This paper – which can be found here – argue that “in digital industries in particular — such as search engines and social networks — U.S. merger review has been lax”. According to the author: “Massive digital platforms have exacerbated an old problem in American antitrust law — the tension between the efficiencies that mergers achieve in theory, and the pressure they inevitably create for firms in, or adjacent to, the industry of the merged firms, to themselves combine in order to better compete.”

Problems are said to arise from adherence by antitrust enforcers to three myths that rationalize market power online:

  • The Myth of Easy Platform Switching – This theory holds that consumers can and will easily shift from Google to Yahoo, or from Amazon to Barnes & Noble, or from Uber to Lyft. In reality, however, a long history of personalisation of results (through machine learning algorithms), network effects and lock-in make it hard to switch providers.
  • The Myth of the Heroic Consumer – According to this view, consumers will be constantly vigilant against exploitative practices by digital platforms. Consumers compare prices and quality constantly, and multihome to maximize their chances of finding the best deals. However: “there is a classic collective action problem: the possibility of saving, say, three dollars or so by shopping, is not worth the time for most individuals, even if such diligence would save millions of dollars once aggregated. Contrary to economists’ assumptions, consumers in many markets have neither the time nor the interest in engaging in diligent comparison shopping. This mechanism that, in theory, drives inter-firm competition on price and other terms is weak or non-existent in many markets.” Furthermore: “we have little sense of exactly what commercial relationships are influencing online platforms’ selection and arrangement of options in response to our search queries. Without that kind of knowledge, consumers cannot even manage the most basic supervision of megaplatforms, let alone the heroic level of scrutiny, experimentation and activism that would be necessary to make neoliberal theories of platform competition plausible.”
  • The Myth of Platforms Perfecting Markets – Under this theory, platforms must be given free rein to sell goods and services with as little resistance from sellers or labourers as possible. A two-sided or multi-sided market will continually drive down the prices that sellers are willing to accept and that consumers must pay, while maintaining or improving quality. This theory ignores the need for regulation to ensure well-functioning markets, and ultimately means that antitrust enforcement agencies become agents for de-regulation on behalf of digital companies.

I have a number of issues with this piece. It is openly (and honestly) partisan; it does not provide empirical evidence to support its contentions; and the author’s concerns may justify regulatory intervention, but it is not clear to me under which theories of harm they would justify antitrust enforcement.

Having said this, I think that the piece’s three myths are a good (and fair) illustration of the normative benchmarks and empirical assumptions that underpin competition enforcement in the digital economy.

This piece also provides a good overview of something I have been (unwittingly) describing in my blog posts: the emergence of a “populist” backlash against dominant antitrust orthodoxies – from authors such as  “Adam Candeub, Ariel Ezrachi, Allen Grunes, Sally Hubbard, Lina Khan, Barry Lynn, Nathan S. Newman, John M. Newman, Mark Patterson, Matthew Stoller, Zephyr Teachout, Sandeep Vaheesan and Ramsi Woodcock, among others” – and the risks that ignoring this backlash may pose to competition agencies and their long-term legitimacy.

Author Socials A weekly email with competition/antitrust updates. All opinions are mine

What do you think?

Note: Your email address will not be published