antitrust Archives - Disruptive Competition Project

Why Online Platforms Lose Sleep Over Disruption

by Matt Schruers on August 10, 2017

A new paper by economist David Evans takes aim at the notion that Internet platforms are, in the words of some commentators, “unstoppable.” Evans differs from these implausible declarations, identifying several aspects of online platforms that lead to many a “sleepless night,” as cutting-edge platforms worry about disruption by existing rivals or new entrants. (DisCo has covered some of Evans’ scholarship before; he also co-authored the 2016 book Matchmakers on the subject.)

To start, what’s a “platform?” As I noted in a paper last year, few Internet terms are used with such imprecision as “platform.” In fact, as both Evans and other DisCo writers have observed, many traditional businesses have online presences that are indistinguishable from major online platforms. Evans uses the term “platform” specifically, in order to indicate a “businesses that connect two or more different types of users,” or what scholarly literature has called “multi-sided markets.”

Evans identifies several features of online platforms that result in leadership being less durable than other sectors, some of which will be familiar to regular DisCo readers. Platforms tend to be characterized by (1) rapid innovation in inter-firm competition; (2) disruptive innovation that moots the relevance of existing industries; and (3) the fact that users can “multi-home”, or use multiple competing services between which they can easily switch.

A Toxic Mix of Antitrust, Politics and Jobs

by Glenn Manishin on July 25, 2017

For nearly five decades there has been a basic, relatively stable consensus among United States antitrust practitioners, scholars and courts that the goals of competition policy, and thus of governmental antitrust enforcement, should be the neutral economic principles of market competition, consumer welfare and efficiency. That consensus is under threat today, a potential victim of the extraordinarily divisive politics we are witnessing in contemporary America.

Two examples are illuminating. First, President Trump remarked during the campaign, and tweeted after his inauguration, that the pending AT&T/Time Warner merger should be blocked, leading to much speculation that he would use the Justice Department to punish CNN, an outspoken Trump critic and a Time Warner property. Second, Democratic Party leaders recently unveiled a new, populist theme which highlights as one of its three pillars more aggressive merger enforcement, in part as a job-preservation vehicle, namely to “protect consumers, workers and competition.” (That itself is a revision to settled doctrine that antitrust protects competition and consumers, not competitors.)

In the 1970s, the infamous “Dita Beard memo” — revealing the Nixon Administration’s secret application of political leverage favoring a controversial ITT acquisition spree — led to a push for more open and independent antitrust merger enforcement. This resulted in bi-partisan passage of the Tunney Act and the Hart-Scott-Rodino Act to mandate merger reporting, enforcement transparency and judicial review of governmental antitrust consent decrees. The related Horizontal Merger Guidelines embody that transparency, provide predictable guidance on antitrust merger policy for corporate acquisitions, and have been accepted by both conservative and liberal administrations since 1982. No one seriously questions the wisdom of those policies.

Should Antitrust Policy Begin with Competition or Competitors?

by Matt Schruers on July 10, 2017

A recent Washington Post editorial criticized European regulators’ years-old Google Shopping case — previously covered here on DisCo — as “a case of punishment without crime”, and argues that regulators concerns seem “a bit dated.” Other commentary in the WaPo has defended the EU decision, such as Jonathan Taplin’s factually incorrect June 28 op-ed. The Post editorial board appears to disagree.

The Post’s column attributes EU regulators’ decision to Trans-Atlantic differences in first principles of antitrust theory. In recent decades, U.S. antitrust policy has focused on encouraging competition to protect consumer welfare. While European antitrust policy has the same objective, this particular case seems to be more about protecting competitors from one another. MORE »

Did the FTC Overrule Its Own Staff? Setting an Alternate History Straight

by Matt Schruers on June 29, 2017

Following the European Commission’s antitrust decision against Google, some commentators have incorrectly claimed that FTC Commissioners’ overrode the agency’s staff when closing the FTC’s so-called ‘search bias’ investigation of Google.^[1] As we explained here on DisCo before, this is wrong.

What actually happened? In 2013, the FTC’s five Commissioners (three Democrats, two Republicans) voted unanimously to close a 19-month investigation of Google Search, stating “we have not found sufficient evidence that Google manipulates its search algorithms to unfairly disadvantage vertical websites that compete with Google-owned vertical properties.” In doing so, the FTC concluded “Google adopted the design changes that the Commission investigated to improve the quality of its search results,” and that data showed “that users benefited from these changes to Google’s search results.” Contrary to EU regulators’ recent finding, the FTC reasoned that “changes to Google’s search algorithm could reasonably be viewed as improving the overall quality of Google’s search results.”

Did this overrule FTC staff recommendations? No. FTC Commissioners emphasized that the Commission’s conclusion was “in accord with the recommendations of the FTC’s Bureau of Competition, Bureau of Economics, and Office of General Counsel.”

“Creative Culture” Is Not Cause For Tech, Antitrust Break-Ups

by Glenn Manishin on May 22, 2017

Former music and film producer Jonathan Taplin, now director emeritus of the content industry’s Annenberg Innovation Lab, waxes poetic on faux antitrust policy in the continuing promotional tour for his book Move Fast and Break Things: How Facebook, Google and Amazon Cornered Culture and Undermined Democracy. Appearing in DC a few weeks ago, Taplin morphed a thin veneer of anti-Trump rhetoric and some self-selected statistics into this remarkable non sequitur: “Facebook, Google and Amazon have created powerful monopolies that now control the economic success of the journalism, music, video and book industries.” Taplin is way out of his element, merging two distinct issues into a superficial “#resistance” meme that contradicts the central tenets of U.S. antitrust law.

The headline of Taplin’s speech at that New America event in Washington — “Have Internet Giants Taken Over Creative Culture?” — is illuminating. Creative culture and antitrust bear no relation to one another. Taplin’s thesis that Internet platform providers are monopolies is factually inaccurate and devoid of real antitrust analysis. His call to break up these supposed “monopolies” is not only “spectacularly wrong,” it turns the political wars in America over “fake news” and the like on their head. In an odd juxtaposition, Taplin explained that because Google and other digital platforms have experienced unprecedented revenue growth over the past decade, while content creators witnessed a decrease in their own earnings, users should mount a “#resistance” to YouTube “for what it has done to the music business” and punish Facebook “for the election of Donald Trump.”

Music Licensing Explainer, Part III: The Uncertain Impact on Antitrust Law

by Matthew Lane on April 19, 2017

This post assumes you’ve read the previous two, if you haven’t you can find them here and here.

It is indisputable that the performing rights organizations (“PROs”) have played an important and procompetitive role in making the music industry what it is today. The benefits that PROs provide are mainly that they offer “unplanned, rapid, and indemnified” access to the songs in their catalogue. Nearly all music users, until recently, have been able to get immediate access to public performance licenses for the music they need simply by taking blanket licenses from the major PROs of the time.

The full work licensing question has never definitively been answered, but it has at the very least historically been assumed by the DOJ, Supreme Court, and music users that the PROs effectively offer full work licenses. The language the Supreme Court uses to describe the service provided by the PROs – “unplanned, rapid, and indemnified access” – implies full work licensing. However, the reason why there is still even room for debate is that it’s never really mattered. Most music users take licenses from the three major PROs (ASCAP, BMI, and SESAC) and pay these PROs based on fractional market shares. In exchange, these music users have never worried that they do not have the rights to play the songs in these PROs’ catalogues. The question only becomes relevant when music publishers wish to fragment music licensing and move rights out of the PROs.

For the purposes of this post, I will assume that – despite the findings of the DOJ – it is debatable whether the PROs have offered full work licenses to date. Even still, the historical assumption of a full work licensing environment has great implications for how the courts and the DOJ have treated the music industry under the antitrust laws.MORE »

Consent Decrees and the Music Industry: An Antitrust and Copyright Explainer

by Matthew Lane on March 30, 2017

As DisCo has covered before, a major legal battle is being waged in the music industry. The battle concerns the intersection of music copyright and antitrust law, and it could dramatically change how consumers interact with music. On May 18, the Department of Justice (“DOJ”) is expected to file its opening brief in an appeal of a district court decision rejecting its interpretation of a consent decree entered into in 1941 (and amended since). The outcome of this appeal could have major and long lasting repercussions for Internet radio and music streaming.

How the Music Industry Historically Worked Out Its Issues

The music industry joins a handful of other industries, like major league sports, which have a unique relationship with antitrust laws. These industries all have very significant and unique problems that are solved through competitor coordination, but competitor coordination is normally illegal under the antitrust laws. These industries generally operate under some kind of exception to the antitrust laws, because the problems outweigh the competitive concerns in a limited coordination. In the case of the music industry, a complicated basket of rights extended across millions of songs would make it nearly impossible for music services to exist without some market intervention. Every recorded song is covered by two copyrights, one for the recording and one for the composition, and every copyright can have any number of owners. This leads to a counter-intuitive relationship between buyers and sellers where buyers want the smallest number of sellers possible, as long as those sellers are required to play fair. This leads to the lowest search cost and the easiest way for buyers and sellers to find each other.

Enter the performance rights organizations (“PROs”). These PROs gather many composition licenses together and offer them at a blanket rate to music buyers. This is, of course, called price fixing in antitrust terms. However, the DOJ recognized the benefits of PROs and negotiated a settlement that would allow the PROs to continue to operate unchallenged by antitrust laws as long as they were bound by certain rules that ensure the PROs played fair and didn’t abuse their immense power. This assessment of the PROs was later endorsed by the Supreme Court. The set of rules the PROs operate under is called the consent decrees, which cover the two largest PROs in the music industry – ASCAP and BMI. These consent decrees provide a floor of protections for music buyers.

Today, virtually all music services take blanket licenses from the major PROs. The PROs in turn gather composition rights primarily from large publishing houses like Sony and Universal Music Publishing Group.

Android, iOS and Market Power – What Does Mobile Platform Competition Really Look Like? – Part II

by Jakob Kucharczyk on January 11, 2017

A while back I wrote about the European Commission’s competition investigation into the Android operating system (OS) and today’s mobile platform competition. The main argument of my previous post was that competition in the mobile economy is best conceived as competition between mobile ecosystems with Android and iOS being by far the two most popular which, in my opinion, stand in clear competition with each other. All mobile OSs have to serve and balance the interests of a variety of parties to keep them attractive (or even alive) — that is the nature of a multi-sided platform like a mobile OS. The ‘Apple factor’ should be part of the Commission’s investigation into Android at the stages of determining dominance as well as potential abuse. It is very hard to imagine that Google can act ‘independently’, in the competition law sense of the word, of Apple in the market for mobile OSs. In that sense the Commission’s market definition of licensable smart mobile operating systems, which leaves Apple’s iOS outside that market, appears peculiar (you can read more on that point in my previous post). MORE »

No, Every Big Internet Company Is Not a Monopoly

by Daniel O'Connor on December 16, 2016

Earlier this week, Hollywood veteran Jonathan Taplin’s misleading op-ed in the New York Times did us the favor of compiling the most common misconceptions about online competition in one convoluted package. Unfortunately, Mr. Taplin’s piece tracks with recent zeitgeist, as some commentators and armchair economists increasingly reach for the “monopoly” label when beginning an analysis of Internet companies, rather than upon concluding it.

Commentators like Mr. Taplin are wont to pick a major Internet company (or all of them), apply the monopoly label, and call for antitrust regulators to right some perceived wrong – never mind that the complaint often has nothing to do with competition law.

This isn’t competition law; it’s industrial policy. In Mr. Taplin’s case, the evil that industrial policy must address is the alleged, unjust transfer of wealth from traditional content companies to “free-riding” Silicon Valley firms that do nothing for society (except being the leaders in research and development spending, which is a key driver of productivity and job creation). And judging by the hyperbolic title of his forthcoming book, he appears to blame them for destroying culture and democracy as well. Very subtle.

On Heels of DOJ Antitrust Contempt Action, Congress Told to Roll Back Antitrust Protection in Music Licensing

by Matt Schruers on May 19, 2016

Less than a week after agreeing to pay $1.75 million to the Department of Justice to settle an investigation into antitrust misconduct, the American Society of Composers, Authors and Publishers (ASCAP) was on Capitol Hill yesterday, asking lawmakers to roll back the consent decree to which the performing rights organization is bound.

On May 12, DOJ had asked a federal court to hold ASCAP in contempt, stating that the PRO had “undermined a critical protection of competition” and violated its federal commitments. Concurrently, DOJ and ASCAP filed a settlement relating to the alleged misconduct.

As DisCo has previously covered, two federal courts found “troubling coordination” among ostensible competitors in the music publishing industry, which contributed to Justice’s recently concluded investigation. The 7-figure settlement is a stark reminder of the continuing need for antitrust protections, even as Congress is being asked to relax those commitments.

OLDER ENTRIES →