Network Effects: The Problem of Antitrust and the Internet

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The following was an article I published in the Pro Se, the University of Connecticut School of Law student newspaper, in November 2017 and can be downloaded here.

Network Effects: The Problem of Antitrust and the Internet

I implore you to list five sites on the internet where you purchased something. Now, ask yourself when was the last time you purchased something from each of them.

I am practically certain Amazon was put as your number one choice and your last purchase from them was within the previous six months. Unfortunately, this deep affinity for Amazon, along with other technology companies including Facebook and Google, represent a growing and persistent trend of large, near monopoly, corporations flexing their financial and political power over the infrastructure of our economy, while dominating nearly every aspect of our consumer life. 2

A typical citizen might believe these companies are just trying to make money and provide innumerable goods to people at the lowest possible price. Truth be told, you would not be incorrect as 55% percent of online shoppers start their shopping on Amazon. 3 Google has two-billion monthly active users on Android alone and Facebook has nearly 90% of the US population on its platform. 4 While all of these services are provided to people for free, your initial conclusion would also be applauded by the supporters of the Chicago School of Antitrust as they believe the central goal of antitrust is to ensure low prices and such a policy is exactly what has been the instituted by the courts since the 1980s.5 

The rise of Amazon, Google, Facebook and other internet companies is a troubling sign for our republic and presents a vexing problem to determine how to regulate their industry and business models. Although the business models of these companies can generally provide low prices, we have seen that they detrimentally affect the competitive conditions that are needed for markets to thrive. Understand that all of their business models are based on network effects, where the value of each additional user exponentially increases the service’s value. Facebook is the simplest example to explain this concept and its anticompetitive effects. Even though users dislike many features of Facebook, given the innumerable users are on the platform it is simply too hard to ignore. Additionally, for those that are currently on the platform, the fact that it is nearly impossible to switch to another service, and the unwillingness of others to either stop using Facebook means that for all intents and purposes you are stuck using the service to derive the benefits you need to communicate with your friends, store your photographs, read the news, or promote your business. 6 Moreover, why would you stop using a service where the largest quantity of people are located if you want to grow your business through social media. And it certainly does not help when you know more than 50% of all users log in every day.7

Now you may believe that a networked company, like all other businesses, can be duplicated and another competitor can displace it. However, let’s revisit a past situation. Google, one of the largest and well-known companies, tried four times to replace Facebook as a social network by creating Orkut, Google Buzz, Google Wave, and Google Plus and still it has failed. Moreover, all of Google’s attempts were before Facebook became the powerhouse of advertising that it is today. 8 Google’s failure is certainly not because consumers do not like using their services and cannot plausibly be because Google lacks financial or intellectual capital. Google’s failure is just small example of the near insurmountable challenge to displace a networked company. The same failure can be seen in Microsoft’s failure to create a viable phone operating system to displace Apple’s iOS and Google’s Android. 9 In a sense, it might take a significant market paradigm shift to convince users to switch or simply use another service to accomplish the same goals.

Moreover, these companies are continuously leveraging their market power to incrementally take over new industries. For example, try and think of a business Amazon is not a member of – to put it lightly there are not many. Lina Khan of the Open Markets Institute states it succinctly in her recent publication Amazon’s Antitrust Paradox.

[Amazon is a] retailer, it is a marketing platform, a delivery and logistics network, a payment service, a credit lender, an auction house, a major book publisher, a producer of television and films, a fashion designer, a hardware manufacturer, and a leading provider of cloud server space and computing power. 10

The same could almost be said for Google. Now consider applying this concept to a more recent event by contemplating Amazon’s acquisition of Wholefoods. Why would Amazon acquire Wholefoods? Do you think it was out of love for the Wholefoods’ brand and its devotion to locally cultivated food products, out of a desire to sell organic soap and homemade chicken noodle soup? Or perhaps the purchase of Wholefoods was designed to provide Amazon 460 distribution centers in the wealthiest areas in the country where it can further increase its economies of scale to provide the most expedient delivery of goods and services to the people with the greatest purchasing power knowing that at least 50% of them have a Prime subscription and continue to supplant all other retailers. 11 All of the reasons are plausible, and they are certainly not mutually exclusive, but we all know which one is practical and reasonable. 12

But Amazon is not alone in engaging in business practices with sinister motives by overtly flexing its business prowess. Google as well has its own share of controversy, such as preferring its services over others or stifling opinions it disagrees with. 13 Facebook as well has engaged in practices designed to test the limits of its platform such as purposefully manipulating user emotions. 14

These fiendish practices are indicative of the fact that companies are willing to engage in any behavior, however nefarious, as long as it grows and locks in customers on to their platform, and all market power abuse concerns can be dismissed under the guise of low prices. What’s worse is that these practices are incentivized given the nature of a networked market and are not currently part of our antitrust analysis, which only causes other companies to adopt them.

What I find most perplexing is that citizens across this nation, at least for a brief moment, accepted the premise that there is an economic and social cost to low prices, convenience, and big business as in the case of Wal-Mart. I will never forget the ending credits of Wal-Mart: The High Cost of Low Price where the movie listed all of the local resistance movements taken against a Wal-Mart due to the damage its presence imposed on communities – and that was twelve years ago.

To overcome such a difficult situation, we need to rethink the effects our purchasing habits and the role that our antitrust laws have in regulating the business practices of networked internet companies. Legislatures and Courts need to expand the goal of our antitrust laws beyond the purview of providing low prices to consumers and incorporate into their analysis the anticompetitive effects network business practices have on markets. 15

Consumers once recognized the dangers a pure pursuit of low prices has on communities and markets; we need to reinvigorate that desire and fight back.

 

Reddit Comment Link: https://redd.it/7du1sv 

Antitrust Organizations

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Antitrust Organizations

In my last post, I provided a list of people who are devoting their lives to ensuring competitive and fair markets. To complement that post, I am now providing a list of organizations dedicated to the same mission.

I encourage everyone to subscribe to all of their publications, follow them on all social media platforms, share their content, and donate to support their work.

Please comment on Reddit to make suggestions for additions and changes.

 

The Antitrusters

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The Antitrusters

In a fantastic post by Matt Stoller of the Open Markets Institute, he listed the major works related to educating oneself on monopoly and monopoly power.

To complement his post, I decided to create a database of the people who are out there on the front lines advocating for antitrust and competitive markets.  

I would highly encourage everyone to follow all of them on Twitter, read their publications, donate to their work, and purchase their books.

Comment on Reddit for any changes and additions. Here is the link to download

Enjoy.

Antitrust Glossary

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Antitrust Glossary

One of the key gateways into any profession is to be a master and commander of the jargon. Ever since my expedition into antitrust I have collected a series of vocabulary words that are essential to understanding the literature surrounding this fascinating topic. Although this glossary is incomplete, it is an expanding document that is subject to change. Additionally, this glossary will aid a reader’s understanding of any future post, especially as the concepts become more complex. 

Feel free to make recommendations for additions and changes on the Reddit comment page.

Enjoy.

Download link: https://goo.gl/FecjkM

Republican Irreparability – Part 1

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Republican Irreparability – Part 1: Reflections, Contradictions, and Hypocrisy

Over the past year, I have been critical of Donald Trump 2, Barack Obama 3, the Democratic Party 4, and even our Constitution. 5 However, given the results of the tumultuous 2016 election and the fact that our republic has endured a Trump Administration for more than six-months a reexamination of the Republican Party, Donald Trump, and conservatism in general is needed now that their power and ideology is pervasive throughout all levels of government. 6

The purpose of this set of posts is to start dismantling the foundational argument against antitrust and answer what role government should play in regulating the economy. If there is a single factor that divides Democrats from Republicans is the depth and scope of the government’s role in our social, political, and economic life. For example, the predominantly accepted purpose of antitrust law is that its only legitimate goal is the maximization of consumer welfare (i.e. to ensure low prices). This interpretation limits the government’s effect on regulating monopoly behavior regardless if prices are kept low. 7 While I believe this analysis is fundamentally flawed, this series will cover a broader range of topics each intended to provide an analysis of the current state of the Republican party, their ideology, and the irreparable impact of their policies. This long lasting impact ultimately justifies why their policies need to be rejected and resisted, which will provide the foundation for justifying an alternative antitrust analysis. Additionally, these posts also form the basis for active and persistent government involvement in antitrust enforcement and expansion of antitrust policies.

Reflections on the historical actions and contradictory positions of the current manifestation of the Republican party

As the Republican Party currently exists, they are in nothing short of a state of utter irony, contradiction, and quite possibly in a state of crisis – and they know it. 8 What is worse for them is that all members of the Republican Party are barred from reminiscing on any of their past Presidents as role models for future leaders of the party. 9 To prove this, each Republican president must be examined and contrasted against modern party values.

Abraham Lincoln, although the savior of our republic, used unprecedented war powers to expand the size of the government 10 and imposed income taxes 11, which were eventually amended to the Constitution. 12

Theodore Roosevelt busted corporate monopolies, 13 increased regulations on food and drugs, 14 set aside millions of acres of land for conservation, 15 16 and even advocated for universal health care. 17

Dwight Eisenhower spent vast amounts of government money, 18 and although he wanted to cut taxes on the wealthy, 19 they still were the highest levels ever in our nation’s history. 20 21

Richard Nixon increased regulation, most notably through the creation of the Environmental Protection Agency 22 and then there was Watergate. 23 Moreover, there is the fact that he purposefully tried to perpetuate the Vietnam War. 24

George H. W. Bush could be considered as a conservative role model, but then again, he raised taxes. 25

George W. Bush left the economy in the worst shape since Herbert Hoover. 26 Additionally, President Bush expanded the size of government with Medicare Part D, 27 which caused large amounts of deficit spending. 28

Rutherford Hayes, Ulysses Grant, James Garfield, Chester Arthur, Benjamin Harrison, William McKinley, Gerald Ford, William Taft, Warning Harding, and Herbert Hoover are either forgettable or riddled with scandal that transcended their presidency, or they did not affect the course of the country significantly. 

The only presidents Republicans have that seem to embody their principles are Ronald Reagan and Calvin Coolidge. Reagan, who is incessantly over played, was committed to large acts of deficit spending. 29 Moreover, let us not forget about the Iran-Contra affair. 30

Calvin Coolidge, who was coincidently Reagan’s favorite president, 31 created the conditions for the Great Depression. 32

As much as the Republican Party wants the public to believe that they are committed to the highest ideals of freedom and liberty, like all politicians they do what has to be done when the moment calls for it regardless of ideology. The Republican Party still betrays their core political philosophy now as they did previously, and now they have a pseudo-authoritarian populist leader who not only praises the country that their hero, Reagan, sought to bring down; but also helped Donald Trump get elected 33, while simultaneously seeking to build a wall of his own. 34 Furthermore, given Donald Trump’s rise to power, extensive legal history 35, persistent lying 36, and scathing rhetoric, 37 it is almost certain the Republican party will not be praising him as a role model for future Americans and for Republicans in general.

The party of betrayal

The rise of Donald Trump and Trumpism is an utter tragedy for the party. It is almost as if the party has given up on explaining what conservatism is, what limited government means and has instead chosen a path of misinforming the public, which even some conservatives are unabashedly opposed to. 38 Given the party’s current state, I do not believe it is radical to say that the Republican ideology has been hijacked by its current members. 39 40

All of this behavior is indicative that the current manifestation of the Republican Party is not only disloyal to their ideology, but also utterly betrays it. 41 To best examine this claim we must compare original Republican political beliefs with their current positions.

The Right to Privacy
Conservatives want freedom from the government. Yet the current members of the Republican Party, with few exceptions want to subvert and prohibit gay marriage with the force of the federal government under the veil of religious liberty, 42 continue to pursue reckless drug laws while pursuing the harshest punishments regardless of their costs and ineffectiveness, 43 impose bible reading in schools, 44 and seek to reverse the Supreme Court’s decision on abortion. 45 Again, all to use the power of the state to impose an ideology on personal decisions, contrary to their central political philosophy.

Free Trade and Free Markets
Conservatives want free trade and markets among nations. However, there is not one Republican 46 that wants to open up international markets for foreign lawyers and doctors. 47 Donald Trump wants to create protectionist policies, which even gets Sarah Palin making sense, even though Carrier ended up laying off 300 employees anyway. 48
However, many conservative and liberal think tanks lament about the dangers of protectionist economics. 49 Nevertheless, Donald Trump will continue to conduct these protectionist policies regardless of their international consequences. 50 China and Russia will almost certainly capitalize on the US rejection of the Trans-Pacific Partnership, which will only continue to weaken US global economic influence.

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Limited Government
Conservatives want limited government, and seem to have advocated for this belief during Barack Obama’s administration when it came to his Executive Orders. 52 However, today they stand silent when Donald Trump commits the same action. 53

Additionally, contrary to their economic ideology, Republican dominated states show no resistance in accepting federal government’s agriculture subsidies. 54 And, they are more than happy to accept government money for environmental disaster relief when it serves their needs, yet they continue to deny that climate change is human caused. 55

Foreign Policy
Conservatives understand the value of having not only a strong military but also one that is used to protect global interests to promote free trade and peace throughout the planet. However, some members of the current incarnation of the Republican Party seek to withdraw from completely from the international community. 56 Leaving global agreements and advancing isolationist policies is not the way to lead global affairs, and is not the way the United States rose to prominence in the first place. 57

God’s Party and Accountability
Conservatives proclaim to be the party of God thus invoking the moral high ground. However, Republicans have a recent history of trying to subvert accountability. In South Dakota, Republicans repealed a democratically voted ethics law. 58 Republican members of Congress even sought to repeal the congressional ethics commission, and Donald Trump has exempted much of this staff from ethics rules. 59 In North Carolina, Republicans enacted legislation limiting the newly elected governor’s power. 60

Republicans even allow their faith to be put ahead of the ultimate form of individual liberty, the right to die, and use the state to prevent such a personal decision. 61

The emphasis on being God’s party while seeking for the government to be accountable toward disasters and scandals, and shed light on potential government corruption 62 should cause Republicans to agree with having government investigative reports so that Congress can know the facts of an event to hopefully prevent future incidents. This procedure would not only facilitate the operation and public confidence of our republic, but also to protect our national security, just as we did with Benghazi, 63 9/11, 64, Hillary Clinton’s email server 65, Gilded Age monopolies 66, the Great Depression 67, the Great Recession 68, or the assassination of President Kennedy. 69 Republicans are even willing to dismantle bi-partisan institutions such as the Congressional Budget Office, whose sole purpose is to evaluate the impact of legislation; how else can politicians know if their proposals would even be fiscally responsible for the United States. 70

Erosion of our republic and a mandatory comparison

I truly believe, the only winners in events where there is no accountability and evaluation of actions and legislation are tyrannical dictatorial demagogues who seek to undermine the integrity of our republic contrary to the interests of our fellow citizens and to the benefit of our foreign enemies and the wealthy.
Nevertheless, Republicans 71 still support a man where the FBI, NSA, and CIA all agree a foreign nation helped win an election 72 and only after intense protesting Republicans appointed a special prosecutor to look into Donald Trump and the influence of the Russians in the 2016 election. From public information we know few key players from the Trump Administration seem to be telling the truth about their interactions with the Russian operatives. 73 Take a moment to consider the scandal between the Trump administration and Russia. 74 The Russians, a foreign nation who literally wants to see the destruction of the West, who we fought the Cold War against, who wanted to beat us in the space race, 75 who caused several generations of people to duck and cover under their desks due to the ever-present threat of nuclear annihilation, wanted Donald Trump to win the presidency. 76 Meanwhile, Donald Trump practically refuses to condemn or even disagree with Vladimir Putin, 77 and the evidence is piling given the actions of his son expressly agreeing to work with the Russians to solicit potentially damning information on Hillary Clinton contrary to federal law, 78 all while Vladimir Putin is partnering with China’s President Xi. I do not find it unreasonable that a Russian-Chinese partnership on any level ultimately serves to weaken Western powers. 79

The Republican hypocrisy does not end with their past party leaders. It extends to nearly every aspect of their party’s operation.

For example, the argument over the use of a private email server of Hillary Clinton yet many Republican members used their personal email accounts. 80

Or, the continued erosion of basic transparency and accountability by the never-ending threat of tyranny from government. Meanwhile, Donald Trump is the one calling reputable media organizations fake news and does not hold actual press conferences and having members of the Republican party openly say the public does not have the “luxury” of seeing a bill before it is voted on. 81

Or, the incessant praising of the military yet their own leader does not think John McCain is a hero, which was even acknowledged in Barack Obama’s 2008 victory speech. 82 Never mind the fact that Donald Trump would never be willing to risk his own life for the country he now serves. 83 Moreover, Donald Trump even gave classified information to the Russians. 84

Instead of seeking out to know the depth of the relationship between Donald Trump with the Russian government and ignoring the fact that Donald Trump is actively trying to subvert the investigation, 85 the Republican party instead would rather continue to complain about Barack Obama not being born in America or for using mustard, forgetting that Donald Trump puts ketchup on his steak. 86

In the end, it is simply appalling at what Donald Trump is able to get away with. 87

What must be asked is whether any Republican politicians admit that Donald Trump and many members of their party are destroying our republic. 88 And who knows how much longer the Republican Party and their media stream will continue to support him regardless of the international damage to America’s reputation. Two charts from Pew Research could not be clearer of the damage Trump has caused to America’s global image.

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Let’s imagine for a moment if President Obama did any of the following:

Take even several degrees of magnitude off of the above statements and it is not hard to picture that the Republican response would be nothing short of outcries of tyranny, disregard of presidential responsibility, societal collapse, and claims of the end times. Such was the case advocated by Republican as a response to the passage of the Affordable Care Act. 98

Conclusion

I will not out rightly say the Democrats are your answer as they are still accepting money from billionaires and Wall Street, while still failing to unite around a comprehensive legislative agenda. 99 Nevertheless, the party that persistently proclaims to be the party of philosophy, of God, and principle, could not be farther from what our country needs during these turbulent times. 100 Fortunately, there are actual conservatives out there trying to make the party have some common sense contrary to the majority within their party. Such as, utilizing solutions to climate change and to campaign finance reform that are consistent with true conservative values that to my knowledge no current Republican politicians are even supporting. 101

The current Republican Party’s hypocrisy and contradictory positions provide the necessary background to explore the deeper problem of the conservatism, which will be discussed in part two of this series.

Reddit Comment Link: https://redd.it/6rpmma