Tag: antitrust

Fighting an AI “Monopoly” Where None Exists

Theodore A. Gebhard

In a Wall Street Journal op-ed, former U.S. Attorney General William P. Barr complains that regulators have been “asleep at the switch over the past 25 years” with regard to oversight of Big Tech companies. (“Big Tech’s Budding AI Monopoly,” 05/28/2024.) Now Mr. Barr is especially concerned about these companies’ efforts to develop artificial intelligence. According to Mr. Barr, Big Tech companies not only dominate primary markets but also stifle the ability of smaller competitors to emerge in adjacent markets by, among other anticompetitive practices, pre-empting entry into those markets. He fears that the Big Tech companies will eventually monopolize the entire AI space.

The former Attorney General is unduly alarmed. What’s worse, he espouses unsound competition theories that, if allowed to undergird regulatory and antitrust enforcement, could result in reduced innovation and ultimately harm U.S. economic interests. To add our views to the discussion, my friend and former colleague, Asheesh Agarwal, and I submitted a Letter to the Editor, which the Journal published on June 7 (print edition) and can be accessed here. The published version is slightly shortened. I reproduce our original letter directly below.

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On AI, General Barr Fights the Last War

In his recent op-ed, former Attorney General William Barr embraces outdated competition theories that could reduce innovation and undermine U.S. economic interests.  (“Big Tech’s Budding AI Monopoly,” 05/28/2024.)

First, Mr. Barr suggests that three companies, Microsoft, Google, and Amazon might establish an AI monopoly because they have market power in related sectors. Of course, it’s absurd to treat three fierce competitors as a “monopoly” of any sort, but setting that aside, Mr. Barr ignores many other AI competitors. Meta is spending tens of billions on AI and Elon Musk’s xAI is valued at $24 billion. And that’s just at home; the Senate estimates that China significantly outspends the U.S. on AI.

Second, Mr. Barr suggests that large companies shouldn’t invest in related markets because their resources and expertise might give them a competitive advantage. Queue Louis Brandeis and the Big is Bad crowd. Does Mr. Barr want large companies to reduce investment or commit to only internal innovations, without any acquisitions or hiring? Especially in dynamic tech markets, investment produces uncertain returns; to rely on antitrust enforcers to foresee the longer-term competitive effects assumes a crystal ball yet to be discovered. 

Finally, and surprisingly, Mr. Barr embraces the FTC and European Commission as champions of competition. As these pages have pointed out regularly, both agencies have promoted aggressive theories of antitrust liability grounded in speculative theories rather than evidence of harm to competition, usually targeting innovative American companies.

Instead, policymakers should encourage investment from all quarters — and avoid artificial constraints.

Asheesh Agarwal and Theodore A. Gebhard

The WSJ Continues Its Antitrust Errors

Theodore A. Gebhard

In a February 16 editorial, the Wall Street Journal comments on the Justice Department’s antitrust case against Apple in which the DOJ ultimately prevailed in a verdict handed down in 2013. 952 F. Supp. 2d 638 (S.D.N.Y. 2013) (“All Along the Apple Watchtower”) The thrust of the editorial speaks to the activities of the Special Master appointed by the trial judge, Denise Cote. Judge Cote appointed the Special Master to oversee Apple’s compliance with her Final Order. The Journal contends that the Special Master’s oversight activities have extended well beyond what is necessary to assure compliance and, in so doing, have imposed undue burdens on Apple. On these points, the Journal is correct.

The Journal, however, also comments on Judge Cote’s holding in which she found that Apple and five e-book publishers entered into an illegal agreement that resulted in higher e-book prices to consumers. Here the Journal, mischaracterized the agreement, and hence the court’s holding, by claiming that the agreement was simply intended to make it possible for consumers to read e-books on Apple’s I-Pad. This is a claim that the WSJ has previously made in editorials arguing that the DOJ is merely doing the bidding of Amazon, the largest sellers of e-books. (See my earlier Post here.) Whether or not there is a grain of substance to that claim is besides the point, however.

To add my own comments on the matter, I submitted a Letter to the Editor, which the Journal published on February 25 under the title, DOJ Is Right About Apple e-Books, and which I reproduce below.

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The Journal mischaracterizes the trial court’s ruling in the Justice Department’s antitrust case against Apple and five e-book publishers (“All Along the Apple Watchtower,” Review & Outlook, Feb. 17). Specifically, you say that the court found that “allowing consumers to read e-books on the iPad was an antitrust conspiracy.” Not so. The case was about agreements on a vital dimension of competition, namely price. It has long been a universally accepted proposition in both law and economics that agreements among competitors to set and regulate prices are anticompetitive. Thus, the court correctly found the agreements illegal. It is no justification that the agreements were intended to wrest control over the pricing of e-books from Amazon, the dominant player in e-book retailing.

Legitimate competition erodes a dominant firm’s position by offering consumers better prices or products. Here consumers received a worse deal. Indeed, the court found that the agreements led to an almost immediate 18% increase in the average price of e-books—hardly a boon to consumer welfare.

You are on more solid ground as regards the activities of the special master appointed to oversee Apple’s compliance with the verdict. (The publishers settled with DOJ before trial.) Even losing antitrust defendants deserve fairness and a reasonable post-verdict opportunity to show good faith efforts to comply with a court order. As you describe, there is ample evidence that this special master has overreached by placing burdens on Apple that are unnecessary to assuring adherence to the final judgment. As you urge, the Second Circuit should sack the special master or at least rein in his powers.

Theodore A. Gebhard

The Wall Street Journal Has Antitrust Law Wrong

Theodore A. Gebhard

In a recent editorial, the Wall Street Journal claimed that the Department of Justice was doing Amazon’s bidding in the DoJ’s antitrust suit against e-book publishers Apple, Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster.  The DoJ alleges that the defendants conspired unlawfully to set prices for e-books. Amazon is the largest seller of e-books. Whether or not DoJ’s civil suit and Amazon’s interests are aligned is beside the point. The real issue is what the law says. In this regard, I found the editorial to be flawed in its understanding of antitrust law and analysis and submitted the following letter to the editor stating my position.

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Although the Journal’s views on antitrust matters are usually spot on, your editorial “Amazon Loves Government” is that rare exception.  (Review & Outlook, Sept. 9, 2014)  You claim that the government is Amazon’s “chief patron” in its dispute with e-book publishers over the control of e-book pricing.  In point of fact, it is not government that favors Amazon, it is the law.  Antitrust law comprises the rules of the competitive game and exists to protect competition, not competitors. 

To be sure, the history of antitrust enforcement is replete with failures to meet this goal with many examples of false positives grounded in flawed economic theory or inadequate evidence of competitive harm.  As a former DOJ antitrust economist and FTC lawyer, I have personally witnessed several such examples.  Regrettably, the risk of false positives still exists, particularly when the enforcement agencies push the boundaries of antitrust liability theories.  The FTC’s “pay for delay” generic drug entry cases, for example, beget such risk.

By contrast, the Amazon matter is grounded in the universally accepted proposition in both law and economics that agreements among competitors respecting a vital dimension of competition such as price or service are anticompetitive.  As you point out, the current dispute with Hachette is an outgrowth of the DOJ litigation against five publishers and Apple alleging such anticompetitive agreements.  Although the publishers settled with DOJ without admitting guilt, a federal court found Apple guilty of participating with the publishers in a horizontal price-fixing conspiracy.  According to the court, the result was an almost immediate 18% increase in the average price of e-books.  One can only conclude that Amazon’s presence was a boon to consumers.

Theodore A. Gebhard