential goods will actually develop unless we let things play out?

As I argued in my critiques of the Lessig/Zittrain/Wu school of thinking, we need to be a bit more humble and have a little faith that ongoing experimentation and discovery will help us evolve into a better equilibrium. It’s during what some regard as a market’s darkest hour when some of the most exciting forms of disruptive technologies and innovation are developing. [I’ve elaborated more on this point in this lengthy discussion about Gary Reback’s recent book on antitrust.] Continue reading →

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Sprint throws cellular backhaul in with the merger kitchen sink

by Larry Downes on May 25, 2011 · 7 comments

For CNET this morning, I write about the latest tempest in the AT&T/T-Mobile USA merger teapot: cellular backhaul or “special access” as its known in the industry.

Like a child sitting on Santa’s lap at the mall, Sprint CEO Dan Hesse included backhaul in his wish list of conditions he’d like to see attached to the deal. Yesterday, Public Knowledge duly confirmed that yes, backhaul is a “multiplier” problem for the deal.

(Sprint says they would like the deal blocked, but that is mere posturing. What they really want is to use the FCC’s bloated and unprincipled merger review process to sneak in as many private concessions for themselves as they can get. And who can blame them for trying? More on that in a moment.)

For those who don’t know, backhaul is the process of moving cellular traffic (voice and data) to other high-speed networks (traditionally landline copper but now including cable, fiber, microwave and local Ethernet) to transport them to their ultimate destination. As mobile use increases, of course, the necessity of reliable, high-speed backhaul to keep overall performance up becomes more critical than ever.

Continue reading →

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Hanno Kaiser on Open vs. Closed Systems & the Zittrain-Wu Thesis

by Adam Thierer on May 17, 2011 · 4 comments

Hanno F. Kaiser, a U.S. and EU antitrust lawyer and partner with Latham & Watkins LLP, has just released an important essay on a topic I have devoted much time to here over the years: the debate over the relative advantages of “open” vs. “closed” technological systems and the Lessig-Zittrain-Wu school of thinking about these issues.

Kaiser’s essay is entitled, “Are Closed Systems an Antitrust Problem?” and it appears in the latest edition of Competition Policy International. This essay is not to be missed. Kaiser’s terrific paper helps us better understand and debunk many of the myths and misperceptions that continue to riddle this debate. Here’s Kaiser’s key insight:

At bottom, the bad reputation of closed systems or walled gardens in the “open versus closed” debate is quite undeserved. Walled gardens generally benefit their environments—both in the real world and the digital realm. The primary purpose of a garden wall, after all, is to shelter plants from wind and frost, not to keep intruders out. In the protected space of the garden, flowers can grow that would not otherwise survive in the wild. Walled gardens thus deliberately create a microcosm that is different from the surrounding ecosystem. Therefore, as long as the garden does not take over the entire ecosystem, walled gardens increase, not reduce, overall diversity. From a competition policy perspective, enjoying the fruits of a walled garden is generally not a guilty pleasure.

Therefore, “as a policy matter, ‘open’ is not necessarily better than ‘closed’,” Kaiser argues, and elaborates as follows: Continue reading →

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The FCC’s data roaming order as musical theater

by Larry Downes on May 5, 2011 · 1 comment

For Forbes.com this morning, I take a close look at last month’s controversial FCC order requiring facilities-based wireless carriers to negotiate data roaming agreements with other carriers.

There are business, technical, and legal reasons why the order stands on unsteady ground, which the article looks at in detail.

The order, by encouraging artificial competition in nationwide mobile broadband, could also undermine arguments against AT&T’s merger with T-Mobile USA.

How so? If every regional, local, or rural carrier can offer their customers access to the nationwide coverage of Verizon, AT&T, or Sprint, on terms overseen for “commercial reasonableness” by the FCC, what’s the risk of consumer harm from combining AT&T and T-Mobile’s infrastructure? Indeed, doing so would create stronger nationwide 3G and 4G networks for other carriers to use. In that sense, it’s actually pro-competitive, and a pragmatic solution to spectrum exhaustion. Continue reading →

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What is the state of wireless competition?

by Jerry Brito on May 3, 2011 · 1 comment

With news today that the Department of Justice is [extending its probe](http://thehill.com/blogs/hillicon-valley/technology/158909-justice-department-extends-atat-probe) of the AT&T – T-Mobile merger, and that the FCC [has received](http://www.washingtonpost.com/blogs/post-tech/post/consumers_give_fcc_an_earful_on_atandt_bid_to_buy_t_mobile/2011/05/02/AFX0VScF_blog.html) thousands of comments on the issue, the FCC’s hopefully soon to be release Wireless Competition Report is taking on even greater importance.

Last year’s report was [the first in 15 years not to find the market “effectively competitive.”](http://techliberation.com/2010/05/21/the-underlying-desperation-at-the-fcc/) As a result, expectations are high for the new annual report. How it determines the state of competition in the wireless market could affect regulatory policy and how the Commission looks at mergers.

Join the Mercatus Center at George Mason University’s [Technology Policy Program](http://mercatus.org/technology-policy-program) for a discussion of these issues, including:

– What does a proper analysis of wireless competition look like?
– What should we expect from the FCC’s report this year?
– How should the FCC address competition in the future?

Our panel will feature [**Thomas W. Hazlett**](http://mason.gmu.edu/~thazlett/), Professor of Law & Economics, George Mason University School of Law; [**Joshua D. Wright**](http://mason.gmu.edu/~jwrightg/), Assistant Professor of Law, George Mason University School of Law; [**Robert M. Frieden**](http://comm.psu.edu/people/rmf5), Professor of Telecommunications & Law, Penn State University; and [**Harold Feld**](http://www.publicknowledge.org/user/1540), Legal Director, Public Knowledge

**When:** Wednesday, May 18, 2011, 4 – 5:30 p.m. (with a reception to follow)

**Where:** George Mason University’s Arlington Campus, just ten minutes from downtown Washington. (Founders Hall, Room 111, 3351 N. Fairfax Drive, Arlington, VA)

To RSVP for yourself and your guests, please contact Megan Gandee at 703-993-4967 or [mmahan@gmu.edu](mailto:mmahan@gmu.edu) no later than May 16, 2011. If you can’t make it to the Mercatus Center, you can watch this discussion live online at mercatus.org.