Court Tosses Both FTC And States' Antitrust Cases Against Facebook; You Gotta Have More Than 'Big Facebook Bad'

from the ouch dept

As you'll almost certainly recall, last December the FTC filed an antitrust case against Facebook. That happened the same day 46 states (and DC and Guam) also sued Facebook for antitrust violations in a separate case. Also it was right after the DOJ went after Google on antitrust grounds.

On Monday a judge ruled on both the cases against Facebook -- and dismissed them both. In both cases, the Court highlights the very problems we noted in our initial writeup about these cases. They seem to assume that "obviously" Facebook is a monopoly and "obviously" it's doing anti-competitive bad stuff. But... the problem with insisting that it's all "obvious" is that you have to actually show that in your complaint. And that didn't happen in either of these cases.

The court, fairly easily, dismissed the FTC's case, though left it open for the FTC to amend the case and try again (which it will almost certainly do). The judge highlighted the exact same problem I raised in my post about the key weakness in the case: it fails to show evidence that Facebook has a monopoly.

Although the Court does not agree with all of Facebook’s contentions here, it ultimately concurs that the agency’s Complaint is legally insufficient and must therefore be dismissed. The FTC has failed to plead enough facts to plausibly establish a necessary element of all of its Section 2 claims — namely, that Facebook has monopoly power in the market for Personal Social Networking (PSN) Services. The Complaint contains nothing on that score save the naked allegation that the company has had and still has a “dominant share of th[at] market (in excess of 60%).” ... Such an unsupported assertion might (barely) suffice in a Section 2 case involving a more traditional goods market, in which the Court could reasonably infer that market share was measured by revenue, units sold, or some other typical metric. But this case involves no ordinary or intuitive market. Rather, PSN services are free to use, and the exact metes and bounds of what even constitutes a PSN service — i.e., which features of a company’s mobile app or website are included in that definition and which are excluded — are hardly crystal clear. In this unusual context, the FTC’s inability to offer any indication of the metric(s) or method(s) it used to calculate Facebook’s market share renders its vague “60%-plus” assertion too speculative and conclusory to go forward. Because this defect could conceivably be overcome by re-pleading, however, the Court will dismiss only the Complaint, not the case, and will do so without prejudice to allow Plaintiff to file an amended Complaint.

In our original post about the case we noted the FTC can't just say "it's obvious this is a monopoly" without anything to back it up, but that's what it tried to do, and that's what the court can't allow. Also, the court seems skeptical that even if the FTC could prove monopoly power that the rest of the case would hold up:

First, even if the FTC had sufficiently pleaded market power, its challenge to Facebook’s policy of refusing interoperability permissions with competing apps fails to state a claim for injunctive relief. As explained herein (and in the Court’s separate Opinion in the States’ case), there is nothing unlawful about having such a policy in general. While it is possible that Facebook’s implementation of that policy as to certain specific competitor apps may have violated Section 2, such finding would not change the outcome here: all such revocations of access occurred in 2013, seven years before this suit was filed, and the FTC lacks statutory authority to seek an injunction “based on [such] long-past conduct.” FTC v. Shire ViroPharma, Inc., 917 F.3d 147, 156 (3d Cir. 2019). Regardless of whether the FTC can amend its Complaint to plausibly allege market power and advance this litigation, then, the conduct it has alleged regarding Facebook’s interoperability policies cannot form the basis for Section 2 liability. Second, the agency is on firmer ground in scrutinizing the acquisitions of Instagram and WhatsApp, as the Court rejects Facebook’s argument that the FTC lacks authority to seek injunctive relief against those purchases. Whether other issues arise in a subsequent phase of litigation is dependent on how the Government wishes to proceed.

The details of the ruling really show (as we had suggested earlier) that it appears that the government really tried to rush all these cases, and did so with weak arguments just to get a case started, without thinking that just because you say something is true you can't get a court to buy it without support:

Although the Court, as just explained, finds the contours of the asserted product market plausible, the Complaint is undoubtedly light on specific factual allegations regarding consumer-switching preferences. Given that thin showing, and the fact that the PSN-services product market is somewhat “idiosyncratically drawn” to begin with, the Court must demand something more robust from Plaintiff’s market-share allegations. As it happens, however, those allegations are even more tentative: the FTC alleges only that Facebook has “maintained a dominant share of the U.S. personal social networking market (in excess of 60%)” since 2011, ... and that “no other social network of comparable scale exists in the United States.”... That is it. These allegations — which do not even provide an estimated actual figure or range for Facebook’s market share at any point over the past ten years — ultimately fall short of plausibly establishing that Facebook holds market power. Given that finding, the court need not address the issue of whether the FTC has sufficiently alleged entry barriers.

The question now is what will the FTC do in response. It could try to come back with another attempt with a better market definition -- even though the court seems somewhat skeptical that it could do so successfully. The other option, which some are speculating about, is that the FTC could try again using a totally different legal theory, basically arguing unfair competition, rather than abuse of market power. Of course, as former FTC Commissioner Joshua Wright has detailed, taking this latter approach could lead the courts to significantly limiting the FTC's authority -- meaning it could backfire spectacularly.

As for the States' case against Facebook, it fails for even dumber reasons. When the case was first filed, we noted how it tells a narrative that left out a ton of important context. The case focuses on Facebook's purchases of both WhatsApp and Instagram, and tries to argue that after sucking a bunch of companies in to use Facebook's platform, it then cut back on the API access to functionalities to keep competitors out. That, of course, leaves out the context of reasons why Facebook changed its approach to the API and how it had to deal with situations like Cambridge Analytica's abuse of the API to suck out a ton of data.

But the real problem with the States' case? They brought it way too late. If they had a problem with the purchase of Instagram and WhatsApp, they maybe should have brought the case years ago:

First, the States’ Section 2 and Section 7 attacks on Facebook’s acquisitions are barred by the doctrine of laches, which precludes relief for those who sleep on their rights. Although Defendant purchased Instagram in 2012 and WhatsApp in 2014, Plaintiffs’ suit — which seeks, in the main, to have Facebook divest one or both companies — was not filed until December 2020. The Court is aware of no case, and Plaintiffs provide none, where such a long delay in seeking such a consequential remedy has been countenanced in a case brought by a plaintiff other than the federal government, against which laches does not apply and to which the federal antitrust laws grant unique authority as sovereign law enforcer. If laches is to mean anything, it must apply on these facts, even in a suit brought by states.

As for the API changes? Well, again the court notes there's nothing actually against the law in changing your API policies -- and even if the changes were done for anti-competitive reasons, those changes also happened way, way too long ago:

Second, the States’ Section 2 challenge to Facebook’s policy of preventing interoperability with competing apps fails to state a claim under current antitrust law, as there is nothing unlawful about having such a policy. While it is possible that Facebook’s implementation of that policy as to certain specific competitor apps may have violated Section 2, the Court does not reach that question because all such revocations of access occurred over five years before the filing of the Complaint. Such long-past violations cannot furnish a basis for the injunctive relief that Plaintiffs seek here.

Basically, the problem with the States' case is that they're too damn late.

Many people have taken it for granted that Facebook is clearly violating antitrust law, but the lawyers bringing these cases against the company can't take that for granted, or assume that it's obvious. They have to prove it to a court, and, as these two rulings show, they failed to do so in either case.

Filed Under: antitrust, competition, ftc, market power, states
Companies: facebook

Supporters Of Using Antitrust Against Big Tech Should Be Very Disappointed In How Weak The DOJ's Case Is

from the this-won't-go-far dept

As you've already heard, the DOJ filed the long-expected antitrust case against Google earlier this week. Karl has already discussed how it appears to be a politicized weapon wielded by Attorney General Bill Barr to create a bogus culture war around how Trump is "taking on" big tech. Cathy has looked at one weird aspect of the case -- how its own argument regarding trademark genericide actually cuts against the idea that Google is a monopoly.

However, what strikes me as most noteworthy about the filing is how insanely weak the argument is. As was already discussed, many lawyers in the DOJ had said they really needed more time to put together a complete case against Google... and it shows. I know that the folks who have been agitating for antitrust actions against Google for years are cheering this on, but that seems incredibly short sighted. As is currently filed (and it will likely change!), the case is so weak that Google would likely win in court, and it would then be more difficult (though not impossible) to craft another antitrust case later.

First, the case is fairly limited in what it argues. It focuses on Google's search distribution deals (e.g. getting Google to be the default search engine in things like Firefox or iOS, for which Google pays many, many millions of dollars). This seems like a weird choice for a variety of reasons.

For years, Google has entered into exclusionary agreements, including tying arrangements, and engaged in anticompetitive conduct to lock up distribution channels and block rivals. Google pays billions of dollars each year to distributors—including popular-device manufacturers such as Apple, LG, Motorola, and Samsung; major U.S. wireless carriers such as AT&T, T-Mobile, and Verizon; and browser developers such as Mozilla, Opera, and UCWeb— to secure default status for its general search engine and, in many cases, to specifically prohibit Google’s counterparties from dealing with Google’s competitors. Some of these agreements also require distributors to take a bundle of Google apps, including its search apps, and feature them on devices in prime positions where consumers are most likely to start their internet searches.

It seems worth noting here that Google pays a ton for those deals. Mozilla practically lives off of that contract. If Google is somehow forced to stop, that'll do a lot more to hurt Mozilla/Firefox than help it.

Also, when you're talking about abusive monopolies, it's normally how companies use their power to drive down how much they have to pay (because they're the monopoly). And yet, as the filing itself shows, these search deals have involved strong competition from Microsoft, meaning that Google ends up having to fork over huge chunks of cash.

Under the current agreement between Apple and Google, which has a multi-year term, Apple must make Google’s search engine the default for Safari, and use Google for Siri and Spotlight in response to general search queries. In exchange for this privileged access to Apple’s massive consumer base, Google pays Apple billions of dollars in advertising revenue each year, with public estimates ranging around $8–12 billion. The revenues Google shares with Apple make up approximately 15–20 percent of Apple’s worldwide net income.

Perhaps my understanding of how monopolistic markets work is different than the DOJ's, but I don't recall ever seeing it described as being a market where the "monopolist" pays billions of dollars just to be an (easily changed) default. The fact that Google's deal alone is 15 to 20% of Apple's revenue (and Apple makes a shit ton of money) alone seems damning to the underlying argument for the case. If Google were a monopoly, then by any normal economic analysis, it would be driving down how much it pays because Apple would have nowhere to go. The fact that Google has to pay so much suggests that there's actual competition for these deals.

There is also the question of what users want. Frankly, if my phone/browser didn't have Google as the default, I'd change to it. I've tried the alternatives (Bing, DuckDuckGo) many times over. And they just are rarely as effective as Google.

The other troubling aspect of the lawsuit is that it insists totally reasonable (and indeed, important to protect consumers) activity is somehow anti-competitive. Some of these seem to put Google into a no-win situation. They would get killed if they did things differently, and they're getting killed for doing things this way. Here's an example. A key part of the DOJ's argument is that Google's anti-forking agreements regarding Android are anti-competitive. And, as someone who uses a non-standard, Android-based mobile OS on my phone, there are definitely times that I wish there were more competition in forking and building out Android alternatives. But there are non-nefarious reasons why Google would do this:

Google’s anti-forking agreements, however, have inhibited operating system innovation through forking, ensuring that manufacturers and distributors are beholden to Google’s version of Android. Distributors know that any violation of an anti-forking agreement could mean excommunication from Google’s Android ecosystem, loss of access to Google’s must-have GPS and Google Play, and millions or even billions of dollars in lost revenue sharing. Thus, distributors avoid anything that Google might deem “fragmentation”—a term that Google “purposely leave[s] . . . very vague” and interprets broadly.

Pursuant to the preinstallation agreements discussed below, Google also has final say over whether a device is found to be compatible with the technical specifications Google requires manufacturers to meet before they can preinstall GMS. As a Google engineer noted, it must be “obvious to the [manufacturers] that we are using compatibility as a club to make them do things we want.” Google views its anti-fragmentation mandate, and its final approval of devices before they launch, as a “poison pill” to prevent deviation from the Google-controlled Android ecosystem.

One interpretation is that this is anti-competitive and giving Google control. But, remember, this is open source in the first place. The only reason forking is even any option at all is because Google made Android open source. No one can fork iOS. Or Windows. Because those are proprietary. Just the fact that it's open source seems like a weird thing to be the crux to hang an antitrust lawsuit over.

But, more to the point, another (non-nefarious) reason why Google might make those agreements is to hold various device companies to a standard that delivers users the experience they expect. Without those agreements, then you could get bad implementations of Android in which lots of things don't work correctly -- and end users would likely blame Google for that. Also, fragmentation has already been a problem in getting some apps to work smoothly across the wider Android ecosystem. So the efforts at standardization for those who want to offer the wider Google ecosystem are easily explained for the benefit of everyone, rather than as some attempt to block competition.

The lawsuit then immediately undermines its own point that everyone is afraid to fork Android... by showing how Amazon forked Android:

Google’s broad interpretation of the anti-forking agreements, and the reluctance it creates among Android distributors to support alternative versions of Android, presents barriers to entry. These were on display when Amazon developed its Fire OS operating system, a competing fork of Android. Rather than preinstall Google’s search engine, GPS, Google Play, or other Google apps on Fire devices, Amazon preinstalled its own proprietary apps and agreed to make Microsoft’s Bing the preset default general search engine. Amazon originally sold only Fire OS tablets, but in 2014 it launched a phone that ran on Fire OS. The phone was not a commercial success and Amazon quickly exited the phone business. Amazon continues to sell Fire tablets, which account for less than two percent of mobile device usage in the United States.

Right. As the DOJ says, this ended up being a flop for Amazon, but that also undermines the case. It shows that users like the Google services and apparently were not as interested in buying a device without them. So, the entire crux of the DOJ argument seems undermined in the filing itself. Basically, the argument is that Google prevents people from forking (except it didn't), and then shows when Amazon did fork, and says that failed in the marketplace. Which just looks like evidence that Google isn't blocking competitors, but rather consumers just prefer Google's offering.

Also, as Alex Stamos pointed out, a key problem with the assumptions in the DOJ's lawsuit is that the lack of startups entering the general search market is because of these practices by Google. But a much more reasonable assumption is that building a good general search engine is fucking hard.

And, a few have tried over the years, but they've had trouble, not because of Google's search deals, but because their products just weren't that good.

If your goal was to breakup Google or even cause real harm for the company... this isn't the lawsuit you're looking for. It's one of the weakest antitrust claims I've seen. I'm honestly perplexed by the people cheering this on because it's so weak that it's not going to work and will make any real antitrust harder down the road.

I will note that this might change. I imagine that there will be amended complaints down the road, and NY's attorney general put out a statement noting that while she and the AGs of a bunch of other states are investigating Google for antitrust, if they do file a case, they will seek to consolidate it with the DOJ's case. It's possible that whatever case the states bring could be much stronger.

I'm open to being convinced that this approach will work, but as it stands, this case looks incredibly weak, seems likely to fail, and even if it somehow succeeded wouldn't create any real structural change. Indeed, at best it would just limit how much Google has to pay out to lots of other companies, which helps support the wider ecosystem. I knew that this was a blatant political move by Barr, but I still expected a lot more meat to be found in the filing.

Filed Under: antitrust, doj, exclusive deals, market power, search
Companies: google

No, Internet Companies Do Not Get A 'Free Pass' Thanks To CDA 230

from the it's-just-not-true dept

There are many critics of CDA 230 these days, and there's a pretty wide range in the quality of their arguments. Law professor Danielle Citron is, for good reason, considered one of the more thoughtful critics of the law. And, to her credit, she actually does understand the law, what it enables, and what the wider impacts of the law might be. Her scholarship tends to be thoughtful and careful as well, and, just recently, she was awarded a MacArthur "genius grant." And that's why I find it frustrating that her presentations before Congress recently seem to miss the mark by a fairly wide margin. Earlier this year, we called out her testimony on "deep fakes" because she falsely suggested that internet platforms have "no incentive to address destructive deepfake content."

As we explained at the time, nothing could be further from the truth. The companies have been facing tremendous pressure from the media, the public, politicians, and (importantly) advertisers to clean up junk on their networks, or they risk losing users and revenue. The incentive is the desire not to have their platforms turn into complete garbage dumps.

Unfortunately, Citron is continuing to spread this misleading idea to Congress, as she did last week, when the House held a hearing on Section 230. Citron's opening statement has also been posted to Slate with the title: Tech Companies Get a Free Pass on Moderating Content, and the subtitle: "It's time to change that." Once again the premise is simply false. What is accurate is that platforms do have a legal free pass to decide what level of moderation is appropriate, but that level of appropriateness is very much driven by the concerns of all of the stakeholders mentioned above, with users and advertisers topping the list (for fairly obvious reasons).

It is misleading in the extreme to suggest that a lack of legal incentive somehow means no incentive at all. It is a kind of faith in legal systems (and an ignorance of markets) that is disconnected from reality. Citron's piece does mention market power, but only to brush it away with a blind insistence that it couldn't possibly work:

The market is unlikely to turn this tide. Content that attracts likes, clicks, and shares generates advertising income or a cut of the profits in the case of online firearm marketplaces. Salacious, negative, and novel content is far more likely to attract eyeballs than vanilla, accurate stories. Market pressure is not enough, and it should not have to be.

We need legal reform to ensure that platforms wield their power responsibly.

Again, I do appreciate that Citron -- unlike many other 230 critics -- recognizes the benefits of 230 and that there are inevitable tradeoffs to modifying it. We just disagree on the scope of the downsides to the modifications she suggests. For example:

Another approach would be to adopt the proposal that Benjamin Wittes and I have suggested: to condition the immunity on reasonable content moderation practices rather than the free pass that exists today. If adopted, when the courts consider a motion to dismiss on Section 230 grounds, the question would not be whether a platform acted reasonably with regard to a specific use of the service. For instance, if Grindr is sued for negligently enabling criminal impersonation on its dating app, the legal shield would not depend upon whether the company did the right thing in the plaintiff’s case. Instead, the court would ask whether the provider or user of a service engaged in reasonable content moderation practices writ large with regard to unlawful uses that clearly create serious harm to others. Thus, in the hypothetical case of Grindr, the court would assess whether the dating app had reasonable processes in place to deal with obvious misuses of its service, including criminal impersonation. If Grindr could point to such reasonable practices, like having a functioning reporting system and the ability to ban IP addresses, then the lawsuit should be dismissed even if that system fell short in the plaintiff’s case.

This is the kind of idea that sounds good in theory, but would inevitably be a disaster in practice. A "reasonable" standard is extremely ambiguous until after a whole bunch of expensive case law is established, and would certainly create massive costs, especially for platforms that try to be creative or different in how they approach content moderation. And, then, once the case law is established, it will effectively "lock in" certain approaches, even if they are not the best or don't apply appropriately to other forms of content. If you're a smaller or up-and-coming platform and you want to avoid potentially company-destroying litigation, you are simply going to mimic the models of other companies that have already gone through the litigation gauntlet.

Indeed, such an approach inevitably favors the largest platforms -- the Googles, the Facebooks, etc -- in multiple ways. First off, they can afford to fight the expensive court battles, but that also means that they're the ones to effectively set the standards that the rest of the internet has to use -- and they can set those standards in a manner that only they can afford.

This is not theory. We already have real world examples of this, most obviously in the copyright space. Given all of the litigation around copyright, YouTube spent over $100 million developing ContentID to help it identify potentially infringing material. And now, at least in Europe (and, if industry lobbyists get their way, elsewhere as well), other companies are effectively being told that they need to implement such a filtering solution, with people pointing to Google's setup as evidence that it can be done. Except almost no one else can afford to spend $100 million to build their own system, and while there may be a market for third party services, they tend to be expensive and limiting. At the very least, they shut off all alternative paths to innovation, and lock in the large company's choice.

What's funny is that Citron concludes her testimony by advocating for variety:

There is no one size fits all approach to responsible content moderation. Unlawful activity changes and morphs quickly online, and the strategies for addressing unlawful activity clearly causing serious harm should change as well. A reasonableness standard would adapt and evolve to address those changes.

Except that her own proposal would lead to the exact opposite of that. "Reasonableness" is a vague and unworkable policy that will lead to a one size fits all approach, dominated and controlled by the largest players in the field. It's the wrong approach, driven by the false belief that there is some sort of "free ride" provided by CDA 230, which ignores the reality of public and market pressure, which has shown -- time and time again -- to be quite effective in creating change on these platforms.

Filed Under: cda 230, content moderation, danielle citron, free speech, market power, market pressure, reasonableness, section 230
Companies: facebook, google

Redditors Propose Setting Up A 'Consumers' Union' To Fight Back Against Broadband Giants

from the rethinking-collective-bargaining dept

A random factoid about my past that some people don't know is that I have a degree in "industrial and labor relations," which involved an awful lot of learning about the history of unions, collective bargaining and the like. While I firmly believe that most unions today are counterproductive (frequently holding back innovation and flexibility), the idea certainly made quite a lot of sense in the early days, in which you had parties (giant employers) with near total market power over employees who had absolutely no market power. Basically, many companies were market abusers, and they abused freely. Organizing workers for collective bargaining was a way to even the playing field slightly. That it later resulted in vast amounts of corruption and cronyism, let alone hindering the way in which companies could innovate and adapt, are certainly big issues to be concerned about -- but there were reasons why that happened as well (driven by leadership on both sides).

But, still, when you have a vast mismatch in market power, with one side being an effective monopoly, and the other side being dispersed among many people, there is a certain appeal to collective bargaining. And that appears to be the root appeal of an idea percolating over on Reddit right now for an ISP Consumers Union, inspired by a Reddit comment from a few days ago. The basic thinking is that if the FCC and Congress aren't all that interested in preventing big broadband company fuckery, then perhaps the consumers should take it into their own hands, join forces, and negotiate as a unified force with the ISPs. A bunch of folks have jumped into the discussion and are talking about a variety of different facets, from what the "union" would have the power to do to the legal issues to the administrative aspects of the whole thing.

There's something profoundly interesting about this from a few different angles. I have no idea if something like this will actually come together for real, let alone work, but the effective "market conditions" do match those that led to the rise of organized labor, with a few "monopolists" abusing their power to treat people (in that case, workers, in this case, broadband subscribers) poorly. The situation is certainly not identical, but there are parallels. Broadband access today is certainly considered by many to be as important as a job a century ago. In fact, many consider it essential to having a job. And, yet, there remain very few broadband providers and the big ones all have pretty long histories of abusive practices. That said, the "abuses" certainly pale in comparison to the way that big oil and steel companies treated workers in the late 19th century, but it's not a completely crazy concept.

Would people care enough to make a difference? And what legitimate bargaining power would they have? People could "strike" by cancelling their service. Or they could organize to move en masse to a competitor -- if there is a competitor. The whole concept is undeniably fascinating. While I'd still worry about the same ills that later plagued (and still plague, though not always to the same levels) organized labor, one would hope that with some knowledge of what went wrong there, an ISP Consumers Union could avoid some of those pitfalls. Frankly, the biggest problem with unions (and, again, this was often driven by company management) was viewing "management" and "labor" as being diametrically opposed forces, rather than different parties with different needs but an overall focus on a similar goal. That is, even when labor hated management, driving a big company out of business entirely was certainly worse than figuring out ways to get things done. The problem was that the two sides were often so antagonistic, that bargaining itself became a war of spite, rather than each side understanding the overall issues, and working out compromises so that everyone could be better off.

It's entirely possible that an ISP Consumer Union could eventually be plagued by similar issues -- making unwarranted demands on broadband providers that make it impossible for them to remain in business. But, as a way to hack around the current (failed) politics of net neutrality, and present an alternative option, one that is much more bottom up than top down, is absolutely fascinating.

At the same time, it's also profoundly depressing that broadband consumers of today have that much in common with laborers at the dawn of the industrial revolution...

Filed Under: broadband, collective bargaining, fcc, isps, labor history, market power, monopolies, organizing, unions

Parallel Conduct: How ISPs Make The Consolidated Internet Service Market Even Worse

from the making-monopolies dept

Much of the focus on consolidation in the broadband industry has focused on national market share. The problem is focusing solely on national market share implies that large companies are competing, when they don't. Just because there are multiple companies in an industry doesn't mean those companies compete. This is especially true in the broadband and wireless industries. As Susan Crawford explained

These companies don't have to agree in writing to carry this out or even raise their prices; they can simply, within their separate geographic and product territories, bundle and tie their services, buy up inputs that a competitor might need, and refuse to connect to competitors — among many other potential tactics. It's in their interest for these local monopolists to cooperate, because any defection would make the whole system crumble.

What Crawford is describing is parallel conduct, which is when companies that would otherwise compete create a monopoly-like setting without having to merge or coordinate operations. Parallel conduct in the broadband industry is not hypothetical. In 2011, Comcast and Time-Warner Cable sold parts of the wireless spectrum they owned in exchange for an agreement that Verizon would stop expanding its fiber optic network. Essentially, Comcast and Time-Warner Cable paid Verizon to stop offering new high-speed broadband service. (As part of the deal, Comcast and Time-Warner Cable also further divided up the United States geographically, foreshadowing the merger between the two companies.)

The 2011 agreement also resulted in Comcast and Verizon's "joint marketing campaign," where they are charging identical prices for Internet, television and phone service. In addition to charging the same price for the same service, Comcast and Verizon also would strongly encourage customers to buy service "bundles," of Internet, cable TV, and phone service. The bundles themselves are a potentially anti-competitive form of product tying. In antitrust law, tying is presumptively illegal when tied with market power.

Parallel conduct is not, by itself, harmful. In fact, companies imitating one another often benefits consumers. Google, for example, which is widely considered one of the most innovative tech companies of the last decade, has largely offered new services which are already offered by other companies, such as search (Yahoo), email (Hotmail), and driving directions (MapQuest).

There are two forms of parallel conduct: parallel pricing and parallel exclusion. With parallel pricing, companies can mimic monopoly behavior by pricing their products at the same level. Parallel exclusion is where companies can enter into similar agreements with suppliers or customers. For both parallel pricing and parallel exclusion, it is much more likely to occur in industries where there are fewer competitors, and where those competitors compete less within geographic markets. The result of parallel conduct is that a market with a small number of competitors, an oligopoly, acts as one firm, which is referred to—perhaps euphemistically—as a perfect monopoly.

Tim Wu and C. Scott Hemphill wrote an article arguing that parallel exclusion provides a better metric for antitrust enforcement than parallel pricing. In competitive markets, with lots of competitors and low profit margins, companies are forced to price their goods and services at the same price. However, in consolidated, noncompetitive markets, companies may also price goods similarly, through an agreement, explicit or implicit, to reduce competition. If companies are pricing similarly, there is no way to know if that is the result of a competitive marketplace or collusion. Punishing companies that are pricing similarly as a result of competition would be counterproductive.

The deal between Comcast, Time-Warner Cable and Verizon is the most pernicious form of parallel conduct: an exclusionary price control agreement between corporate behemoths. Granted, the agreement isn't exactly news. It happened in 2012. But the Comcast-Time Warner Cable merger has changed the competitive landscape in the industry. Absent the agreement between Comcast, Time-Warner Cable and Verizon, the number of truly national high-speed broadband providers would have gone from two to three. Post-merger, it will go from two to one.

Filed Under: antitrust, market power, monopolies, net neutrality, oligopolies, parallel conduct, pricing
Companies: comcast, time warner cable, verizon

DailyDirt: Monopoly Isn't Just Some Game You Can Play...

from the urls-we-dig-up dept

We've talked about monopolies of various kinds around here before, because monopolies are oftentimes fascinating examples of markets not quite doing what most folks think markets should do. Monopoly issues are also not as black-and-white as they're made out to be in the news, and there are some intriguing (unanswered) questions about how to properly regulate monopolies -- and numerous examples of unintended consequences of poor regulation. Here are just a few more stories on monopolies that you might have come across.

• Has Trader Joe's cornered the market on pretzels filled with peanut butter? It's a market worth tens of millions of dollars, and how many different brands can you think of that sell these kinds of snacks? Maxim Marketing claims to have invented the snack in the 1980s, and it's suing Trader Joe's and ConAgra for creating a peanut-butter-filled pretzel snack monopoly. [url]
• Maybe you've never heard of "Yoshida Kogyo Kabushikikaisha" -- but you've probably seen the initials YKK on some of your zippers. YKK is a Japanese company that has about half of the world's zipper business (however, zippers make up less than half of YKK's revenues). [url]
• Apple was once an underdog in the PC business, but when it got into smartphones, CEO Steve Jobs didn't shy away from his market power. Court documents reveal Jobs threatened Palm's CEO with patent lawsuits if Palm didn't agree to fix high tech worker wages and join a tech company alliance that wouldn't try to hire away employees from each other. [url]

If you'd like to read more awesome and interesting stuff, check out this unrelated (but not entirely random!) Techdirt post via StumbleUpon.

Filed Under: market power, monopoly, policy, pretzels, regulation, steve jobs, wage fixing, ykk, yoshida kogyo kabushikikaisha, zippers
Companies: apple, conagra, maxim marketing, palm, trader joe's, ykk

Antitrust Law's Requirements Aren't Always Clear

from the rule-of-law dept

As Google and Yahoo negotiate a possible search advertising deal, the New York Times wonders if it would put Google in hot water over antitrust concerns. With Google and Yahoo as the number one and number two players in the search marketplace, respectively, their combined market share would be in excess of 80 percent—close to Microsoft's Windows market share in the early 1990s. And that will inevitably invite heightened scrutiny from government regulators. The article ponders what Google would need to do to avoid antitrust problems, and concludes that basically, nobody really knows. We know that Google has to avoid "predatory behavior," but the experts the Times spoke with differed on whether a search deal would be anti-competitive. One scholar thought it would be, while others thought it could be structured so as to pass muster under antitrust law.

It seems to me that this is a serious problem. Well-designed law is transparent and predictable. Eric Schmidt should be able to talk to any competent antitrust lawyer and get at least roughly the same advice about what the law allows. Of course, this ideal is never achieved perfectly, but in many areas of law, it comes pretty close. Property law, for example, operates under well-understood, predictable legal standards. This allows companies, with the advice of counsel, to make business plans without worrying too much about the risks of an unfavorable legal ruling. When the law is uncertain, as with patents on software, it creates all sorts of problems because companies make their best guess about what the law requires, make business plans based on that, and then often they wind up in court and find out the judge has a different idea of what they should have done.

Too often, I think this is the case with antitrust law. Ed Felten (who will be my PhD advisor starting this fall) has a post on the lessons of the Microsoft antitrust case ten years after it was filed. Now, as a life-long Mac user and a fan of free software, I can certainly find plenty to criticize in Microsoft's actions, both legal and technical, during the 1990s. But the antitrust case still makes me uncomfortable because I don't think that if I had stood in Bill Gates' shoes between 1993 and 1998 that I would have been able to predict which business decisions would have ultimately been found to be illegal by the courts under antitrust law. Felten uses the words "kinder," "gentler," and "more moderate" to describe the new, post-antitrust Microsoft, but "kind" and "gentle" are hardly legal standards. Ordinarily, we expect—indeed, shareholders demand—aggressive pursuit of profits by publicly traded companies. Steve Jobs is a brilliant business man, but he's neither kind nor gentle. If the law is going to demand that Microsoft forego the aggressive pursuit of profit in favor of "kindness" and "gentleness," it had better have some pretty clear rules about how much moderation is required.

This is a particular reason for concern when we remember that antitrust law is often invoked for political purposes. A cynic might suggest that the reason Microsoft has received less antitrust scrutiny in this decade than the last is not because it is "kinder" and "gentler" but because it has hired better lobbying and PR firms to plead its case in Washington. Certainly, the commenters on Felten's blog have plenty of complaints about Microsoft's recent business decisions. And indeed, this is one area where Google's approach has been strikingly different from Microsoft's behavior in its early years. Microsoft mostly ignored the political arena in the 1980s and 1990s. In contrast, Google has been proactively building a lobbying empire to ensure that it will have plenty of ammo to use in future policy battles, antitrust or otherwise. That means that if people do start asking questions about monopolistic behavior on Google's part, Google will be able to dispatch their army of lobbyists to head off any moves toward litigation.

This is a savvy strategy for Google, but I think it's problematic for democracy and the rule of law. The law should be based on clear and objective standards, not who has the most influential lobbyists. If the New York Times article above is any indication, the law's requirements are anything but clear. And that's a serious problem.

Filed Under: antitrust, clarity, market power
Companies: google, microsoft