Thursday, March 14, 2019

It's The Enforcement, Stupid!

Kim Stanley Robinson is a remarkable author. In 1990 he concluded his Wild Shore triptych of novels describing alternate futures for California with Pacific Edge:
Pacific Edge (1990) can be compared to Ernest Callenbach's Ecotopia, and also to Ursula K. Le Guin's The Dispossessed. This book's Californian future is set in the El Modena neighborhood of Orange in 2065. It depicts a realistic utopia as it describes a possible transformation process from our present status, to a more ecologically-focused future.
Why am I writing about this now, nearly three decades later? Follow me below the fold for an explanation.

After last summer's Decentralized Web Summit I wrote:
Cory Doctorow's barn-burner of a closing talk, Big Tech's problem is Big, not Tech, was on anti-trust. I wrote about anti-trust in It Isn't About The Technology, citing Lina M. Kahn's Amazon's Antitrust Paradox. It is a must-read, as will Cory's talk be if he posts it (Update: the video is here). I agree with him that this has become the key issue for the future of the Web; it is a topic that's had a collection of notes in my blog's draft posts queue for some time.
With the start of the 2020 Presidential race, anti-trust has become a highly visible issue, just less visible than economic inequality. In The Myth of Capitalism: Monopolies and the Death of Competition Jonathan Tepper and Denise Hearn argue that these issues are intimately related; the rise of oligopoly capitalism has been a major cause of the rise of economic inequality. From John Hempton's review of the book:
[the book] starts in an entirely appropriate place.

Dr Dao - a doctor with patients to serve the next day - was "selected" by United Airlines to be removed from an overbooked plane.

As he had patients to tend the next day he did not think he should leave the plane. So the airline sent thugs to bash him up and forcibly removed him.

The video (truly sickening) went viral. But the airline did not apologise. The problem it seems was caused by customer intransigence.

They apologised after what Tepper and Hearn think was true public revolt, but what I think was more likely the realistic threat to ban United Airlines from China because of the racial undertones underlying that incident.

If a "normal" company sent thugs to brutalise its customers it would go out of business. But United went from strength to strength.

The reason the authors assert was that United has so much market power you have no choice to fly them anyway - and by demonstrating they had the power to kick your teeth in they also demonstrated that they had the power to raise prices. The stock went up pretty sharply in the end.

Oligopoly - extreme market power - not only makes airlines super-profitable. It gives them the licence to behave like complete jerks.

But what is true of airlines is true of industry after industry in the United States. Hospital mergers have left many towns with one or two hospitals. Health insurance is consolidated to the point where in most states there is only one or two realistic choices. Even the chicken-farming industry is consolidated to the point where the relatively unskilled and non-technical industry makes super-normal profits.
How did we get to the point where a company can hike its stock price by assaulting its customers? It wasn't that anti-trust law changed, it is that the Chicago school changed the way the law was interpreted to focus on "consumer welfare" defined as low prices, thereby ham-stringing its enforcement. As we see in the contrast between the Savings and Loan crisis and the Global Financial crisis, a law isn't effective simply because it is on the books, but only if it is effectively enforced.

The need for enforcement is something that features in Senator Elizabeth Warren's antitrust proposal. Her idea is that companies that exceed $25B/yr in revenue encounter special rules requiring them to divest certain parts of their operations, and that weaker rules apply between $90M/yr and $25B/yr. Nilay Patel interviewed Senator Warren at SXSW. Patel's questions are in bold:
At $25 billion [in annual revenue to trigger a breakup], you’re not anticipating that the local supermarket is going to stop having to do house brands.

Exactly. And no one’s looking for that. You’re getting into the nuance, that actually this is a two level regulation. The one that’s caught all the headlines is that for everybody above $25 billion, you got to break off the platform for many of the ancillary or affiliated businesses.

But between 90 million and 25 billion [in annual global revenue], the answer is to say if you run a platform, you have an obligation of neutrality, so you can’t engage in discriminatory pricing. Obviously, it’s like the net neutrality rule: you can’t speed up some folks and slow down other folks, which is another way of pricing. So there’s an obligation of neutrality.

The advantage to breaking them up at the top [tier] rather than just simply saying, “gosh, girl, why didn’t you just go for obligation of neutrality all the way through?” is that it actually makes regulation far easier. When you’ve just got a bright-line rule, you don’t need the regulators. At that point, the market will discipline itself. If Amazon the platform has no economic interest in any of the formerly-known-as-Amazon businesses, you’re done. It takes care of itself.
So you’re articulating a bright-line rule. A lot of conversations I’ve had with antitrust people like the Tim Wus and Lina Khans of the world, they’re saying we need to change the standard. We need to go from the consumer welfare antitrust standard to a European-style competition standard. Are you advocating that we change the antitrust standard?

I just think it’s a lot harder to enforce that against a giant that has huge political power.

So you’re in favor of leaving the consumer welfare standard alone?

Look, would I love to have [that changed] as well? Sure. I have no problem with that.

My problem is in the other direction: there are times when hard, bright-line rules are the easiest to enforce, and therefore you’re sure you’ll get the result you want.

Let me give you an example of that: I’ve been arguing for a long time now for reinstatement of [the] Glass-Steagall [Act]. And my argument is basically, don’t tell me that the Fed and the Office of the Comptroller of the Currency can crawl through Citibank and JPMorgan Chase and figure out whether or not they’re taking on too much risk and whether they’ve integrated and cross-subsidized businesses. Just break off the boring banking part — the checking accounts, the savings accounts, what you and I would call commercial banking — from investment banking, where you go take a high flyer on this stock or that new business

When you break those two apart, you actually need fewer regulators and less intrusion on the business.

You also get more assurance it really happened. We live in an America where it’s not only economic power that we need to worry about from the Amazons and Facebooks and Googles and Apples of the world — we have to worry about their political power as well. There’s a reason that the Department of Justice and the Federal Trade Commission are not more aggressive. There was a time, long ago, when they were more aggressive, a golden age of antitrust enforcement.

These big companies exert enormous influence in the economy and in Washington, DC. We break them apart, that backs up the influence a little bit, and it makes absolutely sure that they’re not engaged in these unfair practices that stomp out every little business that’s trying to get a start, every startup that’s trying to get in there.
Senator Warren is clearly right about the importance of bright lines for enforceable anti-trust laws when she says:
When you’ve just got a bright-line rule, you don’t need the regulators. At that point, the market will discipline itself.
But in my view she doesn't go far enough, for two reasons:
  • In her vision, what happens when a company exceeds $25B/yr in revenue is that a conversation starts between the company and the regulators. Given the resources available on both sides, this is a conversation that (a) will go on for a long time, and (b) will be resolved in some way acceptable to the company.
  • Her vision seems narrowly tailored to the FAANGS, ignoring the real oligopoly of the online world, the telcos. But her arguments apply equally to oligopoly and monopoly in other areas.  John Hempton uses the example of Lamb Weston, the dominant player in french fries:
    French fries it seems are absurdly profitable. The return on assets is in the teens (which seems kind-of-good in this low return world). Margins keep rising and yet there is no obvious emerging competition.

    It may be a good investment even though it looks pretty expensive. But if competition comes Lamb Weston could be a terrible stock.

    There has been plenty of consolidation in this industry. Sure many of the mergers shouldn't have been approved by regulators - but they were - and the industry has become oligopolistic.

    But this is not a complicated industry - it is not obvious why competition doesn't come.
I think Robinson was on to a better alternative. Although it is never spelled out explicitly, one key aspect of the transformation in Pacific Edge is that there are hard limits on both personal incomes and the size of corporations. There is a very simple way to implement such hard limits, via the tax code:

Corporations should be subject to a 100% tax rate on revenue above the cap.

There should be no need for anti-trust regulators to argue with the company about what it should do. It is up to the company, as always, to decide how to minimize their tax liability. They can decide to break themselves  up, to lower prices, to stop selling product for the year, whatever makes sense in their view. It isn't up to the government to tell them how to structure their business. Basing the cap on revenue, as opposed to profit, prevents most of the ways companies manipulate their finances to avoid tax. Basing enforcement on the tax code leverages existing mechanisms rather than inventing new ones. And, by the way:

Individuals should be subject to a 100% tax rate on income above a similar cap.

In both cases the 100% rate should be supplemented by a small wealth tax, a use-it-or-lose-it incentive for cash hoards to be put to productive use instead of imitating Smaug's hoard.

Update 6th April 2019:

The effect of the lack of anti-trust enforcement can be seen in this graph of the proportion of startups in the US economy, roughly halved in 40 years, via Charles Hugh Smith.

Update 20th April 2019:

And also in this graph showing S&P500 margins doubling over the last three decades, via Barry Ritholtz and Bloomberg.


N3JIM said...

Great post, David! Lots to think about in here. When I opened the fold, my browser put me at the bottom of the article and the first thing I saw was '100% tax'. My first reaction was incredulity, but it's an elegant solution which I think Sen. Warren would approve.

David. said...

In Facebook Is Not a Monopoly, But It Should Be Broken Up, Antonio García Martínez' argues that monopoly isn't the problem, monopsony is. For example:

"As amply elucidated in Charles Fishman’s The Walmart Effect, Walmart is a ruthless monopsonist, having seized an enormous amount of retail demand in the US and then—and here’s the key distinguishing point from monopolists—begun offering its customers more and more for less and less. It maintains roughly 25 percent gross margins by chiseling suppliers endlessly, applying the dealmaking screws on everything from mangoes to Levi’s jeans, and demanding volume discounts that it uses to undercut smaller retailers, demolishing Main Streets everywhere. The company keeps shoppers happy and suppliers miserable by threatening to shut off its demand spigot."

David. said...

Dominic Gates of the Seattle Times, Boeing's home-town newspaper, has an exemplary piece of journalism entitled Flawed analysis, failed oversight: How Boeing and FAA certified the suspect 737 MAX flight control system that clearly demonstrates how regulators lacking a bright line end up captured by the companies they regulate:

"Several technical experts inside the FAA said October's Lion Air crash, where the MCAS has been clearly implicated by investigators in Indonesia, is only the latest indicator that the agency's delegation of airplane certification has gone too far, and that it's inappropriate for Boeing employees to have so much authority over safety analyses of Boeing jets."


"But several FAA technical experts said in interviews that as certification proceeded, managers prodded them to speed the process. Development of the MAX was lagging nine months behind the rival Airbus A320neo. Time was of the essence for Boeing.

A former FAA safety engineer who was directly involved in certifying the MAX said that halfway through the certification process, "we were asked by management to re-evaluate what would be delegated. Management thought we had retained too much at the FAA."

"There was constant pressure to re-evaluate our initial decisions," the former engineer said. "And even after we had reassessed it ... there was continued discussion by management about delegating even more items down to the Boeing Company."

Even the work that was retained, such as reviewing technical documents provided by Boeing, was sometimes curtailed.

"There wasn't a complete and proper review of the documents," the former engineer added. "Review was rushed to reach certain certification dates."

When time was too short for FAA technical staff to complete a review, sometimes managers either signed off on the documents themselves or delegated their review back to Boeing."

The whole article is a must-read and, if you fly, very scary.

David. said...

Edward J. Kane's Double Whammy: Implicit Subsidies and the Great Financial Crisis describes how subsidies from governments to banks led to the Global Financial Crisis, and how regulation and supervision was structured to ensure that the regulators and supervisors could avoid blame.

Kane identifies two kinds of subsidies:

"Politically-Directed Subsidies to Selected Borrowers (particularly to would-be homeowners): The policy framework either explicitly requires—or implicitly rewards—institutions for making credit available to selected classes of borrowers at a subsidized interest rate"


"Subsidies to Bank Risk-Taking: The policy framework commits government officials to offer on subsidized terms explicit and/or implicit (i.e., conjectural) guarantees of repayment to banks’ depositors and other kinds of counterparties engaging in complex forms of bank deal making"

Kane then notes:

"Defective Monitoring and Control of the Subsidies: The contracting and accounting frameworks used by banks and government officials fail to make anyone directly accountable for reporting or controlling the size of these subsidies in a conscientious or timely fashion."

The need for bright-line regulation is to avoid this problem. In Kane's words:

"he framework minimizes regulators’ exposure to blame when things go wrong. Gaps in the reporting system make it all but impossible for outsiders –particularly the press— to hold supervisors culpable for violating their ethical duties. These gaps prevent outsiders from understanding —let alone monitoring— the true costs and risks generated by the first two strategies. Few politicians and regulators want to subject the intersectoral flow of net regulatory benefits to informed and timely debate. This weakness in accountability exists because the press is often content with regurgitating the content of agency press releases and accounting systems do not report the value of regulatory benefits as a separate item for banks and other parties that receive them."

David. said...

Rob Beschizza reports that Of $208m in fines leveled against robocallers, the FTC has collected ... $6,790. Not even a cost of doing business, because:

"An FCC spokesman said his agency lacks the authority to enforce the forfeiture orders it issues and has passed all unpaid penalties to the Justice Department, which has the power to collect the fines."

And yet:

"Robocalls and the like will account for nearly half of all calls in 2019, according to the FCC."

Kind of makes my point.

David. said...

Rana Foroohar's Lina Khan: ‘This isn’t just about antitrust. It’s about values’ provides another example of a bright line - you can't sell through a market you own:

"Some of Khan’s Tweets may soon focus on her next work, due for publication in May: a Columbia Law Review paper that explores the case for separating the ownership of technology platforms from the commercial activity they host, so that Big Tech firms cannot both run a dominant marketplace and compete on it. Khan is examining a host of old cases — from railroad antitrust suits to the separation of merchant banking and the ownership of commodities — to argue that “if you are a form of infrastructure, then you shouldn’t be able to compete with all the businesses dependent on your infrastructure”.

It’s an argument that would certainly apply to Amazon and a host of other tech behemoths, if not a broader range of industries (though Khan makes the point that any reforms should be platform-specific, given the different trade-offs that each platform involves)."

David. said...

Cory Doctorow's keynote at last year's Decentralized Web Summit was entitled Big Tech's problem is Big, not Tech. Responding to the Boston Globe's huge spread on Senator Warren's plan to break up big tech, he makes the same important point:

"Big Tech is monopolistic because it grew up without any meaningful antitrust enforcement -- because the Apple ][+ and Reaganomics were born in the same 12-month period, because a generation of tech lawyers learned from the FTC's tame response to Microsoft that it was fair game, and because the investors who choose the boards of these companies are great fans of monopolies in every industry they back, not just tech."

David. said...

Scott Galloway's take on the Lyft and Uber IPOs is worth reading. He concludes (my emphasis):

"As the founders of Lyft pretend they are saving the planet while accidentally becoming billionaires, the roadshow/sermon is forced to relocate from SF to another city, as the entrance is blocked by protestors representing 98% of the firm’s workforce. The real talent that’s evolved over the last decade in the tech community is not mastery of technology, business models, or building cultures of creativity. Instead, tech’s genius is fostering the unfettered belief that they are "making the world a better place."

When you get in the back of a car with an internal combustion engine, driven by one of 1.4 million drivers getting a dime as their share of the $20-30 billion value they’ve helped create, who don’t have health insurance or minimum wage protection, you can palliate your conscience, as the firm has purchased carbon offsets."

David. said...

Not to worry! The Justice department reacts swiftly to emerging threats to the free market with a sternly worded letter.

David. said...

Izabella Kaminska's The sovereign movement makes an interesting case about the effects of the lack of bright lines and the resulting the negotiability of laws, regulations and taxes for large corporations:

"Tax as a consequence is no longer universal. It is negotiable. And the rate you're charged depends on who you are, who you represent, how much you know and what leverage you've got against the state.

As a result even the most powerful governments are failing to enforce a level tax playing field. In so doing they're failing to raise the revenues they need to support the basic public services we have come to accept as essential human rights.

What's worse is that the scale of the loss is unknowable. There's tax evasion, there's tax avoidance but now, thanks to [large corporations], there's also tax negotiation.

And realistically, no matter what governments do, it's unlikely tax collection will ever become any easier. The litigation expense alone is nation-state bankrupting. The only recourse comes in ever smaller states (in geographic terms) because these are easier to police by tax authorities and benefit from lower public service overheads. Hence why the offshore jurisdictions do so much better in the current global race to the bottom than all others.
In the context of diminished government power the entire case against cryptocurrency -- based on the government's superior fiat over the individual, and ability to extract tax -- becomes questionable. After all, if a third party (such as a hacker with a ransom request) has better extractive powers than the government, chances are it's the currency they demand (irrespective of how poorly structured, expensive to use or badly distributed it is) which will supersede all other currencies."

David. said...

Precisely to Kaminska's point, see also The IRS Tried to Take on the Ultrawealthy. It Didn’t Go Well. by Jesse Eisinger and Paul Kiel. The subhead is:

"Ten years ago, the tax agency formed a special team to unravel the complex tax-lowering strategies of the nation’s wealthiest people. But with big money — and Congress — arrayed against the team, it never had a chance."

David. said...

New data shows London's property boom is a money laundering horror by Chris Stokel-Walker is another example of laws without effective enforcement:

"These data are just the tip of the iceberg of the inefficiency of the UK’s anti-money laundering regulations, reckons Sikka. “HMRC is subject to freedom of information laws. But the accountancy bodies, law bodies, indeed 22 or the 25 regulators for money laundering, are outside the FOI net altogether. Yet they are supposedly statutory regulators. But the government has taken the view that they are somehow private bodies.” As a result, it’s impossible to measure their efficacy."

I can't help thinking this is a feature, not a bug.

David. said...

Andrea Peterson's Why the US still won’t require SS7 fixes that could secure your phone is yet another great example of how industry captures their regulators, ensuring that enforcement is ham-strung:

"The working group’s leadership was drawn entirely from industry. The group’s co-chairs came from networking infrastructure company Verisign and iconectiv, a subsidiary of Swedish telecom company Ericsson. The lead editor of the group’s final report was CTIA Vice President for Technology and Cyber Security John Marinho.
The working group’s report acknowledged that problems remained with SS7, but it recommended voluntary measures and put the onus on telecom users to take extra steps like using apps that encrypt their phone calls and texts."

David. said...

Senator Warren's Real Corporate Profits Tax is another example of her understanding the importance of a "bright line" for enforcement:

"This new tax applies to the profits very large American companies report to their investors — with no loopholes or exemptions. ... This new tax only applies to companies that report more than $100 million in profits — about the 1200 most profitable firms in the country last year. That first $100 million is left alone, but for every dollar of profit above $100 million, the corporation will pay a 7% tax. Any company profitable enough to hit the Real Corporate Profits Tax will pay that tax in addition to whatever its liability might be under our current corporate tax rules."

David. said...

Barry Ritholtz appreciates the enforcement-friendly aspect of Senator Warren's Real Corporate Profits Tax:

"Warren's plan is clever in a number of subtle ways. The first is that it will operate as an alternative minimum tax for the biggest most profitable companies, such as Apple, Amazon and plenty of others. The second is it implicitly acknowledges antitrust and monopoly concerns raised by critics like Scott Galloway of the largest and most successful corporations."

David. said...

Tom Wheeler doesn't appreciate the need for self-enforcing anti-trust policies. In Should big technology companies break up or break open?:

"Breaking up the digital companies into smaller clones may reduce their size, but each new company will still possess the virtual assets that enabled their parents’ anticompetitive activities in the first place: the databases full of information about you and I. Break open that hoard of digital information, make it available to innovators and competitors, and the marketplace can function. Requiring competitive interconnection to databases would have the effect of an “internal break up” by going after the source of its market control."

I'm all in favor of "openness" but it isn't self-enforcing. Breaking up the big platforms, as Senator Warren proposes, or incentivizing them to break themselves up, as I proposed, would as a side-effect incentivize them to provide access to their databases, since the post-breakup pieces would need that.

David. said...

Tim Dickinson has the list of 26 companies reporting profits of more than $1B and paying no tax. #1 is Amazon, at $10.8B.

David. said...

In Can Antitrust Law Rein in Facebook’s Data-Mining Profit Machine?, Dina Srinivasan writes:

"It is important to understand what Facebook did to establish its dominant market position. For ten years, privacy (not surveillance) was Facebook’s proclaimed competitive advantage. This always included the specific promise not to track users across the Internet. But in 2014, after Facebook locked in the market, and competitors exited, its leadership abruptly changed their minds about tracking. To conduct the tracking, it leveraged an extensive framework for surveillance that it spent years building while deflecting concern that it might have been building up capacities for precisely this purpose.
What many don’t remember is that when the social network market faced competition—when dozens of companies competed in an attempt to win market share, and all competing products were priced at zero—privacy quickly emerged as a key differentiator. When Facebook entered the market it specifically promised users: “We do not and will not use cookies to collect private information from any user.”

Levels of user privacy weren’t only relevant to Facebook’s market entry; they were at the crux of the Facebook-user bargain from 2004 through 2014. Facebook consistently promised consumers it would not track their digital footprints off of Facebook itself. Facebook tried to renege on this promise in 2007 but the market was competitive enough, and had enough consumer choice, to thwart that attempt."

David. said...

American prosperity depends on stopping mega-mergers by Sandeep Vaheesan, the legal director at the Open Markets Institute, looks at the T-Mobile/Sprint merger:

"Economic research overwhelmingly concludes that large corporate mergers and market concentration are harmful to customers and rarely yield the promised improvements in productive efficiencies. In 2015, (now retired) Judge Richard Posner, a longtime supporter of relaxing antitrust rules, mused sceptically, “I wish someone would give me some examples of mergers that have improved efficiency. There must be some.” John Kwoka’s review of dozens of merger studies found that corporate consolidations often lead to higher consumer prices and that the Department of Justice and Federal Trade Commission have been far too tolerant of consolidation.

David. said...

Giovanni Buttarelli, the European Data Protection Supervisor, blogs about one of the advantages monopolists have in We need to talk about terms and conditions:

"Terms of service are generally designed to safeguard a service provider against legal challenges. These terms are not like a memorandum of understanding, trade agreement or a contract established jointly by two more or less equal parties. Rather, they are laid down by the service provider and not open to negotiation. In the EU there are rules protecting the consumer against unfair terms, under Article 102 of the Treaty on the Functioning of the EU, prohibiting a dominant company in a market from imposing unfair trading conditions."

David. said...

Simon Wren-Lewis has an excellent example from a different industry. Buses are about redistribution, productivity and a greener future describes the UK bus industry as:

"highly concentrated with three businesses (Arriva, FirstGroup, and Stagecoach) dominating the sector. Head-to-head competition between operators is uncommon, producing what is effectively a monopoly.

The market failure in this case may be the ability of a large bus operator to stifle any competition by temporarily cutting prices or increasing frequency. That makes the routes unprofitable for a time for the large bus company, but it is also unprofitable for the new entrant. As the financial resources available to the big company are much greater, they have the ability to kill off or take over any competition.There is no regulator preventing this kind of unfair competition.

With new entry unlikely to happen because of the possibility of such threats, the large bus companies can do what every unregulated monopoly does: raise fares and reduce services."

But in London this doesn't happen. Read Wren-Lewis to find out why.

David. said...

William K. (Bill) Black was Director of Litigation for the Federal Home Loan Bank Board during the S&L crisis. Via Jerri-Lynn Scofield's Bill Black: If Current Laws Prosecuting Bankers Aren’t Used, What Can Warren Change?, he agrees that "it's the enforcement, stupid":

"Bill argues that the problem isn’t deficient laws, which is Warren’s focus. He says instead:

It’s far better to focus on using the existing criminal laws but changing the things in the system that are so criminogenic and changing institutionally the regulators, the F.B.I., and the prosecutors, so that you go back to systems that we’ve always known how to make work. The simple example is task forces. What produced the huge success in the savings and loan, the Commercial Bank, and the Enron era fraud prosecutions? It was these task forces where we brought everyone together to actually bring prosecutions. They killed those criminal task forces, both under the Bush administration and under the Obama administration."

But this is unfair to Sen. Warren, who is using her office and campaign to push bills she knows Mitch McConnell will kill in order to force public debate. Her experience with the CFPB shows she knows the importance of enforcement actions.

David. said...

Cory Doctorow's latest column for Locus:

"is "Steering with the Windshield Wipers," and it ties together the growth of Big Tech with the dismantling of antitrust law (which came about thanks to Robert Bork's bizarre alternate history of antitrust, a theory so ridiculous that it never would have gained traction except that it promised to make rich people a lot richer).

The problems of Big Tech are almost all the results of how big they are, not the fact that they're doing tech. But all of our regulatory responses to Big Tech -- copyright filters, automated moderation laws, etc -- are about specifying the technology that these companies must use, not making the companies smaller so that their mistakes don't carry so much weight and so that their self-interested preferences aren't so readily turned into laws.

David. said...

Ben Thompson's The Value Chain Constraint is, as usual, a fascinating read. He argues that companies, especially big, successful companies, are optimized for a specific type of value chain and that branching out into businesses that appear "adjacent" to their core business but have very different value chains seldom works. One of his examples is Google Cloud, which struggles against AWS and Azure because Google is a consumer company trying to compete in a space that requires selling to company CIOs. Something that Amazon and especially Microsoft mastered long ago. Thompson concludes:

"The reality is that technology has an amplification effect on business models: it has raised the Internet giants to unprecedented heights, and their positions in their relevant markets — or, more accurately, value chains — are nearly impregnable. At the same time, I suspect their ability to extend out horizontally into entirely different ways of doing business — new value chains — even if those businesses rely on similar technology, are more limited than they appear.

What does work are (1) forward and backwards integrations into the value chain and (2) acquisitions. This makes sense: further integrations simply absorb more of the value chain, while acquisitions acquire not simply technology but businesses that are built from the ground-up for different value chains. And, by extension, if society at large wants to limit just how large these companies can be, limiting these two strategies is the obvious place to start."

David. said...

"Consent decrees" are not enforcement, and fines for violating them are a cost of doing business, as Cory Doctorow points out in Facebook's $5B FTC fine was so laughable its stock price went UP after the announcement:

"The way the FTC generally works is that if it catches a company doing something terrible, it issues one of these "consent decrees" which amount to, "don't do it again, or we'll take the company away."

But Facebook did it again. Hard. And rather than shutting Facebook down, the FTC fined them $5B, which may sound like a lot, it's only about 30% of the revenue from a single quarter and less than a quarter of the company's annual profits. It's basically a license fee for criminality, a tax on lawbreaking that allows the company to retain the vast majority of its profits from criminal activities."

David. said...

In a similar illustration of a lack of effective enforcement, Jon Brodkin's Charter gets final approval to stay in NY despite breaking merger promise reports that:

"Charter Communications has received final approval to stay in New York State despite violating merger commitments related to its 2016 purchase of Time Warner Cable.

The New York State Public Service Commission (PSC) had revoked its approval of the merger and ordered Charter to sell the former Time Warner Cable system in July 2018. Charter repeatedly failed to meet deadlines for broadband expansions that were required in exchange for merger approval, state officials said."

The subhead sums it up:

"Charter gets extra year to meet Time Warner Cable merger requirement."

And what if they don't?

David. said...

Cory Doctorow describes the conduct that got Equifax a slap on the wrist in Equifax settles with FTC, CFPB, states, and consumer class actions for $700m:

"Equifax doxed virtually every adult in America as well as millions of people in other countries like the UK and Canada. The breach was caused by an acquisition spree in which the company bought smaller competitors faster than it could absorb them, followed by negligence in both monitoring and responses to early warnings. Execs who learned of the breach used it as an opportunity to engage in insider trading, while failing to take action to alert the public. Equifax nonconsensually gathers dossiers on everyone it can, seeking the most sensitive and potentially damaging information to record. The company was founded as part of a corporate spy-ring employed to root out and identify political dissidents and sexual minorities.

Despite Equifax's assurances to the contrary, there's scant evidence it's done anything to prevent future breaches.

The company used the breach as a chance to lock Americans into years of payments for credit-monitoring services."

David. said...

It turns out that the slap on Equifax's wrist was exaggerated. Equifax to pay at least $575 million as part of FTC settlement by Alfred Ng and Sean Keane makes it clear that the $700M number, the most that Equifax could possibly pay, was leaked as part of a PR strategy. Guess who probably leaked it!