Here is how platforms die: first, they are good to their users; then they abuse their users to make things better for their business customers; finally, they abuse those business customers to claw back all the value for themselves. Then, they die.This process applies more broadly than just to platforms, except the part about dying. Below the fold I discuss a recent development that provides an opportunity for you to take action to push back against it.
In 1980, influential thinkers advising the incoming Reagan administration were trying to figure out how to repeal antitrust laws and unleash unfettered monopoly power. They realized that repealing the law outright would be unpopular, and that Congress wouldn’t like it. So they decided to repeal the antitrust laws, de facto, by doing it quietly through administrative action.Now the Biden administration is proposing to re-enable anti-trust enforcement via a revision to these "merger guidelines", and are requesting the public to submit comments by September 18. Stoller has the details of the proposed new guidelines in Antitrust Guidelines and Overthrowing a Corrupt Priesthood:
Here’s a memo that a researcher at my organization found in the Reagan library. It’s titled “Throttling Back on Antitrust: A Practical Proposal for Deregulation.” In it, two important Chicago Schoolers, George Stigler and Richard Posner, made the case that Reagan could get rid of antitrust law if his Antitrust chief just stopped bringing cases. But to do that, they would need a policy change in an obscure document known as ‘merger guidelines’ that organize antitrust enforcement.
They present 13 principles, each one tethered to specific legal precedent, on how mergers may violate the law. Some principles are well-understood, like the presumption against big mergers that increase concentration. Others are new, but extend such arguments to labor markets and how workers are affected by mergers. Still others are attempts to update guidance for how the economy has changed, with the rise of institutions like tech platforms and private equity firms.
Larry Summers, the avatar of Democratic Party economic policymaking under both Bill Clinton and Barack Obama, is in a rage, asserting these represent a “war on business.” Biglaw firms are sending out alerts to clients, saying “investors, boards and C-suites should anticipate significant delays and expenses associated with a far broader range of proposed transactions.” And the House Republicans are even trying to defund the very ability of the government to publish this document in their government funding bills.If Larry Summers, big law firms and House Republicans are all foaming at the mouth, it has to be a good idea, right?
Why does this document create such anger? The answer is that it is an attempt to return antitrust back to the rule of law, and away from the corporate revolution of the 1980s.
So what are the guidelines?
These guidelines help instruct the courts how to interpret a complicated area of law. One problem is that successive versions of merger guidelines since 1982 have told judges that most mergers are good. I’m not kidding, or exaggerating. Here’s a sentence from the most recent version of these guidelines, written in 2010: “A primary benefit of mergers to the economy is their potential to generate significant efficiencies and thus enhance the merged firm’s ability and incentive to compete, which may result in lower prices, improved quality, enhanced service, or new products.”The thirteen principles are:
That’s… the opposite of the Clayton Act. The 2010 guidelines, like those written in 1982, basically said that large mergers where rivals bought one another were illegal, but everything else was fine. What’s also astonishing is that these guidelines cited no legal precedent, but were merely guesses from economists using unwieldy and speculative tools. It was a priesthood selling indulgences, with no basis in the underlying text.
- Mergers should not significantly increase concentration in highly concentrated markets;
- Mergers should not eliminate substantial competition between firms;
- Mergers should not increase the risk of coordination;
- Mergers should not eliminate a potential entrant in a concentrated market;
- Mergers should not substantially lessen competition by creating a firm that controls products or services that its rivals may use to compete;
- Vertical mergers should not create market structures that foreclose competition;
- Mergers should not entrench or extend a dominant position;
- Mergers should not further a trend toward concentration;
- When a merger is part of a series of multiple acquisitions, the agencies may examine the whole series;
- When a merger involves a multi-sided platform, the agencies examine competition between platforms, on a platform, or to displace a platform;
- When a merger involves competing buyers, the agencies examine whether it may substantially lessen competition for workers or other sellers;
- When an acquisition involves partial ownership or minority interests, the agencies examine its impact on competition; and
- Mergers should not otherwise substantially lessen competition or tend to create a monopoly;
- "eliminate a potential entrant" is a frequent problem. One popular technique is to spot a "potential entrant" at an early stage and do an "acquihire" to prevent their talent from creating a viable competitor. Mark Zuckerberg wasn't exactly clear about this motivation when he said:
In order to have a really entrepreneurial culture one of the key things is to make sure we're recruiting the best people. One of the ways to do this is to focus on acquiring great companies with great foundersAll but a few of Zuckerberg's currently 100 acquisitions are in this category. Failing to do this soon enough can get very expensive; Instagram cost him $1B and WhatsApp cost him $19B.
- "entrench or extend a dominant position", as for example Facebook's acquisition of Imstagram and WhatsApp did. Microsoft's massive investment in OpenAI and acquisition of Activision are other examples. In an environment of strong economies of scale firms dominating one area should definitely not be allowed to use their monopoly rents to buy dominance in another.
- "a multi-sided platform" such as Google, which sits between advertisers and web sites, or Amazon, which sits between suppliers and potential customers, has an inherent conflict of interest. In finance, regulators ensure that exchanges, which perform a similar function, cannot trade in their own marketplace. Amazon, by contrast, owns and sells hundreds of brands that are typically clones of products that others have successfuly sold on Amazon. Google's search engine, which itself sells ads, goes to extraordinary lengths to dissuade visitors from going to the Web sites it indexes, which earn money by showing their visitors ads from Google.
Now, here’s where you come in. Two days ago, I asked a question to Antitrust chief Jonathan Kanter at a Federalist Society event about the role of public comments in this process, and he said that hearing from the public is incredibly important in helping the agencies understand how markets actually work. Thousands of people chimed in a year and a half ago, including doctors, writers, truck drivers, nurses, and software programmers. Now it’s time to do it again. These guidelines are in draft form, they will be finalized soon.So, please use the opportunity to submit comments to recount your experience with dominant companies, and how the revised merger guidlines would improve matters. I am considering what I should submit, and will update this post when I have decided.
There are 60 days to give our feedback. The government has set up a site on Regulations.gov where you can tell them about your experience with mergers, or offer thoughts on antitrust law, mergers, big business, or unfair methods of business.