From the Classroom: Antitrust Law and Tech Giants

Congress and U.S. courts first shaped our antitrust laws during the era of John D. Rockefeller, J.P. Morgan, and James B. Duke. Many (Standard Oil, American Tobacco) but not all (U.S. Steel) of their enterprises (often comprised at the time as “trusts”) were at least partially dismantled by the courts. However, for a long period following the age of these famous titans of American industry, important antitrust cases typically fought-out technical legal and economic issues such as “incipiency” and “forcing” in the context of the rather bland, faceless corporations of post-World-II America. (Quick, can anyone name the President of Von’s Grocery at the time of the 1966 decision against that retailer?) But is the U.S. antitrust landscape twisting back to its roots? The most famous antitrust case of the last generation was U.S. vs. Microsoft. It is doubtful that many economics students would not be able to associate the names Microsoft and Bill Gates.

Thus, in a course such as FSU’s Economics course ECP3404 (Business Organization and Market Structure) students must wade through the weeds of the economics of antitrust cases against the likes of Von’s Grocery, Alcoa, and Kodak tied film processing. But our current students also emerge as a generation which much once again (as in the turn of the 20th century) contend with larger-than-life cultural icons such as Facebook (and Mark Zuckerberg), Amazon (and Jeff Bezos), and Google/Alphabet (and Larry Page and Sergey Brin).

In the Fall of 2017, I was preparing to teach for the first time an honors section of ECP3403. The first two-thirds of the course consists of the basic economic concepts of competition, oligopoly, and monopoly plus the foundations of basic economic models that inform U.S. antitrust policy. The last third of the course addresses how these foundations either should be or don’t have to be re-evaluated in the information/digital economy. (For example, did you know that a precursor to the fortune made by Bill Gates in his brilliant structuring of the contracts for DOS was Desi Arnaz and his negotiations with CBS over what became I Love Lucy?)

I was searching for an appropriate final project that would challenge honors students. I came up with the idea of asking each student to write both a government and a defense brief on the economic arguments relating to potential antitrust action against either Facebook, Amazon, or Google/Alphabet (students were assigned to one of the firms by a random number generator). Little did I know in 2017 how much questions about potential antitrust action against the so-called “tech giants” would become consistent front-page news by time the course rolled around in the Spring of 2018. And, as should not be surprising, given the caliber of honors students at FSU, the students did an excellent job on their essays.

As examples of the digging and analyzing that my students did, consider the following. In their briefs for the government, many students examined the effects recent merger activity (e.g. Amazon and Whole Foods), or they derived models and evidence that could support charges of exclusionary conduct. The concept of “network externalities” is important in the digital economy, and paradoxically it can be used in the cases either for the government or for the firm. (“Network externalities” refer to the idea that customers value an information platform more if there are more other users….think of how VHS eventually supplanted Beta as the dominant home videotape platform, or alternatively the evolutionary path of Facebook and Myspace.) The students also examined the cluster of arguments that go by the so-called “rule of reason,” in their arguments for the defense. The basis for the “rule of reason” is that the courts are sympathetic to the idea that it is not “being” a monopolist that makes a firm per se an illegal entity. Instead, the courts look for active measures of a firm attempting to drive out other actual potential competitors.

One of the most satisfying parts of the assignment was that I challenged the students to write both a government and a defense memo that were so balanced in their arguments that I could not tell which side they personally favored. Virtually all of the students succeeded in doing so.


Dr. Mark Isaac is the Quinn Eminent Scholar Professor and Chair of the Department of Economics.

 

 


The feature image is from CBS.

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