- So why don't we,
hi, why don't we go ahead and get started?
So I'm Scott Hemphill.
I'm on the law school faculty here.
Pleasure to welcome you to
our final panel of the day.
For those of you who've
been with us all day,
we've heard a lot today.
We've been drinking from a firehose,
about mergers, exclusionary conduct,
consumer welfare standard,
(Koren sneezes)
turns about aggregation
of political power, among
lots of other topics.
Our modest job here is
to try to tie together
some of what we've heard
across the previous five sessions
and think a little bit about
the famous old question,
what is to be done?
Our existing enforcement
institutions up to the task,
do we need to change the law?
Either antitrust law
as it currently stands
in the United States,
or as we currently think it
stands in the United States,
or other regulatory modalities
that might be brought to bear,
an analogy that's sometimes offered here
is telecommunications regulation.
Now as some folks in the audience know,
a lot of proposals have been mooted
in various areas of this debate:
on mergers to increase
the burden on defendants,
or simply ban some mergers
by certain kinds of firms,
or as monopolization to lower
the threshold market share
for a finding of monopoly power,
or perhaps to expand
liability on refusals to deal,
a topic about which we've heard
a lot in the previous panel,
whereas a regulatory matter
to impose interoperability,
type standards, or line
of business restrictions.
Now happily, we have
here an all-star panel
to help us think through these issues.
I'm gonna introduce each of them briefly
in alphabetical order.
Diana Moss is an economist
and president of the
American Antitrust Institute,
an independent organization that,
as folks in this audience well know,
promotes competition through research,
education, and advocacy.
She recently testified in the Senate
about a very relevant topic here,
competition in digital platforms,
particularly the acquisition
of nascent competitors
by leading platforms,
and, on another recent occasion,
about the consumer welfare
standard and antitrust.
Thomas Philippon is the Max L. Heine?
- Heine.
- Heine, wanna get that right.
Heine Professor of Finance
at the Stern School of
Business, here at NYU.
He was named one of the
top 25 economists under 45
by the IMF and won a best prize,
a prize for best European
economists under 40.
He's the author of a new book,
"The Great Reversal: How America
Gave Up on Free Markets,"
which has received strong
reviews in the "FT,"
"Wall Street Journal," "The
New York Times," among others.
Joe Stiglitz is a university professor
at Columbia University, co-president
of the Initiative for
Policy Dialogue at Columbia,
and chief economist of
the Roosevelt Institute.
In 2001, he was awarded the
Nobel Prize in Economics
for his analyses of markets
with asymmetric information.
Former chair of the Council
of Economic Advisers,
and former chief economist
of the World Bank.
His most recent book is
"People, Power, and Profits:
"Progressive Capitalism
for an Age of Discontent."
(chuckles) I think that's
the most recent book.
There may be even sooner than
that, more recent than that,
but that's the most recent
one that I know about.
(audience chuckling)
There's a lot of books.
Koren Wong-Ervin is the director
of antitrust policy and
litigation at Qualcomm,
which we've heard some
about earlier today.
She's a senior expert
and researcher at China's
University of International
Business and Economics
and an academic advisor
at China's University of
Political Law and Science.
She formerly served as director
of the Global Antitrust Institute
at George Mason University School of Law
and in senior roles at the
Federal Trade Commission.
Finally, Luigi Zingales
is a Robert C. McCormack
Distinguished Service Professor
of Entrepreneurship and Finance
at the University of Chicago's
Booth School of Business.
He's also co-director of
the Stigler Center there,
whose committee on digital platforms
recently released a much discussed report
about some of the topic for today's panel:
what ought to be done
to increase competition
in these markets.
Like Thomas, a winner of
the best economist prize,
and his books include "A
Capitalism for the People:
"Recapturing the Lost Genius
of American Prosperity."
So first, please join me
in welcoming our panelists.
(audience applauding)
All right, I'm gonna sit down
because my work is basically
done at this point.
(audience chuckling)
So what we're gonna do
is I'm gonna pose a series of questions.
We've got a couple of
topics we'd like to cover.
One of our panelists
is gonna kinda lead the way in responding,
and then we'll have a
kind of back and forth
as other panelists chime in.
So our first topic picks
up where I think one of,
at least one of the panels, left off,
which is mergers,
bread-and-butter antitrust topics,
staple of antitrust enforcement.
Now we've heard a lot about
this topic and, in particular,
some of the discussions
raised the question
of whether merger control
needs to be adjusted
to handle a platform's acquisition
of nascent competitors.
Sometimes we say potential competitors,
but I think nascent competitor's
the way to think about this.
Facebook/Instagram is the one
that's always first on our lips,
though we could think of others
that maybe fit this pattern.
Debbie, earlier, poured some
cold water on these cases.
I think Tim offered some responses.
So, Diana, let me start with you on this.
You know, what's your take?
Is this a real problem?
If so, do we have the right tools?
Do we need adjustments
like the flip of burden
or perhaps some special,
more aggressive set of
rules for platforms?
- Thank you, Scott, and thanks
for having me here today.
It's an honor and a pleasure to be here,
and a little daunting to be
on an all-economist panel.
Doesn't happen very often,
but it's always an education.
So what I'd like to do is take you
through just a brief tour
of the four areas of mergers
that we see happening
in the economy today,
and I think that the antitrust
agencies struggle with.
And that's four, not three,
and you'll see what
they what they all are.
So horizontal mergers,
I think it's safe to say
that the area of horizontal
merger control is very troubled.
Horizontal mergers are
contributing and have contributed
over a long period of
time of underenforcement
to growing market concentration,
even in antitrust markets.
So you may say, "Well, all those studies
"from the CEA and elsewhere
"are all about aggregate
market concentration."
Well, very easy to cite
to economic literature
and systematic or systemic
changes in markets,
antitrust markets, as a
result of successive mergers
in key sectors.
Most recently, of course,
we had the DOJ approve
the Sprint/T-Mobile merger
of big 43 merger and
wireless communications.
43 mergers, if you look
at John Kwoka's work
at Northeastern University,
43 mergers are very tightly correlated
with adverse post-merger effects
in terms of higher prices
lower quality, and the like.
Yet, they continue.
We saw the DOJ take a big
remedy in Sprint/T-Mobile,
which is largely a conduct remedy
to magically produce a
rival in DISH Network
to replace the competition
lost by the merger.
All right, that's horizontal mergers.
Vertical mergers, I think the
takeaway in vertical space
is what I call the
verticalization of key sectors.
So food and agriculture,
healthcare, also telecommunications,
where we see massive vertical integrations
creating two, three,
and four-level systems.
So take Bayer Monsanto or DowDuPont.
Those are now four-level systems
where we have innovation in trades;
we have seeds, crop seeds, GMO seeds;
we have agrochemicals;
and now they are adding
digital farming assets
to their portfolios.
So these are four-level systems,
and we see them proliferating everywhere.
Not only does that raise barriers to entry
for entrants that are competing,
say, at a single-level,
innovating in trades or innovating in,
innovating in a healthcare
market, for example,
but it shifts the competition paradigm
away from competing at
individual levels in markets
to competing between these behemoth
vertically-integrated platforms.
So in ag-biotech now, we see three,
we've gone from six to three
in a matter of only a few years.
So we have three big ag-biotechs.
They're all vertically integrated
across all the four
areas I just mentioned,
and so really the only
effective competition
will come from competition
between those large platforms.
So we ask ourselves,
is there enough competition
between platforms
to generate benefits for consumers?
I think the answer to that is no,
and I think antitrust
enforcement has lost track
of the transformational
changes in these key sectors
through vertical mergers.
All right, potential competition.
What we see in potential competition
is really a lot of chaos.
We're having trouble
distinguishing nascent competition
from a potential entrant to
a small existing entrant,
that somebody needs to
sort that terminology out,
but the bottom line is we
see a tremendous amount
of activity that flies
under the radar screen
in potential competition,
where we are seeing firms
acquire small competitors
on the edge of the market
or who are in the market but are threats.
Very little enforcement on that front.
And then, finally, there's a new class,
relatively new class,
of mergers called concentric
or co-generic mergers,
where we're talking about sort
of the the ecosystem concept,
where the digital platforms, for example,
have a stronghold in a certain market,
like search or social media,
but they are picking up assets to add
and build out the ecosystem.
Those markets aren't necessarily
adjacent to one another
in a horizontal or vertical context,
but, nonetheless, add to the ecosystem,
which is generally fueled
by the use of consumer data
to create connectivity and
value through the ecosystem.
Those types of mergers
as far as antitrust goes
have flown completely
under the radar screen.
So four areas of merger
control, what do we do about it?
Well, obviously, some tweaks are needed,
and we'll get into those as
we go through the panel today,
but certainly involves
lowering evidentiary burdens
for plaintiffs, government, or private;
shifting burdens to defendants
to show that their mergers
are pro-competitive;
having some sort of coherent
policy around remedies,
meaning the best remedy in some cases
is for the government to block a merger,
not to let it through with
an ineffective remedy.
- Great, Luigi, let me bring you in here.
What do you think?
- So I think that in this space,
especially in digital platforms,
some of the obvious conclusions
that we know from Economics
101 don't seem to apply
or don't necessarily apply.
So the idea, for example,
an acquisition that by an incumbent
of a new entrant at a high multiple
will lead to more entry, more innovation,
is something that we give for standard
in neoclassical analysis.
However, in a recent paper,
we actually show that once
you introduce two elements,
switching cost and networks analytics,
this may not be true, why?
Because if I am a customer
of an incumbent platform,
and a new one comes around
with some attractive features,
I might be not tempted
to explore the new one
if I know that eventually
it's gonna be bought
and incorporated into the incumbent.
So if I know for sure the incumbent
is gonna incorporate all
the best new features
by buying them out and make
it easy for me to adopt,
I'm not willing to pay the switching cost.
And if I'm not willing to
pay the switching cost,
the new entrant will
not have enough eyeballs
to be valued in the market
and so will not be paid a match,
or if anticipate this, will
not even enter to begin with.
So by making easier for the incumbent
to incorporate everything, we
are making it more difficult
for new innovation to come along.
Now does this mean we should
prohibit all new acquisition?
Of course not, but I think, first of all,
it's something we wanna
think very seriously,
and, second, we wanna think
maybe about the possibility
of changing the burden of
proof in situation of mergers
when digital platforms are involved,
especially in light of the
fact that these are markets
that tend to tip in one
direction very easily.
And so if we allow an
acquisition at the right time,
it becomes universal.
So I think that if today
we tried to go back
and undo the
Instagram/Facebook acquisition,
I'm not so sure that we
have the same benefits
that we would have had had
we stopped it at the time.
And why, because as Tim was
describing earlier at lunch,
is there was a moment in which, actually,
Facebook was vulnerable,
so there was a possibility of competition.
Now Facebook is very entrenched,
so once you sort of are trying to undo it,
I don't think it's
gonna be very effective.
So I think in this particular cases,
given the enormous amount
of power in many dimension,
and later in the
conversation I'm gonna talk
about the political dimension,
which is very dear to me,
but given all these elements,
including the political
dimension of platforms,
I think that adding a system
that gives them the advantage
of litigating to that
and basically make sure that
nothing gets done is excessive,
and we should actually
shift the burden of proof.
- So, Koren, let me turn to you.
Putting on your lawyer hat,
so comparative advantage
of the rest of us on,
or the rest of them on the panel,
(everyone laughing)
in thinking about practicalities
and legal structures here,
what's the case for/against
a different rule
for nascent competitors,
or tech platforms, more generally?
Should we be altering our
rules to take into account
some of these specific economic factors
that have been identified?
- Sure, so thank you to Eleanor
and the other NYU
professors for inviting me.
It's a privilege to be here.
So I'm aware of my likely audience,
and I'm gonna try to ask questions
so that we have a discussion.
And I'm gonna try.
I do have some views.
You know, on nascent acquisitions,
I'm gonna talk mostly about
some of the proposed legislation
we've seen from Senator
Klobuchar and others
to either ban certain acquisitions
or create presumptions of
legality based on market share,
and so I have four main points.
The first is that I think we
need more evidence, right?
That without substantial evidence,
we really risk harming consumer
welfare and innovation,
including deterring startup activity.
So why don't we wait for the results
of the FTC's new 6b study, right?
They just launched this big study.
Why don't we wait to have some evidence
so we can base our policy
and laws on evidence?
Some things that I would
like to know, for example,
are startups may engage
in strategic behavior
to make themselves look
like viable competitors
so that they're more
attractive acquisition targets,
but when you actually examine
the incentives and abilities,
it may be that they don't
have any concrete plans
to actually enter independently.
So we need to know this.
We need to study the strategic behavior
to the extent it's happening.
The other thing is
that I think we need substantial evidence,
and we can't just assume that firms
would have been successful
but for a merger, right?
Acquiring firms do provide
substantial resources,
know-how synergies
that can really make
these companies a success.
The second thing is
that I think the existing
studies that we have
and that the ones we generally
rely upon are drug studies,
and I don't think that
they are generalizable
to digital markets, right?
As we all know, in drug markets,
they're highly regulated,
they're standardized,
they're well documented,
you have set milestones,
and you don't have any of that, generally,
for digital markets.
The other thing is that in drugs,
it's usually pretty straightforward
how to identify substitutes
based on functionality,
whereas we don't have
that in digital markets
because the products are
generally highly differentiated.
Third, let's say we did have a systematic
so-called "killer acquisition problem,"
then doesn't that also necessarily mean
that we believe that
we have routine entry,
and thus monopoly power may
not be as durable as we think,
and it might be subject to disruption?
And, fourth--
(audience member speaking faintly)
(chuckles) No, I guess not.
Not one person says no.
(audience laughing)
The other thing is that, to me,
it seems not quite right
to base success and
exponential output growth,
to make that the basis of,
to make that evidence of
anti-competitive effects, right?
When we're talking about antitrust,
we're talking about reductions
in quantity, quality, and innovation,
and transfers away from
consumers to producers.
And so my last point, relatedly,
is what are we looking for?
It's just not clear to me.
Former longtime economist
at the FTC and now professor
John Yun, posed the question.
Let's say that we take
Facebook and Instagram,
and we say that the
post-merger conduct is evidence
of an anti-competitive outcome.
Well, what would a pro-competitive
outcome look like, right?
So let's suppose that Facebook
had discontinued Instagram
a year or so after acquiring it.
Would we then say,
"Oh, Instagram must have
been a poor quality product
"and thus the merger was
benign," or would we say,
"Oh, Facebook was successful.
"It killed a potential competitor."
Or let's say that Instagram did grow,
but it fell below the
projected prior projections.
Again, would we say that Instagram
was an average product
and the merger was benign,
or would we say, "Well,
Facebook didn't invest enough."
So my question is, what
are we expecting to find
in order to determine whether a deal
is anti or pro-competitive?
I think if we cannot answer that question,
if we don't know what
we're expecting to find,
then we can't say that the agencies
are making systematic errors.
- Can I just, one point?
- Please.
- It's very easy.
You wanna see improved quality on Facebook
and quality is measured in
protection or investors' data.
We see a clear deterioration
after the mergers with Instagram,
all the protection of investors' data,
and that's a sign that
it's anti-competitive.
- So if that's right, what do you do,
and I'm interested in bringing
Joe into mind on this too,
what do we do with what I took
to be one of your comments,
which is, "Yeah, but now it's happened,
"and we didn't do it beforehand."
I took you to express some skepticism.
Maybe I just got my own standpoint
as an immoderate moderator
on this particular topic,
skepticism about whether
ex post enforcement
is worthwhile because you can't,
I mean, it's too late, right?
You can't fully restore
the competition before.
- I think the breakup
now might be too late.
What I would like to have,
and we'll discuss later,
is interoperability that
creates more competition.
I think that's a better way to handle.
However, she cannot say
that we don't have a way
to look at the anti-competitive behavior.
There is a clear way,
either price or quality,
and quality is deteriorated
massively in Facebook.
Facebook started when was it
was competing with MySpace,
started as the better privacy
system vis-a-vis MySpace,
and once it became a monopolies,
now it's so intuitive, now alive,
that we cannot even imagine.
I don't know why this is
not a sufficient metric.
- Yeah, can I just say,
one other aspect of that particular one,
if you ask what was the price
they were paying for it,
it was clear that the only
justification of the price
was an anti-competitive action
that they could have
developed their own platform.
- You're suggesting
looking into the premium
as a way of identifying--
- At least an indicator,
at least an indicator,
and you think about how is
that sector going to evolve,
and what are the potential kind of effects
of the kind that Luigi talked about.
I haven't found a persuasive reason
why at this juncture
you can't break them up.
You can't undo all the harm,
but it's not like you can't separate out.
They have separate platforms,
and so you could separate them out.
- And are you leaning also partly on,
look, there's doing good in
a particular transaction,
but there's also the deterrent effect of,
look, even if you can't
fully restore the competition
and even if it reeks
some harm on the target
to undo a previous transaction--
- Exactly.
- To have a focus,
everybody else's mind.
- I think you need some
ex post enforcement.
Maybe other people have views,
but I think you need ex post,
and you might call ex post
enforcement if they say,
for instance, that this merger
is going to lower the price
and then it raises the price.
I think you should
consider breaking them up
or at least imposing
other remedies like taxes
or regulations to say, "If you do that,
"you will be subject to some
kinds of ex post control."
- Thomas, do you wanna respond
briefly on this?
- Can I just ask a question?
So I'm interested in what your
evidence is that Facebook,
you know, the privacy is,
the quality has gone down
and also how you're sort of
defining what privacy we want?
To me, I feel like there's dangers
in relying on stated
preferences or survey data
and that when you look at
what consumers actually do
in the marketplace or
their revealed preferences,
it's very different.
- Revealed as by their
multiple choices they face?
(Luigi chuckling)
- Yes, if you wanna know when your kids
ever gathering in school,
you have to go to Facebook,
so you have no choice.
If you have monopolies,
you have no choice.
So I think that if you
preface the choices,
I don't know if my kids
come home today or not
because this could communicate
everything to Facebook.
Of course, I have to use
Facebook even if I don't want to.
- Thomas, you wanna come in on this
since you haven't said
anything about this topic yet?
But you're leading the
next topic, so, you know?
- Well, specifically on
the issue of data privacy,
the other thing that we've,
I mean, we have done a lot of research
over the past five years
on this specific question.
And then all the research,
both theoretical and empirical,
points towards the fact
that they are that
data-sharing externality.
In other words, the review preferences
you're gonna get from
one individual online
is not going to be the
one that they would choose
if they all choose together.
So once I show my data,
then I'm gonna influence
everybody else's choice,
and the buyer says, "But in theory,
"I'm breaking out towards
too much sharing,"
'cause there a there's a negative
data-sharing externality.
So you can then use
just inevitable choices
to motivate that, just to
look on the specific ones.
- So I'm gonna Diana a brief comment,
and then I'm gonna move on to the next.
- Can I ask, oh.
- Okay, so I'm happy to stay on mergers.
This is really just for my panel.
We have a collective action problem
'cause we're not gonna
get to the later topics
if we spend all of our time on mergers.
I'm happy to, but--
- I'll be fast on my comment.
I just want to sort of
tee up this dichotomy
that we have an antitrust right now,
wherein sort of the
infrastructure industries,
and telecom, healthcare, you name it,
we have a growing body of evidence
of evidence, right?
We're all looking for evidence
of harm and adverse effects,
but that body of evidence is growing.
It's growing through
merger retrospectives.
It's growing through the fact
that antitrust remedies are failing.
We now have this growing
list of failed remedies.
That's a failed merger.
We see that mergers themselves are failing
to actually produce value,
even for their shareholders.
So we have a growing body of evidence
outside of the digital tech sector.
It is really hard to ignore
that growing body of evidence
and the principles upon which it is built
and then say, "Oh, well
we don't have any evidence
"in the tech sector that
these mergers are harmful
"to competition and consumers."
So somehow these two bodies
of thought and evidence
need to be linked together,
and enforcers need to learn
and sort of cross-fertilize
over to the digital tech sector,
loss of choice, loss of
privacy, or loss of quality,
you know, the whole list of of ills,
and we're not seeing that,
and that needs to be leveraged
into enforcement on that side.
- And can I just add one thing?
Both Thomas' book and my book emphasize,
is the growing market
concentration across the economy,
so it's become a macro,
a systemic problem now in our economy.
It's not only that it shows
up at the individual sector.
It's sector after sector
that our economy is left less competitive,
and it's particularly
true in the United States,
is what Thomas argues, and
I don't wanna speak for you,
but that will have long-run implications
for the dynamic nature of our economy.
It shows up in many, many different ways,
not only in markups, concentration,
the entry of new firms,
the fraction of firms in
the economy that are young.
All these are symptomatic
of something not working very well.
- Just one last thing,
very short, on this topic.
I don't think you should think that,
so it's about making up?
Say you make a mistake in the past.
In that case, annoying
for some sort of merger,
and then the question is,
what do you do going forward?
Well, first, of course, you stop digging.
So you change to make sure the
merger become more difficult
on the burden of the proof
changes going forward.
But I don't think you should,
this is not the only
place in public policy
where you have to make up for the past.
I mean, I worked a lot on
monetary policy, for instance.
We are always behind the
curve in some extent,
and then we have plenty
of well-established firm
want to try to make it up.
Like, yeah, if you didn't
get the rights quick enough
or if somehow you fall behind
on your target for innovation,
that means for, yes, for
five years you will have
lower interest than you would otherwise,
and you make it up that way.
Somehow, why is it that in merger policy,
it's the only place where
you're gonna have this,
you know, automatic feedback?
- I mean, it strikes me,
just picking up on that a little bit,
that whatever you think
the right aggressiveness is
as to merger enforcement in big tech,
the optimal mix of ex ante
and ex post enforcement
is unlikely to be 100% ex ante, right?
I mean, I think it's a common place,
but I think we are somewhat,
at least in the U.S.,
caught in the thrall
of ex ante enforcement
at the expense of thinking
about going after things
once we realize that they
have anti-competitive effects.
Let me turn now to, you know,
pick up another, I guess,
thread from the discussion
we've been having so far
today about exclusion.
There's a lot different
ways of putting this.
One way is maybe to think about concerns
about potential conflicts
of interest in the role
and the roles played by some
of our leading platforms.
Google Shopping came
up as probably the case
that's furthest along in
the pipeline, in some sense.
Of course, Google ad
tech, Amazon Marketplace.
We have a few other examples
where concerns have been raised.
I think there's a concern among some
that U.S. law might be quite restrictive
or too restrictive in this regard.
Maybe is the law in the books?
We heard in the previous panel
about deference to product design.
Trinko's relatively narrow.
Liability for refusal to deal.
Susan, I think, aptly pointed
out in the previous panel
that the law is pretty
restrictive in the U.S.
So my question for this
group is, all right,
well, we're talking about
legislative change in this panel.
What, if anything, should be changed,
either as to the substantive
law, as in these examples,
or the standard of proof needed
to establish an anti-competitive effect?
So, Thomas, I'm gonna start with you.
How well are things going in the U.S.?
What, if anything, do
you think we ought to be
looking to change in
this particular space?
- So, I mean, we had a lot of discussions,
specific cases, and proposals, and so on.
I know it depends,
but I tend to view most of this question
through the lens of ease of entry.
I think that the thing
that's changed the most
over the past 30 years is
the fact that some markets
have become just very hard to enter.
And then if you think about, then,
the next question is, what are the,
so sometimes it's because of regulations
and sometimes it's because
of access to critical inputs.
The critical inputs today
are gonna be data and key human capital.
So once you think about that
as the overarching framework,
then just, for example,
that the distinction
between the harm that you would get
from horizontal versus vertical mergers,
they become much less different.
You could very well
imagine a vertical merger
that gives you much more
access to the critical inputs,
therefore, raises by 2024, everybody.
If you think that the harm
is from non-price harm, from innovation,
again, that's gonna
follow the same pattern.
If you think that the
key is access to data,
and it's not data in general.
Like, this access to whole
data, that's not useful.
What you need access to specific data
that allows you to know the
intention of the customer.
That's everything, and it doesn't matter.
So it's the bottleneck where
you can know the intentions.
Same thing, if that's the key input,
and that's what drives barrier to entry,
and, therefore, market power,
that could be increased by just as much,
by vertical versus horizontal integration.
So I think that's the key.
And then if you get the data,
then, on the other hand,
to me, so one thing I show in the book,
which I thought was interesting,
was if you look at the history
of entry across industries in the U.S.
and you look at the past,
those same things, 1970,
then one fact that has changed a lot
is the extent to which there is more entry
in firms where profit margins
or valuations are high.
So, in other words,
when the Chicago School
was making the argument
that you don't need to worry
about excessive monopoly power
because it's transient, it
was actually true in the data.
So if you look at the tech data from 1975,
rank all U.S. industries
by their profit margins
or the excess valuation of the market
relative to the book
value, like Tobin's q,
all measure you can like,
you're gonna find a very tight correlation
between entry rights, say,
between 1975 and 1980,
and this excess valuation, 1975.
Exactly as you would hope or predict
in a competitive market anywhere.
Today the problem is that
correlation has become zero,
so, to me, that's the key issue,
and that's the lens through
which we should see the,
many markets that is
not contestable anymore.
- So focusing, you know,
trying to keep us on the
big tech frame a little bit,
into the extent that.
- That all was in tech as well.
- And I didn't wanna focus on that.
To the extent that one
or more platform market,
in your view, are not contestable,
what's the answer here?
Is it a digital regulator?
Is it some kind of insistence
on interoperability?
- Oh, interoperability, so, yeah.
In terms of the regulation,
interoperability and portability of data,
I think that this should
be a starting point.
I don't know about the dedicated,
I mean, I tend to view it as a European.
It seems that in Europe, we
managed to do quite a bit
in many of these markets, not all.
In fact, in the big tech is one
where we don't think we are
that successfully, actually,
without changing so much
the basic principles.
We still have a proximal first on that.
We have a regulator, which look like,
you know, it hasn't changed that much,
and I think you can still do
work within that framework,
so I don't have a strong view
on whether we need a
specific regulator for that.
- Other reaction on this?
Luigi?
- I am a big fan of
data portability factor
of a common API for many digital platforms
because I think that
Thomas is absolutely right,
that the existing data
represent a huge competitive advantage,
but from an economic point
of view, we know the data,
at least one characteristic
of a common good, public good,
that is non-rivals, so many
people can use the same data.
So the fact that you
have a monopoly of data,
very often acquire as a
result of transaction.
The fact that I cannot transfer
my data of my transactions,
say, Citigroup, to
another potential lender,
I think is really hurting
competition in a major way.
So the ability to transfer these entities
in the open banking directive,
in Europe and in the U.K.,
is very important, but
you can go even farther,
and it's just part of
what makes it difficult
to compete in social platforms,
is the fact that you
don't have the portability
of your social graph.
If you make it easier to
have this portability,
I think that competition might arise.
So I think one of the
reason why we don't see it
is because even if, in principle,
this is sometimes is open,
Facebook can block it
at any moment in time.
You will never start a business model
where you're gonna use
effectively that open API
because the moment you become a threat,
Facebook is gonna close it,
so you need to have a law that says
you have to have not only an open API,
ideally, a common API,
that is, by the way,
what Amazon does inside Amazon.
The reason why Amazon is so effective
at starting and closing a new business
is because early in the 2000,
Jeff Bezos issue an edict and said,
"Every business should have a common API,"
and so they interact
through this common way
to get the data from that
different part of the business.
If you aren't divest, or
not divest, the business,
it's very easy because
they're like piece of LEGO
that connected by this,
and we don't see why we
cannot do that more broadly.
- I gotta say when you
started, maybe I misheard,
one way of interpreting
where you started was that
my personal data is a non-rival risk.
It makes me nervous, right?
Because I imagine that thing
is indicated here and here.
I mean, this, of course,
was playing into the defendant
argument in these cases,
that interoperability
from a privacy standpoint
might raise some concerns.
I wanted to turn to Diana.
I think she had some reactions here.
- Yeah, I just wanna add a couple
of points of nuance to the
discussion around data.
So the digital platforms
are fueled by data.
These ecosystems of
interconnected markets work
because of data.
It's leveraged from market
to market to market,
and the way it's leveraged
and the way it holds
the ecosystem together
is through the data,
but we're not just talking
about data, raw data,
and the collection of raw
data, and caches of data.
We're also talking about
data processing capability.
So if you look at Google, for example,
that's all machine learning.
That's pumping data through the system,
applying artificial intelligence.
The machine learns over and over and over
in an iterative process.
So process data, I think,
from an antitrust standpoint,
a competition-forcing standpoint,
presents potentially different
issues than just data caches.
For example, mergers
involving combinations
of big data sets, or raw data,
may pose barriers to entry.
Process data or process
data processing capability,
I think, potentially
poses different problems,
like leveraging and
foreclosure, across markets.
So that's one thing.
The other thing,
distinction that's
really important to make
in the digital platform space,
is we're dealing with two
very different models.
One is the B2B market, right?
So this is businesses, for example,
that go to Amazon or Microsoft,
or now Google, now that
they've acquired Looker,
and they want cloud
computing services, right?
That's a B2B transaction.
Most of the media, and
the press attention,
and the concern is in the B2C markets
where consumers are, their
data is being abused.
They have no protections.
That's a B2C problem.
And I don't think we think
enough about those distinctions
and how competitive problems arise
in both those types of models,
but they're very different
implications for antitrust.
- Let me get Joe and
Koren in here. Yeah, Joe.
- So, first, I'm going to go back
to you might say classical
industries, before AI,
and a lot of the problems
we're facing today
were problems that were there,
but AI and the characteristics
of the new sectors exasperate them.
So, for instance,
contestability theory
never made much sense,
and you can show markets
are not contestable
if there's even epsilon sunk cost.
But, of course, this is a sector
where some costs are very large,
so the presumption is that
markets are not contestable.
So that whole theory needs
to be totally put aside.
Secondly,
the welfare consequences
of vertical mergers
are adverse
if there's imperfect
competition horizontally.
So a lot of the theory was
developed, of vertical mergers,
where there's a very strong competition.
But when we have only
two or three providers
and then you start
having vertical mergers,
we know even without
going into the new sectors
that that has very adverse
welfare consequences.
So we should remember that
the theory that a lot of,
you know, the Chicago theory,
was all based on strong competition.
That's just not true in any of the sectors
that we're talking about,
and so that should make us
at the beginning very skeptical
about these vertical mergers
or about going into conflicts of interest
that the sector's become rife with.
The point that Diana made
I think is really important when it comes
to the issues of interoperability.
Some of the tech companies will say
they're perfectly happy
not storing any data,
but they embed the data in their programs,
and so they could actually
destroy all the data,
but since their machine learning, AI,
has already incorporated that data,
that gives them the competitive advantage
that is the entry
barrier for anybody else.
- And that would undermine portability
as a solution, presumably.
- That undermines
portability as a solution.
What I'm saying is particularly,
to focus on what Thomas said,
is that a big issue is entry barriers.
If you've already incorporated that
and then you destroy it, the data,
and you say, "I don't have any.
"I can't give it to you because
I've already destroyed it,"
and, "It's embedded in my program.
"I can't even tell you where it is.
"I don't even know where it is,"
that really gives you
a competitive advantage
and makes entry more difficult.
- So let me try to pull us back in
on what is to be done therefore, right?
So let's rant for a minute.
Let's assume that it's the case that
the ongoing and massive investments
in AI and machine learning
techniques, right,
are pro-efficiency, pro-innovation,
are contributing to the position
of a Google, or a Facebook, or an Amazon,
by dent of magic language
for some in there with
sort of skilled foresight
in the industry, right?
And so we think there's no chance.
Let's imagine a straightforward
section two case
with respect to this, right?
Basically antitrust is
essentially off the table,
holding to one side the possibility that,
notwithstanding Trinko,
there's an essential facilities
claim out there, right?
But let's imagine that none
of the other exceptions,
for legal geeks in the
room, apply within Trinko.
There's not a change in course of dealing.
There's not inconsistent treatment.
It's just a really powerful
position that was achieved,
again, by dent and skilled
foresight in the industry.
And so then we're left thinking
about no-fault monopoly.
My colleague Eleanor
Fox is in front of me,
so I'm gonna talk about no-fault monopoly.
Is that something we
should be thinking about?
Does this start to look
enough like a natural monopoly
that we should start dusting off
an old telecom regulation playbook?
Think along those lines.
I'm coming back to the digital regulator,
you know, in that respect.
What do you all make of this?
What's to be done if that is
sort of the state of play,
which it sounds like.
From what some of y'all are saying,
that might be the case.
I'll come back to Joe for just a minute.
- Yeah, I agree that we are in a situation
where you have to think of
regulating these as natural monopolies,
thinking of these as natural monopolies,
and what do you do with
a natural monopoly?
So I think the European standards
of abuse of monopoly power
ought to be incorporated
into American law.
So I'm not talking now
about what the law is,
but I'm talking about what
I think the law should be,
that, and again, there are parallels
to what has happened in other sectors
when somebody's got a
monopoly on drug prices,
on a drug, whether legitimate or not,
and raises that price
1,000% over marginal cost.
That's an abusive mark of monopoly power.
This sector has much more potential abuse
for market power in a
whole range of areas:
privacy, political manipulation,
hate speech.
I mean, both what it does
and what it doesn't do.
And I'm gonna say, at a more fundamental,
as an economist, one of the
more fundamental problems
is it to engage in price discrimination.
And one of the things that we
teach in our basic economics
is that what makes for an efficient market
is that everybody faces the same price,
or the marginal benefit and marginal cost
for everybody's the same.
And they've destroyed that
by the ability to to target:
target pricing and target other things.
So the potential harm,
and I haven't listed
all the potential harms,
we talk about a market of ideas
or a market of information.
Markets are transparent.
This is a very non-transparent market,
and you don't know who is being targeted
with what information,
and with what effect.
- You're not saying price
discrimination's all bad?
- I think the presumption should be
that price discrimination is bad,
and I think there are
some cases, you know,
obviously if it's cost-justified
price discrimination,
and there are some cases where you can say
it's related to some
recovery of fixed cost,
there's an argument there,
but price discrimination of
the kind that we're seeing,
I think should be presumptively bad.
What we know is going on,
one of the questions I've asked these guys
is we know that they engage
in pricing defective,
which has racial consequences.
They say they can't even tell
whether they're engaged
in racial discrimination,
and they say that they can't
even provide the models
with which we could ascertain
whether they're engaged
in racial discrimination.
They're saying, you know,
"These are just machine learning,
"and they've come up with these results.
"We have to live with the consequences,"
and I say we don't have to
live with the consequences.
One of the things that other countries
are thinking about doing
is demanding at the minimum transparency,
that you have to reveal your,
at particular moments of time,
enough code that we can test
whether the effect of what
you're doing is discriminatory.
- Let me get Koren, and
then turn to Thomas.
- Of course.
- So kind of reflecting
on what you've heard
across both thinking about
exclusion, exclusionary conduct,
but also some of the, you know,
what are backing into proposals
on no-fault monopoly, right?
Sort of leads us toward ex
ante regulation as opposed
to the usual ex post mode
of antitrust enforcement
that I think is perhaps more familiar
to a lot of people in the room.
What do you make of this?
Is this a frolic and detour
or is it something that we
should be considering seriously?
- So I have so much to say,
but (chuckles) I will try to limit myself.
I mean, I am concerned
about ex ante regulations
because I think that
they can be very rigid
and lacks the flexibility
of our existing antitrust
and consumer protection laws.
Coming back to, I'm trying
to think what to respond to.
(Scott chuckling)
Okay, you know,
I'll just talk about a little
bit of self-preferencing.
I think, again, we need evidence
that the question of harm
with self-preferencing
is an empirical question, right?
So let's take Google, for example.
You cannot say whether Google
has a competitive advantage
in terms of economies of scale and scope
such that an equally efficient
competitor cannot compete
unless you know,
unless you know why Google is a success,
why Google has such good
search results, right?
Some people say, "Well it's data.
"It's definitely data."
Well, we do have evidence from
Catherine Tucker and others
that it's not volume that matters, right?
That it's how you use that data,
how effective you are.
I think another area of evidence
is we need quantitative evidence
on user switching behavior.
Having some evidence about how consumers,
how often they multi-home,
even for some of their search results,
could really help to answer the question
of what degree of independence Google has.
Coming back a little bit to,
you know, the other thing is that
I think that we're moving away
from sort of focusing on
things like coercion for time
and almost punishing like a
behavioral nudging standard.
So we're saying that,
and that, to me, sort of essentially asked
whether consumers are making
the right choices, right?
So unless you have evidence
that informed consumer
choice is just not possible,
then intervening is really
the government saying,
"Your choices is wrong,
"and we're gonna overrule your choice,"
and, to me, that's not what
competition about, right?
Competition is about championing
consumers' preferences
by forcing producers to
honor consumer choices.
- All right, I'm going to get Thomas,
and then Luigi, and then Diana.
- Yeah, I just wanna go back
to your original question,
going back to the natural monopoly.
So I think then, first of all,
I don't think we should ask that question
for the whole tech sector.
I think it's very different for Google,
Facebook, Amazon, and Apple.
And the second point is,
it's the case that the antitrust toolbox
is not the right one
going forward anymore.
I think there's no question in my mind
that we're going to need
some more regulations,
and different regulation,
that you can't do everything,
yeah, antitrust or merger control.
I think that's very clear.
But I'm not that pessimistic in the sense
that it is just not true
that the scale to be efficient at AI
is such that there's
room for only one firm.
Let's just factor that
into point number one.
Point number two, in
many of the tech, Amazon.
Amazon has two businesses
completely independent: AWS and retail.
In retail, they are three
exit on the way of Walmart,
not 10 miles away,
in terms of market where you can see it,
in terms of prices, in
terms of efficiency.
They're just a bit better,
but it doesn't take that much
for these guy to compete,
so I think the other
issue is not that big.
The digital advertising
market is different,
and I think that one
needs specific answers.
That it's not across the board.
- So if you were figuring
out which of these
is the most worrying to
you, you'd start with--
- I'm not worried about Amazon, no.
No, because I think they
have a monopsony power issue
that is fixable because
it's not core business.
I think that in the retail path,
there is really good return
compared to other that are very close by.
If you look at prices,
they are very close.
They haven't raised their prices.
If you look at capital expenditure,
they are in a complete environment
where they feel the need to
keep investing like crazy
just to stay ahead of the curve.
I'm not worried about that part.
The cloud, very different.
So it's so nascent
that I think it's very
hard to judge as of now.
I think digital advertising
and keeping track of people
across different platform,
it's a whole different world.
How do you find a solution?
- Luigi.
- So, there's one thing
I agree with Koren,
that we need more evidence.
The problem is that in
order to this evidence well,
you need access to the data
that digital platform have,
and the digital platform use the data
to give it to their friends
that are gonna find all
these sudden results,
and this is going to destroy
all the evidence and also academia.
I give you a simple
example with Uber, okay?
If you are pro-Uber, you get Uber data,
and you're gonna find
results that in favor Uber.
If you are trying to find something
that is negative about Uber,
for example, how many people
are killed in accidents,
you don't have access to Uber data,
and every paper you write is rejected
by people who are at Uber
or associated with Uber
because you don't have the
best data, which are Uber data.
And so, basically, if
you are in that space,
either you are a friend of
Uber, or you don't get tenure,
(audience laughing)
because you're not
gonna publish any paper on that, okay?
So this is the leverage
of the power of data
to capture academia in
the most dramatic way.
That's the reason why we
need a digital authority
that forces openness to the data
to all academics in the same condition,
because otherwise the
big companies will decide
who are gonna be the
next academics out there.
(audience applauding)
- A lot of academics looking for data
in the audience.
(audience laughing)
(laughs) I didn't expect that to be
quite so big an applause line.
Diana?
- Sure, so can we just all
admit that, as a group,
that this is not all an
antitrust problem, right?
This is what Professor Stiglitz
has described very well a few moments ago,
is a public policy problem.
So I think declining competition
in general is a public policy problem,
and it requires a public policy solution.
I think that digital
platforms, in particular,
are a public policy problem.
And part of the frustration
in the antitrust community
and this raging debate around us,
which is a terrific debate,
we're very in it, my organization,
is that we're trying to to
task or load up antitrust
with more than what was
it was intended to do,
and more than what it can
do by the design of the laws
and the constraints that we
face over the last 130 years.
So I think the sooner we admit
that these are public policy problems,
we can then migrate to a frame
of a public policy solution
where we're looking at the antitrust laws
and how they can be applied.
But we're also looking at
regulations potentially.
Economic regulation, social regulation,
is probably the best candidate
to deal with privacy issues.
Antitrust isn't gonna
fix the privacy issues.
- So let me pick up
where Diana's left off.
This is also picking up, I think,
on one of the things
from the previous panel,
which is what are we supposed to be doing?
What's antitrust about?
What is it that it's maximizing?
I'm gonna start with Koren on this.
There was a lot of discussion at lunch
about the consumer welfare standard.
Tim said, "Look, we've
unduly elevated it."
We heard some pushback
from different perspectives
from both Tad and Steve,
sort of bringing us back
toward consumer welfare.
So I guess just to open
things up for Koren,
I mean, is consumer welfare really
just about consumer prices and output?
I think Tim conceded as
a primary counterexample
was Microsoft, which is
not a price case, right?
It's an innovation case.
So at least we have one really large
important section two case
that was about the kinds of things
we think effective antitrust
enforcement oughta be about.
And if we were gonna change
it, what would we change it to?
So let me start with you.
- Sure, I mean, just to quickly respond
to the renewed sorta,
the renewed concentration
contention problem
that I've heard,
so I think there's problems
with the literature,
but let's assume that
we had a concentration
or competition problem,
that the aggregate statistics
that folks are relying
on is really tangential
and perhaps even irrelevant
to whether particular conduct results
in anti-competitive harm,
and that's what we're
worried about here, right?
Whether a particular conduct
is harming consumers and competition.
So to answer your question,
I agree with the last panelist
that consumer welfare
standard is a broad standard.
I think it really values
what consumers are willing to pay for.
Very importantly, it tethers antitrust
to the methodological rigors of economics
in terms of theories can
be tested and rejected.
So I'm very concerned with a lot
of their proposed alternatives
to the consumer welfare standard.
I mean, I think that
they're not administrable,
but I also think that they would impose
subjective notion of what a fair
or normal competitive
process might look like.
When I was at the
Federal Trade Commission,
we would travel the world, mostly in Asia,
where they consider
non-competition factors
and really talk about the dangers
of trying to incorporate things
like employment or equality.
The fact that it's
difficult enough to weigh
and balance anti and
pro-competitive effects
across the single market,
but how do you weigh anti-competitive,
or, sorry, competition and
non-competition factors
across all kinds of markets?
And these public policy considerations
may actually undermine consumer welfare.
So let's say you had a merger,
and you condition the
approval on maintaining
specific employment levels
or local procurement.
Yes, you might benefit workers
or producers in the short run,
but it might come at the
cost of higher prices
in a less efficient
economy over the long run.
So we've really for a long time,
the US government's been
out there, DOJ, FTC,
talking to foreign
agencies about the dangers
of really considering these
non-competition factors.
And I know people are, the
enforcers I've talked to,
were very confused why, you know,
why has the U.S. been teaching
this to them for decades
and then now it seems like so many people
are upset with the
consumer welfare standard.
- Luigi, you got a reaction on this?
- Yes, I think that, again,
I agree with one principle of Koren,
which is the one that
say that the antitrust
should be administered all,
and I think that that I see
the biggest contribution
of the so-called Chicago School,
is that they try to force the discipline
of any, some rigor, some logic,
and economics is very good
because it tends to force a logic,
and I think it's the great thing
about the consumer welfare.
Now nothing prevents to
have some other objectives
with the same level of
rigor and systematicity.
So I give you an example.
I've been to Chile recently.
Chile is always sort of
shown as the greatest example
of application of Chicago
economics to reality,
and they've done a lot of things right.
I'm not complaining.
However, it's funny
because in every industry,
there are two or three producers,
they are linked by blood or marriage,
and they all collude.
When I went there, I
read verbatim Adam Smith
because Adam Smith has a passage that say,
"Rarely man on the same train,"
at the time were only man,
"meet, even for enjoyment,
"that they don't conspire
and collude," okay?
In Chile, this is so obvious.
For example, I give you an example.
In the market for electricity,
I spoke with one of these oligarchs,
and he said, "Oh, these
perfect competition.
"Every time we have an auction,
"and everybody from outside
of Chile participate,
"and surprise, surprise, we win.
"We have the lowest price."
And then I spoke with
somebody else that said,
"Yeah, you know how the
auction is designed?
"That the contract is,"
I'm exaggerate a bit,
"starts tomorrow, and you
have to offer the counter
"from tomorrow for five years."
Now nobody has the capacity
to offer the counter tomorrow,
so surprise, surprise, the incumbent win.
So the part that the traditional
Chicago antitrust misses
is the power, ironically,
because, at the same time,
Stigler was there and
was saying they capture,
is the capture that comes from
being highly concentrated.
And Chile is the leading
example of how concentration
leads to capture, leads to profits,
and leads to a self-perpetuated circle.
So I think that we need to introduce
this aspect into an antitrust,
and I don't wanna attach the
consumer welfare standard
because it's love here.
I wanna add another thing
that I call citizen standard
that I am concerned about, for example,
having only one producer of TV, okay?
Maybe the price is low, is
the best price possible,
but if yours only one
guy offering the news,
that's called the "Pravda,"
and I don't like it, okay?
So I think that there
should be a citizen standard
that should be applied,
and modern political economy is very easy
and very good at elaborating
criteria and, actually,
for to advertise, in the Stigler Center,
we'll have a conference on
the 14th and 15th of May,
trying to actually discuss
how to implement it,
how to make administrable a standard
that is different from the
consumer welfare standard.
- Luigi, can I just follow up once,
and then I'll get Joe in.
Even if I hadn't heard what you said,
I would still not like having
a highly concentrated market
for reasons has nothing to do
with politics or citizen welfare.
Can you help me see a
distinctive implication,
like a case that comes out differently?
Because if I say,
"Oh, we should condemn
this three to two merger
because citizen welfare,"
because they don't want two "Pravdas".
I'd rather have three or something.
You see where I'm going, right?
I mean, economics
delivers the same results.
- No, no, no.
You have a--
- Give us an example.
- A very simple example.
Many of you here are familiar
with the reform of the consumer
bankruptcy law done in 2004.
And my reading of the
literature is that everybody,
including the Republican senators,
were shocked by how much the industry
steamrolled everybody in
Congress to get their view, why?
Because in the process of being
a huge consolidation of
the banking industry,
so they speak with only one voice.
And imagine you are really
a congressperson or senator
who wants to do the right thing.
Occasionally, there are a
few that want to do this.
You need to listen to two or
three different voices, okay?
Lobbying is not that terrible
if you have different viewpoints,
and they lobby against each other,
and maybe the truth
might prevail at the end.
That's what we believe in academia.
But if you have only one voice,
there is no chance that you're
gonna get the right result.
It's like in academia,
we're going that direction,
we all do all finance by Google,
so all the working privacy
would be all financed by Google.
We're gonna have one voice in academia.
It's not gonna prevail;
the truth is gonna
prevail what Google wants.
I think that that's a
problem of concentration.
That I think is, actually,
Siebel, for example--
- So it seems like--
- Sorry.
(audience laughing)
I give you a concrete measure.
Where do people go when they retire?
If every FTC commissioner go
and work for the same firm,
and the revolving door is still a thing,
then you're back to Berlusconi,
that basically all, they're
member of Parliament.
You have a vertically integrated version,
and it's not good, okay?
- So that took an unexpected turn.
(Luigi laughing)
(audience laughing)
I was just gonna offer one
way of rendering concrete
what you're saying about
the bankruptcy statute,
which, I take it, one
place to go would be,
if you had distinctive implication
would be if you had
firms that were competing
not in product markets but in lobbying.
Let's imagine it's a non-horizontal merger
of an investment bank and a
commercial bank, you might say,
"Well, look, they're in
different lines of businesses.
"We don't mind," I don't know,
"Citi and Travelers getting together."
But if they had previously checkmated once
in one another in Congress
and ceased doing so,
that that would be an example
of the kind of harm that you have in mind.
- Perfect, in fact, in my book,
I use actually Glass-Steagall.
I used not to be a
supporter of Glass-Steagall,
and then I thought, actually,
Glass-Steagall was
useful in many dimension.
One of this is exactly this:
to create different
interest in an industry
so that the different interests
will compete against
each other in lobbying,
and they will favor the truth.
- Let me get Joe in here
and then I'll turn back.
- So just a couple comments.
One is that our models of the economy
are sufficiently imprecise
that we can't really be very confident,
but one of the things I think that we,
our intuition is, that
if we have many firms,
I could get more innovation
than if we have one firm.
This is what I think you
were trying to get at, Scott.
In some ways, the fact that
there are many arguments
for having diversity, we
talked about biodiversity.
There are many reasons
for having diversity,
and the one that Luigi raised
is probably the most important.
But even from a narrower
economic point of view,
you want economic diversity,
and the consequences of not
having that are very severe
in that we don't really internalize
the lack of the adverse consequences
from the lack of diversity.
The second thing I want to say is,
you probably discussed this earlier.
I wasn't here.
The consumer standard doesn't look
at the performance of
the economy as a whole.
It's trying to make our whole social,
political, economic system
work as best as it can.
We're only working on some levels,
but trying to create a competitive
marketplace is important
and the consumer standard
doesn't really reflect
all the dimensions of a
competitive marketplace.
I also think that one can use rigor
in going beyond
the consumer standard.
We talked before about how a monopsonist
can drive down producer prices,
and some of that could be
passed on to the consumer,
but it's still not a good market economy.
It's a distorted economy,
so looking just as
consumers I think is wrong.
But I was involved in,
you know, South African competition law
takes a broader public
interest perspective,
and they were concerned
with the entry of Walmart
would have an adverse effect
on small producers in South Africa
and particularly Africa producers.
Their view was that that was something
that was a first order of importance
in their social,
economic, political strategy.
And so within their competition law,
they required for when Walmart came in
that it had to provide assistance
to make sure that the small
African agriculture producers
were integrated into their producer chain.
And the interesting thing,
after the case was over,
there was a lot of
money that went to that.
Walmart said it was
actually good for them,
that after it was over, they bought,
but after, they said, well,
actually it turned out
that like CRA lending
in the United States,
that after they got over the fixed cost
of doing this, it actually
made for a better economy.
So I think it is done
within the competition law,
and I understand the concerns
about going beyond the narrow confines,
but I think that there
are things that we can do
within the confines of competition law
to advance a broader
view of public policy.
- Right, I'm going to turn
to Koren and then to Diana.
Before I do that, I
just want to point out,
sort of highlight something
that I think Steve Sala said
in the previous panel,
it was really in passing,
which is that in between consumer welfare
and a kind of full on public
interest standard, right?
We just heard about as to South Africa,
there are a bunch of
intermediate positions, right?
And you can think of consumer welfare
in biocide cases as being,
well, we say consumer
but we don't mean it.
Sometimes that's rendered explicit
by talking about trading partner welfare.
Then in the biocide case,
we worry about lots of rivalry
that transfers resources from the sellers,
having predictable distortive effects
to the kind that the
Joe was talking about.
Koren.
- So, again, so many
responses to everyone,
but a lot of, you know, anyways.
So okay two points.
One, I wanna push back on the idea
that, again, assuming we
had a concentration problem,
that concentration is bad, right?
I mean, we've had this debate years ago,
and Demsetz and others sort of settled it.
There's really no empirical basis
to presume any systematic relationship
between market structure,
competition, or innovation.
And the second thing is,
with respect to the South Africa case,
I'm not sure how you're defining
sort of a better economy
as a result of these behavioral condition,
but there is a nice
OECD paper that studies,
it does a study of deals of countries
where they're imposing
non-competition factors,
like employment or equality,
and they find that there's
actually many more cases
of approving anti-competitive deals
than there are the opposite.
So, you know, I'd take a look at that.
I think that OECD study's interesting.
- Briefly from there.
- Yeah, I think until we have
a Democrat in the White House,
and a Democratic House,
and a Democratic Senate,
we're not gonna be getting
any antitrust reform,
really, to speak of, unfortunately.
So we're stuck with the standard, right?
And whether the standard
needs to change or not
I think has been debated
here, but what I will say is
the agencies and the courts
have a lot of latitude
to adjust how they apply the standard.
It's applied very
asymmetrically right now.
I mean, the economist kinda swooped in
and took over static
price effect analysis,
and that's been a favorite
for the agencies and for the courts.
But on the efficiency side,
what we've seen over time,
if you look at swats of merger cases,
is, really, just an
expansive receptiveness
to dynamic efficiencies,
static efficiencies,
and all unproven, right?
I mean, this is really a
perversity of antitrust law.
There is no mechanism for holding
merged companies feet to the fire
on proving that they actually
produce their efficiencies.
And the agencies will tell you, of course,
that they consider that,
but I'm talking about looking at companies
that have engaged in successive merger
and why can't the agencies
actually query them
in their investigations about,
well, did you actually
produce these cost savings?
Did you actually push out the demand curve
so that more consumer
benefits could be realized?
I don't think that component
has been fully fleshed out.
So some rebalancing of the standard
on both the competitive effects side
and on the efficiency side is in order.
- Great.
- Can I just say on the consumer?
Because it's a very American debate
in the sense that if you go to,
I mean, if I think about
Europe of the past 20 years,
I think mostly what we've done
is we started enforcing a smart
consumer welfare standard,
and it had amazingly good results
in many industries in Europe.
Now there are maybe three
industries in the U.S.
where that doesn't work,
and maybe you didn't adapt
it or reinterpret it,
but I think as a benchmark
is just wonderful.
Many of the good decision we've taken
at the national level, at the EU level,
were 100% let's just take
care of the consumer,
and I think it led to external outcomes,
many fewer political economy issues,
like Luigi was saying.
So I think, by and large,
it was just a great idea.
- So I kinda want to stay on this idea of,
we have a little bit of
a theme here, I guess,
of economists moving beyond
relatively narrow accounts
of economic effect.
Broaden that lens a little further
to think about concerns
about political power
as part of what we do
when we do antitrust.
I think most folks in
the room are familiar,
we talked a little bit already
about the idea that the
Sherman Act was premised
in part on concerns about
concentrated political power.
I teach a one hour reading group here
on big tech and Standard Oil,
and part of what's fun about it
is to sort of dig back into the history,
and by dig I mean we read excerpts
from Chernow's terrific
biography of "Titan,"
of "Titan," the terrific
biography of Rockefeller,
and how you have control
over the political process,
which was, of course,
part of what was animating
the tenor of the times.
You know, Luigi, you've
thought about this.
We talked about it a little bit, I guess,
in the context of citizen welfare
and the avoidance of "Pravda,"
but, you know, wondered if you wanted
to spend a little bit more time on that.
- Yeah, I think that we do expand,
at least some of do expand,
beyond the narrow limits of economics
to understand that, first of all,
political freedom does not
exist without competition,
and I think that without
economic freedom in general,
and this is an idea that is very much
in "Free to Choose," Milton Friedman,
so I'm on a solid ground here.
I've got sort of an extra step
that economic freedom does
not exist with monopolies.
So let me make here maybe
an old fashioned example.
Suppose we're in a war to
steal over our printed press.
If I own a monopoly on paper,
I might price it at the
most competitive price,
but if somebody who I don't
like want to print a newspaper,
I don't sell the paper, and
the newspaper is not printed,
and economic freedom is severely affected.
I think that monopoly is
a restriction of freedom.
And the flip side of that
is that monopolies like also
to restrict freedom, why?
Because if I'm earning rent,
I am terrified that I have
a democratic government
that will try to take away those rights.
So, unfortunately, it goes both ways,
is without competition,
you don't have freedom,
but if you don't add
competition, you have monopolies,
those monopolies want
to be the outer Italia.
I don't need to go back
to the old literature
on the rise of the Nazi regime in Germany
or the rise of nationalistic Japan
to say that monopolies lead to fascism.
And, actually, the troops,
the American troops,
when they went to Japan,
they went to Germany,
what did they do?
They block up the monopolies
because they thought that that was a way
to ensure long-term
sustainability of democracy.
And if you have now,
is celebrating the
benefits of competition,
like Thomas is saying,
it's also thanks to the
Americans that did that.
And what I'm particularly terrified
is that these platforms
have now an enormous amount of power.
Generally, political scientists divide
four major source of power,
is money, mobilization, agenda setting,
and considered a national champion,
and generally business that
have one don't have the other.
Banks have a lot of money;
they generally don't mobilize people.
Actually, if they mobilize,
mobilize against them.
You never see people in the street
proclaiming for freedom of bank, okay?
(audience chuckling)
And then they don't control newspapers.
That's leave it to the "New York Times."
And very rarely, maybe
during a financial crisis,
we can see the national
champion, but otherwise we don't.
Now look at the digital
platforms: they have money,
they control news, they have
the power to mobilize people.
Think about Uber, they send you messages,
lobby in your city hall in
order to reduce the tax,
and they get people to act.
So they have immobilization power
that is worse than the NRA.
And, in addition to that, now
they're national champions.
When Zuckerberg was in front of Congress,
his lawyer were passing and say,
"Please mention the Chinese as a threat."
So we need to have our
own local monopolies
in order to go under
the Chinese monopolies.
That's basically the choice
we have as free citizen.
And their power to basically
influence the elections is enormous.
And even if you don't use it,
the threat point is enough.
There is an article on
"The Guardian" that Google,
that if you use Gmail,
depending on which presidential
candidates they like,
you received a mail in your Inbox
or you received it in Promotion.
So they did a test.
This is on "The Guardian,"
so independent source.
If you are Buttigieg,
60% of the messenger of
Buttigieg show up in your Inbox.
If you are Elizabeth
Warren or Bernie Sanders,
0% end up in your Inbox.
And the difference is you raise money,
you don't raise money,
you get elected, you don't get elected.
That's pretty important.
- Let me see if anybody
else wants to come in on it.
(audience laughing)
- I think Luigi is absolutely right,
that we talked about
the importance of a free market of ideas,
and that analogy has been very powerful.
But, in fact, you don't
have a free market of ideas
if you don't have ways of
transmitting those ideas,
and the media are the ways that we do it,
and our social media is the
way that it's done today.
And so if you have a set of media
that lacks transparency,
a good market require transparency,
that lacks competition,
you have monopoly power,
that actually has attributes
of I'm gonna say thuggishness
where you could have trolling.
It's a market that is not
really working in any way
like a well-functioning market,
and well-functioning markets
don't work that well,
but this is so far from
a well-functioning market
that we ought to be really worried.
And that's why, you know,
this is not the full range of issues,
are not going to be solved by antitrust,
but the fact that there's
such concentration of power
has made this an antitrust problem
and exacerbates all the issues
that with which we concern,
and I think Luigi put it very strongly,
that it is a threat to our democracy.
- (chuckles) I was just laughing
that you put it very strongly
(audience laughing)
because I've never
heard you not put something strongly.
- I think the two most dangerous things
you can hear when you talk to politicians,
or lobbyists, or both, are,
because China is one. You
hear a lot in the U.S.
In Europe we hear both, because
Google and because China,
and usually it's used by
lobbyists who want to argue
that we'll usually let
them do what they want
because otherwise they would
be under the umbrella of,
you know, getting one case
off, the change in the other.
And I gotta say, the first time,
I was very used to hearing
these arguments in Europe.
Sometimes, to tell you how my,
like, how crazy it is,
these argument were used in the case
of using in the case
of Alstom and Siemens,
the two train manufacturing
equipment makers,
wanted to merge to monopoly
essentially most of the market.
Thankfully it was
rejected by the Commission
despite heavy lobbying by the government,
and but even there,
you heard them because Google argument,
even though it really was about trains.
So that's the helper for it.
And another because China.
So I think that's,
the first time I heard
that argument in the U.S.,
that's when I got scared
because I realized
that somehow the lesson that the U.S.
successfully taught the rest of the world
we're being forgotten here.
And now I still don't think it's hopeless.
There's much we can learn.
Also the globalization goes both ways.
Just give you one example.
Do you think it is by chance
that the Europeans were the only one
who were thinking carefully
about data protection,
maybe trying to do something
with Google and Facebook,
or is it because there was more distance
between the lobbying and
the actual decisions?
And the flip side, of course.
Do you think it's by
chance that the Dieselgate
was brought up by a
small startup in the U.S.
and then the California regulator,
or do you think it's
because the EU regulator
were completely corrupt
by the EU car industry?
I think the answer is
pretty obvious, right?
But what that shows also
is that globalization goes both ways.
As long as you're willing
to run from the other side,
you know, in that case,
thanks to the Americans,
we're going to have cleaner streets
and less asthma in Europe,
and it would not have happened
without the American regulator.
And now when the U.S. finally start
to think carefully about data protection,
at the very least they
can start to look at GDPR
as a building block, with all its flaws,
but maybe they can improve.
And so GDPR 2.0 would be better than the,
I agree, the one in
Europe is not that great,
but this is a starting point.
So that's why I don't think
we should be too pessimistic.
- Can I add one more point?
- Yeah, can I flag?
I've been asked to leave a
little bit of time for questions,
so I'm gonna let Joe talk foe a minute,
I might let one more comment,
and then I have time
for a question or two.
Does that sound right to you?
- So let me just have one point
about the interaction between
the lobbying and the size.
One aspect of the lobbying
that's really been very
important in the last few years
is the taxation of the digital companies.
And because digital
companies are very good,
better than any other
sector in avoiding taxes,
they're able to get more revenues
that give them ability to invest more
that creates more of a barrier to entry,
and that reinforces their monopoly power,
and that it's a vicious circle,
and that it really illustrates
both the political economy
aspects, the lobbying point,
but also the barrier to entry
on a narrow economic perspective.
- Diana?
- Really quickly, so I
think this whole discussion,
which has been fantastic, again,
highlights that we need
a public policy frame
to approach the problem
with declining competition
and what's going on in digital tech,
and I would also add what's going on
in healthcare and what's
going on in ag-biotech.
We forget about, really,
how impaired those sectors are
as a result of consolidation,
so antitrust plays a role.
Social regulation, economic regulation,
interoperability standards,
intellectual property law,
labor law, trade policy,
these are all part of the
public policy toolkit.
And then, second, I really do worry
because we have been monitoring
legislative proposals in 116th Congress.
There are a lot of proposals
to reform antitrust
that is going I think in
not in the right direction.
We've got carve outs
and exemption proposals
for certain sectors.
We have targeted bills for agriculture.
What we need is
comprehensive, coherent reform
that strengthens and
clarifies the antitrust laws.
I think this is a really big job
that is gonna take a
whole village to get done.
- Audience questions?
I see somebody coming up
to the microphone, yes?
- [Audience Member] Thank you.
Actually, so I have a question.
Multiple of you mentioned
about this standard
that goes beyond the narrow
focus of consumer standard,
which is often associated with
stoking economic efficiency.
So a question about administrability.
So if there are trade-offs,
so it's gonna be between
economic efficiency
and political considerations,
how would you make that trade-off
and where would you draw the line?
For example, if you
think there should not be
one dominant news
publisher in the country,
would you allow for
there to be two or three?
And so if you think about how
to design a relatively
administrable system,
how would think about
designs to your system?
Would you put it inside
the industry chain,
outside the industry chain?
Would you create,
would you take a consequentialist approach
by looking at the effects,
or categorical, structural?
- Let me tell let me turn to the panelist.
Anybody wanna?
- I think that I would like
it to have analyzed separately
because the antitrust people
are so in love with their criteria
that they're never gonna answer or change,
so let's leave they do their
consumer welfare analysis,
which is important, and have somebody else
looking at citizen welfare.
And, for example, a standard
concentration measure
of where you get your news
and whether this becomes too concentrated,
of course, you have to make thresholds,
but that's true also,
that could be a very easy
way to sort of analyze.
- We can have a follow up.
Someone else can ask a
question, but go ahead.
- Yeah, so, I mean, to
give you another side,
I'm not convinced that you need
to necessarily change that much
the consumer welfare standard.
If you're worried about political power,
maybe you can reform campaign finance laws
without changing antitrust.
See, that's one of the reasons
that debate doesn't play
out the same way in Europe,
is because we haven't had
multiplication by five of lobbying
and campaign-first
expenditure the past 20 years.
But the reason we don't have that
is not because they don't wanna spend,
it's because there are
regulations against.
I still believe as an economist
you have targeted tools,
each for one problem.
- Eleanor, do we have time
for one more person to ask a question?
One more, yes.
- [Audience Member] Thank
you, what a wonderful panel.
I'm glad, I guess, Chicago is not
our grandfather's Chicago,
Professor Zingales,
and you'd run for office.
I really loved it.
I could have went to the law school there,
and there's still some
problems, but that's okay.
So the question, in terms
of the ex post review,
I still am a little confused how we do it
because I understand if you
have a two to one merger
and the cement monopolist
raises the prices,
that's easy to show, okay, so the facts.
But with the Instagram thing,
like you're tying the Facebook quality
to the acquisition of Instagram
when it only had 11 people.
How do we know how to attribute
the alleged deterioration of Facebook
to the Instagram acquisition?
So just wondering how
practical would it be
to actually do that ex post
enforcement on these things?
- I don't know what difference it makes
with looking at prices.
When you see that there is a merger
and then you see prices going up,
you think that that's
not gone well, right?
And there is an attribution problem,
but, generally, you're very happy
to attribute it to the merger,
the cause of the increase in prices.
If you see a deterioration in quality,
I don't know what difference does it make,
and the quality is data protection.
- So you're saying if in the pre-period
you had quality looking like this
and then the post-period
you had something like this,
you would have a clean
but for to compare it to,
which would have been sort of constant.
- Right, it's the same kind of thing
we do all the time at ex ante.
And you make judgments.
You have models and you argue.
- Because even in the ex ante situation,
you're still fighting about
what the but for world
would have looked like.
- Exactly, and now you have
a little bit more data,
and so you have a little
bit stronger basis
for making those judgments,
but there will be conflicting
models and people differ.
The only question is, what
should be the condition,
you know, should you reverse it?
Should you fine them for lying to you?
And I think in many of these cases,
the answer should be you shouldn't do it.
They said these were gonna be the effects,
and they didn't happen, and, now, okay.
That's what you promised,
you didn't deliver,
and we just undo it.
- I'm gonna let Joe have the last word.
Please join me in thanking the panel.
(audience applauding)
- Okay, stay for just five more minutes.
I think it's gonna be
about five more minutes,
and then we do have a
reception in the back.
Is that right, Harry?
- Five minutes until wine.
Oh, there everybody goes, okay.
- All right, so here goes.
It's just a wrap up.
These were fantastic panels.
All of them are wonderful.
Brought up great new ideas.
We want to take a little assessment
as to what did you learn today, Harry?
- So, let's see, I've
got three, four points.
Okay, so the first thing that I learned
is down with the economists.
(audience chuckling)
This started with the can people, yeah.
Steve Falk is applauding
'cause he's a lawyer.
So that began with Paul
Romer at the very beginning,
a Nobel Prize-winning economist.
But also Judge Walker, a little, you know,
let's see in seeing the facts,
let's listen to the witnesses
and not necessarily to the economists.
But as we found out also,
it's not down with economics.
- I was gonna say, how did you react?
Steve Sala raised the question,
do we put too much
weight on the economist?
And yet he did not mean
down with the economist.
- No, no, he didn't.
He's much smarter than that.
So it's be careful of the
sort of the technician
forcing us into narrow points,
but the economists at the
end were hardly narrow.
So, that was the first thing.
Give my second thing?
- Yeah, go ahead, yeah.
- The most controversial thing,
which I hadn't really expected,
was ex post enforcement,
so nascent competition.
There was a lot of dispute
about that, including,
well, there were just 11
people on Instagram, who cares,
to, oh, my god, this is
a really big problem.
And Tim Wu said, "Oh, it's
a feature, not a bug,"
to go afterwards, and
I'll remind his co-author,
Scott Hemphill, who said,
"We're probably not
gonna do much of that."
So, I don't know, they'll
have to get together on this,
but and at the end,
Joe Stiglitz saying, "Well,
afterwards you know things,
so we should take some moves then."
So I was a little surprised
at how consistently
that was a controversial
point of doctrine, in a way,
how we're going to handle it,
because there's a lot of sort
of off-the-cuff statements
about, oh, no, well, it's
the killer acquisitions
or nascent competitors, we really,
you know, that's clearly,
that was a mistake.
We should have done something.
But not so much agreement here.
All right, third thing,
what antitrust about?
What's it all about?
Could be a song, what's antitrust about?
Actually, I was surprised this was most,
maybe not surprised,
most consistently discussed
through all the panels,
this consumer welfare
standard, what it means.
And although Tad Lipsky wanted
to narrow it back to Bork,
no one else seemed to be
interested in doing that.
It seemed to be pretty, you know,
everyone, we can deal with
this, we can deal with this,
until the end when it
became citizen welfare,
what is that, and it sort
of exploded at the end,
which I like, but made it
a little more complicated.
So, you know, then it was
freedom and all sorts of things
that maybe we could get with competition
but something broader.
So desire to work with those two words,
consumer welfare, and
make it what you want,
or to blow up the two words.
Maybe Tim's branding exercise.
And I have to do the best lines,
and then that'll be the end.
Then you have to come in.
Okay, best lines, first I had
two, but now I have three.
So first was the Steve Sala to Tad Lipsky.
"Once a year, I have to agree with Tad,
"and I agree, what a great
platform, what a great program,
"and now I'm gonna disagree
with everything else."
Okay, the other was Tad Lipsky's remark
that the new German bill
could have been written
by Eleanor and Paul Romer.
I thought that was pretty good.
And then the third,
Thomas Philippon's observation
that either you are a friend of Uber
or you don't get tenure.
Now I know all the academics
are listening to that,
so that's my list.
- Oh, so I think that's great.
So I'll make a comment on that
and then comment on the program.
So it was like bookends.
It was wonderful.
That Paul Romer started out
and through his comments,
and I think this was an
answer to a question.
He said, "Yes, bigness is bad."
And then we had a number of panels
that were somewhat more
antitrust law focused,
and then, oh, of course,
wonderful middle lunch,
where we heard Tim Wu,
which was expansive again,
and then coming back at the
end, which opened it all up.
Until we had the last panel,
I was thinking that there
was actually, in a way,
too little neo-Brandeis
because we come to,
we see now a real continuum,
at least in the rhetoric of neo-Brandeis,
which is really challenging
the existing system
and bringing up something
which is very much
in the public conversation,
but when we come together
as antitrust technicians,
we often don't speak about it,
which fits in with the political elections
that there is an elite,
and there are 95% of the
people feeling left out
and feeling that the cards are
stacked, the deck is stacked.
And this brings up a
question of distribution.
I mean, distribution of the gains,
not just allocative efficiency.
And it does put on the
table whether distribution,
or you could say it in a different way,
putting the emphasis on
taking down barriers to entry
and letting the those
who have been left out
into the market.
I say in my work on developing countries
that that actually
coincides with what probably
is also allocative efficiency,
because so many people left
out in the market for so long
that the answer to get
allocative efficiency
as well as distributive justice
is to tear down the barriers
and let more people in.
So, there is, I mean, at
one end of the continuum,
you might say that the rules
do favor the incumbents
and at the other end of the continuum,
the rules would favor the left out.
And then there's this sort of,
I mean, long middle ground,
but thinking about our current system,
breaking down barriers,
having right at the point
where you have good arguments both ways
as to what is an efficient
and pro-competitive society.
- I thought that was an advertisement
for all of you to come to
our conference in the fall
on antitrust in developing countries,
where we can talk more
about distribution effects,
which we really didn't talk
about, I think, today at all.
We talked about political
power, or this panel did,
but not so much in the--
- So a final comment,
and this relates to
impressions from the last panel
because, actually, I started to practice
antitrust law in the early 1960s,
and I did in my early years,
and later in practice,
read a lot of the legislative history
of the Celica Fourth Amendment,
which was 20 years before,
and to leading up to the
1950 Celica Fourth Amendment,
making merger law have more teeth,
at least Congress thought then.
There were huge hearings
that were called TNEC,
Temporary National Economic Committee,
on the causes and consequences
of economic concentration.
There was definitely a
feeling in the country
there was too much concentration,
and there was a fear
of fascism or communism
and a middle ground that
would be competitive society,
a fear of too much
public power on one side,
a fear of too much private
power on the other,
with the competition system
being the intermediary.
And the arguments that everybody
made on the last panel,
and also with Paul Romer at the beginning,
they fit into the spectrum,
talking a lot about freedom,
not talking about cost benefit analysis,
but talking about which
is the better society
of how much government intervention
to make the competition system work
to protect us against not
only the power producers
but also the government.
- Gonna end with a quote.
- Time. Time.
- Can I end with one quote?
A quick quote.
- Yeah, go ahead.
- So it picks up on
that, on the last panel,
so the the quote is,
"We're about free
markets and free people,"
and that's what the
United States is about.
That picks up on what was
in the last panel, I think.
The quote was from a speech
that Condoleezza Rice gave
to the Republican National Convention.
So maybe this is bipartisan,
free markets and free people.
And that, we have free drinks, so.
(audience laughing)
(audience applauding)
