FTC Commissioner Phillips' Recent Comments on Changes to Transaction Review Process, Proper Focus of Antitrust Law

In a series of recent posts to the FSF Blog, I have highlighted instances where the two Republican FTC Commissioners, Noah Phillips and Christine Wilson, have voiced concerns regarding changes to the process by which the agency reviews transactions.

Appearing on a panel at the Technology Policy Institute's just-concluded Aspen Forum 2021, Commissioner Phillips was afforded an opportunity to expand upon his recent public statements. His remarks were noteworthy.

When asked to assess the performance of Lina Khan during her first two months as FTC chair, Commissioner Phillips responded in relevant part that:

There are some changes being made that I think are good things. I like the concept of open meetings. I think it's good to show the public … who we are and what we're doing. 

There are some changes that I don't like as much…. Something that I said recently is I'm concerned that some of the policies we're adopting are essentially aimed at undoing the Hart-Scott-Rodino merger review legislation. That was a piece of legislation adopted by the Ford Administration in 1976 and it has been one of the great "win-wins" in antitrust law over the decades. 

Businesses got an answer to their question and didn't have to waste a lot of money. Government enforcers got a chance to look at transactions before they happened, and didn't have to deal with hostile judges who didn't want to "unscramble the eggs." And it's been really good to give the opportunity to the government to review mergers, to give answers to businesses, and, ultimately, and this is the point, to help consumers.  

But I fear that some of the steps we're taking now will make that process less effective and less efficient and less fair. And so there are certainly some things we're doing … that I'm not a fan of. It's early days, and we'll see what happens.

In response to a question regarding the FTC's merger-review backlog, Commissioner Phillips stated the following:

What I will say is that we have deliberate and public policies right now of holding off on making decisions. So, for example, we adopted a policy, and … this was under Acting Chair Slaughter, when companies sought early termination … for deals that were non-problematic, that no one had an issue with, companies used to be able to come to the government and say, "Hey, you're not interested in this, can we just go ahead and do it?" And now we're saying, "No, you can't. You just have to wait. Not for any reason. Just because." That, to me, adds some needless friction to markets.

Another example, we announced a policy that in more cases we're going to be demanding of companies to give us prior approval rights for future mergers in our consents. And one thing I fear here is that this is just going to make doing consents harder. Resolving things ahead of time harder. 

Now I know a lot of people are worried that consents don't work well. And I know people don't want to say, "Yes," they don't want to say, "Yes, I'm ok with this merger." But the whole congressional scheme from 1976 forward depends upon the ability of the agencies to get things done. Sometimes we  sue… sometimes we go to court. But in order to bring those cases, we're going to have to resolve others. And I just worry that we are needlessly impeding our ability to do so.

Later in the discussion, Commissioner Phillips made a comment very much in line with a July 2021 Perspectives from FSF Scholars critical of calls to expand the focus of antitrust law beyond the relatively narrow "consumer welfare" standard that has prevailed for half a century.

In "Failure Everywhere? The Expansion of Goals for Antitrust," Timothy Brennan, Professor Emeritus, School of Public Policy, University of Maryland-Baltimore County (UMBC) and a member of the Free State Foundation's Board of Academic Advisors, argued that attempts to achieve too much through antitrust law in actuality are likely to produce the opposite result:

Expanding the range of goals to pursue with antitrust may end up not only doing a poor job protecting consumer welfare, but also will impede achieving the equity, employment, fairness, and other social objectives motivating the critics of traditional antitrust ….

In responding to moderator Tom Lenard's question whether the United States has a "serious and growing market power problem," Commissioner Phillips made a similar point:

What I do think … is a problem in some of the discussion that … everyone is having is that almost everything that people view as negative, either that a particular firm is doing, or that they see in society, let's say, the redistribution of wealth from labor to capital, they tag as a problem of market power. So: company does a bad thing, you will see infinite number of people on Twitter talk about how, if we had competition, we wouldn't have that. 

My question is, "Why? Why do we assume that's true?" If, in fact, the thing that we're seeing would not be the result of normal competition, there I think you have an argument. But there are times when bad things happen, and the cause of that is not a lack of competition. And so the solution of antitrust will not lead to better results….

And so one of the concerns that I have … about introducing all of these new features, especially ones that aren't naturally borne out by the competitive process, which is why we have regulation: to solve those externalities where the market won't. One of my concerns is, if you're trying to solve everything at once, you'll solve nothing at all.

New Report Highlights the Economic Impact of the "4G Decade"

If you're old enough to remember a time before cellphones, you likely have a general appreciation of the transformative role that mobile connectivity has played in American life. But have you ever tried to express that impact in economic terms? A July 29 study, prepared by CTIA — The Wireless Association and Recon Analytics, does just that. And the takeaways are impressive.

"The 4G Decade: Quantifying the Benefits," as its name suggests, details the impact of 4G wireless technology on investment, Gross Domestic Product (GDP), jobs, and consumer welfare during the ten-year period that began in 2010. One data point, in particular, drives home the overarching theme: based upon contributions to GDP ($690.5 billion in 2019 alone), were the U.S. wireless industry its own country, it would rank as the 21st largest economy in the world.

Some additional conclusions worth noting:

• Wireless providers invested $261 billion in 4G networks over the last ten years;
• During that same timeframe, wireless GDP grew by 253 percent — and was responsible for nearly 10 percent of the total increase in U.S. GDP;
• 4G networks support 20 million American jobs — one out of every six — making wireless the top industry in terms of job contribution; and
• Prices have dropped significantly, saving consumers $130 billion annually. The same unlimited plan that cost on average $114 in 2010 today can be purchased for just $65 — while speeds, coverage, and device capabilities all have improved substantially.

As noted by Roger Entner, Analyst and Founder of Recon Analytics, "[t]he trajectory of U.S. 4G development should serve as a guide to consider — and to enable — the full transformational power of the coming 5G decade."

On the topic of 5G's potential economic impact, James E. Prieger, Professor of Economics and Public Policy at the Pepperdine University School of Public Policy and a Member of the Free State Foundation's Board of Academic Advisors, recently weighed in. In a June 1 Perspectives from FSF Scholars, "An Economic Analysis of 5G Wireless Deployment: Impact on the U.S. and Local Economies," he concluded that:

8.5 million jobs will be created over 2019-2025 compared to a counterfactual 4G-only world, with an average of 1.2 million new jobs each year. The workers filling these new jobs will earn more than $560 billion during that time, create $1.7 trillion in additional output, and add over $900 billion to U.S. GDP.

Bill Maher Does Not Understand the Sharing Economy

In a segment during his most recent episode of HBO’s “Real Time with Bill Maher,” Bill Maher stated that the sharing economy is the result of Americans adapting to income inequality in a “greed is good world.” He also called the sharing economy the “desperate economy,” because as a millionaire himself, Bill Maher apparently thinks it is sad that people are so desperate for money that they would share their home or car. He finished the segment by saying: “The one thing we’re not sharing are the profits. Somehow they forgot to make an app for that.”

It is clear from this segment that Bill Maher does not understand how the sharing economy operates. He even called it a “barter economy” at one point.

The sharing economy incentivizes entrepreneurial activity. While “profit sharing” may not be the apt term to describe how the sharing economy makes people better off, workers in the sharing economy are contractors; therefore, they create their own work, display their own skills, and are compensated directly for their own services. Each worker is essentially operating his or her own business. The sharing economy empowers workers and consumers through the use of reputational feedback mechanisms and peer-to-peer transactions, so the profits are being spread among the millions of users every single day. (See this recent Perspectives from FSF Scholars for more on the importance of reputational feedback mechanisms.)

Bill Maher claimed that the sharing economy is increasing income inequality and that workers have no choice but to engage because of a stagnant labor market in the U.S. If this is true, it makes the sharing economy a solution for workers, not the problem Maher claimed it is. He even made the following misguided statement about Airbnb: “Do you really think anyone wants to have total strangers living in their apartment for a week?” Well, clearly some people do want this, considering that Airbnb has had over 1.5 million listings in 190 countries around the world. Maher never explained how he thinks the sharing economy is harming the poor or exacerbating income inequality. But I can tell you he is wrong.

In May 2015 Free State Foundation scholars submitted comments to the Federal Trade Commission regarding the sharing economy. In the comments, we discussed the results of a March 2015 paper entitled “Peer to Peer Rental Markets in the Sharing Economy,” which empirically found that, for a couple reasons, sharing economy markets have an even greater beneficial impact on low-income persons than high-income persons.

As we explain in our FTC comments, the sharing economy raises the standard of living for poor consumers by creating access to goods and services that they would not have otherwise:

Due to the accountability and transparency that many sharing applications provide about their users, the emergence of trust between individuals to share their goods and services has shifted consumer preferences from owning to renting. People who could not afford to own a house, car, or even a power saw can now more easily rent them from others and ultimately enjoy a higher standard of living than they would have otherwise. Additionally, people who would have owned a car or power saw in the past might now rent them instead, saving a significant portion of their income.

Of course, consumers with high-incomes gain from the sharing economy as well. But the savings accumulated from a shift in owning to renting is more valuable to consumers with lower incomes. In economic terms, this is the law of diminishing marginal returns. All else being equal, each dollar earned is valued less than the previous one.

We also explained how the sharing economy creates entrepreneurial opportunities for poor people that would not exist otherwise:

Similarly, low-income consumers who already own goods that can be rented out stand to gain more from these transactions than high-income consumers. The extra income from sharing a car with someone is much more valuable to a poor college student than it is to a wealthy professional. Airbnb, for example, makes traveling less expensive, not only because it provides competition – and often lower prices – to traditional hotels, but also because travelers can share their living space while away. In other words, as a result of the sharing economy, the same traveler on the same trip may realize economic benefits in his or her capacity as both a lessor and lessee.

If Bill Maher were to stop criticizing successful businesses, maybe he would be able to appreciate the real economic benefits that the sharing economy enables, especially the benefits it brings to low-income individuals. But the fact that Bill Maher thinks the sharing economy exacerbates income inequality makes it clear that he has no idea how the sharing economy actually operates – through reputational feedback mechanisms which enable bisymmetrical trust and enhance welfare between consumers and workers.

House Passed the Permanent Internet Tax Freedom Act

On Tuesday June 9^th, the House of Representatives voted to pass the Permanent Internet Tax Freedom Act (H.R. 235), which would permanently ban state and local taxes on Internet access. (See this blog.)

Now, it is up to the Senate to pass its version of the bill, the Internet Tax Freedom Forever Act (S. 431). The House passed the Permanent Internet Tax Freedom Act last summer when the temporary ban on Internet access taxes was about to expire but the Senate failed to pass its bill. Hopefully with the help of some new Senators, this summer’s Congressional session will be different.

The temporary ban is set to expire on October 1, 2015.  Therefore, I urge the Senate to pass the Internet Tax Freedom Forever Act as soon as possible so all Americans can access an affordable Internet. 

House Scheduled to Vote on the Permanent Internet Tax Freedom Act

This week the House of Representatives is scheduled to vote on the Permanent Internet Tax Act (HR 235), which would ban state and local taxes on Internet access.

The current ban on Internet access taxes has been extended many times since it originated in 1998 (and is set to expire once again on October 1, 2015). But if this legislation passes, the ban would become permanent and discriminatory taxes on e-commerce would also be prohibited, according to this article in The Hill.

It is very important for consumers and Internet Service Providers that the House pass this legislation. Taxes imposed on any good or service raise the price, resulting in a decrease in the quantity demanded from consumers. Whether taxes are shifted on consumers or businesses, the elasticity of demand and supply allows for both sides of the market to inherit the burden, ultimately leading to less economic activity and growth.

Taxes on Internet access would be particularly regressive because it is often the poorest people that do not connect to the Internet. A tax on Internet access could push the price of broadband beyond many of the poorest consumers’ willingness to pay.  Even if a person had not adopted broadband service prior to the tax being levied, the increase in price would make that person less likely to adopt. Raising the price of an Internet access would be counterproductive to the many government programs that aim to connect America’s poorest individuals.

I commend Judiciary Committee Chairman Bob Goodlatte for introducing the Permanent Internet Tax Freedom Act and I urge the House to pass it.

Study Finds Low-Income Persons Gain Most from 'Sharing Economy' Markets

I have written several follow-up blogs to a Perspectives from FSF Scholars entitled “The Sharing Economy: A Positive Shared Vision for the Future,” which was published last year. These pieces have referred to the welfare gains consumers have experienced in the new “sharing economy.” Many new companies employing Internet-based applications, such as Airbnb and Uber, have emerged to provide competition to traditional business models and subsequently pushed down prices in their respective markets.

In the Perspectives from FSF Scholars entitled “The Sharing Economy: A Positive Shared Vision for the Future,” Randolph May and I stated the following:

These new online applications facilitate the exchange of goods and services in a way which easily enables a range of peer-to-peer connections and which reduces transaction costs. Individuals have always been able to sell or borrow goods and services through yard sales and community markets, but the Internet has changed the process with a faster, easy-to-use information exchange. For over a decade now, companies like E-bay and Craigslist have used the Internet to lower the transaction costs of modern commerce. But more recently, an influx of new companies and Internet-based applications has emerged enabling individuals to more easily “share” their underutilized things, including, for example, their homes, apartments, and cars.

In a newly-published March 2015 scholarly paper entitled “Peer-to-Peer Rental Markets in the Sharing Economy,” New York University professors Samuel Fraiberger and Arun Sundararajan empirically tested how rental markets within the “sharing economy” are impacting consumers. Professors Fraiberger and Sundararajan found, with statistical significance, that the benefits of “sharing economy” markets have a greater impact on low-income persons than high-income persons.

The new study states:

We highlight this finding because it speaks to what may eventually be the true promise of the sharing economy, as a force that democratizes access to a higher standard of living. Ownership is a more significant barrier to consumption when your income or wealth is lower, and peer-to-peer rental marketplaces can facilitate inclusive and higher quality consumption, empowering ownership enabled by revenues generated from marketplace supply, and facilitating a more even distribution of consumer value.

The explanation of the results is quite simple. Due to the accountability and transparency that many sharing applications provide about their users, the emergence of trust between individuals to share their goods and services has shifted consumer preferences from owning to renting. People who could not afford to own a house, car, or even a power saw can now more easily rent them from others and ultimately enjoy a higher standard of living than they would have otherwise. Additionally, people who would have owned a car or power saw in the past might now rent them instead, saving a significant portion of their income.

Of course, high-income people gain from the sharing economy as well. But the savings accumulated from a shift in owning to renting is more valuable to people with low incomes than to people with high incomes. In economic terms, this is the law of diminishing marginal returns. All else equal, each dollar earned is valued less than the previous one.

Similarly, low-income people, who already own goods that can be rented out, stand to gain more from these transactions than high-income people. The extra income from sharing a car with someone is much more valuable to a poor college student than it is to a wealthy professional. As I have written before, Airbnb, for example, makes traveling less expensive, not only because it provides competition – and often lower prices – to traditional hotels, but also because travelers can share their living space while away. (See here.) In other words, as a result of the sharing economy, the same traveler on the same trip may realize economic benefits in his or her capacity as both a lessor and lessee.

The emergence of the “sharing economy” has provided large welfare gains to the economy as a whole. Consumers have additional, and often less expensive, options in everyday markets, and entrepreneurial activity has been created by ordinary people because Internet-enabled applications have vastly lowered the barriers to market entry.  

Professors Fraiberger and Sundararajan’s paper is significant in its use of empirical data to conclude that access to peer-to-peer rental markets has the effect of increasing savings for renters and increasing incomes for suppliers. While this economic effect of the “sharing economy” is beneficial to all market participants, it proves most valuable to low-income persons. The paper makes for an interesting read as well as a scholarly contribution to the limited academic literature regarding the new “sharing economy.”