The Competition Debate: Is Big Tech Good for America?/transcript
>> JIM PETHOKOUKIS: I think we're ready to get started here. I think we're all mic'd up.
Welcome to our panel, the title, The Competition Debate: Is Big Tech Good for America. It probably wasn't long ago that people would think this panel was unnecessary. That it wasn't so long ago that all America's largest, most successful technology companies were celebrated as the crown jewels of the American economy. They were invited to the White House. It was tough to find as some would say a word against them, that's not where we're currently at. There is now a vigorous debate on whether these companies have become too big, too powerful, whether they're squashing innovation, contributing to inequality, whether their products are addictive. There is a raft and perhaps are they hurting our political process, there are a raft of issues concerning these companies. We'll try to touch on some of that with the core issue being I'm not sure it is quite as black and white where we have one side saying they're good and evil, we'll let both sides describe their position. We have a pro and con side. Starting on what we will sort of loosely call the pro side, we have Will Rinehart and the con side, we have Ryan Clough here from Public Knowledge and Diana Moss we'll do this in a loose debate format, statement, counter, rebuttal, rebuttal. Questions from me and hopefully from all of you. As we're going through this, please think about what you would like to ask the panel.
We're going to begin with sort of a 5 minute opening statement I think from Will.
>> WILL RINEHART: Can everyone hear me? Will on the far left, I usually don't get this.
I would like to thank Jesse and Gus for putting this panel together. Obviously, the panel, there is a lot of I think really insightful commentators on this space here. Even though we may disagree, I think that hopefully what we'll do today is tease out the larger questions. I want to toe kiss a lot on this introductory statement focus on a lot of this introductory statement on why we focus on big tech and what can be done. Let's talk about a company you wake up with every day, you go to bed, you're also using it, it is the most productive company in its sector, its employees make the most money for the sector and largest by far. Few companies can really compete with it, it rakes in billions in revenue. Now that company, it is Colgate. It is one of the biggest, by far, companies in its sector. In fact, what we have really seen, and the reason I bring it up, when we talk about the big tech, I think that it is probably just as important to talk about other similar companies and firms within the industries. What we have seen with Colgate and others like that, it is that large firms seem to have appeared in almost every single industry. In retail, manufacturing, there is a whole change it seems since the '70s and this isn't just a U.S. problem by almost every single measure, there is a concentration increasing in different industry sectors.
Now, the question is, is this a problem? Today we'll talk a lot about big tech. I think it is important again to add context to this. What we found in the last couple of years is this firm inequality has increased, some firms are doing better than others. That doesn't necessarily mean that those firms that are doing better, the frontier firms as they're sometimes called, that they're necessarily disadvantaging other firms in the industry. Really what we have seen, it is a group of firms that have taken off, continuing to be productive and then the rest of the industry is not in the same way catching up to them.
So I think it is also important to at least step back, talk about why do we care about this, big tech, big firms? The reason, the primary reason we care about it, it is in a general term, general concept we know as market power. Market power takes two basic firm, you do traditional market power or have some exclusion neural market power. The traditional market power is what we know of as a traditional monopoly, ability to raise prices above a competitive level, the ability to reduce quality or otherwise deprive consumers of some kind of benefit of competition.
The problem is, we don't see a lot of this within most of the industries we're looking at, including the big tech industries we'll talk about today. Pretax profits, a percentage of GP, not going up that much according to data, they are around the 1950, 1970 level. There was actually an increase in the 1990s but it has gone back down. What's changed clearly is actually a tax structure, which I think is kind of important here. A lot of people when they talk about corporate profits increasing, what we're really seeing is as a good way to describe this, understand this, it is a change ever tax structure largely from the United States, Western countries, basically almost every single major country. When you look at prices, for example, other another example, another traditional marker of market power, manufacturing concentration seems to have not really increased the prices according to some studies two three years back. Again, in services, we also see that there hasn't been a massive increase in prices. What's increased is the output, and that's clearly that clearly kind of undercuts this general idea of market power or a market concentration theory.
With that, I would like to kind of think about some of the more specific instances that we're really talking about here. That really is, obviously we're talking about sometimes Apple, Google, Facebook, the real question, the real key question, does forced competition really help here? Does an older, antitrust, competition agency, does it actually help to support or help to kind of realign markets in the ways we would want, that we would want to, again, decrease prices for consumer, increase innovation. Again, given that we haven't seen a huge amount of consumer detriment, it is really important to realize that we're not really good with antitrust and competition policy at large. Paul Rubin did a quick survey and found 40% of the cases, there wasn't really anticompetitive behavior, retrospective of the Maytag, Whirlpool merger, a great example, it didn't lead to substantial price increases in clothes washer but did lead to price increase in clothes dryers which is kind of weird. Hospital mergers also seem to have had differing affects for insurance prices. So I think in the end analysis we should be unsatisfied with what we know so far. There is a lot going on, and I think we just really need to hone in on exactly what the problems are that we're trying to solve.
>> JIM PETHOKOUKIS: These are big companies. Not sure if there is an actual problem and not hot about the solutions for the problem he doesn't believe exists.
Your opening statement.
>> DIANA MOSS: Thank you for having me here.
I'm not a lawyer, I'm an economist, FYI. I speak from an economist perspective. Having done many years in regulation and antitrust work, so first of all, you know I think as we heard just a moment ago, the context is important, the United States and global economies are now very keenly aware of what we're calling the decline in competition problem, the council of economic adviser reports, there is articles in the economist magazine, scholarly, empirical work pointing to broader concerns in the decline of competition, higher levels of concentration albeit at an aggregate level. Declining wages increasing inequality gaps, the list goes on and on. This debate over big tech is landing in a middle of a bigger debate over declining competition in the United States.
With that said, big tech, much like the industrial revolution, the data revolution, it has brought benefits and efficiencies and you know, that we haven't even conceived of, increased connectivity, you know, through social networking, it has enabled the platforms to deliver links to products and services to consumers that are in many respects consumer enhancing. That's important.
You know, I think there are voices in the debate, valid voices that are very concerned about whether these products and services have any value at all. Clearly consumers have spoken. To some extent.
You know, that doesn't mean it is a free for all. We need a hands on kind of approach. Big tech in America will thrive and survive and continue to bring benefits and innovation to consumers in the economy only if it is supported in a market context.
As we know, our markets, our markets can't do it all by themselves. We heard about market power, obviously, there are grave concerns on market power. So we need a robust, vigorous approach to enforcing the antitrust laws in the context of big tech and that goes that covers all three areas of enforcement, merger control, agreements, monopolization issues, which is a lot of the conduct we're concerned about today comes. They're all very important areas. Those areas of the law should be enforced with the tech companies in regard to them, they can be. It is a myth that these markets are too complex because they're two sided, we have network affects, there is complexity, oh my gosh, enforcers, judges couldn't possibly understand this stuff. They can absolutely understand this stuff. They can learn it, they can understand it, education is going to be very, very important.
We need vigorous enforcement of the laws to ensure that the benefits from big tech types of products and services continue to be pro-competitive as o he posed to anticompetitive and there are absolutely concerns that there are anticompetitive stuff going on. We can talk more about that later.
The last part I want to make, just by way of introduction, we have to be careful not to load up antitrust with all of the job of policing big tech. These are big issues. They include not only competition issues, but other issues like fundamental privacy rights. As we know, the U.S. is not good in privacy, much in contrast to the Europeans, there is intellectual law, intersections with competition law, it is a toolkit approach to sort of solving the problem, some of the problems we see today with competition. We should not load up antitrust with more than what it was designed to do or expected to do. It plays a role, without a doubt, maybe we can get into that later, and it is it could be the tip of the spear, but it is definitely part of a toolkit approach that I think is really important for us to flesh out.
So with that said, you know, we're now dealing with a debate, a bigger debate about whether the platforms or monopolies and should be regulated versus more considered and reasonable approaches to using the antitrust laws to go through that process to examine what the platforms are doing and whether they're engaged in anticompetitive conduct.
>> JIM PETHOKOUKIS: We'll throw it back to Adam.
>> ADAM THIERER: Thank you, Jim.
Appreciate being here. I always enjoy having conversations about market power and the question of business and tech policy. It seems to be a discussion that's sort of Evergreen but we always lose historical context and forget where we came from in the debates. I see people out there that are gray hairs like me, born before humans set foot on the moon and you grew up in a world like I did, we had very few informational inputs and technological options in our disposal. Growing up in the 60s, 70s, we had a channel or two, but we had a radio station, a couple, a local library, my best friend growing up was a 26 world Volume of books, it was my totality of experiences and technology outputs inputs rather. In that world, we lived in a world of what you might even consider informational poverty, or at least informational scarcity. Today by contrast, we think of the informational world around us, what do we complain about? Information abundance, too much, too many choices! Judge by consumer welfare, the real standard we should judge antitrust and business by, business per se shouldn't really matter, what should matter is how our consumers, citizens in today's world. Again, we live in a world of an information cornucopia, an abundance of riches at our fingertips, key variables on regulatory economics and others consumer welfare, price, quality, quantity, we never had it better. We have lower prices, some cases free services and in many, many cases we have an abundance of quantity, we have quality wise, we live in the golden age of media. Technology devices and platforms that give us access and to an untold riches of informational inputs. That's a world in which we have to think we're somewhat, if not greatly better off than the world we came from. I'm going to disagree with the statement Jim started with, that 10, 15 # years ago we wouldn't be complaining about tech companies being too big, no, we were. They were just different ones. We have had a wonderful turn in these marketplaces. We would have just been complaining about different companies like Microsoft, Motorola, myspace, look at the guardian in 2006 for the famous great headline of all time, what are we going to do about the myspace monopoly! We got over it! That was the question about every big tech company of that age and before that. Anyone remember AOL, Time Warner? Thank God we stopped the Hollywood, blockbuster merger of video game stores! What would have happened if that went forward!.
Back further, back to the old tech titans, anyone remember what IBM was in the 13 year antitrust ordeal with going on grounds of being too powerful, it didn't, it dropped that case, the same day it basically went forward with the AT&T case and what happened to IBM? It was decimated because it missed the micro processer and personal computer revolution. We see that story happening again and again and again. We would be fools to think that change or creative destruction is dead. It happens! We have to have patience, we have to have historical perspective. The reality is, yes, today's tech firms are big, because the quest for market power succeeded. We shouldn't stop that. We shouldn't misunderstand the importance of that quest for the price of market power. It is seeking it out that innovation is born. If you stop that process, tell people to be punished for succeeding, you get less innovation. This is the great lesson that the Europeans have taught us, you can't name a major innovator that's a household name in that sector today.
Thinking going forward, what do we do about tech companies, tech power, there are problems, we have heard privacy, some other concerns about security. We could handle these problems without taking the regulatory wrecking ball to this wonderful success story that's the modern tech economy that is really the envy of the world and we have to be careful about undoing what's the great success story for the American economy.
>> JIM PETHOKOUKIS: Ryan.
>> RYAN CLOUGH: What strikes me, I think we can see that they're right in the big picture about a lot of different stuff. That doesn't eliminate the need for significant vigorous antitrust enforce., doesn't eliminate the need for potentially significant government regulation in other ways.
I think that if you say, for example, I think I would actually largely agree. The growth of the Internet, the benefits that the big tech platforms offer, they offered enormous benefits to consumers. We're in many respects at least in a better world than we were 30, 40 years ago. With that being said, that does not mean that the unchecked bargaining power of the platforms and the power over their lives will always be a good thing. It also means that just because there is a lot of change in the technology sector, there is one competitor's decline, another, one has emerged, it doesn't mean that dynamic level of competition will always be the case and it also doesn't mean that you don't need the government to at times step in to make sure that competitors don't interfere.
I guess I'm saying I think I agree that big tech at large, you can't say it is all bad. Big tech, it is going to be with us to a large extent for all sorts of inherent reasons, the fact that a lot of these platforms are winner take all to have significant network affects that mean that you're going to naturally see the emergent of a dominant player in a particular area. That being said, that raises the stakes for particular regulatory questions, whether it is getting antitrust right in particular senses, in terms of merger enforcement, preventing them from using mergers to cement dominance or a new competitor in the future. Whether or not it is dealing with other affects, antitrust can't do, whether or not that's privacy, potentially even some other regulatory rules, whether it is interoperability, transparency, you really do need potentially a more sector specific, flexible regulator to craft the rules outside of the antitrust context.
That's the big point here. I think then we just get into the weeds of each of the regulatory debates. I don't think I guess the last thing I'll close with, I don't think it is particularly useful to cite overall benefits of the free market and competition in specific regulatory debates as against regulation in a specific area. You know, we live in a free market system, I don't think anyone on this panel is proposing totalizing government regulation of the big tech platforms of every aspect of their operations or some drastic extreme application of antitrust law with no precedent. We're saying that without vigorous antitrust enforcement in certain ways and without exploring new forms of regulation, for the dominant platforms, that over time there will be harms to society and we have to debate those issues on merits rather than using a broad sweeping rhetoric of the beauties of the free market against government regulation.
>> JIM PETHOKOUKIS: If I was keeping score, I have to penalize Adam for using guardia, it is rare for that as a part of the evidence. Adam. It is terrible, terrible format.
I'll ask a few questions, and we'll get to you all, please I think we'll take some questions. I have been on some panels, moderated a few panels, and with people that are very enthusiastic about applying antitrust not in the future, seeing how things sort of happen, but are pretty enthusiastic about right now. .
Is this a today problem, a tomorrow problem? Is the evidence that in some of these companies, we can name names, they're already hurting consumers, hurting innovation today or tomorrow?
>> DIANA MOSS: That's a good question.
I think that the context for answering that, we have the two camps of ideology. We have the folks who have claimed that the platforms are monopolies and need to be broken up, regulated. That brings a raft of problems and concerns in itself. We have the other end of the spectrum over here, markets are great, of course markets are great, you know, I'm a progressive, I think markets are fabulous. We need to protect and nurture our markets, they can't completely self regulate. Antitrust should forbear because we don't want to get involved and squelch innovation. It is a balance, it is absolutely a balance in promoting market independence and incentives versus market interventions through regulation and antitrust laws.
We're now dealing with a very, very different set of technologies, products, services. We have got complexity, network affects, two sided markets, winner take all markets, tipping affects, all of these things that economists like to focus on that make for a very complex landscape. Right. As antitrust in the U.S. continues to forebear from getting involved in the digital markets, right, we see scooping up of small edge players, we see more and more instances of the exercise and buyer market power, bargaining power, we're seeing a whole crop of new concerns and problems pop up.
You can only wait so long before, you know, you really do have entrenched dominant firms. They may not be monopolists but they're dominant. They're really in control of these essential platforms upon which other technologies rest that other smaller innovators need to get to be able to reach the consumer with new products and services. We want that to happen. We want that innovation to happen.
Antitrust for all of those reasons absolutely has to get up to speed. Become educated on the markets, these concerns that are being raised. And become more involved. You know, section 2 enforcement, which is monopolization in the U.S., I can count the number of cases on two hands for 20 years, curtail, merger enforcement, stronger, we see very little in the monopolization space. It is not a future problem, a now problem. There is a lot of work to be done to sort things out and to choose the best approach.
>> JIM PETHOKOUKIS: Let's be clear, there are certain people that think, yeah, that agree that it is a today problem, have already, you know, what they would do, if they were antitrust enforcement. Should we go back, should we split up Instagram from Facebook? Should we split up YouTube from Google? Is that an ideal world of what we would do at this point?
>> DIANA MOSS: I don't think that should be done actually. I can I'll take the easy way out on had that question and say if wedded stronger merger enforcement, we wouldn't be facing those types of problems. Right. If we had had more oversight, more second requests at the agencies on things like Microsoft, LinkedIn, Instagram, now Shazam is potentially on the block, if there had been more vigorous, more vigorous over site and investigations by the agencies, we wouldn't be in a position of talking about break ups. Break ups are very difficult. It’s a structural remedy taking a lot of political will and heft to break up a company, we haven't done it really since AT&T, it failed as a remedy in the Microsoft case. We need really, really vigorous merger enforcements and we need to look at these concerns about exclusion neural conduct and come up with remedies that are not behavioral, that are not more rules and regulations for companies to have to follow that they can easily get around. It is a very sticky problem. I don't have the perfect answer to that.
It is a very sticky problem.
>> RYAN CLOUGH: In my line, I agree with what Diane said. The area of vertical mergers and issues, I think it is something that's a problem that's a had now problem, antitrust law that's I'm not saying we need a revolutionary antitrust law in that area. I do think that there are significant questions that antitrust has to answer that are very important and in the area of the platforms that have enormous market power, enormous barriers to entry and potential for foreclosure and the cost of foreclosure when excluding a company from platforms, if the incentive for foreclosure is up because of vertical integration, it could be very harmful to a lot of different players in the economy.
>> JIM PETHOKOUKIS: You want to respond? They have outlined some today problems.
>> WILL RINEHART: Yeah. There is a lot going on here. I want to comment on at least one of these issues, the general vertical the question about vertical.
When it comes to mergers, trying to figure out beforehand whether or not a merger is any good, we're not very good at figuring that out. At the end of the day let me take a quick example.
I have a family member who helps to run a biomedical start up. A thing that he and I talk a lot about, the fact that really his end game is to be bought out. He doesn't want to create a new company. What they're looking for is a buyout strategy. This has a name within literature, it is an entry for buyout. We know that within these kinds of firms they don't help to boost consumer welfare, what they actually do, is they take a pie of the dominant firm's rent. Those kinds of companies, which we see a lot of, those kinds of companies actually really don't help boost consumer welfare. It is really, really difficult at the very beginning to see to understand and to even create the kinds of tools that we necessarily need to figure out whether or not this kind of merger is going to be beneficial for society or not.
That, to me, we're really coming at the end of the day to a really big knowledge problem when it comes to this, when it had comes to mergers. That is at least where I where I garner a lot of my skepticism.
>> ADAM THIERER: I'm still not hearing a good concrete theory on what consumer harm is in this context eastbound, how is consumer welfare being hurt which is what we should talk about. We're talking about big tech bad, deserving some antitrust treatment.
Again, I just will reiterate by the traditional metrics we utilized to judge consumer welfare, price, quality, quantity, things are looking pretty good from a consumer welfare perspective. I don't see a lot of evidence that it isn't. The question is, are these what about the other variables? We hear about the privacy considerations, security considerations, a broader concern about democracy, deliberate democracy, these may be valid concerns. The question is, what is your proposed remedy? If it is something from the antitrust toolkit, there are serious dangers associated with going down that path because we are talking about mostly information and speech platforms at the end of the day.
You have to think, really long and hard, about whether you want to bring in the regulatory wrecking ball, the antitrust machine to basically deal with some of those concerns when they may have a better remedy. I would go on record saying before you go to those sorts of regulatory approach, antitrust approaches, I'm even open to the idea of government trying to subsidize to try to find better approaches to offer more competition through offering new alternative platforms.
The last thing we want to do, squeeze more lemon out of some old more juice out of an old lemon of a platform, a service that you think is bad. That's really not the optimum scenario. That's the path that the Europeans are walking down. We want to find new, better fruit basket salads of different options to offer consumers, that's the better approach than trying to basically get the juice out of the old lemon.
>> JIM PETHOKOUKIS: To be clear, do you think consumer harm is happening right now?
>> DIANA MOSS: Thank you for asking that. I was going to raise my hand and say can I respond to that.
It is not the way that the law has worked. The antitrust laws don't have a generalist approach and, you know, wow, I think he with see consumer harm over here, bring that in. That's not how it works. The laws are surgical and targeted. There has to be a concern about a particular competitive issue. Typically, anticompetitive behavior results in consumer harm. So the government has to bring a case, for example, they can block a merger of the acquisition of a small edge competitor by one of the large digital market players and the concern is exclusion from the market, restrain of competition, raising costs, cutting rivals off from access to important inputs, distribution, that's a very specific issue. That's what the government would do when they framed a case. Same thing on the private side. If it was a merger, if it was a monopolization case, same concern with exclusion neural conduct, exercising buyer power, pushing down input prices, pushing down wage rates. Those are very specific concerns. It is not a lot of hand waving on we think we have a consumer welfare problem. It has to be clearly articulated. There have to be clearly defined markets. There has to be some clearly articulated form of competitive harm balanced with any sort of efficiencies or pro-competitive affects that could potentially overwhelm the anticompetitive effects. It is absolutely a very specific, detailed set of inquiries. You know, when we see the government bring a case, if the government brings a case, much like they did in Europe, and we saw the FDC try to bring a case against Google some years ago, then we will have more clarity on what exactly the competitive concern is and how can consumers be harmed, higher prices, low quality, less innovation, less choice, those are all within the frame of the consumer welfare standard, which is very flexible in addressing these issues.
>> You don't believe that there needs to be that the consumer welfare standard, the standard, it works, we don't need a novel, new theory to deal with these really powerful companies?
>> DIANA MOSS: My view on that, the laws are durable, flexible, the consumer welfare standard, it is I can handle it. We can look we can define markets, you know, downstream, consumers are purchasing products and services, we can define markets in a middle of a supply chain, we can look at things like price, more than price, quality, choice, innovation, so it is a very flexible standard. We don't need any overhaul to the law and we don't need any overhaul to the standard.
>> RYAN CLOUGH: If I could quickly add, I largely agree with that. The devil is in the details, Adam, about consumer welfare standard and there are issues with antitrust law needing to evolve in some ways. That doesn't necessitate a sort of overall of the basic principles. I would add, this debate about is the consumer suffering, not, you know, it’s not an absolute question. It is always relative, always could they be better off or are they worse off because of some practice? If you take Facebook, Instagram, the question would be, you know, without necessarily saying we should go backwards and break them up, you could still think that was a mistake to allow that merger because in retrospect it allowed Facebook to absorb a real potential competitor that could have grown and put more competitive pressure on Facebook, and then today, Facebook could pow lengths have been forced or Instagram would offer a better services on a variety of metrics that satisfied even non price considerations, even including privacy. It is always about whether or not we can be better off, even if we're generally saying the world is pretty good, even if we say that, I'm not sure we're saying that in every single policy area, if we're saying, you know, things are good overall, the question is, can competition make them better or over time will lack of competition cause problems to emerge. That's the key question. Structurally, systematically, if there are competitive problems, a lot of which are the type that antitrust has historically been able to identify in a way that's not totally unreliable, unpredictable, you will see markets start to breakdown when the competitive problems are there and that's where the government enforcement, there is an issue for.
>> JIM PETHOKOUKIS: Was that a mistake for Facebook and Instagram, Google and YouTube? Maybe we don't want to go back in time, you know, was that a mistake back then that we should have learned some lessons?
>> ADAM THIERER: I'm not sure which standard you want to judge that by.
If you judge it by marketplace standard, good for the company, good for consumers, there is a lot of different answers to that. I know this, for every assistant one of these things we highlight, we focus on, there are so many failures that we don't. If you want to see one of my favorite Wikipedia, go to the Google discontinued products, it is a river of failure. It flows endlessly. We never talk about all of those failures, we focus when they acquired this, my gosh! Well, the reality, all of the others that didn't work out and that ultimately the consumers, the market rejected. That's a success story about how we deal with market power naturally, organically. If Instagram worked out with Facebook, it seems to have I guess, I don't know, I mean, I use it, don't pay anything for it, it is a good sharing service for me, my teens are all over it, they don't care about Facebook but love Instagram. I'm at a loss for understanding how it is colonial assumer welfare hurt by the integration of Instagram in Facebook.
>> WILL RINEHART: On that question, it is difficult now to even see and understand whether a competitor could be created. The reason, now we have some time and distance and for various reasons, Facebook at any time isn't talking about the internal processes. It is clear that a lot of the technical architecture from Facebook is actually adapted adopted in Instagram. The question, the technology that Facebook has been running on for years and years was adopted in Instagram and how that increased engagement. This is a difficult question. Do we know as these mergers, as they come up, do we know if they're going to be a competitor or not. That's a very, very difficult question to look at.
Instagram, I mean, the fact that there has to be it seems to me that there is something to be said for the fact that Instagram sold at a billion in 2010. That's interesting. A number of other companies, including Zuckerberg, they were not given evaluations and they didn't take them. So again, this comes back to me to really whether or not the company itself is wanting to create a competitor, whether or not it wants to exit. That's really, really difficult question. With Instagram as a large player now, but had Facebook not acquired them in the way it did, would it be as large of a player as it is? That's unclear to me.
>> JIM PETHOKOUKIS: You have no concern that when you hear about companies, I feel we talked a lot about Facebook, but there is Articles about Facebook, but they have a very elaborate system for tracking companies, financial competitors, and then potential competitors, buying them, sometimes very, very lofty evaluations. Do you see that as worrisome in any way? They seem to be you could say they're strangling the new companies, perhaps maybe you will see it in an off ramp for the entrepreneurs. Is there a concern at all?
>> ADAM THIERER: What's worrisome if that foreclosed in a very real way alternative options for developing. How is Facebook's acquisition of Instagram closed the market for video and photo share? Consumers still have options there. Maybe it is just the best option on the table for many of us right now. We choose it because it works. Again, let's link this back to consumer welfare, tell me the story about how consumers are harmed by all of this? We obviously have options.
>> RYAN CLOUGH: Quick observations, without turning this in a debate entirely, Facebook and Instagram a lot of targets here I think that the point about photo sharing, it is illustrative. Instagram, to think of it as a photo sharing site is too limited. The point here, Instagram could you're right, it is we don't know, but Instagram could have developed into I think a broader competitor to Facebook's core service of kind of the social mapping social connections, the social infrastructure upon which all of the other services are built and where Facebook had the market power from. The other two points I'll make quickly, number one, just saying that Facebook shouldn't be able to acquire Instagram doesn't mean we shouldn't have allowed any company to acquire Instagram. There is a bigger company that would be able to acquire it even if that would have been a company that still allowed would be better for competition. The last thing to say, there is uncertainty, significant uncertainty at times in all of the merger questions, frankly, most of these regulatory questions. Just because there is uncertainty, it doesn't mean that we don't have any that regulators don't have any information and that they don't at the end of the day have to make essentially a bet over what's going to be better for competition in the long run.
I think there is a good case to be made for Instagram and Facebook be, one example of many, that the regulators should have placed a bet on competition and consumers ultimately more likely being better off if Facebook had not been able to acquire it than others. Even if they were not sure about it Davis I want to agree with Ryan and also emphasize, antitrust goes at this by by focusing on the question, it is of the but for world. What would have happened in the market but for the bad conduct or the anticompetitive merger, whatever. We have a lot of natural experiments from previous enforcement cases where we absolutely have seen benefits flow because a merger was blocked, some sort of conduct was disciplined. For example, AT&T, T Mobile, that merger didn't go through, obviously, we're looking at Sprint, T Mobile, but the AT&T, T Mobile didn't go through, T Mobile continued to innovate. They continued to provide feature innovation. That most likely would have been squelched if AT&T had acquired them. They continued to innovate and push out 5G, they and the same issues now apply to the Sprint, T Mobile merger by the way. So there was that.
Back to the AT&T case, absolutely, opened the doors for competition and long distance. So enforcements were concerned in the cases about, well, what would happen in the but for world? Would we have gotten more innovation? Lower prices, more variety of services, better quality but for the bad act or the bad conduct or for the merger? That's the key question that needs to be asked that I'm not hearing. Ryan said it, I'm not hearing it from the other side of this debate right now. We have a lot of good information and natural experiments proving that enforcement has actually stimulated competition.
>> WILL RINEHART: On T Mobile, a thing with the T Mobile, that that conversation, it is that they got a billion dollars as part of the break up fee. T Mobile did kind of win at the end of the day. They actually got a bunch of assets from AT&T. Now we do know, again, that there is a conversation about, you know, merging, specifically he had said at the time that they were basically not funding T Mobile anymore, they pulled back investments on capital expenditures because they wanted to sell the asset. I don't disagree that, of course, there is uncertainty. And there are probably cases when we get down to it, that merger, antitrust enforcement can't be productive for consumers. That, however, is I very much agree with Diana here. You need to look at a specific case by case example. You need to figure out where there are Harms occurring, that are occurring to consumers or anticompetitive in some way, that's that's a very specific case by case and necessary process. Just generally speaking, consumer welfare, I agree with everyone here, it shouldn't be when I generally talk about this standard, I'm thinking about the broader the current broader process that also exists. That I don't think has been that's been very beneficial to innovation, but also protecting the consumers.
Now, there is a lot of potential leeway that could occur. At the end of the day, we need to focus on what are the harms?
>> RYAN CLOUGH: The footnote on the standard is, because in part because we say we don't want antitrust to try to do everything, to look at every policy goal, because we are not necessarily seeking a revision of consumer welfare, along those lines, the flip side of that, we do think it was Public Knowledge that there are going to be areas on platforms where other types of regulation are necessary where antitrust can't accomplish the goal. Maybe even there are ones with competitive type dimensions, for example, you will increasingly see questions of transparency and information between consumers and platforms, transparency historically gets it sounds like a work list goal on its own, not doing much on its own. Increasingly when you look at how algorithms are deciding to put information to consumers, consumers potentially not knowing enough about the information that they're Fed or other automated systems that are acting upon them, that's an area where if antitrust law can't accomplish the goal, and I think there is good reason to think that it can't, transparency overall, ensuring competition won't ensure the effective transparency in all cases, then we need to look at some other regulatory frameworks to see what's necessary there. That's the caveat to the consumer welfare. It really is not just about whether antitrust law needs to be bigger. Even if you think that's not true, then you may think you need other regulations.
>> DIANA MOSS: This is a very good point. .
I was hoping we would get into.
A point on that, the whole privacy issue, the data privacy issue that's swirling around us. Data can be a strategic asset. Yes, it could pop up in an antitrust case as a relevant market. Yes, it is a barrier to entry. Yes. You can use big datasets to foreclose your competitors, so there is some very specific plays around data and transparency, when you layer and privacy issue, you're in the domain of asking whether it is a social regulation problem, do we value privacy like we do health and safety, do we need to regulate privacy, a base level of privacy in place, but what Ryan is alluding to is economic regulation, if the platforms have way more information about us than we do about them and they're benefiting from it, then maybe that's an information asymmetry problem. That is potentially a candidate for some sort of economic regulation.
There is a pod of issues surrounding the competition issues, it goes back full circle to the original points we made, this is a multipronged toolkit approach.
>> JIM PETHOKOUKIS: I'll ask one more question and then throw it to you folks. If anyone has a question, that's great.
Remember, by question, we mean not monologues. We mean short questions about the topic ending in a question mark, no manifestos.
My question, recently there was an outfit in the financial times, that the companies are too big, not able to create a Google competitor, not able to create an Amazon competitor, maybe there has to be a public option of social network, a public option search engine, anyone want to jump in on if you this I that's a good idea to explore or if they would work?
>> WILL RINEHART: This was tried. It failed massively. There are recently earlier this week, there was an Article in the Wall Street Journal about this problem which is that it relates to this larger, broader issue. It is difficult for companies that have the team structure, the kind of technology that's embedded within team structures that all of the major firms, not just Google, buffets book, Colgate as well to bring it back to my earlier point, that these measures, things that actually you want to create with public option, it is just very, very difficult to create. We see that private industry has done a very, very good job of actually doing that. Now, we can probably really count on a couple of different cases where you had innovative designs and innovative structural management systems but they're pretty few and far between and they're for specific purposes. You know, there's been interesting projects, but very specifically focused on an output. When you talk about a competitive market where there is a far more a corporate goal, I just don't see governments really being able to step up and create those kinds of companies.
>> JIM PETHOKOUKIS: Something to that idea? Nothing to that idea?
>> DIANA MOSS: I'm a big advocate for private incentives typically creating you know, steering resources in the right direction to create innovative products and services.
>> RYAN CLOUGH: I agree. I'm not aware of any forks, I think where the government should step in and create something. That being said, there are obviously in the Internet space speaking broadly there are a lot of examples of either different parts of infrastructure, standards, services that aren't ran by for profit companies that are ran by either multistakeholder groups, non profits. I think it is important to figure out if there are ways that the government can sort of enable, make sure that those models are allowed to emerge where it makes sense and not squash large private companies essentially.
>> DIANA MOSS: I would add, the rules of the road are an important part of what Ryan just said, including Network Neutrality rules which we no longer have. Which is now going to create problems for antitrust to absorb all of those concerns and problems about unfair, discriminatory use of the Internet. The loss of the Network Neutrality rules, only the government could implement, enforce, it is a downside here.
>> JIM PETHOKOUKIS: Not letting you talk about that at all! I'm going to are we just going to speak up? There are no mics? Gentleman in the front here.
>> (Question from audience).
>> AUDIENCE: The platforms, they do better to audiences that never could afford it. Could you answer the question, is big tech good for Americans looking at it through the lens of the worker side? The supplier side.
>> JIM PETHOKOUKIS: Who wants to jump in on that?
>> WILL RINEHART: I would say yes, you hit a number of the different positive, potential capabilities that consumers, producer, individuals have more access to information, as Adam mentioned, you see with AWS, with Azure, with Cloud, the ability to quickly get a company up and running and having an online presence, you see with the Facebook marketplace, people are able to sell their goods online. Yes. Generally speaking, yes, I think it has been good for generally most people. There are, of course, probably very specific problems, very specific harms, but again, overwhelmingly, I would say yes. These companies have been good for American consumers, been good for American innovation. We focus a lot on big headlines and not with a lot of really, really good data. But that puts us in a whole different conversation which we can have offline.
>> JIM PETHOKOUKIS: You want to jump in?
>> DIANA MOSS: Go ahead. Then I'll go.
>> RYAN CLOUGH: I was going to say quickly, I think that I'll repeat what I said in the rebuttal, quote, unquote, even if you think that big tech has been really good for Americans overall, I don't think that in any way diminishes the regulatory innovations, antitrust law where necessary. I think big tech, even the growth of big tech has emerged in the backdrop of the potential antitrust enforcement and significant regulatory enforcements like Net Neutrality not to get into that debate again and I think that a significant big tech can be good for Americans, but it is going to require some significant government mechanisms to ensure that we, the rest of us, have a voice in what they essentially do to us.
>> DIANA MOSS: I think that's a really, really good question, the way you have framed it. There is a tremendous amount of innovation and competition for different segments of the American public. We have the millennial, some of us have millennials, they fascinate me continually, all three children, how they use social media, think about Internet and privacy issues, these things. The platforms which I now call differentiated platform competition, they're all using information, attention, eyeball, advertising in different ways. Each has their own claim to fame. Google is about machine learning, Facebook about social connectivity, Apple is about connectivity amongst all of the devices in the ecosystem. These are slightly different forms of competition. That doesn't mean that there are more specific markets where they compete, but they're targeting different segments of society, different segments of the population, which is great, but it also raises a lot of concerns about potential price discrimination, discrimination across groups. All of that said, we will continue to get innovation, entrepreneurial rigger and opportunity only if the antitrust laws are used to make sure that there is a level playing field for these smaller players coming in to deal with the dominant platforms.
Again, that's not the only tool. There are other layers in there as well. Other policy tools, mechanisms to make sure it all works together.
>> JIM PETHOKOUKIS: A quick comment.
>> ADAM THIERER: Last night, my daughter and I were talking, 16 year old, she's a very gifted painter, she paints clothing, specifically denim, she likes to paint jean jackets and pants and sells them to friends and other, I help sell them for her. She wants to think about starting a store. We have put together a list of all of the different places we might be able to help create a platform and build her brand. We started with thinking about something like Etsy, eBay, we thought Instagram to highlight, maybe even YouTube videos, we thought about how to repurpose it on many other platforms, the bottom line was, we probably finished our conversation by naming a dozen different platforms, many of which were quite big and owned by big tech, but gave her outstanding reach. She had a soap box to stand on now, a dozen of them, to reach the world with her new product. When I was a 16 year old kid, had things like that I wanted the world to see, I had no options. I had none. I think just again going back to consumer welfare, what it means for our current generation, future, things stand pretty well.
>> JIM PETHOKOUKIS: Another question? A gentleman I'm pointing to in the blue shirt, dark coat. I would read your name badge and I'm old. Can't read.
>> AUDIENCE: I brought up the old AT&T case, can we talk for a moment about the new one with Time Warner and the answer to this question may answer when the appeal is resolved. Do you think that we'll see with either the FTC or Department of Justice a different way that they'll pursue vertical versus horizontal mergers moving forward, whether they'll do that zealously or less zealously depending how courts come out on that.
>> DIANA MOSS: That's a good question.
We don't have all of the answers yet obviously. We don't know what will happen on appeal.
That's a very strong case.
A vertical merger, providing content with distribution, why it would potentially make it more difficult for wireless distributors to get access to information. That transmits harm directly to consumers in the form of loss of choice, diversity, quality, higher prices for subscriptions, whatnot. I think that the key point on AT&T, Time Warner, we have to really, we had a really, really crummy opinion out of judge Leone from a legal perspective, economic perspective, it was badly crafted. It is full of errors, inconsistencies. We think it is still bad that it will be say if there was no appeal, it would be cordoned off and really wouldn't serve as any sort of benchmark or basis for future vertical mergers.
What I thought was really missing from the DOJ's case, it was sort of laying the table why this merger was of concern. Really high concentration of the distribution level, you know, high concentration must have content, but the content level, we didn't nobody seemed to make an effort to create a hand scape for contextualizing of why this merger was of such a concern in terms of protection and consumers.
What happens on appeal, it will potentially affect future vertical mergers not only in the media, but in telecom space, but in other industries like healthcare, you know, Aetna is on desk, you know, we have other vertical mergers coming at us. It is going to be something to carefully watch.
>> JIM PETHOKOUKIS: We have to answer some questions from Twitter or something, social media, am I supposed to is that too much? Am I supposed to answer some social media or are they answering?
>> There aren't many on there.
>> JIM PETHOKOUKIS: Manifestos. I got that! I thought so!.
If they're quick questions, we can do both!
>> AUDIENCE: I noticed you used the word potentially harm, is that the standard that you would advocate as opposed to actual harm, consumer harm?
>> DIANA MOSS: In any specific type of antitrust so on that's a good question. On the merger front, obviously the merger hasn't happened. So there is something called the incipient standard, it says we should stop anticompetitive harmful mergers before they happen. Merger analysis by definition, it is forward looking. That's why the agencies, they're so careful about how they define markets, how they describe potential harms in those markets, competitive harms, Harms to consumers.
You know, in a monopolization case, it is no the different, it is not forward thinking. The government is in a position of creating the but for world. What would have happened in the markets, what innovation would we have got gotten, what lower price, quality, service enhancements we have gotten but for the bad conduct.
Depending on the then cartels, they're easy, price fixing, bad, market allocation, bad. You know, it is a good question. Antitrust has to approach these scenarios in different ways.
Each presents its own set of challenges.
>> JIM PETHOKOUKIS: The woman she has the mic. Ready to go.
>> AUDIENCE: I have a question. My question concerns what we really haven't touched on at all at this point, there is more to competition than just, you know, sort of mergers, acquisitions. A lot of innovation comes through Patents, and we have, you know, Alice kind ever sitting there, I'm wondering with the landscape of Alice and how a lot of small companies are really doing the innovation, getting these Patents to try and use that as a way to grow, how is that viewed? I would like to hear sort of both sides perspective on the viability of Patents as it relates to competition.
>> JIM PETHOKOUKIS: Brief answers on that this? Patents?
>> WILL RINEHART: A quick response to Patent relationship to competition
>> JIM PETHOKOUKIS: They're in the constitution.
>> WILL RINEHART: That's a difficult, difficult question that I think you have just gotten into.
There are problems I mean, a lot of people have made the claim that stronger Patent enforcement can lead to more concentrated markets.
On the counter side of that, that Patents themselves are outputs of intelligent, productive processes. Are we just basically using Patents as a proxy for intelligence in a firm? No? To me there is a lot going on here. I don't necessary to be honest, that requirement is in its own conversation. That's a really tough one.
>> RYAN CLOUGH: Very briefly though, in my view at least, the evidence is that software Patents on the side of technology, most people in this room probably care about the most, I think that the evidence is that they do more harm than good. That's sort of an industry specific observation, not necessarily about Patent in competition overall.
>> DIANA MOSS: A good question. We could have a whole other panel on this. The American antitrust institute has an initiative, the IP competition initiative. We're firmly of the suit that there is a nexus between competition law and Intellectual Property law. The concern, of course, is that absolutely the Patent System is designed to promote innovation, Entrepreneurship, you should be rewarded for your inventive activity, but we do find increasingly instances of dominant firms using Intellectual Property, Patents, Trademarks, copyrights to restrain, to reshape competition.
We have seen it, we have seen strategies around the use of Patents, standard essential Patents, and the whole thing, a set of strategic behavior around IP, that just clashes into competition concerns. It is a very active area of advocacy.
>> JIM PETHOKOUKIS: We could continue to ask questions and I think that Jesse will handle those questions. I'm ready personally to declare a winner in this debate. I have been adding up the scores, running some calculations, and the winner is you guys! You had a great debate! Very informative!
You, of course, are the winners.
I think my portion is done. I have to pick up my son from improv class.
This text is being provided in a rough draft format. Communication Access Realtime Translation (CART) is provided in order to facilitate communication accessibility and may not be a totally verbatim record of the proceedings.