TR Daily Antitrust Approaches to Multi-Sided Platforms Debated
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Monday, October 15, 2018

Antitrust Approaches to Multi-Sided Platforms Debated

Panelists at a Federal Trade Commission hearing today debated the definition of multi-sided platforms, how important reaching agreement on a definition is, and whether there are harms in market domination by platforms such as Google and Facebook that can be addressed through antitrust enforcement.

The hearing, which continues tomorrow and Wednesday, is the latest in a series of FTC hearings expected to stretch into 2019, looking at consumer protection and competition issues in the 21st century.

FTC Commissioner Rohit Chopra opened the hearing with remarks highlighting some of the issues he believes need to be studied, including “how operators assemble data on non-users”; property rights in an individual’s online identity and data about transactions; and how operators safeguard against bias in areas such as housing and credit.

“These markets may not operate how … we learned about them in economics textbooks,” Commissioner Chopra said.

During an afternoon panel on multi-sided platforms in action, moderator Jan Rybnicek of the law firm of Freshfields Bruckhaus Deringer LLP, who also teaches at George Mason University’s Antonin Scalia Law School, said he wanted the panelists to consider why consumers don’t leave dominant Internet-based companies when, as the firms say, their competition is only a click away.

Roger McNamee of Elevation Partners said that the lack of consumer choice when it comes to the services offered by Alphabet (Google’s parent), Facebook, and Amazon means that antitrust action must address the issue.

Focusing on Alphabet and Facebook because of time constraints, Mr. McNamee said that “data-centric companies … block buyer and seller from interacting directly.” He added, “When companies like Facebook and Alphabet combine datasets, they discover new uses that consumers were unaware of when they provided the data and in many cases consumers do not benefit from.”

Scott Kupor of venture capital firm Andreessen Horowitz said that the market does a good job of dealing with concerns about the power of incumbency.

Mr. McNamee responded to the suggestion that concerns about size alone don’t justify antitrust action by saying, “My issue isn’t just how big they are but what they do with that scale and how they’ve changed the public square … and how they got there.” He also said the companies had engaged in “material misrepresentations to almost every constituency they deal with. … With all due respect to the crypto guys, that does not feel like as good a use of capital as putting people to work [and] creating infrastructure.”

Mr. McNamee continued, “Silicon Valley on a net basis reduces employment and reduces investment in capital. … I don’t want us to confuse a bull market in venture capital with economic success.”

Fellow panelist Steven Tadelis of the Haas School of Business at the University of California, Berkeley, said that he agreed with Mr. McNamee that efficiency is not the only value to be pursued. However, he added, “Employment is not an antitrust issue. … It’s important as economists and regulators [to recognize] that there are a lot of things we’d like to see in the world that aren’t antitrust issues.”

Mr. McNamee responded, “No matter how you look at that, I believe there are antitrust issues here [as well as other potential areas of enforcement]. There are myriad ways you could regulate them; I’d like to start with antitrust and run that through.”

During another afternoon panel on defining markets and establishing market power, Michael Salinger of Boston University’s Questrom School of Business warned against defining markets too broadly. “The competitor to Google for shopping search is not Bing; it’s Amazon. … If you think it’s Bing, you’re missing the relevant market. There’s no such thing as a general search.” He added, “If you’re doing a travel search, Expedia is an option. … The fact that you wouldn’t go to Expedia [to find sports results] doesn’t change the fact that Expedia is a competitor on travel search.”

During an earlier panel discussion, Howard Shelanski, a partner in the law firm of Davis Polk & Wardwell LLP and former director of the FTC’s Bureau of Economics, predicted that defendants in antitrust cases will assert that they are “very multi-sided and have tons of network effects” and that the other party will have to demonstrate “net harm across all of them.” Because of this, definitions are going to be very important, he said.

David Evans of the Global Economics Group, who gave one of the presentations that kicked off the discussion, disputed the idea that definitions are needed to head off widespread multi-sided market claims, saying that if a grocery store or other retailer asserts that it operates in a two-sided market, “there’s not a lot of literature to support that.”

During his presentation, Mr. Evans said, “Seven of the 10 largest publicly traded companies in the world by market cap derive a significant amount of their revenue from two-sided markets.”

The other presenter, Catherine Tucker, a professor at Massachusetts Institute of Technology’s Sloan School of Management, noted that there are negative network effects as well as positive, such as “too many users can lead to congestion” and “some users can make the platform look uncool.” She said that her research team had “managed to make bitcoin uncool at MIT by giving everybody $100 in bitcoin,” and when graduate students saw the undergraduates were using bitcoin, they decided it wasn’t cool anymore. —Lynn Stanton, [email protected]

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