Turn – Breaking up undermines innovation, as innovators that become leaders get broken up
Joe Mount, 6-14, 19, Breaking up is hard to do, https://www.complianceweek.com/opinion/breaking-up-is-dumb-to-do/27261.article
The solutions to anti-competitive behavior and abuses of consumer data are not that hard, even if federal officials and legislators feel the need to distract us with their sudden rediscovery of the Sherman Act. Unlike what it is doing now, the Federal Trade Commission (and other regulators) should start by walking the walk, not just talking the talk. Fine Facebook over its ignored consent decree. Install a corporate monitor. Repeat as needed with other companies and their enforceable trespasses. What cannot perpetuate is shirking statutory duties as a no-brainer investigation drags on and on and on unnecessarily. Worst of all, a tech breakup penalizes innovation. What’s next? Sanctioning McDonalds because Burger King lacks a McRib? Making Coca-Cola underwrite Pepsi bottlers? Giving Fox the rights to “Star Wars?”
Turn — Google innovates and helps consumers
James Pethoukis, Jne 6, 2019, https://www.aei.org/publication/why-washingtons-war-on-big-tech-will-fizzle/, Why Washington’s war on Big Tech will fizzle
Take Google, for instance. One recent research survey found consumers would need to be paid nearly $20,000 to give up using free search. And it’s hard to slam a company as being bad for innovation when it spent more than $21 billion last year on R&D and billions more on “next big thing” moonshot bets that may never pay off. Or as an equity analyst at D.A. Davidson recently wrote about Amazon, “At its core, Amazon lowers prices to the consumer. Therefore, we believe it is difficult to prove it operates an unhealthy monopoly and thus it is hard to envision the company losing an antitrust case.”
Turn — Big Tech supports innovation and competition in other industries
Karen Webster, 6-10, 19, The Only Thing Missing From The Big Tech Breakup Debate: A Debate, https://www.pymnts.com/news/regulation/2019/big-tech-breakup-debate/
And who’s responsible for that? Big Tech. Now That We’re Global In a digital world where smartphones now make every product more or less a local purchase for that consumer, Big Tech is helping companies large and small find new customers and build their businesses. They have been doing that increasingly over the last couple of decades. Take Google. Google says the number of “near me today/tonight” searches increased 900 percent in the period between 2015 and 2017, when there was also a 150 percent increase in “near me now” searches. “Near me” searches related to fashion and car dealers increased 600 percent and 200 percent, respectively. A majority were done via mobile devices, with 76 percent of those searches resulting in an in-store visit. Many of those visits were likely new customers. Take Instagram. Instagram today has one billion active monthly users – two-thirds of whom visit the platform every day. More than two million businesses have bought ads there, many of which are intended to drive users to their websites to buy products. Many of those ads and those sites are new or young businesses. Shoppable tags now make it easy for users to tap and buy from that tag, via an influencer or in an ad, and from a variety of sellers. Instagram says 130 million people do that every month. Then there’s Amazon. Amazon reports there are five million marketplace sellers on the eCommerce platform globally that represented 53 percent of paid units sold in 2018, up from 26 percent in 2007. During the 2018 holiday season, one billion items were sold by third-party sellers. In 2018, 75 percent of those active sellers had between zero and five employees – the very small businesses that would be impossible to find outside of a platform with scale and a built-in audience of eyeballs ready to search, shop and buy. And Apple. Apple’s App Store now has 1.8 million apps that consumers can search for, find and download. Additionally, $120 billion has been paid to developers since the App Store opened. Many small app developers became big app players on the Apple platform. Many of those apps help SMBs manage and grow their businesses. All of these platforms – Apple, Instagram, Google and Amazon – compete with each other for eyeballs and sellers, while creating an environment for those who would otherwise have no shot at finding buyers outside of their own local markets to grow and thrive. They also encourage many others to start businesses, since getting customers is easier than ever.
FAANGS support extensive R & D
NICOLAS PETIT, Professor at the University of Liege, Belgium, and Research Fellow at Stanford University, 2018, Technology giants are fiercely competitive monopolieshttps://esb-binary-external-prod.imgix.net/LIE2oYwbNpO0ZOEa8isI7sBSv60.pdf?dl=Petit%28eng%29+%282018%29+ESB+4768S.pdf.pdf.pdf
Third, FAANGs channel high amounts of financial and human resources into research and development (R&D). More precisely, some FAANGs show unusually high R&D intensity levels (i.e. the ratio of R&D expenses to revenue) in excess of the orders of magnitude observed in other R&D hungry sectors like defense or pharmaceutics.
Natural monopolies are able to invest more in R&D
eter Karmin, Stuart Loren, Managing Partner & Director, Karmin Capital, March 2018, Antitrust in the Internet Age, https://static1.squarespace.com/static/59c018a20abd045c70aaa964/t/5ab13e5b88251bfd94b30e65/1521565277206/Antitrust+in+the+Internet+Age.pdf
Natural monopolies are rare and amongst the best businesses to invest in, as they are largely insulated from competition. Even more lucrative are natural monopolies (as well as dominant businesses in highly concentrated markets) that operate platform services or networks. Platform businesses generally have huge fixed costs (for instance, computing infrastructure or merchandise fulfillment centers), but nearly zero marginal costs. When the cost of serving more users and generating additional revenue approaches $0, a company’s profit margins have nowhere to go but up. The larger these businesses grow, the more they can invest in additional infrastructure and research to improve their services, fend off potential competitors and continue driving users to their platforms. It is no wonder that the largest spenders on research and development are largely technology firms that have dominant platform businesses. As a result, in the markets that these platform businesses dominate, it is exceedingly difficult, if not impossible, for new entrants to come up with the capital to build a meaningful competitive alternative
Turn — Breaking up the companies will raise advertising prices for emerging companies
Jason Allen, Writer & Business Coach, June 5, 2019, https://www.inc.com/jason-aten/the-federal-government-looks-ready-to-pick-a-fight-with-big-tech-heres-why-there-wont-be-any-winners-if-they-do.html, The Federal Government Looks Ready to Pick a Fight With Big Tech. Here’s Why There Won’t Be Any Winners if They Do
Millions of you run small businesses that depend on the platforms created by these companies. Whether it’s selling on Amazon, making apps that are sold to iPhone users, or advertising on Facebook and Google, there are collateral implications to breaking apart these companies. Facebook isn’t a valuable advertising venue without access to your customers and the tools to effectively reach them. The services you use from Google– like business email, file storage, and analytics tools– aren’t going to be free when they’re broken into five different companies that lack the scale and reach of the world’s largest advertising platform.
Turn — Anti-trust law chills business development and innovation, It should be repealed
Yan Young, Clyde Wayne Crews • April 17, 2019, The Case against Antitrust Law, https://cei.org/content/the-case-against-antitrust-law, Ryan Young is a Senior Fellow at the Competitive Enterprise Institute (CEI). His research focuses on regulatory reform, trade policy, antitrust regulation, and other issues. His writing has appeared in USA Today, The Wall Street Journal, Politico, The Hill, Investor’s Business Daily, Forbes, Fortune, and dozens of other publications. He is a frequent guest on radio programs, been interviewed by outlets including The Huffington Post and Voice of America, and been cited in media outlets including ABC News, CNN, and London’s City AM. He formerly hosted the CEI Podcast, and writes the popular “This Week in Ridiculous Regulations” series for CEI’s staff blog, Wayne Crews is vice president for policy and a senior fellow at the Competitive Enterprise Institute. His work explores the impact of government regulation of free enterprise. He studies antitrust and competition policy, safety and environmental issues, and the challenges of the information age like privacy, online security, broadband policy, and intellectual property.
Ten Areas Where Antitrust Policy Can Move on from the Smokestack Era Executive Summary Politicians and pundits across the ideological spectrum often call for greater competition in the marketplace. While their favored means vary widely, the view that current antitrust law is necessary to ensure competition, and should be applied more vigorously than it has in recent history, is common across the American political landscape. As this paper demonstrates, a rethink of the existing antitrust paradigm is long overdue. Antitrust regulation harms both consumers, competition, and innovation and therefore should be repealed. From a legislative standpoint, this would involve repealing the Sherman Act of 1890, the Clayton Act of 1914, and the Federal Trade Commission Act of 1914, as amended, including the Celler-Kafauver Act of 1950 and the Hart-Scott-Rodino Act of 1976. In addition, the executive branch should decline to prosecute weak or spurious antitrust cases, and courts should reverse bad precedents. A market-based approach to competition would reduce the regulatory uncertainty and chilling of innovation that results from government antitrust regulation. It would also reduce opportunities for rent-seeking. The issue has taken on greater urgency, as populist politicians from both left and right push for more aggressive antitrust enforcement. Regulators in the United States and the European Union have expressed an interest in pursuing antitrust actions against tech giants known as the FAANG companies— Facebook, Apple, Amazon, Netflix, and Google. President Trump has specifically singled out Facebook, Google, and Amazon as antitrust targets. Entire business models, such as franchising, are at risk from potential antitrust regulation. The mere threat of legal penalties—and the environment of over-caution it engenders—also has a chilling effect on entrepreneurs who want to try new business practices and innovate. Such opportunity costs are impossible to measure. Few large antitrust cases have been brought in the United States recently, and overall enforcement activity has been slower than in previous eras, but there is a large pool of potential cases that populist politicians are interested in pursuing. U.S. antitrust regulators are not the only threat to American innovation. Many U.S. companies that do business in Europe often face scrutiny from the European Union, under what it calls “competition policy.” For example, the European Union fined Google $5 billion in 2018, a significant amount of lost capital that could have created consumer value instead. Google’s parent company, Alphabet, spent $16.6 billion on research and development in 2017. If Google did not fear losing revenue to competitors, it would feel no need to spend such resources to improve its offerings. This paper shows that the approach to antitrust law now prevalent in both the United States and the European Union is misguided and can lead to considerable economic harm. It starts with the big picture, describing the different sides of the antitrust debate, from the early interventionist approach that arose during the Progressive Era to the Chicago school-influenced consumer welfare standard that gained popularity in the late 20th century, up to the current populist revival. It then points out the shortcomings of both the interventionist and Chicago approaches and argues for a market-based approach. With the analytical framework and political context established, the paper goes through a “Terrible Ten” list of specific antitrust policies in need of repeal, while explaining the common themes and arguments that appear in case after case. 1: Restraint of Trade and Monopolization. The Sherman Act of 1890 makes illegal “every contract, combination, or conspiracy in restraint of trade,” and declares that, “every person who shall monopolize, or attempt to monopolize, or conspire to monopolize shall be deemed guilty of a felony.” Nearly 130 years later, the phrases “restraint of trade” and “monopolize” remain key terms in antitrust regulation. Yet, monopolies cannot last without government assistance (barring some very narrow limited circumstances, such as near-total control of a natural resource). If a dominant company is making extra-normal monopoly profits, the only way for it to keep out competitors is to use government on its behalf. The solution to this problem is not antitrust enforcement, but taking away the government’s power to grant favors to rent-seekers. 2: Horizontal Mergers. Horizontal mergers are between companies competing in the same market. Vertical mergers are between companies up and down the supply chain. Horizontal mergers reduce the number of competitors in a market and increase their average size. Both of these raise red flags for regulators searching for possible restraints of trade or attempts at monopolization. Antitrust law treats a company differently based on whether it reaches a certain size through growth or through merger. If size or market concentration is the offense, that is what the law should be concerned with, not how a company got its dominant position. 3: Collusion: Cartels, Price Fixing, and Market Division. There are two problems with cartels, price fixing, market division, and other forms of collusion. The first is where to draw the line. Every corporation in existence engages in some form of collusion. A classic example is a law firm. When two or more lawyers join together in a law firm, they agree in advance to charge certain rates and not to compete with each other for clients, yet no antitrust regulator would file a case against such a firm. The second problem is that cartels do not last, at least without government help. Its members have strong incentives to defect and charge lower prices or increase output. The instability of inefficient cartel arrangements serves as a built-in insurance policy for consumers. 4: Predatory Pricing. Antitrust regulators can penalize a company for predatory pricing if it charges lower prices than its competitors. The thinking goes that a company can sell goods at a loss to gain market share, causing competitors to exit the market or even go bankrupt. Then the predator can raise its prices and enjoy monopoly profits. The problem here is one of simple arithmetic. Predators nearly always have a larger market share than the prey. This means the larger company must sell more product at a loss than the smaller prey companies, and thus incur a larger loss. The only way for the predator to keep a permanent monopoly is to permanently sell at a loss. 5: Price Discrimination. Price discrimination involves selling the same good to different people at different prices. The Robinson-Patman Act is the primary statute regulating the practice. Examples of price discrimina- tion include quantity discounts for buying in bulk, putting products temporarily on sale, membership programs, or store-specific credit cards offering discounts or benefits such as points programs or frequent flier miles. As with other items on this list, there is considerable uncertainty as to which forms of price discrimination are punishable and which are not. Regulators may draw the line wherever they choose at any time. Fortunately, policy makers have mostly realized that Robinson-Patman is unworkable, and it is mostly unenforced. Consumers and businesses would gain peace of mind from its repeal. 6. Manufacturer Price Restraints on Retailers. Resale price maintenance agreements require retailers to sell a product at or above some minimum price set by the manufacturer. They have proven to be a valuable pro-consumer tool. Retailers who are unable to compete on money prices compete instead on other factors. Manufacturers who require retailers to sell at a minimum markup may have a reason for requiring a certain minimum price. Some of that extra margin might be spent on marketing, certification programs for repair technicians, or to
cover warranty costs. 7: Exclusive Dealing. Exclusive dealing involves a seller agreeing to sell products exclusively from a certain supplier. Examples include car dealerships and restaurants that serve Coca-Cola but not Pepsi. An exclusive arrangement can provide important benefits to manufacturers, retailers, and consumers. A manufacturer gains some ability to make long-term decisions regarding how much product to supply. Retailers gain specialized knowledge of the product. Consumers benefit from this added sales expertise when making purchasing decisions. Exclusive dealing has been prosecuted under Section 3 of the Clayton Act, Section 1 of the Sherman Act, and Section 5 of the Federal Trade Commission Act. Exclusive dealing still exists because regulators wisely decline to enforce the letter of the law. Repealing those provisions would remove uncertainty surrounding potentially pro-consumer business practices. 8: Tying or Bundling. Tying or bundling is selling two or more products together, but not separately. Determining which products are fit to be tied and which are not is more a matter of metaphysics than sound policy analysis. Left and right shoes are always sold as a pair. A car’s tires and sound system are almost always included in the sale. Transactions like these are allowed by regulators without controversy, though technically prosecutable—another instance of discretion by regulators creating uncertainty. 9: Strategic Predatory Behavior. This is often used as a catchall term for competitive behavior that antitrust regulators dislike. Trying to undercut rivals’ profitability is the very essence of business competition, but recently, the ordinary competitive market behavior of causing one’s rivals to face higher costs has spawned a veritable academic industry devoted to identifying competitive strategies as means of monopolization. 10: Exploiting Technological Lock-In. Companies can use technological lock-in to keep customers from fleeing to better alternatives. The famous example of technological lock-in is the QWERTY keyboard. As it turns out, QWERTY keyboards are just as efficient as Dvorak and other alternatives. Nowadays Internet browsers are often cited as an example of technological lock-in. Life is much easier when all of your website passwords and other information are stored in your browser and entered automatically when needed. In theory, this convenience also makes consumers reluctant to switch to a competing browser, even if it offers a better user experience. This reticence can lock consumers into an inferior technology, reducing competition and the incentive to innovate, but that is a problem grounded in consumer behavior that government is ill equipped to address. Even so, the title of most popular browser has shifted at least three times over the past 20 years. Netscape gave way to Internet Explorer, then Firefox, and now Chrome, which could be eclipsed at any time. Consumers and competition would both best be served by repealing antitrust regulations regarding restraint of trade and monopolization, horizontal and vertical mergers, collusion such as price fixing and market division, predatory pricing, price discrimination, minimum resale prices, exclusive dealing, tying and bundling, strategic predatory behavior, and technological lock-in. As the economy becomes more high-tech, specialized, and global, antitrust policies formed in the smokestack era are becoming progressively less relevant. Aggressive antitrust enforcement can create considerable economic uncertainty, which can have a chilling effect on long-term investment and innovation in both products and in business practices that benefit consumers.
Patents aren’t a measure of innovation and they actually undermine it
Eryn Brown innovates without patents from her home office in Los Angeles. A freelance writer and editor, Eryn’s work has appeared in the Los Angeles Times, the New York Times, Nature, and other publications, May 2018, Knowable Magazin, Do Patents Invent Innovation?, https://www.knowablemagazine.org/article/society/2018/do-patents-invent-innovation
In ancient times, the story goes, cooks in the city of Sybaris were granted yearlong monopolies for the sale of unique dishes they created. Since then, generations of inventors have relied on patents to discourage copycats from stealing their best ideas. Economists, in turn, have tallied up patents to try to measure innovation (an otherwise squishy concept to define and assess), which has long been tied to economic growth. Certainly, the thinking went, protecting inventors’ work must encourage new ideas in the marketplace. But counting patents can lead researchers astray, argues New York University economist Petra Moser. In the 2016 article “Patents and Innovation in Economic History,” Moser explained why, writing that in some cases patents actually squelch innovation rather than stoking it. Portrait of economic historian Petra Moser CREDIT: JAMES PROVOST (CC BY-ND) Economic historian Petra Moser New York University Knowable Magazine asked Moser to explain economists’ love of counting patents, and to tell us a bit about her own research. Her work relies on data from unexpected sources beyond patent registers, including historical ones such as world’s fair catalogs and records of opera performances. She also addresses why taking a new approach to measuring innovation might offer a better bead on creativity. This conversation has been edited for length and clarity. What is innovation, and why is it good, from an economic point of view? I’m reading a history of the world to my children right now, and we’ve just finished learning about the Bronze Age. Throughout time, if there was a new product that had better properties and was easier to use, you could trade more stuff, and people could get more to eat. You could start with bronze, but there have been many examples throughout history. In the early twentieth century, American plant scientists found that new types of hybrid corn produced higher yields than the old varieties. With the same resources you could feed many more people, or free up farmers to do different types of work. These were innovations. There are lots of definitions of innovation, but in the context of my research, innovation is a new product, or a better or cheaper practice that produces an existing product. Innovation promotes well-being, and that makes it good. What do patents have to do with it? The idea of the patent system was to grant the original inventor a property right that would encourage people to invent. The first US patent was registered in 1790 — to a Philadelphian named Samuel Hopkins, who had invented a new process for making potash, an ingredient in fertilizer. Plant breeders, for instance, argued that they needed intellectual property rights because it takes extremely long to create an improved apple or an improved rose. But once you have created that improved apple, it’s very easy for someone else to take a cutting off your tree, graft it to another tree, and then basically have the exact properties of the innovation that you developed, without any of the cost. In areas like that, you need some kind of intellectual property right like a patent, because there’s no natural protection against competition. More Knowable Q&As Health & Disease Hacking the immune system Health & Disease Balance, not carbs or fat, is the key to healthy eating Society The anti-ads Knowable Q&As And economists love studying patents, right? Intellectual property rights have been one of the most widely used measures of innovation, yes. We have counted patents because they are the most systematic and the largest source of data on innovation. Every time somebody applies for a patent, it gets recorded. Scholars started by comparing the numbers of patents issued before and after a change in the patent law. Or they would compare the rates of patenting in one region versus another. Or they would compare the rates of patenting in one industry versus another. People still do this — they say, oh, the software industry has become more innovative because patenting has increased. But this kind of analysis is often incorrect. Sometimes people can apply for lots of patents without actually being super innovative. Other times, an industry can be exceptionally innovative without patents. For example? Go back to agricultural innovation. There was an insane period of innovation in American agriculture during the 1910s, ’20s and ’30s, with many advances in hybrid corn, new types of fertilizers and new ways to fighting pests. It was a period in which the law did not allow inventors to patent most agricultural innovations. If patents are your only way of capturing innovation, you’d say there was nothing going on in American agriculture back then. But that could not be more wrong. So you started looking for ways to study innovation without relying only on patent counts. Yes. You can’t really examine the effect of patent laws on innovation by just looking at patents. If you want to argue the benefits of having a patent system, what you really need is some comparison of innovation in countries with and without patent systems — and by definition you can’t really measure patents in a country without patent laws. You need some other measure. I started looking for an alternative measure of innovation that was independent of the patent system. It’s not easy at all. It’s hard to capture innovation systematically, across industries and over time. What did you come up with? I started studying the world’s fairs. These were expositions where countries could present innovations even if they didn’t have a patent system, and inventors from countries with patent laws would sometimes show products that they had not yet patented or weren’t planning to patent because they didn’t think it was necessary. These fairs were huge. If you wanted to walk through the entire exhibition at the 1851 World’s Fair in London it would be like walking a marathon. I thought, if it was that large, there had to have been some kind of systematic recording — otherwise, people would get lost. And it turned out the fairs had extensive catalogs of their exhibits, and these are great sources of data on innovation. What can these catalogs show us? Whether countries without patent laws can be innovative. The catalogs made it very easy to look at these kinds of nations — Switzerland and Denmark at the 1851 fair and the Netherlands in 1876. I was struck by how innovative these places were. Some had a very high share of innovations per capita and they also had really high-quality innovations that won a high share of awards. Number of scientific instruments exhibited per country at the 1851 World Fair plotted against patent length. In general, I was surprised how few of the innovations at the fairs were patented. This tells us that having a patent system is not a necessary condition for being innovative. Patents are useful in cases like the improved apple I described, but you don’t always need broad patent protection to encourage innovation. What else did you find? We were able to show another reason that patents
Lots of venture capital investment in new industries
Karen Webster, 6-10, 19, The Only Thing Missing From The Big Tech Breakup Debate: A Debate, https://www.pymnts.com/news/regulation/2019/big-tech-breakup-debate/
Follow the VC Money VCs may not be putting money into building the next Big Tech behemoth, but they are investing in lots of adjacent businesses that compete with them in different ways. Take the many vertical search platforms, now operating at scale themselves, that aggregate buyers and sellers – many of them small – to help them find each other. 1stdibs gives several thousand sellers, mostly small antique dealers, a way to reach eyeballs from around the world – and for those eyeballs to find unique items they’d otherwise never find easily. And it enables dealers to reach buyers who spend a lot: The average transaction value on 1stdibs is $3,000. Chairish does, too, with a mix of sellers ranging from people selling high-quality vintage stuff to dealers who want to expand their storefronts to anyone with a mobile phone. In doing that, both 1stdibs and Chairish have unlocked opportunities for interior designers, who can now source and curate from these online showrooms and boost their own businesses. According to 1stdibs, 40,000 interior designers have registered on their site. Houzz, one of the first sites to offer shoppable tags, does the same thing for home renovations and remodeling. An aggregator of both ideas and the items to complete and furnish the project, Houzz also gives local professionals an opportunity to be found when homeowners are on the site contemplating a potential project. There’s also plenty of money being poured into food aggregators like Delivery.com, Grubhub, Uber Eats and DoorDash, which gives restaurants a chance to be found beyond the more traditional channels like Yelp and Google. Oodles of money have also been poured into subscription businesses, many of which package items from a variety of businesses to bring a unique experience to the consumer and offer distribution for small sellers. Barkbox, the monthly subscription service that started as a small business, packages and mails goodies to delight precious fur babies. In those boxes are products from small businesses that make the best organic dog treats, or the most puppy-friendly squeaky toys. Shots Box does something similar for craft beer, offering samples of craft beers via a subscription service in an effort to create the largest online tasting room and drive distribution of the local distillers’ products. VCs have made investments in innovators – once small businesses themselves – to help other small businesses be more successful. New tools and tech help digital businesses accept all forms of electronic payments, including the digital wallets that make it easier for consumers to buy from them online. They also enable the businesses to connect to marketplaces and contextual platforms, do business on a global scale, fight fraud, find outsourced help on gig platforms, and integrate front and back office operations into their accounting systems. Big Tech has given rise to an entirely new set of innovators who are reaching new audiences because Big Tech is — well — Big, and gives them access. Billions have been invested to help businesses form, grow and even leverage opportunities provided by Big Tech platforms to do business — in a safe and secure manner. If anything, Big Tech has spawned innovation and a whole new set of competitive dynamics in the markets in which they operate and compete – and helped to grow and fund new players who compete in different ways