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what problems do people think antitrust is going to solve?

Last week, I asked why antitrust is having a moment (it’s continued, on Planet Money and elsewhere), and why Democrats are using radical language to make fairly modest proposals. In this post, I’m going to ask what problems people think antitrust is going to solve, anyway.

Certainly a lot of the current concern about antitrust comes from a broad sense that corporations are too economically and politically powerful, that our economy has been restructured in ways that make ordinary people worse off, and that massive tech companies are able to use our data in ways that we have little control over. That’s political antitrust. And those are totally real issues.

But I want to explore some new questions being raised that are not exactly within the current scope of economic antitrust, but that are still kind of speaking its language—that are pushing to change the antitrust technocracy, not up-end it. To recap, as it has been construed for the last thirty-plus years, the purpose of antitrust is to promote consumer welfare, generally by trying to keep firms from being able to raise and keep prices above a competitive level. The focus is consumers, and prices.

Increasingly, though, people at least adjacent to the space of antitrust expertise are making claims about economic problems they think are being caused by lax antitrust enforcement, or that antitrust should be addressing. And those proposals are worth keeping an eye on, because as hard as it might be to change the expert consensus, it’s still more likely than a new anti-monopoly movement. (Though the two could certainly reinforce each other.) I see these new arguments as falling into basically three categories.

Market power has effects we didn’t realize

Market power is the ability to keep prices above a competitive level (i.e. above marginal cost). Once upon a time, people thought there was a fairly close relationship between how concentrated a market is—that is, how many companies control what share of the market—and how much market power firms have. Since the 1970s, there has been much less of a presumption that concentration, on its own, indicates market power. That means that there’s been less concern about whether we’ve got four airlines controlling 70% of the U.S. market, or that four carriers control 99% of the U.S. wireless market.

Increasingly, though, people are raising flags about other problems that might result from market power. One of these is labor monopsony—the idea that firms have market power, but as purchasers of labor, not sellers of products, and that this is driving wages down. The Council of Economic Advisers put out a report last fall suggesting this might be happening, and Democrats’ mention of “bargaining power for workers” implies this is part of what they’re trying to address. There are related arguments about market power in supply chains and the emergence of “winner take most” industries that also suggest links between concentration or market power and wages.

In theory, monopsony can be handled within the current legal framework, though it is rarely addressed in practice. So developing arguments about the effects of market power on workers, and a legal framework for addressing that within antitrust, is one conceivable new direction for antitrust.

Others are arguing that market power can lead firms to attach undesirable conditions to products that make them lower quality, even as price remains the same. In particular, some scholars, including Nobel Laureate Joe Stiglitz, have framed privacy as an antitrust issue: the product may be free, but consumers have no choice about how their data is used (and in the case of platforms like Facebook, no equivalent competitors). Privacy is hard to address within a framework focused purely on price. But in Europe, competition policy is increasingly tackling privacy issues, and Germany is currently investigating whether Facebook’s dominant position is forcing consumers to give up their privacy without having an alternative choice.

Market power has causes we didn’t realize

The Atlantic just featured a story with the dramatic title, “Are Index Funds Evil?” The article discusses the rise of large institutional investors—index funds, though not only index funds—and what it means that, increasingly, big chunks of competitors in a specific market are actually owned by the same few corporations. It goes on to discuss work by José Azar, Martin Schmalz, and Isabel Tecu that finds that this common ownership enhances market power, and that airline ticket prices are 3-7% higher than they would be under separate ownership.

In this story, index funds were the hook, but it just as easily could have been framed around antitrust. In a way, common ownership was the original antitrust question: the big trusts of the late 19th century were not single-firm monopolies, but competitors that had turned over ownership to a group of trustees that made unified governance decisions. And while research in this area is still new and findings tentative, legal scholars are already making the case that antitrust law can cover the anticompetitive effects of these horizontal shareholdings. If this work continues to hold up, this seems potentially transformative.

Technological change is creating new threats to competition

Finally, a fair bit of the recent chatter is basically arguing, “it’s the technology, stupid.” The dynamics of competition change as more of the economy shifts to online platforms. Because of network effects, companies like Facebook, Google, Apple, and Amazon are hard to compete with—much of their value comes from their existing user base. And because they aren’t just selling products to consumers, but connecting consumers with producers, they aren’t acquiring market power in the traditional sense. Facebook and Google are free products, after all.

But the power of network effects means that they have a tendency towards monopoly. And the fact that the four largest companies by market capitalization are platforms suggests how central platforms have become to our economy.

So we have these new companies that have become very large, and that appear monopolistic, though they also create great value for consumers. From an antitrust perspective, they don’t really appear to be a problem, because they aren’t raising prices. And the history of rapid technological change over the past 25 years, including the rise and fall of a number of once-dominant platforms, raises the question of whether even platforms behaving in anticompetitive ways pose much of a long-term threat.

Recent scholarship, though, argues that monopolistic platforms are in fact anticompetitive, that it is a problem, and that current law is poorly equipped to handle. Lina Khan’s much-circulated note in the Yale Law Journal, for example, argues that 1) platforms encourage predatory pricing—generally seen as irrational (and thus not an issue) within antitrust law—because network effects encourage pursuit of growth over profit, and 2) platforms collect data on rivals that give them an unfair competitive advantage. These sorts of issues clearly fit within the broad scope of “protecting competition,” but don’t fit easily with a consumer welfare, market power conception of antitrust.

Changing that would be a significant project, but if we have an economy that is dominated by firms whose potentially anticompetitive activity is essentially beyond the scope of antitrust, there’s not much left to antitrust. And again, the massive fine the E.U. just levied on Google—for favoring its own shopping service, consisting of companies that pay Google to be on it, over competitors in search results—suggests what this could look like. So far, the U.S. has not demonstrated much enthusiasm about expanding antitrust in this direction. But it’s not inconceivable that it could happen, and it could be done within a framework that was focused solely on competition, if not only on consumer welfare.

Again, all these challenges to the current antitrust framework are at least in the ballpark of its conversation, even if they would require pushing the law in new directions or advancing the acceptance of new economic theories. And they are not the only arguments that are in play here. For example, the question of whether inequality is facilitated by concentration or market power, or whether it has become such a central economic problem that antitrust should try to address it, have prompted enough discussion that two leading antitrust scholars have felt the need to argue that antitrust should leave inequality alone.

Unlike political antitrust, which would probably require a social movement to move it forward, these antitrust arguments have the potential to gain traction without necessarily requiring legislation or a revolution against the current antitrust regime. The 1970s shift toward Chicago-style antitrust happened, to a considerable extent, because the old economic framework seemed increasingly inadequate for explaining the world people found themselves in. As the current framework comes to seem similarly dated, this could be another moment when such change is possible.

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Written by epopp

August 10, 2017 at 1:33 pm

conspiracy theory, donald trump, and birtherism: a new article by joe digrazia

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Joe DiGrazia, a recent IU PhD and post-doc at Dartmouth, has a really great article in Socious, the ASA’s new online open access journal. The article, The Social Determinants of Conspiratorial Ideation, investigates the rise in conspiratorial thinking on the Internet. He looks at state level Google searches for Obama birtherism and then compares to non political types of conspiracy theory, like Illuminati.

The findings? Not surprisingly, people search for conspiracy related terms in places with a great deal of social change, such as unemployment, changes in government, and demographic shift. This is especially important research given that Donald Trump first rose to political prominence as a birther. This research is indispensable for anyone trying to understand the forces that are shaping American politics today.

50+ chapters of grad skool advice goodness: Grad Skool Rulz ($5 – cheap!!!!)/Theory for the Working Sociologist/From Black Power/Party in the Street 

Written by fabiorojas

February 8, 2017 at 12:22 am

book highlight: Digital Kenya

Now is the time of year when we are wading through the flotsam of the passing semester (grading, entering grades, firefighting “emergency” cases, etc.) and preparing for the next semester (more of the same?).

Nonetheless, a new semester always brings the prospect of joining the cutting edge…

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For those of you looking to update syllabi or reading lists on technology and  organizations, have a look at Bitange Ndemo and Tim Weiss‘s co-editted new book Digital Kenya: An Entrepreneurial Revolution in the Making  (2016, Palgrave), which with the support of the Ford Foundation is (bonus alert!) also available as an open access PDF.

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The book’s press release (digitalkenyapressrelease_december2016-final) promises insiders’ perspectives of what it takes to launch and sustain organizations in a growing tech sector.  Its conversations with social entrepreneurs and founders of leading organizations rounds out research that is usually conducted of high-tech firms  in North America.  For example, in conversation #3, Anne Githuku-Shongwe explains how she founded Afroes to counter negative Western stereotypes with positive images of heroes and heroines for her children.  In conversation #6, Su Kahumbu Stephanou, creator of the mobile App iCow, recounts her journey, along with various setbacks, towards sustainable, organic farming.

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For the open access publication, visit www.tinyurl.com/DigitalKenya-free.

To order the book in print, visit www.tinyurl.com/DigitalKenya.

 

Written by katherinechen

December 20, 2016 at 6:37 pm

amazon won’t destroy college as we know it

I’m really bad at keeping up with the media cycle.

So last Wednesday, Vox put up this cute piece with the catchy title, “How Amazon Could Destroy College as We Know It.” Written in the form of a letter from Jeff Bezos to shareholders in the year 2030, it tells the story of how Amazon came to supplant traditional higher education by developing, and selling at cost, badges that people could earn to demonstrate particular skill sets. As the value of badges became evident, companies became more and more interested in using them in hiring—to the detriment, presumably, of traditional indicators like college degrees.

It’s a clever article, and well-written. It also doesn’t quite make the claim the headline implies—that the rise of Amazon badges would destroy higher education. Nevertheless, although I think that the piece gets at something real that is going on, and that is eventually going to be an important source of change, this is not how I see it going down.

Anyway, Wednesday night I started writing a blog post using a similar Bezos-to-shareholders conceit, but from a 2030 that looked quite different. It just wasn’t quite working, I think because it’s hard to see Amazon pioneering the kind of change I can imagine. Pearson, maybe. But even I can’t name the CEO of Pearson. (Apparently it’s John Fallon.)

So the format wasn’t quite working, but the underlying point still nagged. While badges may become a thing, and perhaps Amazon may even pioneer them, they are not going to be “the” new form of educational currency. The world in which “as many as half of major US employers now consider Amazon badges to be one of their top five criteria when determining whom to hire” will remain a fantasy.

Read the rest of this entry »

Written by epopp

February 1, 2016 at 1:20 pm

arthur c clarke describes the internet in 1974

50+ chapters of grad skool advice goodness: Grad Skool Rulz ($2!!!!)/From Black Power/Party in the Street

Written by fabiorojas

December 14, 2015 at 12:01 am

Posted in fabio, technology

pricing the priceless parking spot

Planet Money had a fun podcast a couple of days ago about Eric Meyer, the young founder of Haystack, a Baltimore-based app that allowed people to auction off their (public) parking spot to the highest bidder. MonkeyParking, a similar app, got attention last year in San Francisco.

The founders, in both cases, focused on the time-saving, traffic, and environmental benefits of such an app. Clearly there are real costs to people spending long periods of time circling the block in search of parking. UCLA economist Donald Shoup has argued that 30% of traffic in central business districts results from people looking for parking.

But these apps quickly generated enormous hostility. People used words like “disgusting,” “evil” and called it “JerkTech”—all to the apparent surprise of Meyer, at least. Within months, Boston and San Francisco had passed ordinances forbidding the selling of public parking spots. Haystack and MonkeyParking were basically shut down by the end of the year. (MonkeyParking has since retooled as a way to sell the parking in your driveway.)

This is a familiar story to economic sociologists. Some area of life that was previously outside of the market is suddenly brought into it. Violent feeling erupts, as such transactions are seen to challenge the moral order. (See Zelizer, Healy, Quinn, Chan, etc.) Generally, the market wins, and morality adapts.

There aren’t too many things—humans, organs (though even that’s eroding)—where a bright line still forbids buying and selling. Why, then, do Haystack and similar apps generate such hostility?

I think there are a couple of independent things prompting the hostile reaction.

1.  Something that was, at least superficially, free, suddenly comes to cost money. People really don’t like being charged for things that used to be free, even if they were always paying for it somehow. (See: airline fees.)

2.  Someone is making money by selling public property. This one is probably more important to city officials than city residents. From this perspective, the problem isn’t selling the spot, but who’s receiving the gains. Indeed, some of the same cities that reacted so negatively to these apps (I’m looking at you, San Francisco) have introduced dynamic pricing of parking, which allows prices to fluctuate with demand. (Think: Uber surge pricing.)

3.  Now only the well-off can afford to park. This objection is to my mind the most legitimate. And while I fully recognize that it is really wasteful to have people circling around looking for parking, I don’t think it can easily be dismissed.

Now, I don’t want to stake any big claims around the inalienable right of Americans to park their cars. After all, you have to have a certain amount of money to have a car in the first place. And in general I think policies that discourage driving are good.

And it’s the very basis of capitalism to accept that there are things that some people can afford and others can’t, and to make one’s peace with that. But the thing about price caps (whether the cap is zero, as for street parking, or some flat rate, as with taxicabs) is that while they are inefficient, they are also democratizing. Yes, you may have to circle the block for 20 minutes. But dammit, so do the tech entrepreneurs who are pricing you out of your apartment. There are some things you can’t buy your way out of.

We live in a society in which inequality continues grow. At the same time, technology is improving our ability to make people who are willing (and able) to pay a lot do just that. That may be efficient. But it further reduces the sense that we’re all in this game together. And that’s the issue we don’t have a good solution for.

Written by epopp

June 8, 2015 at 12:00 pm

Posted in economics, technology

what’s really important about the arizona state mooc announcement

Arizona State has been in higher ed news a lot this week. The Atlantic just published a fairly fawning article on ASU’s partnership with Starbucks, featuring trenchant critiques of traditional colleges like, “The customer service is atrocious.”

Today, the news is ASU’s announcement that it will offer its entire freshman year online, through MOOCs. (Just when you thought they were dead!) Here’s the deal: ASU is partnering with EdX, the nonprofit Harvard-MIT collaboration, to produce the MOOCs. Students don’t have to apply, and they don’t have to pay in advance. But after they complete the class, if they decide they want college credit, they can pay ASU $300-600 (the final price is not set) and it will show up on a transcript indistinguishable from any other class.

Of course, people love to hate on ASU president Michael Crow. Dean Dad pointed out that Maricopa Community College, in ASU’s backyard, only charges $250 a credit and provides library access, among other amenities. John Warner focuses on the importance of the first year to student persistence, implying that disadvantaged students will be hurt. Jonathan Rees amps up the rhetoric, calling ASU the first “predator university.”

The Chronicle’s analysis focuses on what it sees as the catch: ASU’s MOOC students won’t be eligible for financial aid. Because students won’t officially enroll until after they’ve completed the MOOC, what they’ve learned is considered “prior knowledge,” making them ineligible for federal aid. ASU admits this is an obstacle, but suggested that “the university hoped to find some way to make aid possible in the future.”

What the Chronicle doesn’t point to, though, is where this road ultimately leads. There’s no way ASU is committing to this if it doesn’t see a pathway to federal aid down the road. Who among the underemployed folks ASU is targeting can cough up $600 to pay for a single course? That’s more than two weeks’ work at minimum wage.

And indeed, noises about how to solve this problem are already being made. Conversations are underway in the Senate about finding ways to give accreditation — and thus access to aid — to “nontraditional providers” like (drumroll…) EdX.

Truthfully, I’m not that worried about ASU and EdX. I think it’s going to prove hard to get the disadvantaged students they’re aiming for to finish MOOCs, even with financial aid, and even with ASU’s well-publicized innovations in data analytics. And I think that the nonprofit EdX, with its close ties to Harvard and MIT, is unlikely to launch a race to the bottom in extracting revenues from students.

But you know who would be happy to suck at the teat of the federal financial aid system? The edutech disruptors, who talk a good game about transforming higher education but will quickly enough start tranforming student loans into company profits once it’s time to raise the next round of venture capital.* When we have the opportunity to channel our financial aid dollars not only to the University of Phoenix but to the Disruptive EduBadge Academy, then we will have fully corrupted the system. The reason, if it needs to be spelled out, is that there is no reason to think that their courses will require learning, that pesky obstacle between them and those tantalizing financial aid dollars.

I’m not anti-technology, or anti-innovation. And I think traditional colleges are deeply flawed. But I am very, very much against expanding the money-laundering side of our financial aid system. And that is the coal mine into which the ASU-EdX canary is being lowered.

* I just Googled “silicon valley edutech” and got the San Francisco EduTech Meetup Group for — you can’t make this stuff up — “connecting folks who are passionate about the education space.”

Written by epopp

April 24, 2015 at 2:11 am