The New Brandeis Approach to Antitrust Won't Work, Long Term

Traditional antitrust violations that cause identifiable or potential “consumer harm.” The key concept here is “consumer harm,” not “producer harm.” That notion underlies consumer protection policies of all sorts, including actions to break up companies to promote more competition.

And that is where the emergence of “free to use” services and applications raises new questions for some, especially a shift of focus from protecting consumers to protecting producers. In other words, regulatory intervention is justified not because consumers are harmed in the old sense of high prices possible because of monopoly power, but despite the ability to quantify such harm.  

The idea that policy is organized around protecting producers, rather than consumers, is not new. But it is a shift back to acting even when consumer harm, in the form of higher prices, cannot be alleged.

Consider the classic case of antitrust action against Standard Oil, which at one point might have had 90 percent market share.

“Between 1870 and 1885 the  price of refined kerosene dropped from 26 cents to 8 cents per gallon. In the same period, the Standard Oil Company reduced the [refining] costs per gallon from almost 3 cents in 1870 to 0.452 cents in 1885,” observers have noted.

In other words, consumers clearly benefited. But antitrust action was taken despite evidence of consumer harm, to help other competitors, not to protect consumers from high prices.

In essence, many argue for a return to such policies of helping suppliers, not consumers, since consumer harm cannot be clearly demonstrated.

It is debatable whether policies aimed at protecting suppliers work long term. Still, to the extent new antitrust action might be taken, it will be using non-direct and non-quantifiable measures of harm. Privacy protection seems the most-obvious new culprit.

The Antitrust Case Against Facebook by Dina Srinivasan links Facebook’s privacy policies with monopoly abuses, in keeping with a trend by some to revise traditional tests of market power, as it is difficult, under the existing framework, to find consumer harm when no actual price is charged for use of a product.

So the new tack is to enshrine new tests--privacy protection, mostly--of monopoly power that have no historic justification.

Many call this the New Brandeis school of antitrust, which argues that what matters is market structure, not consumer harm, since Internet era firms including Google, Facebook and Amazon provide consumer benefits at zero prices, or have demonstrably contributed to lower prices.

The subject of antitrust then becomes market structure itself, not consumer harm in the form of higher prices, for example. Some call this a shift to antimonopoly, rather than antitrust, with benefits that are more social and political than economic.

The enemy is “bigness,” not consumer welfare, though some might argue “bigness” is not the problem as much as the ability to exploit bigness. As a practical matter, the real-world test will be bigness itself. How well that will work, if at all, remains to be seen.

Historically, one might note that prior efforts to break up industry power have always resulted in reaccumulation of market share. Market structures do not remain fragmented, but reconcentrate. That is what happens when any competitor creates products that buyers consider superior.

One might note the European telecom regulatory community essentially moved in that direction in mandating wholesale policies for producers in the connectivity business, allowing multiple retailers to use a monopoly network.

That clearly produced more retail competition. It also has reduced profit margins in the industry that limit investment and innovation. It is not clear how much consumers have benefitted. It seems fairly clear that investment has suffered.

Parenthetically, one might also ask what becomes of contestants in global markets, where scale matters, if “bigness” itself becomes grounds for antitrust or anti-monopoly action.  Sometimes, scale is necessary to compete.

What's Worse: Protecting Producers or Consumers; Business or People?

The scope of antitrust action seems to be a growing issue. Some now argue that dispersing private power should be the main objective; others hold for the current role of protecting consumers. In essence, the issue is whether antitrust is a matter of preventing bigness or preventing consumer harm. They are related, but not identical.

And some propose that multiple purposes be served: protecting privacy, restricting the impact of money in politics, or methods of market oligopoly that are exercised through non-price means.

Some might abbreviate the new approach to a “bigness is bad” framework that assumes consumer welfare is harmed by bigness itself, even if big firms are able to provide greater variety of goods at lower prices (or for free, in the case of ad-supported app platforms and services).

Ignore for the moment that markets lead to concentration precisely because consumers prefer the products supplied by more-successful firms. Ignore the efficiency gains from scale. Ignore the quantifiable reality of lower prices possible precisely because some firms have been able to leverage scale.

The new standards aim to shift the burden of protection from buyers to sellers; from users to suppliers; from price to non-price mechanisms. One might question whether greater reliance on human agency and courts is superior to the action of markets propelled by consumers.

But there cannot be any doubt that protecting suppliers, by restraining bigness, also will introduce greater amounts of human judgment and values into a process that arguably runs better when people are free to vote with their pocketbooks.

That argument might be more true in an era when products are intangible, not tangible, and innovation is very rapid, with few moats to protect inefficient producers. In fact, one might continue to ask why inefficient producers should be protected. “Quality” is usually some major part of the answer some offer. “Local” producers are better than remote producers, even if local producer prices are higher than remote suppliers can offer.

That is part of the charm of local hand-crafted products, for example. Still, restraining price competition will introduce or maintain some amount of inefficiency, and therefore, higher prices. The impact on variety of traded goods will be more varied, but at least some products might not be available if remote and big producers are barred.

Using the consumer welfare standard, action is required only when consumers are harmed, largely by measures of harm from higher prices. Under the “new Brandeis” perspective, bigness alone is sufficient for action, even if consumer prices are lower.

The new Brandeis approach aims to protect suppliers; the consumer welfare framework says it is consumers who need protection. The issue, I suppose is “who do you fear most: big government or big business?

Antitrust Law Itself Might Change if Regulators Move Against Platforms

In some ways, the focus of antitrust action against dominant platforms might turn not on harm to consumers, which could be difficult to prove for “free” services, but on harm to potential competitors, which has not so much been the case in recent years, but arguably was the case 50 years ago when Brandeis approach was more common, focusing on market structure rather than demonstrated consumer harm.  

The focus, in other words, could shift to an earlier focus on competitive entry and other forms of market structure, rather than on proving consumers have been harmed. Some skeptics might argue this is a bit like arguing “there has been no crime, but we will charge you with one, anyhow, because you are simply too successful.”

So is the issue dispersing private market power or protecting consumers? Is the problem bigness itself? Even if consumer harm is the standard, it often is difficult to prove. Nor is market share necessarily the result of deliberate efforts to constrain competitors. It is often largely the result of network effects. 

So it seems as though the likely assault on dominant platforms will be based on the older market structure concerns, not so much actual consumer harm. 

The possibility of antitrust action aimed at promoting competition by restricting dominant platform scale in countries ranging from China to the European Union, United Kingdom and United States is growing. 

Efforts to increase user control of their data and complaints about censoring show that a growing wave of concern about monster platform power is not abating, though in practice it is a devilishly complicated matter. 

Few would contest the market dominance in search, browsers, cloud computing, operating systems or advertising. 

source: Wikipedia

Amazon is the leader in e-commerce with 50 percent of all online sales going through the platform. Amazon also leads cloud computing, with nearly 32 percent market share, as well as live-streaming with Twitch owning 75.6 percent market share. 

Some argue Amazon is the market leader in the area of artificial intelligence-based personal digital assistants and smart speakers (Amazon Echo) with 69 percent market share.

Google shares an operating system duopoly with Apple, is the leader in online search (online video sharing (YouTube) and online mapping-based navigation (Google Maps). Google Home has 25 percent of the smart speaker market as well. 

Apple shares a duopoly with Google in the field of mobile operating systems and arguably makes the highest profit of any smartphone manufacturer. 

Alphabet, Facebook and Amazon dominate U.S. digital advertising. In addition to social networking, Facebook also dominates the functions of online image sharing (Instagram) and online messaging (WhatsApp). 

Microsoft continues to dominate in desktop operating system market share (Microsoft Windows) and in office productivity software (Microsoft Office). Microsoft is also the second biggest company in the cloud computing industry (Microsoft Azure), after Amazon, and is also one of the biggest players in the video game industry (Xbox). 

source: MIT Management 

Still, the issue is more complicated than often appears. Market leadership by a small number of firms is common in any industry. That is the rationale behind the rule of three.  

There always is a tension between competition and investment in the capital-intensive connectivity business, for example. But even in the capital-light software and applications businesses, oligopoly seems to reign.

Still, antitrust action to break up big companies has been a staple of competition remedies for more than a century. 

Many have suggested that founding rates for innovative new companies have been depressed for a decade or more because the giants routinely buy them up. So dominant are the leading platforms that their acquisitions of promising new firms creates a kill zone that discourages others from attempting to compete, as this illustration by the Financial Times shows. 

source: Financial Times 

Others might note that the ecosystem for translating basic science into commercial products is not as efficient as it needs to be.  

How to promote innovation and competition at the same time is an issue more regulators and policymakers are likely to grapple with over the next few years.  

Yes, Virginia, You Can Yell "Fire" in a Crowded Theater

As it turns out, one actually can lawfully “yell ‘fire’ in a crowded theater,” the traditional example of a limitation of free speech protections under the First Amendment to the U.S. Constitution.

When U.S. politicians support arguments for greater censorship, they often argue that such First Amendment rights are restricted. The common refrain is that one cannot “yell ‘fire’ in a crowded theater” or that “misinformation” or “hate speech” are similarly not protected.

But many would argue such interpretations are indeed calls for restrictions (violations) of the First Amendment to the U.S. Constitution. Since the time of the Supreme Court’s Schenck v. U.S. decision, where the phrase “shouting ‘fire’ in a crowded theater first emerged, courts have ruled that incendiary, distasteful, rude speech actually is protected.

Perhaps the clearest clarification of Schenck is Brandenburg. Unless immediate illegal action is intended and likely, even “yelling ‘fire’ in a crowded theater” is protected speech. 

The other obvious problem is that “misinformation” or “hate speech,” even if odious, inflammatory or believed to be false, still is protected speech. Ideas “one hates” remain the test of free speech protections. 

Case	Year	Ruling Summary	Relation to 'Yelling Fire' Metaphor
Schenck v. United States	1919	Upheld conviction for distributing anti-draft pamphlets during WWI. Established that speech presenting a "clear and present danger" could be restricted.	Justice Holmes introduced the famous metaphor of falsely shouting "fire" in a crowded theater.
Abrams v. United States	1919	Upheld convictions under the Espionage Act for distributing anti-war leaflets.	Built upon the "clear and present danger" standard, but Holmes dissented, moving towards more speech protection.
Gitlow v. New York	1925	Upheld conviction of a socialist for advocating the violent overthrow of the government.	Suggested that even speech not directly causing harm could be limited if it had the potential to incite violence.
Dennis v. United States	1951	Upheld convictions of communist leaders advocating for the violent overthrow of the U.S. government.	Argued that advocating dangerous ideas, even without immediate action, could be restricted.
Yates v. United States	1957	Ruled that advocating abstract doctrine (such as communism) is protected speech, unless it incites illegal action.	Limited previous rulings, clarifying that abstract ideas are protected unless linked to action.
Brandenburg v. Ohio	1969	Overturned conviction of a KKK leader for inflammatory speech. Held that speech is protected unless it incites imminent lawless action.	Effectively replaced the "fire in a crowded theater" metaphor. Protected even dangerous speech unless immediate illegal action is intended and likely.
Texas v. Johnson	1989	Ruled that flag burning constitutes protected free speech under the First Amendment.	Protected highly offensive speech, further distancing from "fire in a theater" metaphor.
Snyder v. Phelps	2011	Protected Westboro Baptist Church's right to protest at military funerals, ruling that offensive speech on public issues is protected.	Even offensive and distressing speech was deemed protected. Shows broad protection for public speech.

The phrase "freedom for the idea one hates" is closely associated with Justice Oliver Wendell Holmes and Justice Louis Brandeis, two influential figures in the development of free speech jurisprudence in the early 20th century. 

In his famous dissent in United States v. Schwimmer (1929), Holmes said "If there is any principle of the Constitution that more imperatively calls for attachment than any other, it is the principle of free thought—not free thought for those who agree with us but freedom for the thought that we hate."

The point is that free speech requires freedom for “highly offensive” or “controversial” speech. Without tolerance for such speech, the government could censor any speech that threatens its interests.

The phrase "Yes, Virginia" The phrase "Yes, Virginia" comes from a famous editorial published in The New York Sun on September 21, 1897, in response to a letter from an 8-year-old girl named Virginia O'Hanlon. Virginia had written to the newspaper asking whether Santa Claus really existed, because some of her friends had told her he did not.

Her letter read:

"Dear Editor: I am 8 years old.
Some of my little friends say there is no Santa Claus.
Papa says, 'If you see it in The Sun, it’s so.'
Please tell me the truth, is there a Santa Claus?"

The editorial was written by Francis Pharcellus Church, a veteran journalist. His response, titled "Yes, Virginia, there is a Santa Claus," became one of the most famous newspaper editorials in American history.