It is not a crime to be big; it is a crime to inhibit competition, agreed a panel of anti-trust experts at a June 6 Duke in DC event examining the future of competition policy in the United States and around the world.
With Google, Facebook, Amazon and Apple all facing various legal threats related to alleged anti-trust violations, the recent Duke in DC panel explored the questions investigators need to ask before pursuing a case.
Four experts joined for the conversation: Sean Heather, senior vice president of the U.S. Chamber of Commerce’s Center for Global Regulatory Cooperation; Benjamin Hendricks T’08, counsel at O'Melveny & Myers, LLP; Haidee Schwartz T’87, partner at Akin, Gump, Strauss, Hauer & Feld, LLP and former acting deputy director of the Federal Trade Commission’s Bureau of Competition; and Leslie Marx T’89, Robert A. Bandeen Professor at the Duke Fuqua School of Business and former chief economist at the Federal Communications Commission.
The panelists explored a variety of issues from price fixing and cartels to market share and the difficulties of analyzing vertical mergers.
Price fixing presents the classic anti-trust case, said Hendricks. According to the Federal Trade Commission’s website, “price fixing is an agreement (written, verbal, or inferred from conduct) among competitors that raises, lowers, or stabilizes prices or competitive terms.”
In established industries such as airlines, defining price in an investigation could be as straightforward as looking at ticket pay stubs over a period of time. Large technology companies such as Amazon and Google, however, complicate even this seemingly simple metric: how would an investigator define price when customers on a digital platform don’t necessarily ‘buy’ any service?
Although neither the Department of Justice nor the Federal Trade Commission has announced any official investigation, several congressional committees have begun exploring the issue of competition policy in the world of ‘big tech.’
Heather said the issues that gain the most media attention, such as dominant market share, the ability to exclude competitors and ‘high’ prices, are not alone sufficient to be anti-trust violations.
Defining the market is the first challenge an investigator faces when beginning an anti-trust investigation, said Schwartz. Markets are often defined by their substitutes, and the ability to show reasonable alternatives to a product or category of products can help define the threshold of alleged anti-competitive behavior. (For example, if a consumer can and is willing to switch between apples and bananas, then apples alone are likely not a market – though fruit may be a market.)
The panelists kept returning to a thorny issue in evaluating technology companies: if the service a company offers is theoretically free, how does one measure price effects?
Marx highlighted how companies like Amazon are quintessential two-sided markets: two users or groups exchange value and products through a platform to the mutual benefit of each other. The handling of two-sided markets is not without precedent in the history of anti-trust investigations. Marx pointed out the case of Ohio v. American Express Co.
In that case, the Supreme Court ruled 5-4 holding that American Express’ ‘anti-steering provisions’ in its merchant contracts—which prohibit merchants from avoiding fees by discouraging customers’ American Express card use at the point of sale—do not violate federal anti-trust law. Although American Express was disincentivizing merchants from avoiding fees, the Supreme Court did not construe that activity as anticompetitive.
Anti-trust policy and precedent do not just look at price and fee flexibility, though, Marx said. Anti-trust looks at the whole market and company picture as they relate to competition. ”We’re going have to look carefully at the individual firms and the markets they are involved in” she said, “and study the linkages across markets in evaluating potential competitive concerns.”
Deep Dives at Duke in DC
Throughout the summer, the Duke in DC office has held panel discussions on compelling political issues targeted for policymakers. Many panels have been filled with Duke faculty and alumni. Here are some of the other stories: