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Antitrust Law And Dominant-firm Behavior In The Digital Technology Sector: Toward An Actionable Agenda For Policymakers

The second of the two reports in a series, Antitrust Law And Dominant-firm Behavior In The Digital Technology Sector: Toward An Actionable Agenda For Policymakers applies the framework of the first report to eight well-articulated and widely studied public-policy problems involving the major dominant firms in the digital technology sector. The report examines how each of the eight problems is perceived to cause, often in differing proportions, a combination of social, economic, and political ills linked to the large digital technology firms. It then applies the framework, making recommendations to policymakers as to how they should evaluate and consider supplementing an antitrust approach.

The eight problems, and AAI’s findings in applying the five uncertainty variables to each, are summarized below.

1. MISINFORMATION AND DISINFORMATION. On both the producer and consumer sides of news markets, there may be a risk that increased competition would be ineffectual in slowing the spread of false and misleading information online. In addition, conduct that facilitates the spread of false and misleading information online may lead to divergent, incommensurable effects. That is, it may lead to increased output at the same time it leads to decreased quality.

2. SELF-PREFERENCING. If a vertically-integrated platform favors its own or its advertising partners’ products in the marketplace, an antitrust plaintiff’s ability to make evidentiary allegations of a discernable wealth transfer from either a producer or consumer to the platform will likely vary depending on the facts. Such plaintiffs sometimes may have to rely solely on qualitative evidence, sometimes may be able to rely on both qualitative and quantitative evidence, and sometimes may have to grapple with evidence suggesting that qualitative non-price effects and quantitative price effects diverge, and are incommensurable.

3. PREFERENCE-SHAPING AND BEHAVIOR MODIFICATION. If a dominant platform employs insights from human behavioral psychology to target the sale of commercial products and services in a socially harmful way, an antitrust plaintiff seeking to deter a harmful competitive effect may struggle to allege causation. Moreover, evidentiary challenges in establishing causation may lead to challenges in creating a viable remedy, particularly if it is unclear whether any non-price effects and price-effects may diverge.

4. THE USE OF ADDICTION SCIENCE IN SOFTWARE DESIGN. When a dominant platform employs principles of addiction science in software design as a means of attracting user attention, an antitrust plaintiff may similarly struggle to allege causation, again creating challenges in crafting  a viable remedy.

5. FREE SPEECH AND VIEWPOINT DISCRIMINATION. When a dominant platform’s algorithm for displaying content cultivates polarized, feedback-driven information flows that fail to expose users to diverse viewpoints, there is a risk that inter-platform competition will fail to solve the problem, particularly if platforms become siloed and users do not multi-home. An antitrust plaintiff seeking to challenge conduct on grounds that it generates harmful viewpoint suppression would be relying solely on qualitative evidence of a non-price effect, and the qualitative and quantitative effects likely are incommensurable and may diverge, creating challenges in crafting a viable remedy if a case could be won.

6. PRIVACY INTRUSIONS AND DATA BREACHES. When a dominant platform’s business model is predicated on making uniquely accurate predictions about human behavior through intrusive collection of user data and sophisticated data analysis, it is unclear whether the introduction of competing, privacy-protective choices in the marketplace will prompt users to switch away from the dominant platform. In addition, an antitrust challenge predicated on privacy harms necessarily would rely on qualitative evidence of a harmful non-price effect, and it may be unclear whether price- and non-price effects from intrusive privacy practices would align or diverge, and whether they would be commensurable, raising questions about the viability of an antitrust remedy.

7. “UNDEMOCRATIC” MARKET STRUCTURES AND THE POLITICAL POWER OF LARGE FIRMS. When a platform’s dominance in a market breeds antidemocratic political pressures, an antitrust plaintiff’s ability to alleviate such pressures through de-concentration measures likely will vary depending on the facts. Consummated merger challenges may offer the potential for de-concentration, but the spin-off of firms that offer complementary products may or may not lead to horizontal competition in a platform’s core market. Monopolization challenges may allow for comparatively more flexible de-concentration remedies, but whether they are likely to succeed in any given case depends on how the break-up remedy would be tailored to the challenged conduct.

8. WORKPLACE FISSURING AND LABOR EXPLOITATION. When a dominant platform’s behavior serves to depress the wages of employees or other workers or diminish the non-wage terms of employment or other work, whether increased competition will reverse the trend, and whether the platform will be found to have the necessary power to force such a wealth transfer, likely will vary from case to case. The viability of a competition-restoring remedy in the labor market likely also will vary depending on the facts.

The report was authored by Randy Stutz, AAI’s Vice President of Legal Advocacy, and made possible by grant funding from the John S. and James L. Knight Foundation. See http://knightfoundation.org.

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Antitrust, Dominant Firms, And Public Policy Problems: A Framework For Maximizing Success By Minimizing Uncertainty

The first of the two reports in a series, Antitrust, Dominant Firms, And Public Policy Problems: A Framework For Maximizing Success By Minimizing Uncertainty creates a general framework for policymakers to assess potential outcomes when combatting dominant-firm behavior using federal antitrust litigation under existing legal doctrine. It explains that when a single firm achieves dominance in a critical market, it can give rise to complex public-policy problems with economic, social, and political dimensions that call upon government to craft creative solutions using a variety of available tools. The menu of available options includes antitrust law, economic and/or social regulation, intellectual property law, labor and trade policy, tax law, and other legal and regulatory mechanisms. And, it is up to policymakers to choose the right combination of tools and wield them collaboratively and effectively.

Because of modern antitrust law’s technical complexity, non-expert policymakers often struggle to understand how antitrust law can be effectively deployed as part of a broader public-policy strategy. The first report solves for this problem by creating a framework that policymakers can use to assess degrees of uncertainty associated with litigation-based antitrust challenges to dominant-firm behavior under existing legal doctrine. It derives five variables that implicate litigation uncertainty, each of which arises from core areas of policy agreement or disagreement in antitrust law.

The core area of policy agreement that informs litigation uncertainty under existing antitrust law is the idea that antitrust law, as currently constituted, serves to protect and promote competitive markets. The core area of disagreement is over whether antitrust, in the course of protecting competition, should seek to protect and promote consumer welfare as its primary or exclusive goal. Each of these areas has been a flashpoint in recent public policy debates over the adequacy of existing antitrust law as applied to modern digital technology markets. But, importantly, each area also tends to inform the litigation arguments of parties who appear before judges in actual antitrust cases. Consequently, these areas of policy agreement and disagreement tend to shape the contours of applied antitrust law, affecting arguments and outcomes from jurisdiction to jurisdiction and even from case to case.

After a detailed analysis, the report identifies and explains the five uncertainty variables that emerge from an understanding of these key areas of agreement and disagreement, as well as their implications for policymakers:

1. THE THREAT OF MARKET FAILURE. When competition occurs within the context of a market failure, policymakers should recognize that it may exacerbate a given public policy problem rather than cure it. Confronted with a potential market failure, the efficacy of applying a law that promotes competition becomes less certain.

2. THE WELFARE TRADEOFFS CAUSED BY LAWFUL COMPETITION. The lawful competition that antitrust law promotes can sometimes lead to welfare tradeoffs that harm vulnerable constituencies, including consumers, workers, and small business. Policymakers therefore should recognize that other tools, in addition to a tool that promotes competition, may be necessary if their particular goal is to protect vulnerable constituencies from injury rather than to promote open markets.]

3. THE DETECTABILITY OF A WEALTH TRANSFER. To survive the preliminary stages of litigation and thereby obtain meaningful deterrence against socially undesirable behavior (including by spurring settlement discussions), an antitrust plaintiff may have to allege evidence that a powerful firm forced its trading partners to transfer wealth to the firm. Policymakers should recognize that, to the extent such a wealth transfer is difficult to detect, the deterrence value of initiating antitrust litigation may be less certain, as may the prospect of obtaining a competition-restoring remedy should the litigation proceed to summary judgment or trial.

4. THE NATURE OF EVIDENTIARY ALLEGATIONS OF AN ANTICOMPETITIVE EFFECT. As currently applied, antitrust law holds that it protects against not only harm caused by inflated prices and reduced output (“price effects”), but also against harm caused by diminished product quality, reduced choice, and reduced innovation (“non-price effects”). However, cases premised solely on harmful non-price effects are sometimes harder to support with proof, particularly when the effects are unquantified or unquantifiable. Policymakers therefore should recognize that cases premised on unquantified, non-price effects may be more difficult to maintain and win than cases premised on quantified price or output effects, or both kinds of effects.

5. THE COMPATIBILITY OF ANY “INCOMMENSURABLE” COMPETITIVE EFFECTS. It is common for challenged conduct to generate both quantified price/output effects and unquantified non-price effects. When the two kinds of effects are both present and both harmful, antitrust law has comparatively little difficulty policing the conduct that generates them. However, when the competitive effects diverge, meaning conduct is beneficial in one sense but harmful in the other, courts often struggle to impose remedies. Policymakers therefore should recognize that conduct that creates divergent price and non-price effects, such as lower prices but also reduced innovation, or higher prices but also higher quality, may be difficult to remedy using antitrust law under existing legal doctrine.

The report was authored by Randy Stutz, AAI’s Vice President of Legal Advocacy, and made possible by grant funding from the John S. and James L. Knight Foundation. See http://knightfoundation.org.

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AAI Amicus Briefs Help Deliver Back-to-Back Wins in U.S. Supreme Court and D.C. Circuit

On June 21 and June 22, 2021, the U.S. Supreme Court and D.C. Circuit delivered critically important victories for student-athletes and natural gas customers, each aided by an AAI amicus brief.

In NCAA v. Alston, the Supreme Court ruled 9-0 in favor of the plaintiffs, affirming a district court opinion holding that the NCAA’s restrictions on the education-related benefits that schools may make available to student-athletes violate Section 1 of the Sherman Act. AAI’s amicus brief argued two important points. First, the NCAA and its member institutions made a non-cognizable argument throughout the litigation—that harm to competition in a labor market for athletes’ services should be tolerated for the sake of promoting competition in a product market for college sports contests. Second, AAI argued that the NCAA’s formalistic claim that “product-design” decisions cannot be challenged under Section 1 contravenes antitrust law’s commitment to examining the economic realities of collaborative business activity.

The Supreme Court accepted both arguments. First, citing and quoting from AAI’s brief, the Court expressly disclaimed that its affirmance of the district court’s holding should be construed as tolerance for so-called “multi-market balancing.” This carve out from the Court’s opinion is especially important, because as the case came before the Court on appeal from the Ninth Circuit, the NCAA and its member institutions had waived any argument that their compensation restrictions promoted competition in the labor market; they argued only that the restrictions benefitted competition in a product market. If the Court had blessed the NCAA’s litigation approach, it would have risked sending an especially dangerous message to the judiciary and the defense bar.  Indeed, in making the flawed arguments, the NCAA may have wrongfully assumed it could do so based on the Court’s failure to draw the necessary distinction in its 1984 decision in NCAA v. Board of Regents. However, the NCAA, in its litigation approach, also failed to appreciate why its multi-market balancing arguments lost in that case.

The Court also rejected the NCAA’s “product-design” argument as flatly inconsistent with a long line of precedent. Citing two cases that the AAI brief cited in support of the same proposition, the Court explained that it regularly refuses “requests from litigants seeking special dispensation from the Sherman Act on the ground that their restraints of trade serve uniquely important social objectives beyond enhancing competition.” The Court held that the question whether a restraint violates the Sherman Act presumptively turns on an application of a rule-of-reason analysis rather than a “judicially ordained immunity.”

In Environmental Defense Fund v. FERC, a unanimous panel of the D.C. Circuit Court of Appeals vacated and remanded a FERC order approving the construction of a new segment of natural gas pipeline in the midwestern United States, accepting AAI’s argument that the approval was arbitrary and capricious for failing to account for market realities that called into question whether the construction was supported by genuine market need.  FERC did not consider whether the proposal instead was based on a desire on the part of the pipeline owner to evade rate regulation through a vertically integrated affiliate.

The Environmental Defense Fund petitioned the D.C. Circuit for review of FERC’s order issuing a Certificate of Public Convenience and Necessity (Certificate of Need) to Spire STL Pipeline LLC (Spire STL), a subsidiary of a midwestern utility holding company, Spire Inc. (Spire), to authorize the new pipeline.  In approving Spire STL’s application, FERC relied exclusively on Spire STL’s affiliate precedent contract with another of Spire’s vertically integrated subsidiaries, Spire Missouri, as evidence of need. Although no shippers in the region, including Spire Missouri, required new capacity to meet demand, and no unaffiliated shippers bid on any of the new capacity, and all parties conceded that demand in the region was flat for the foreseeable future, Spire argued that sufficient evidence of need should be found based on Spire Missouri’s subscription of 87% of the new pipeline’s capacity. And FERC held that the agreement, standing alone, was sufficient to allow the new pipeline project to go forward.

AAI’s amicus brief argued that FERC’s order was arbitrary and capricious because the affiliate precedent contract alone is ambiguous as evidence of need. Without more, FERC could not draw a reasonable inference that the contract was procompetitive rather than anticompetitive, consistent with the Natural Gas Act’s goals. Among other things, AAI’s brief emphasized that, whether an affiliate precedent contract is more likely to reflect need or more likely to reflect a vertically integrated monopolist’s anticompetitive incentive to evade rate regulation depends on market conditions that FERC failed to address. To reasonably infer that Spire’s affiliate precedent contract is likely to create procompetitive benefits rather than anticompetitive harms, FERC needed to evaluate, at a minimum, the implications of flat demand for new capacity in the region, the absence of buy-side competition for new capacity, and the state utility commission’s ability (or inability) to detect inflated transfer prices. Here, those factors foreclosed a reasonable inference of need based solely on Spire’s precedent contract with a vertically integrated affiliate.

The D.C. Circuit agreed. The Court noted that it could find no judicial authority endorsing a FERC-issued Certificate of Need “in a situation in which the proposed pipeline was not meant to serve any new load demand, there was no Commission finding that a new pipeline would reduce costs, the application was supported by only a single precedent agreement, and the one shipper who was party to the precedent agreement was a corporate affiliate of the applicant who was proposing to build the new pipeline.” It added that the absence of supporting authority “is hardly surprising because evidence of ‘market need’ is too easy to manipulate when there is a corporate affiliation between the proponent of a new pipeline and a single shipper who have entered into a precedent agreement.”

The Court also cited to a 2009 FERC case that identified the same concern about inflated transfer pricing that AAI identified. Namely, “that a utility affiliate contract could shift costs to captive ratepayers of the affiliate and subsidize the…  project inappropriately, and the lack of transparency that would surround the arrangement.”

AAI’s amicus program is a key component of fulfilling AAI’s mission of promoting competition that protects consumers, businesses, and society. Comments on AAI amicus briefs or suggestions for AAI amicus participation should be directed to Randy Stutz, rstutz@antitrustinstitute.org, (202) 905-5420.

 

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AAI Tells Multilateral Task Force That FTC Pharma Merger Policy Needs an Overhaul: Speaks at Future of Pharma Workshop and Submits Comments Citing AAI Report

AAI’s Diana Moss spoke at the Federal Trade Commission’s (FTC’s) Future of Pharma workshop on Concentration Levels in the Pharmaceutical Sector on June 14, 2022. Moss’s remarks unpacked comments submitted by AAI in the FTC’s Pharmaceutical Task Force, Docket No. FTC-2021-0025 proceeding.

AAI commended Commissioner Slaughter for jump-starting the task force in her capacity as Acting Chair and encourages Chair Khan to pursue this vitally important initiative with all of its intended vigor and thoroughness. AAI’s comments address a key topic posed by the Multilateral Pharmaceutical Task Force request for public comment: effective remedies for anticompetitive mergers of branded and generic pharmaceutical companies.

In September 2020, AAI issued the widely-cited report: From Competition to Conspiracy: Assessing the Federal Trade Commission’s Merger Policy in the Pharmaceutical Sector (AAI Pharma Report). AAI’s comments in the proceeding are based on the empirical research, analysis, and recommendations contained in the report. The analysis highlights the fading promise of competition, in both branded pharmaceutical R&D and generic drug markets, for ensuring the provision of accessible, affordable, essential drugs to U.S. consumers.

The AAI Pharma Report highlights the FTC’s long-term policy of settling virtually all challenged drug mergers subject to divestitures, the effect of which has been the “swapping” of pharmaceutical assets within a shrinking group of increasingly powerful drug manufacturers. Moreover, many of the very firms that were the most active in M&A, and as purchasers of divestiture assets, have been named as defendants in private, state, and federal non-merger antitrust litigations and in federal criminal indictments.

AAI offers a variety of recommendations to re-vamp the FTC’s merger policy to promote competition and protect consumers. These include: (1) abandoning the current merger policy of not seeking injunctions, (2) automatically seeking injunctions to stop generic “mega-mergers, (3) discouraging further M&A by “serial acquirers,” (4) banning certain antitrust “violators” from purchasing divested assets, (5) requiring reporting on claimed efficiencies, and (6) monitoring the “turn-around” sales of divested assets.

AAI has a more than a 20-year history of research, education, and advocacy on the importance of vigorous antitrust enforcement and constructive competition policy in the pharmaceutical sector. AAI has provided legal, economic, business, and institutional analysis of the adverse effects of consolidation and concentration on competition, consumers, and innovation. AAI is uniquely positioned to provide insight into the structure of pharmaceutical markets, strategic anticompetitive practices, anticompetitive abuse of regulatory processes, remedies that fully restore competition, and policies that promote competition and the protection of consumers and innovation. The integrity and stability of the healthcare system is a matter not only of competition and consumer welfare, but also of national wellness, safety, and security.

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AAI Encourages USDA to Take More Aggressive Role in Crafting Competition Policies to Combat Concentration and Supply Chain Instability in Food and Agriculture

The American Antitrust Institute filed comments in the U.S. Department of Agriculture (USDA), Agriculture Marketing Service (AMS) proceeding Supply Chains for the Production of Agricultural Commodities and Food Products (Docket: AMS-TM-21-0034). The integrity and stability of the food system is a matter of national health, safety, and security. Disruption of any food and agriculture supply chains is potentially catastrophic, as became apparent during the COVID pandemic. As the economic recovery puts increased pressure on demand for agricultural commodities and food products, those risks remain very real.

AAI’s comments in the USDA proceeding highlight a lack of competition as a major cause of instability and lack of resilience in U.S. food supply chains. They address the harmful effects of rollbacks of important regulations under the Trump administration, pervasive “bottlenecks” in the food supply chains that result from concentration, and challenges facing public and private enforcement in policing anticompetitive mergers and conduct in the food system. AAI suggests four areas where USDA can be more proactive in addressing concentration and supply chain problems in food and agriculture, including interagency coordination, facilitating price transparency, working to limit or prohibit vertical integration, and food labeling to foster competition on quality and consumer choice.

AAI has a more than 20-year history of research, education, and advocacy on the importance of vigorous antitrust enforcement and constructive competition policy in the food and agricultural sectors. AAI has provided legal, economic, business, and institutional analysis of the adverse effects of consolidation and concentration on producers, consumers, independent business, and the stability and security of the food supply chains. This work spans various sectors, including agricultural inputs such as fertilizer, crop traits, and seed; protein and grain processing; food manufacturing; broadline food distribution; and retail grocery.

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AAI Has Allergic Reaction to Misguided Decision in EpiPen Monopolization Case (Sanofi v. Mylan)

AAI filed an amicus brief urging the Tenth Circuit Court of Appeals to reverse a district court order granting summary judgment to the defendant Mylan in a closely watched monopolization case involving the ubiquitous EpiPen, a device used to treat allergy patients who suffer from life-threatening anaphylaxis.

In Sanofi v. EpiPen, Sanofi alleges that Mylan, the owner of the EpiPen, illegally foreclosed the first meaningful rival to the EpiPen in the market for epinephrine auto injectors (“EAI market”) in more than a decade. In 2013, when Mylan’s EpiPen allegedly enjoyed an overwhelming monopoly with market share exceeding 99 percent, Sanofi introduced the Auvi-Q, an innovative, rival product invented by two brothers who suffer from anaphylaxis and were unsatisfied with the EpiPen. Instead of competing with the Auvi-Q on price or quality, however, Mylan allegedly instituted a multi-part scheme to lock the new product out of the EAI market.

At summary judgment, Sanofi introduced evidence that, in response to the launch of the Auvi-Q, Mylan raised the price of the EpiPen enormously and then offered conditional rebates to Pharmacy Benefit Managers (PBMs), which would partially offset the increase provided PBMs promised to exclude or disadvantage the Auvi-Q on their drug formularies (which dictate which treatments insured patients can access under their health plans).

Because the EpiPen’s list prices were raised so high, the foregone rebates would have made it cost-prohibitive for many PBMs to make the Auvi-Q available to patients unless Sanofi gave it counter-rebates that would have rendered the Auvi-Q unprofitable. After Mylan’s scheme effectively prevented the Auvi-Q from establishing a foothold, a product that both Mylan and Sanofi projected to take 30 percent of the EpiPen’s market share within three years, and that had already successfully achieved that share in Canada, was a commercial failure in the United States. Sanofi subsequently exited the market.

The district court granted summary judgment to Mylan, emphasizing that PBMs benefitted from the Mylan’s rebate payments, actively encouraged them, and gave comparable exclusives to Sanofi when Sanofi made (unprofitable) counter-offers in an effort to match the Mylan rebate. AAI’s amicus brief argues that the district court erred by conflating the interests of PBMs and consumers, and misapplying the rule of reason.  The court should have recognized that Sanofi established its prima facie case, and created a triable issue, when it established harm to competition and patients. The court erred by confusing PBMs’ interest in obtaining high rebates for evidence of a consumer welfare benefit. Empirical evidence in the highly concentrated PBM market suggests that PBMs’ demand for high rebates, on which they are typically compensated by health plans, has put upward pressure on net drug prices, with consumers left to suffer net price increases and drug manufacturers and PBMs sharing the spoils. Moreover, there was no evidence in the record of any efficiency justification that would otherwise explain the exclusionary rebate contracts.

The AAI brief also argues that the district court failed to account for Mylan’s overwhelming monopoly power in assessing the likelihood that its conduct would have anticompetitive effects in the EAI market. Although the district court accurately cited language from a different case emphasizing that exclusive dealing is common in the economy and can often be procompetitive, it neglected to account for the economic realities of the EAI market, in which Mylan was eliminating its only capable rival. Because the court failed to appreciate that competition cannot exist without competitors, it did not recognize that conduct eliminating the Auvi-Q on some basis other than efficiency was all but assured of causing cognizable harm under the antitrust laws.

The brief was written by AAI Vice President of Legal Advocacy Randy Stutz.

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Supreme Court Adopts Narrow Reading of Computer Fraud and Abuse Act Urged by AAI

The Supreme Court has reversed an 11th Circuit decision upholding a federal criminal conviction of a police officer under the Computer Fraud and Abuse Act (CFAA) for accessing license plate information in a department computer database in exchange for money.  Consistent with the position taken in the amicus brief filed by the R Street Institute, and joined by AAI, Public Knowledge, Lincoln Network, Engine Advocacy, and the Innovation Defense Foundation, the Court construed the CFAA narrowly, avoiding the broad interpretation urged by the government, which amici argued would have hampered interconnectivity and competition.

In Van Buren v. United States, the issue before the Court involves a circuit split over the CFAA’s scope. The statute creates civil and criminal liability for accessing a computer without authorization. Under a narrow interpretation given by some courts, a user becomes liable when she accesses a database that the user does not otherwise have permission to access, such as breaking into a password-protected website or otherwise hacking a computer database. Under a broader construction, other courts have held that authorization is “without access” whenever access occurs in a manner that contravenes the database owner’s expressed preferences, including where the access contravenes the website’s click-through terms of service.

The amici asked the Court to adopt a construction of the CFAA that accounts for competition enabled by platform interoperability. In several past instances, website owners have made data publicly available to users but employed their terms of service to prevent competitive uses of the data by rival firms. If a dominant platform, for example, can selectively wield the CFAA’s liability and injunctive relief provisions by manipulating the terms of service it imposes, it obtains a powerful tool to foreclose competitive interoperable products and services from accessing what may be a key input. Past uses of the CFAA reveal the success of this strategy, including CFAA actions that have had the effect of eliminating rival products dependent on user-permitted platform access, thwarting consumer price-comparison services, and thwarting internet privacy-based products and services.

The brief also argued that the broad construction of the CFAA is inconsistent with competition policy underlying trade secret and copyright law. Trade Secret and copyright law strike a careful balance between allowing information to stay in the public domain, to encourage competitive uses, and protecting special kinds of information in order to encourage investments in innovation. The broad construction of the CFAA allows firms to get IP-like protection for information that would not qualify for protection under trade secret or copyright law, undermining that balance.

Finally, the brief noted that, under a properly narrow construction of the CFAA, database owners still enjoy protection from hacking, as well as protections under contract law. Contract law gives firms remedies for unauthorized use of information but provides competition-preserving limitations that the CFAA lacks.

The brief was written by the R Street Institute’s Director of Technology & Innovation, Charles Duan. AAI Vice President of Legal Advocacy Randy Stutz assisted with certain sections of the brief.

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AAI Urges Ninth Circuit to Reinstate Conspiracy Case Against the National Association of Realtors (The PLS.com v. NAR, et al.)

AAI submitted an amicus brief asking the Ninth Circuit Court of Appeals to overturn the dismissal of a complaint from pocket-listing network PLS.com against the National Association of Realtors (NAR) and several of its affiliated multiple listing (MLS) services.

NAR has long dominated the market for residential real estate transactions and its affiliated MLSs have held a comparable monopoly on residential real estate listing networks. NAR has been the subject of multiple consent decrees from the Department of Justice over the years, including related to its MLS listing policies. PLS is a recent entrant to the residential real estate listing market, which sought to provide a nationwide electronic platform for pocket listings. Pocket listings are listings that contain less information about a property than a traditional MLS listing, and they are desired by buyers and sellers who wish to maintain privacy.

PLS alleged that, faced with the threat of competition from PLS’s nationwide pocket listing network, NAR and its affiliated MLSs conspired to enact a Clear Cooperation Policy that, effectively, excluded PLS from the market entirely. The district court, after hearing oral argument, dismissed PLS’s complaint for lack of antitrust standing and denied PLS leave to amend.

AAI’s brief argues that reversal is warranted because the district court baselessly imposed an “ultimate consumer harm” requirement for plaintiffs to establish antitrust standing and wrongly concluded the Clear Competition Policy was “competitively neutral” because the court did not understand the nature of platform competition. The brief points out that an “ultimate consumer harm” requirement contravenes the logic and purpose of the direct purchaser rule and would needlessly hamper private antitrust enforcement and burden courts. In the brief, AAI also argues that far from being competitively neutral, the Clear Competition Policy seeks to eliminate the ability of realtors and brokers to use more than one listing network, which reinforces the barriers to entry in this market from network effects.

The brief was written by AAI Vice President of Policy Laura Alexander. A group of law and economics professors, including Professors and AAI Board Members Josh Davis and John Kirkwood, filed a separate amicus brief in support of PLS.

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AAI Issues Report on Market Power and Digital Business Ecosystems

A new report from the American Antitrust Institute, Market Power and Digital Business Ecosystems: Assessing the Impact of Economic and Business Complexity on Competition Analysis and Remedies, takes an important, multidisciplinary approach to evaluating competition issues raised by the digital business ecosystems (DBEs), filling an important analytical gap, and informing the enforcement and legislative debate over reining in the market power of the large DBEs.

The report was co-authored by Diana Moss, President, American Antitrust Institute; Gregory T. Gundlach, Professor of Marketing, Coggin College of Business, University of North Florida; and Riley T. Krotz, Assistant Professor of Marketing, Texas Tech University.

The report was made possible by a grant from the Omidyar Network Fund, Inc. View the report.

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AAI Issues Report: Market Power and Digital Business Ecosystems: Assessing the Impact of Economic and Business Complexity on Competition Analysis and Remedies

The American Antitrust Institute has issued the report: Market Power and Digital Business Ecosystems: Assessing the Impact of Economic and Business Complexity on Competition Analysis and Remedies. The AAI report takes an important, multidisciplinary approach to evaluating competition issues raised by the digital business ecosystems (DBEs), filling an important analytical gap, and informing the enforcement and legislative debate over reining in the market power of the large DBEs. The report was co-authored by Diana Moss, President, American Antitrust Institute; Gregory T. Gundlach, Professor of Marketing, Coggin College of Business, University of North Florida; and Riley T. Krotz, Assistant Professor of Marketing, Texas Tech University. The report was made possible by a grant from the Omidyar Network Fund, Inc.

Introduction

“Digital business ecosystems” (DBEs) reflect the culmination of progressive changes in business models and organizational structure over the last 40 years. The ubiquity of many large DBEs in our economy, society, and political system is troubling, as is their significant market power, which is the subject of competition investigations in the U.S. and abroad. But the DBE business model, which far surpasses other models and structures in its scope, scale, and complexity, remains largely under-analyzed. DBEs feature unique economic, technological, and business characteristics that increase their opacity to consumers, competition enforcers, and lawmakers. These include information as the currency of exchange and a range of market failures such as positive network effects, information asymmetries around user data and privacy, and data externalities. As the “engine” of commerce and growth in DBEs, cloud computing technology adds further complexity to the analysis of market power. This is particularly true of data analytics, supported by artificial intelligence (AI) and machine learning, which powers the DBE “value proposition” of maximizing user engagement and monetizing user data.

This report examines the unique characteristics of DBEs and assesses their implications for competition enforcement and policy. This analysis raises numerous questions around the adequacy of conventional competition analysis in evaluating market power concerns. The widening gap between the complexity and growth of DBEs—and the likely inadequacy of policy responses to the market power problems they raise—elevates the importance of such questions. However, they cannot be answered by relying solely on a legal-economic framework. We therefore adopt a multidisciplinary approach, incorporating economics, law, and business theory and research in our analysis. Not surprisingly, it reveals important caveats and cautions regarding the application of conventional competition analysis to DBEs, with implications for how competition enforcers and legislators assess market power and design remedies, particularly in the merger and monopolization contexts.

The report begins with the evolution of the DBE business model and its rapid and expansive growth. We then turn to an analysis of the major structural and behavioral features of DBEs. Next are implications for competition analysis, such as how markets are defined, how market power is exercised, and remedies. The final section concludes with recommendations. As public and private antitrust cases against large DBEs mount, the U.S. Department of Justice (DOJ), Federal Trade Commission (FTC), state Attorneys General, and courts will continue to grapple with their unique features. This report provides important analysis, insights, and recommendations for enforcers and policymakers as they explore the full complement of tools available to rein in the market power of DBEs.

Conclusions and Recommendations

The body of scholarship and policy analysis surrounding the competition problems raised by DBEs is relatively saturated. Many countries are now actively framing public policy solutions and are poised to act through some combination of legislation and competition enforcement. This study fills an important void in the body of competition research on DBEs through multidisciplinary analysis of their unique economic, technological, and business characteristics. These include significant market failures on both the demand and supply sides, and other economic anomalies. Because they have an outsized effect on the analysis of competition and remedial approaches involving DBEs, these features should receive important attention from policymakers. The conclusions outlined below inform the debate over proposals to regulate the digital technology sector, antitrust agency guidance on digital technology markets, potential FTC rulemakings involving the digital sector, or other mechanisms that would affect how the antitrust agencies, the courts, and a potential sector regulator assess competitive issues involving DBEs.

  • In light of the distinct economic, technological, and business features exhibited by the DBEs, agency guidance on how enforcers will evaluate competition concerns involving them is urgently needed. The antitrust agencies have issued guidance over the years on a number of specific issues and sectors, including healthcare and others. This report reveals how those unique features challenge conventional competition analysis, as applied to DBEs. The public, consumers, and businesses would thus be well served by dedicated agency guidance on how enforcers propose to address competition issues raised by DBEs.
  • The centrality of data to the DBE business model reveals the under-recognized but strategic importance of cloud infrastructure as the engine of DBE growth and expansion. Analysis in this report fully reveals the centrality of data analytics, supported by AI and machine learning, to the DBE value proposition and associated market power concerns. Significant and unrestrained growth in the large DBEs’ cloud infrastructure over the last decade has reinforced this capability, reinforcing platforms, setting the stage for further expansion, and enhancing incentives to extend market power throughout larger DBEs. Antitrust enforcers should more closely scrutinize cloud infrastructure acquisitions by the large DBEs.
  • Consumers do not engage with DBEs in ways that accurately reflect their preferences for privacy, with significant implications for conventional competition analysis. Consumers lack information regarding how DBEs collect and deploy their data, creating a misalignment between users’ preferences and actions. This information asymmetry strains key economic assumptions that underpin conventional analysis of consumer behavior. The vital role of demand as the ultimate arbiter of market power amplifies this concern. Antitrust enforcers should consider how these features affect critical issues such as market definition and competitive effects in cases involving DBEs.
  • Unique characteristics of DBEs shift the mode of interaction between the firm and consumers to algorithmic preference-shaping, with significant implications for conventional competition analysis. The DBE value proposition is driven by maximizing user engagement throughout an interconnected, multiproduct ecosystem. DBEs exploit numerous market failures and economies of scale to create value through algorithmic preference-shaping. But users’ choices based on curated, personalized algorithmically generated suggestions may be inferior. Moreover, DBEs can use such algorithms to steer users to the services provided by their affiliated or preferred providers, at the expense of rivals operating on a platform. Antitrust enforcers should consider the mechanisms through which such conduct occurs, and the evidence needed to support a showing of adverse effects.
  • Policymakers should consider the need for “hybrid” remedies and close coordination between competition enforcement and regulation to address market power problems raised by DBEs. Structural remedies do not entirely address the unique economic, technological, and business characteristics of DBEs that give rise to market power problems. Post-breakup, DBEs could be expected to continue to exploit anomalies and potentially re-emerge as dominant market players. Disrupting the DBE value proposition with conduct regulation will likely lead to imperfect regulation. As such, a hybrid structural-behavioral approach to reining in the market power of DBEs is likely to emerge as the best policy approach. This should be implemented through a broader regulatory regime, with careful thought given to how antitrust and regulation will coordinate, not conflict.