Below, we have provided the full transcript of the panel discussion, Digital Platforms: In Need of Regulation?, from the third episode of our series, Antitrust In an Election Year: Challenges Ahead.
Maria COPPOLA:
Hi there. I am delighted to be here today on the CPI session to engage with some of our best and brightest thinkers on this topic of digital platforms. As moderator, I will certainly try to avoid offering my views, but should I fail to do so, they are my own.
Another point on my moderating role, I think many of you saw the traffic after the first presidential debate suggesting that the moderator should have been any mother who had been home with her children since March. In that spirit and without the ability to benefit from a mute button for speakers, I’ll just note that I have spent several months as a single parent working for the FTC teaching at night and dealing with two rowdy boys. Speakers you are forewarned.
Our panel today is going to talk about regulation. This is part of a four series CPI event that has looked at whether our innate trust tools are sufficient, online advertising, I think we’re going to address open versus closed ecosystems later in the week. But today we’re talking about regulation and you’ve just heard Senator Klobuchar’s remarks. She highlighted, of course, the challenges of bringing merger in section two cases in her proposed legislative solutions. I would be remiss not to say that she did start with additional resources for the antitrust agencies, something I fully support, no surprise there.
Anyway, we are here today to talk about regulation, but I’ve also encouraged the panelists to react to Senator Klobuchar’s remarks. I think we are at a point in the dialogue where it’s almost narrowed to think only about enforcement or regulation as either or alternatives. In any case, the starting point for our conversation today is whether regulation fills a gap in antitrust. If so, can it be done in a way that is consistent with pro-competitive principles?
Many of the regulatory proposals on both sides of the Atlantic are designed to address theories of harm by digital platforms that are at the outer boundary of US antitrust doctrine, but squarely within the toolkit of our international counterparts. Indeed many of the proposals for regulation in those jurisdictions are much further along than in the US.
So I thought we would start the panel with Bill Kovacic, my former chairman, professor at GW and Kings, on the board of the UK’s CMA, and of course a citizen of the world to react a little bit about some of the regulation that proposals that we’re seeing globally. Bill?
Bill KOVACIC:
Thank you, Maria. And thanks to CPI for organizing the session and to Senator Klobuchar for offering an interesting framing presentation. I’d just like to start us with three thoughts. The first is, is there a gap? I think increasingly we’re seeing a convergence of several policy areas into the conversation. One is traditional antitrust enforcement competition law. The second is what we might call consumer protection, the implementation of bargaining terms that arguably reflect asymmetric positions in bargaining power. And the third is data protection and privacy.
And it seems to me that to develop a comprehensive program and approach to dealing with this, one wants to draw on all of those disciplines, which means using policy tools that go beyond simply the litigation of cases. And all of this presumably is going to be informed by heavy duty economic policy analysis and technical analysis.
And to my mind we ought to be thinking about where we want these institutions to go. The most natural fit given what they already do would be the Federal Trade Commission. So I think it’s useful to think, are we planning on setting up something new or do we go to an existing institution and give them the mandate and say that the FTC would be a good place to locate the new authority?
Second on resources, delighted to hear the conversation of doing more, but I’ll believe it when I see it. I’ll believe it when I see the real resources that make a difference. And it’s not just a matter of being able to add new people. I think if we’re going to think big about retooling the system, let’s think about hiring people at wage levels that enable us to keep the people you need, especially if we’re so concerned about the revolving door spinning people in and out and creating undue influence from private sector organizations, let’s think about paying something that’s a lot closer to market rates.
And a first step in that direction would be to put say the FTC, on the same level as we have the financial services regulators that get roughly speaking a 20% supplement to the federal civil service scale. So I will believe the sincerity of Congress about it statements about new resources when I see yes and aggregate it and increase, and I see a boost in individual compensation that lets you get the people that you need. You’ll need exceptional upgrades in human talent if you want to do everything on the agenda. If you’re not willing to do that, I think you’re in for a frustrating effort in implementation.
And third, I think it’s worth talking about, and it’s not been part of our discussion, how our experience is going to fit into an international environment in which the European Union is probably going to be first to market with a new regulatory framework, the Digital Services Act, that will come first by the middle of next year. United Kingdom will be ended about the same time if not a bit later with the new digital markets unit whose exact location is not yet determined and then possibly followed by Australia as well.
What are our thoughts about how that is to be integrated into this larger international framework where we will have at least three, maybe four major jurisdictions seeking in many ways to do the same thing, developing binding codes of conduct, rules, supplemental legislation that will impose standards. How are those going to be integrated and how do legislators see them being fit into the larger framework of activity? Thanks Maria.
COPPOLA:
Thanks Bill. So you have actually previewed a lot of the discussion that I hope we’d have a little bit later including on the integrated disciplinary aspects. I think I’m going to shift gears a little bit, but not entirely. Picking up on your last point, Bill, of about the inherently domestic nature of competition enforcement of regulation and the global patchwork we’re likely to face in a few months. And I’d like to turn to David Teece, who is a professor of Global Business at Berkeley Haas, who no doubt has thought more about these issues, about the interconnection.
David, if I could also ask you to address the initial question about, are there gaps in antitrust that we do need to fix with regulation? And then if you could move on to thinking a little bit about if we are going to have regulation or if we’re not going to have regulation, how is this going to work in a global framework?
David TEECE:
Yeah, so I’m happy to address that at a very general level and pick up where Bill left off, which is that we need to upscale our understanding of complex phenomena here. Despite the good work of people like David Evans, we’re still talking about platforms and the innovation economy as if it was the industrial economy. And we need a new set of folks and a new set of tools that understand big data and it’s generation, that understand competition that is broad spectrum competition, it doesn’t confine itself to narrow relevant markets, and we need to understand a world where a business model innovation is as important as technological innovation.
We have here the most dynamically competitive industries that we’ve ever seen. And yet we have the hand of regulation being held above it, and we have antitrust intervention. Now, I’m not saying that there isn’t a need for regulation. I’m not saying that there isn’t a need for further antitrust enforcement, but the probability that we’re going to do more good than harm is incredibly low if we adopt an industrial economy view of things.
There is an enormous fragility to a lot of the market positions that some people think are very stable. There’s all this talk now about markets that are tipped as if they can’t be untipped. And that is not only the work of David Evans and Richard Schmalensee and others, but there’s plenty of evidence out there, not in the economics literature as such, but in the management literature about how fragile these things are. And that if managers make one major mistake, they’re out of the game. So we need new tools that actually have managers having a role in it. And that actually focuses much on capabilities as on markets.
When I think about the strength of firms, I don’t think anymore about markets and market share, it’s basically a phony number to look at. I think about capabilities. If we don’t start understanding these complex phenomena and how these industries are different, if we just trot out the same old structures and framework to the past, we’re unquestionably going to make things worse. I’ll stop there. Obviously I’ve got more to say, but I’m sure others can build on these points.
COPPOLA:
I’d like to come back to you later to think about whether, when you were talking about approach that also applies to the antitrust laws. I’m also very curious to hear more about the business model innovation, because I didn’t want an argument. Certainly the business community has been that these days are not thinking about any real world economy, they’re just trying to be bought up, so they don’t have business models.
And as far as the enormous fragility, that is certainly, I have a teenage son and I can tell you that TikTok is on its way up. And that may unseat some of the people capturing our eyeballs right now. Okay, if I could turn to David Evans who, as you said, has done a lot of thinking about the intersection of regulation and enforcement, and in particular, the need for regulation. David is the chair of the Global Economics Group and the co-executive director at Jevons. David?
David EVANS:
Just maybe a couple of reactions to both Senator Klobuchar’s talk, and then what we’ve heard from Bill and David. I noticed that Senator Klobuchar mentioned the old AT&T case that led to the breakup of the Bell System. I actually worked for the justice department on that case many years ago.
It’s interesting given the topic we’re talking about today, because that was basically antitrust intervening in an industry to introduce competition in a situation where competition was essentially prevented by a regulatory agency. This is the FCC for about 20 years. So it’s a case that I think shows both the power of antitrust, but also why one should be a little bit concerned about regulation, particularly along the regulation, and particularly when you start seeing dynamic competition as David has talked about. That’s point number one.
Point number two is, it seems like a lot of the reason why we’re currently talking about regulation is because of dissatisfaction with what we’ve gotten out of antitrust. And that’s been particularly true in the European Union where they’re talking about a regulatory framework because they have done a bunch of antitrust cases and they don’t like the outcome. And we’re talking about it in the US, because there’s a sense that we just haven’t done enough when it comes to antitrust.
And before we start talking about relatively inflexible instruments like industrial regulation, we really got to be thinking more seriously about, can we do something with antitrust to solve whatever we perceive the problems with antitrust being. And again, going back to Senator Klobuchar’s talk, absolutely the FCC which only has … Think about it. The FCC has about $330 million of funding a year relative to the tech sector, relative to anything, relative to the annual salary of a variety of executives. It’s not a lot of money. The same is true for the antitrust division at DOJ. And therefore investing more in antitrust enforcement just seems like a no brainer. That’s something we obviously ought to be doing.
The thing that Senator Klobuchar did not mention which I also think is important is, it’s hard to see how we can have an effective antitrust regime, particularly for fast moving big tech, when it can take five, 10, 15 years for cases to wind their way through the court system. And one of the things I think people aren’t talking about enough is whether we need to put more resources into the judiciary system, which has more money than the FCC, but again, it’s like eight, nine billion dollars a year for the federal judiciary for everything that it does. But it seems to me that there need to be some reforms to give the judiciary more resources and also to modify processes so that cases can really move much more expeditiously through the court system. So that’s comment number two on antitrust.
And then comment number three just quickly on, and maybe we can get into this a little bit later, but just quickly on a regulation. It may very well be that there’s a role for new regulations for the tech sector. But first of all, it seems like we’re trying to boil the ocean, or at least the Atlantic Ocean, it’s a big area where that diverse group of companies. And sometimes you see these reports focusing on Google and Facebook for online advertising and then generalizing from there, but it’s a big diverse category that’s going to become bigger and more diverse as we go on. And it’s not clear to me that we’ve really done at this point. Maybe it’s going to happen in the future, but we’ve really done the research and thinking that it will be necessary to come up with a regulatory framework that applies to such a large and diverse sector of the economy.
And then just finally, economists really do know a lot about regulation. We’ve been working on this for a long time. We have a protocol for how we do it. We apply cost benefit analysis to it. There’s been a bipartisan consensus on that. We try to identify a market failure, we trying to identify the best solution for that, worry about unintended consequences, and then finally use cost benefit analysis to make sure that we’re doing the right thing.
We’ve applied that to the climate regulation and to consumer protection regulation and the lots of things. My impression of the various reports that have been done to date is, they’re fine, they’re interesting, they cover interesting things. But I simply don’t believe that at this point in time, we have done the things that I would want to see to be supportive of instituting long range far reaching regulation in this area. And I’m also dubious about doing that for a category called big cap.
COPPOLA:
Right, who isn’t digital? You’ve raised some very interesting questions about dynamic competition. I want to circle back a little later about this, are we talking about regulation because there’s been a failure of enforcement? Awfully hard to say that in the US when we, until this week, have had a single US government section to case against a digital platform we now have too. I also think that some of the remedial failures in Europe reflect a different capacity for remedies than we have in the US.
I would definitely like to come back to this question about enforcement. I would first like to hear from Diana Moss, who’s the president of AAI, her reactions hearing a little bit about the enormous fragility of these firms, about the dynamic competition, the dangers of trying to do anything that could limit dynamic competition.
And again, to maybe in a more granular way, and I’m probably going to come back to some of the other speakers to push them a bit more on this, what are the problems we’re trying to fix if we think we need regulation? Is it just failure of antitrust enforcement or are there things, as I said earlier, is it things like leveraging or exploded abuses that we’re actually concerned about and those we can’t reach under our current antitrust laws? Diana?
Diana MOSS:
Thanks, Maria. Thanks also to CPI and good to see my colleagues here on this webinar today. Just a few takeaways from the good comments we’ve just heard and reacting to Senator Klobuchar’s comments and certainly the house judiciary committee report. I think one of the biggest things or the biggest problems or hurdles that needs to be gotten over in the United States at least, and I think Europe is farther ahead as are some other countries, is that we have to decide whether what we’re seeing in the digital technology sector poses what I would call a public policy problem. Many would agree that it has indeed been elevated to the level of a public policy problem that concerns over competition, concerns over consumer protection, for example, privacy and the use of consumer data, which really fuels the ecosystems of the digital tech players, concerns about free speech and diversity and the media.
This is just a big bucket of issues, and if you take it all together, that’s called a public policy problem. So then the conversation then shifts to how do you solve a public policy problem? It is usually through a set of very complimentary tools. Not any single tool can do it all. Certainly antitrust plays a very important role, but we’re talking about a toolkit of antitrust enforcement, invigorated enforcement, some form of regulation, economic, and/or social regulation yet to be determined based on more study and more empirically-driven case for that.
But also we’re talking about trade policy, we’re talking about intellectual property policy. This is really going to be a mix of tools, and so we’re looking at a very complex toolkit here where we have a regime of what will be permissible in levels of integration, if some of these lines of business restrictions and breakups actually get traction. We’re talking about competition allowed in certain parts of the systems. We’re talking about regulation in certain parts of the system. We’re talking about structural separations, whether it be legislated or through antitrust enforcement. That’s a very complex regime.
As a former federal regulator myself, I was an energy regulator for many years, we dealt with these types of issues in a very complex industry. The US is arguably behind the ball on recognizing that we have a public policy problem, understanding that a public policy solution consists of various tools. But I do think that there is a growing evidence-based case for the need for some solution and for the invigoration of antitrust enforcement to do that.
I think sometimes we forget that antitrust enforcement is law enforcement and it’s generalist law enforcement. We have a set of tools and techniques and methodologies to go about looking at competition problems. That should not change at all. And in fact, that is the one of the beauties of antitrust and the fact that antitrust remedies are designed to deter a future anti-competitive conduct.
But I will push back a bit and say that we have not seen strong antitrust enforcement involving digital tech. There has been forbearance in enforcing the laws. I did a study on the record a week merger enforcement and digital technology, hundreds and hundreds of transactions, acquisitions of small rivals, obviously only a fraction of those are reportable to the agencies. But hey, one challenge, Google ITA out of a couple of 100 reportable transactions. Yes, we just saw a big Section II case file, but we’ll see what happens with that. We all know what happened with Microsoft at the very end when there was a pivot and a pretty ineffective remedies were taken in that as a result of a political change over.
So I think the last point is, is there an appetite? A political appetite for a public policy solution? Is there going to be an appetite for clarifying and strengthening the antitrust laws? Will there be an appetite to, in some form or shape, regulate the digital tech sector? If you look at the buck report that came out at the same time the house judiciary report came out, there is no appetite over on the GOP side for “chainsaw type regulation.” I think that was the word that was used to describe it.
This is going to take an evidence-based case a lot of consensus building across the aisle, and frankly, a lot of very careful thought given to how to put these tools together so that they are complimentary, they work together, and they bootstrap each other. Instead of creating friction intention as I well know, as a former federal regulator in dealing with regulation and energy but also antitrust enforcement and energy, where there were many points where there were difficulties and roadblocks. I think all of this is going to have to be solved.
COPPOLA:
Well, you’ve set out such a huge array of problems. I’m not even sure how to react to that. But I guess I will come back to you with a question, maybe a little bit narrower. Some of the things that you’ve talked about, trade policy, social free speech, those are clearly outside of the bounds of competition law as we know it.
There are maybe other disciplines that are a little bit closer, and this may be my own bias coming from the FTC, but you heard Bill’s proposal about having an interdisciplinary agency to look at some of these issues and make the trade-offs say, for example, between data access remedies and privacy concerns. Excluding for a little bit some of the harms or concerns that you mentioned that go beyond the closer disciplines of competition, consumer and privacy, can you react to Bill’s a suggestion or offer some of your own thoughts on how these interdisciplinary trade-offs can be made, including based on your experience at the energy regulator work where clearly you were looking at different things and balancing these different objectives?
MOSS:
Right, good question. I actually, as much as I agree with a lot of what Bill has to say, I actually think a federal regulator were to be legislatively mandated and a new Digital Markets Act created in the US. I think that should be a separate regulator. I don’t think it should be housed within the FTC.
And the reason is this, there is a tremendous amount of technical knowledge and know-how associated with understanding the digital ecosystems. David made that point, Professor Teece made that point as well. Having a sector regulator devoted to understanding the engineering, the technical, the economic engineering dimensions of an industry, I think is very important. And to work with an antitrust enforcer in a complimentary way to talk about competitive harms, to talk about remedies and the interface between the two. So also, I myself am a fan of having a separate regulator set up that would work with both the DOJ and the FTC.
The other benefit of that is a separate regulator with a different standard, a public interest standard versus the competition standard carried by antitrust enforcers is going to be able to address more than just competition problems. For example, we’ve got a lot of issues surrounding privacy. And my own view is that the privacy issues associated with a lot of what we’re hearing about in digital tech rise to the level of a social regulation solution. It’s like health and safety regulation, right? We care about consumers. We care about privacy. Well, let’s come up with some way to deal with broader systemic privacy issues. That doesn’t mean antitrust can’t deal with privacy through non-price dimensions of competition, for example. And we’ve seen that. We’ve seen the DOJ raise that. For example, in DoubleClick, we’ve seen the FTC raise it in WhatsApp and other types of specific cases.
So a sector regulators going to be able to deal not only with competition issues, but also with more social issues, and the need for social regulation. So that’s another good reason for keeping it out of the FTC and encouraging coordination between the two agencies. I think glomming this all together actually works against the interests of strong antitrust enforcement. We want to keep the focus on antitrust enforcement, stronger enforcement in the industry. But the only way to do that, and I think it’s clear the agencies need help is to bootstrap them with a very competent, dedicated sector regulator that can provide technical knowledge and support, and follow issues like innovation and dynamics and change in the sector.
COPPOLA:
A Silicon Valley for the US government, I guess, is what you’re thinking about. And that’s similar to some of the ideas that have been proposed with some traction in the UK. I suppose for me, just Brexit I’m narrow-minded, but I always wonder, the remit to me, it just seems enormous if you talk about a digital regulator. The remit seems enormous, where you get staff seems to me a lot less enormous. Presumably a lot of the staff would come from industry and then you may face issues of capture and the like. But anyhow, you’re not here to hear what I think about it. I’m going to turn now back to David Teece to see what he thinks about some of the discussions that we’re having around, whether to regulate, who will regulate and what does that look like?
TEECE:
Yeah, some very good questions have been put on the table. And let me say that, let’s distinguish between social regulation and economic regulation. I agree they are important questions around media and privacy and free speech, and I’ll put those to one side and just focus on the economic regulation.
I believe that there’s three policy realms. And I think this ties in with what was just said, where we need complementary tools and we need a coherent approach. That’s competition policy, technology policy, and industrial policy. Now you can’t use the word industrial policy in the United States, but the Europeans love it.
But here’s the key point. At the end of the day, it’s innovation that drives competition. If we don’t put innovation first, we’re going to kill both competition and innovation. So my view is that if it’s going to be the FTC Bill, then we have to have the FTC come up to speed, not just on how competition drives innovation, which they seem to know quite well, but also how innovation drives competition, which quite frankly is missing from the antitrust dialogue.
You go to look at the standard books and it’s all about how competition drives innovation, but as Shump painted toward us, it’s innovation that really drives competition. And really what the agencies have become in my view is champions of what I call static competition, not champions of dynamic competition, so which we see compared to the stronger version of competition that comes from making sure we have a dynamic innovation-driven economy.
Let’s go back to the AT&T case, the divestiture was warranted, but did we have to throw the baby out with the bath water? Bell Labs was sacrificed. Essentially the greatest research institution that Western civilization had ever created went down the tubes because the department of justice, and for that matter AT&T itself, was not looking at the power and importance of Bell Labs. And it went from handed off from one to another and they stopped the resources, so innovation was harmed on one side while it was improved on the other.
To me, it comes back to, really there is a vibrant literature in the academic literature on innovation that the antitrust people choose not to read it. They really don’t. My field is technology management, one of my fields. I also look at antitrust. I never see anybody in antitrust cross-referencing the rich literature and innovation management, except for David Evans and a few of his friends, so there’s a need to take a holistic view.
Go back to Adam Smith, be aware of unintended consequences. I’m quite certain that if everybody stays in their silos, competition, the FTC stays in its silo, in industrial policy people stay in their silo, in technology people stay in their silos, we all end up with bad policy.
And we’ve got to think about this globally. This was your question. You’ve got China out there understanding the importance of big data driving AI. If we don’t stay hit in AI, we not only lose economically, we lose militarily. National security issues are there too. We haven’t mentioned national security, but those issues are there too.
The probability that we’re going to get it right by pulling out industrial age views of antitrust in competition and using the static competition model, in my view is close to zero. Do I think that’s where we’re going to end up? Hopefully not. Bill, if he succeeds in getting the right budget for the right people, and if we could take 5% of antitrust economists and get them to focus seriously on these cross-disciplinary issues, I would get quite a bit further ahead. My point is to agree that these issues are complicated, that old approaches are not necessarily the right approaches, and that there is a heavy lift intellectually to come up with good policy in this area.
COPPOLA:
Thanks very much, David. I think you’ve set out an awfully high burden just to get 5% of antitrust economists to think about something other than antitrust. My experience is that most of us tend to be relatively narrow in scope and which is why these discussions about interdisciplinary trade-offs or policy trade-offs are challenging.
I think that there is a very natural flow now to David Evans. Bill, I will come back to you. But as you’ve been touted by the other David as being one of the few economists that has thought about some of these broader issues and the indigenous disciplinary nature, what are your thoughts? What are your reactions to what he’s saying? Again, the topic here is regulation, but maybe we’re thinking too about enforcement.
EVANS:
I don’t disagree with David that we ought to be thinking about dynamic competition. I agree with him that the role of innovation in driving competition’s, the role of new technologies in driving competition, those are all very important things.
But I wouldn’t want to take David’s slightly build criticism of antitrust to suggest that, given the tools that we have available to deal with economic policy problems, antitrust has the capability of probably being the best way to go. Maybe it’s not always perfect, but antitrust interpreted by the court’s flexible apparatus, to my mind, that is the best way to guard dynamic competition in the economy simply because it is a flexible framework for doing that.
I’m all in favor of doing things to strengthen antitrust, to refine it at the edges, so we’re not going a decade or so for a section two case. And there are all sorts of reasons why that case is so slow. So I think antitrust as a regulatory mechanism, is really the thing that we ought to be settling about.
With regard to Diana’s comments, the notion of a sectorial regulator here, to my mind is a very scary thing. I want to go back actually to one of the points you made about, boy, this is kind of big. Well, it is really big because where we are now, is the digital economy is becoming the economy. We’re basically gaining an integration of the online and physical world. We’re seeing all sorts of both existing tech companies and new tech companies coming in and revolutionizing what happens in physical space. Instacart and companies like that revolutionizing the grocery industry and so forth.
And if you fast forward that, we’ve just had this big upsurge in the digital economy because of the pandemic, but if you fast forward this, the digital economy over the next 10, 20, 30 years in combination with 5G and 6G, is going to sweep over pretty much all of the economy. So when we start talking about sectorial regulator, we’re ultimately talking about a sectorial regulator that’s not going to just stop with the companies that are in the news now, it’s obviously going to have to add to them and it’s going to have to expand and so forth. And it’s going to be something that is going to become quite sweeping.
It’s hard for me to imagine that you’re going to have an effective sectoral regulator that is able to take on that job and that doesn’t encounter all the problems that we have understood now for 40 years. The revolving door, rent-seeking, yes Maria, the staff is going to come from the regulated industries after they work for the sectoral regulator for a while, they’re going to go back to the regulated industry.
We’ve seen all these problems before, and it’s very difficult to guard against them. So I’m all in favor of targeted regulation when it’s necessary. I’m all in favor of legislative solutions that can be targeted if they’re going to be interpreted in a flexible way by the judicial system. But a sectoral regulator just seems to me to be missing the learning that we’ve had on really both sides of the Atlantic on the dangers of that form of regulation.
COPPOLA:
Thanks, David. I’m going to go back to … Yeah, Diana?
MOSS:
I was just wanting to respond to what David just said, but go ahead I can find him later.
COPPOLA:
No, no. Please, I’ll give you a couple of minutes and then I want to turn to bill in just a minute.
MOSS:
Sure, sure. David raises some good points, but there’s this, when you’re talking about sector regulation, you’re talking about a pretty broad spectrum. I don’t think we’ve seen a case for economic regulation of the digital tech platforms at this point. I used to do economic regulation and we all know what that entails.
I know you do have issues of capture and you have problem of the second best, and you have the potential for significant distortion in markets. I don’t think that’s the flavor of regulation we’re talking about. I think we’re talking about a flavor of regulation that falls short of that: interoperability, access, facilitating competition on the platforms, if these are deemed to be essential facilities and the platform owners themselves continue to compete with rivals on their own platforms. That is a gray area for the United States.
We do regulation in the US, it’s hardcore, it’s economic regulation. We don’t have a lot of regulation in the US that is in that, is a couple of steps removed from that. And I think that in itself poses a great challenge as does a lot of the traditional problems. For example, if there were as a Digital Regulators Act, would there be a savings clause for antitrust? Well, absolutely there should be a savings clause because there are going to be antitrust problems that arise that are going to require attention by both the regulatory infrastructure and antitrust. What about antitrust versus regulatory remedies? Well, there’s potential for conflict there too.
I’m not saying that I have all the answers or that anybody has all the answers, but this will definitely pose, if there’s a parallel regulatory policy prong here, absolutely we’ll require significant thought about how those two interface with one another.
COPPOLA:
Thanks, Diana. And I’d like to come back in a minute to each of you. Everyone seems to say that regulation, yes, maybe or no, but I hear all of you saying more aggressive antitrust enforcement. I will, and this is just a forewarning that I’m going to ask each of you to come up with one or two things, if you think that our laws need to change, one or two things that need to be changed, very specific granular. But first I want to give the floor to Bill Kovacic, who has been unbelievably patient and unbelievably brief in his initial remarks to react to some of what we’ve been hearing today. Bill?
KOVACIC:
Because you were so intimidating Maria with your craps. I, once again, coward by this awesome demonstration of moderator power. First, I’m delighted with a couple of features of the discussion. One is, I think a fuller discussion of who should do what has to be front and center on this conversation much more than it has been to this date. The house committee is really thin on these kinds of institutional issues.
The other discussions that have appeared, and in good studies, Furman, Stigler, the experts report for the European Commission address these issues, but they stop by them pretty quickly. And there’s not a lot of discussion about how one does this. And having a general agreement that it’d be a good idea to go to the moon only starts the process of deciding how you’re going to get there. The engineering for doing that turns out to be really hard. I think the issue is raised here about having to focus carefully on what we’ve done before, as a way of the thing about comes next is very fruitful and useful.
One reaction I have is that bravo for the idea that the institutional framework that engineering is at least as important as the physics of what the larger substantive framework got to do, so that’s a good thing. Likewise, bravo to David for drawing our attention to the question of whether we know what we’re doing here, and fully understanding where innovation comes from. And I think there the answer’s going to be from a lot of sources.
I’m intrigued recently, I’m looking at developments in the aerospace sector, how a collection of different influences, including public procurement policy, government funding for R&D, private initiative have resulted in dramatic changes in the landscape for technology, such as launch vehicles, drones, ongoing research about the development of new supersonic aircraft that could be used for commercial purposes.
The firms that are leading the charge in this area for the most part did not exist 20 years ago. And their success is attributable to a collection of public and private initiative. They are tech in the extreme, they are very high-tech, but SpaceX didn’t exist 20 years ago. It has advanced in a number of ways because of this constellation of factors.
Part of the effort here has to be a fast-paced move to study I think in more detail, and understand why have some sectors advanced, why have they elevated? Why do we see thriving sectors of development that do not necessarily have links to the familiar firms? Why is that happening? I think to understand that more fully, and I think David’s exactly right on that. These are very healthy paths.
I’d also say if we think about what we’re going to do and how to do it, are there areas where we could bolster the work that we’ve done to this point? Diana raises a good point, to do your fair points about whether you want to give this to the FTC. Although the arguments she uses are a good example for spinning off consumer protection and data protection from the FTC, because arguably they dilute the competition law focus. I’d like to see a bit more consideration of how the FTC has achieved policy integration as it has across these areas sometimes imperfectly, sometimes not.
But I’m interested in the prototypes that we have. How do you scale them up? How do you use the R&D capability that the FTC has that both Davids have talked about? How do you use the latent capacity that the FTC has to serve as the specialist trade court tribunal with efforts to accelerate the process to serve as an alternative to the trench by trench warfare we see in lots of Section II litigation?
I welcome this examination of institutional arrangements and how one goes about doing that. But I also come back to the question that we started with. One is, how do we deal with the international complexity here? What is going to be the mechanism by which, since individual powerful economic jurisdictions, notably the European Union, have the capacity to set what amount to global standards or to require firms to act in specific ways that have broad interjurisdictional significance? What kind of discussion is going on now among these institutions to start to address some of these issues? Which is, what do we know about the areas in which we’re trying to intervene? Do we have any agreement at all about commonality or interoperability for these systems? Or are we going to end up in say two, three years, with three or four distinct, significant jurisdiction-based mechanisms to address the similar problems with a host of different policy commands going out to the affected industry? And that is what we’re talking about, the struggle to come up with a greater synthesis of domestic policy making. What are we doing now to achieve that on a broader international scale?
COPPOLA:
Well, Bill, that is certainly a topic that I could go on for ages, but nobody’s here to listen to me.
KOVACIC:
We will listen to you always.
COPPOLA:
We’re already at the hour. I’m going to give each of our panelists two minutes for closing remarks. Either the reactions to Bill addressing the question that I posed about, do we need to change antitrust laws or frankly any topic you would like? You’ve got two minutes starting with David Teece.
TEECE:
Well, there’s a lot to build on here. I think, to pick up where David Evans was, antitrust does have a good shot at taking commanding heights here, but not the current antitrust framework. As Bill Kovacic just pointed out, to really understand competition in a global context, you really do have to understand technology policy, you do have to understand industrial policy questions. But I think there is a chance that a renovated antitrust enforcement structure could do that. But what would it take it? It would require a new intellectual lens.
If you think about the history of antitrust, there was a structuralist school for a long time and it’s still substantially in place. I think we need to look at the world through the lens of dynamic competition, then we have a chance. Once you put dynamic competition rather than static competition upfront, that enables you to talk about these industrial policy questions that Bill Kovacic was just talking about. That enables you to talk about globalization questions because the system of innovation is fundamentally a global one, even though we may be trying to bifurcate it.
Intellectual frameworks matter, and we’re not going to get the jurisdictional stuff right or be able to coordinate amongst different agencies, unless there’s some shared intellectual framework or paradigm. I believe dynamic competition can be that underscored by something else I call dynamic capabilities, which enables us to understand things like potential competition.
You asked earlier, “Give me one thing to look at?” Well, we’ve had 50 years to come up with a theory of potential competition. We’ve got basically nowhere because behind it all, we don’t have a theory of the firm and the growth and evolution of firms. If we had a theory of the growth and evolution of firms, we might be able to say something meaningful about potential competition. How do we assess it early on? So that when we look at things like the Facebook-Instagram acquisition, we wouldn’t just look at the market and say, “There’s no revenues, there’s no issue.” To me, that’s a classic case of a stale old paradigm that focuses on the marketplace rather than on capabilities.
Really what drives compensation is capabilities of firms. The result is what you see in terms of marketplace positions. But if you’re going to understand competition, don’t just look at markets, you’ve to look at the business enterprises, and you’ve got to bring management back into the intellectual apparatus. I believe there’s a way through, but it’s going to require a much broader intellectual framework. It’s going to require people in the agencies to bone up, think differently about issues and actually read wider than they have typically read.
COPPOLA:
Sounds like we’re going to need to recruit from some business schools in any case. Okay. David Evans?
EVANS:
I think one of the biggest points that we’re going to need to confront in terms of economic policy globally and for the US is really the one that Bill highlighted. We are in fact going to get regulators for this space, digital economy, big tech, however you want to call it, in multiple jurisdictions around the world. Maybe we’ll have it in the US, maybe we won’t.
That’s a troubling situation because one of the things about this group of companies and this set of technologies is they’re all capable of being ruled out in innovating and revolutionizing industries all around the world. They don’t just operate in one country. They launch and very quickly they operate pretty much everywhere. We don’t really have that many examples of companies or industries or areas that do that so often and so quickly.
Importantly, layering on that multiple regulators in different parts of the world with potentially unlikely different policies, that’s likely to be where we’re going to end up in not too long. That has significant ramifications for how this area of function’s going forward, the extent to which we’re going to have these businesses able to operate officially in different parts of the world. Obviously that’s going to need to get sorted out. There’s going to need to be hopefully some coordination. But it’s that intersection of regulatory authorities with different agendas that I think is potentially problematic, not just for the US, but really for a lot of countries, because you can’t control your destiny, and the interaction of those could be quite problematic. I worry about that.
COPPOLA:
Right, and certainly we’ve seen some of these things happen in privacy and other areas, so yes. Big concern and one I spend a lot of time thinking about. Diana?
MOSS:
Thanks, Maria. I just want to make a couple of really brief points. First of all, I want to just remind everyone that the consumer is in the spotlight in terms of antitrust law, how they’re designed and what they’re designed to accomplish. I frankly haven’t heard the word consumer mentioned in this very good, robust discussion this far. I am going to say and reiterate that the consumers should be the focus of what we’re trying to achieve through protecting competition through antitrust enforcement. Okay?
The consumer plays a very special role in the digital technology markets. They don’t pay with money, they pay with eyeballs and clicks and attention and information. There’s an enormous degree of willingness to provide that information, different valuations on consumer privacy, which I think will have to be taken into account in the construction of any regulatory regime here.
But I also want to return to the first principle that we have growing evidence that there have been harms. We have indicators of rising concentration. We have research that shows adverse effects from highly concentrated mergers. We have strategic management literature telling us that most mergers fail. We now have a growing list of failed remedies in the merger space. Okay? All of that should be compelling evidence and I think is driving the debate, the very public policy debate we’re having this far.
That has translated or can be connected back in some way, shape or form to a weak enforcement over the last 40 years. The core of that is really the almost insurmountable burden on the plaintiff, whether it’s the government as a plaintiff or private plaintiffs of having now to essentially prove harm, prove likely harm in the case of a merger. And so the corresponding shift or lessening of burden on the defendants to show that they’re mergers, for example, will be pro-competitive, but without showing that consumers will actually pay lower prices.
All right, so that’s very, very clear. We have seen either the weakening or the abandonment of the structural presumption and a very narrow focus only on price effects. The nice thing about the DOJ complaint is that it’s not about price effects, really it’s about a non-price affects quality of experiences on the search engine. Hurray for the DOJ.
To fix all this, obviously we do need some reforms, some clarification and strengthening. We need a clear burden shift to defendants to prove that their deals would not be anti-competitive, especially for highly concentrated mergers. We need to allow for direct evidence of showing essentially defining a market without going through the rigamarole frankly of market definition in some cases, not all cases, obviously. We need more structural presumptions, not only for horizontal mergers, but for vertical mergers and likely for mergers acquisitions of potential competitors.
And frankly, with the very poor record on efficiencies and failed remedies, there has to be some way to hold the feet to the fire. That if you didn’t prove up your efficiencies, and if the remedy didn’t work, didn’t fully restore competition, then somehow that should feed back into future enforcement decisions. That’s just a sampling of what we would need in some of these cases, but there is a very, very clear established evidentiary record of the need for these reforms.
COPPOLA:
Thanks so much, Diana. It sounded like you and Senator Klobuchar are reading from the same camera in some respects. I was told we could go till 1:10. It is 1:11. I’m going to give the last minute to Bill Kovacic for any final remarks that he has.
KOVACIC:
Just to identify other debates that are going on. Diana makes the pitch for the consumer focus. Just to note, I think our audience knows that is not a widely accepted view. And that one of the biggest debates going on right now, look at page 391 of the House report says that that’s rubbish. That the consumer view is one part of it, and it has to be a lot more.
I don’t know that, I just wanted to suggest for our audience that that debate is front and center at the question of what competition authorities should do and what regulators would do later on. And by no means, is there a consensus that it’s just the consumer focus that matters, that there’s a broader notion of citizen welfare that is also quite alive in other jurisdictions. I would hate to submerge that and assume that that’s a clear point going ahead.
Second, I think we need much more effort to appreciate what we’ve already done. Diana says it’s only price effects. I’ve searched my memory, if you look at the things that I’ve done and worked on, and I think that’s just so wrong. That is, again, I’ll use the example of this data set of aerospace and defense deals, so over 50 of them that DOJ and the FTC have worked on since the late 1970s, every single one of them features innovation as being the primary concern. Price matters, but innovation is right there because that’s what the customer cared the most about.
And by acting as though we’ve never dealt with these things, well, we forget everything we’ve done. There are lots of useful examples to give you know-how tools about how to do these things. We’ve done it. And I would say, “Oh, yes,” we’ve also had a chance to look at competencies and capabilities in the way that David Teece was mentioning before.
I think, I don’t dispute the idea that there are things that could have been done better, but I fear in the discussion we’re just going to cast aside things that worked before. And to my mind, part of what you want to do is say, “Do we have some agreement of where it worked? Is there any common view about what worked well? What interventions were useful? How did they produce good results? And how would we do that again?”
COPPOLA:
It sounds like a call for some ex post to studies and historians. We’re going to have historians, we’re going to have physics people, we’ve got a lot, a lot on our plates. I want to thank all of our panelists so much for participating in the 756 Zoom call of the week even though it’s only Tuesday.
This has been really interesting for me to listen to your ideas. I’ve been taking notes. I will be sharing them internally at the FTC and with DOJ colleagues. I hope that many of my colleagues in the audience are taking note as well.
Thank you all very much and have a great day.
TEECE:
Thank you.
KOVACIC:
Thanks Maria.
MOSS:
Thank you.
