Competition
Project
On May 12, 2009, Christine Varney, newly-named Assistant Attorney General
for Antitrust, announced a
change in the Division’s approach to Section 2 of the Sherman Act, which
deals with monopolization.
She withdrew the Division’s report on Competition
and Monopoly: Single-Firm Conduct Under Section 2 of the Sherman Act (Sept.
2008), and promised reinvigorated Section 2 enforcement “[that] will .
. . require the Division to go ‘back to the basics’ and evaluate
single-firm conduct against these tried and true standards that set forth clear
limitations on how monopoly firms are permitted to behave.”
The behavior of large firms with strong market positions that provide important
platforms for the products of other firms raises important and difficult questions,
not just for competition policy, but for intellectual property protection, innovation,
and other areas of analysis. The issues cannot be viewed in the context of competition
policy alone.
CLI staff members have written often one or another facet of the dominant
firm/platform company phenomenon. Because conventional antitrust analysis provides
an incomplete framework for analysis, our work takes a more expansive perspective.
It emphasizes:
- The importance of a dynamic analysis that deals with competition, investment,
and innovation over time;
- The distinction between relations of dominant firms with customers and relations
with rivals; the two present different sets of issues, and most analysis fails
to make the distinction.
Varney’s action has caused considerable concern in business circles.
CLI’s current work focuses on analyzing both the withdrawn Report and the
cases discussed favorably by Varney, in an effort to develop some middle ground.
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Pharmaceutical Project
Bill
Frezza of Adams Capital Management noted recently:
Politically, Big Pharma is at the mercy of all three branches of an increasing
hostile government. The executive branch, through its regulatory agencies, has
raised the cost of product development to astronomical heights. The judicial
branch, through its class action machinery, has made the penalty for delivering
anything short of zero-defects untenable. And the legislative branch, on its
way to becoming the industry’s monopsony purchasing agent, is hell bent
to drive prices down to the marginal cost of production.
He did not mention the international scene, where Pharma is also under a series
of attacks designed to undermine its ability to produce life-saving and -enhancing
innovations. He also omitted Congressional efforts to drive drug prices down
to marginal cost through excessive dilution of intellectual property rights.
CLI is involved in two of these issues: Appropriate protection for intellectual
property and preemption of state tort liabilities.
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News Project
The news business is in turmoil. The Internet is taking over the advertising
that provided newspapers with 80% of their revenue, and is allowing virtually
unlimited access to the wire service news reports that used to be the exclusive
property of each local paper.
Many newspapers are shutting down or becoming on-line only, and it is possible
that some iconic nameplates will disappear.
A significant part of this crisis of the news business is the loss of intellectual
property rights. Pre-Internet, the newspapers’ IP was protected by the
physical impossibility of stealing their work. Now, those who bear the cost of
collecting the news have lost the ability to monetize their efforts. They can
neither charge for the product directly nor capture sufficient associated advertising
revenues. Too many people can free ride on their effort without sharing in the
production costs.
Proposals that news collection be supported by foundations or even government
grants are made, but these approaches would be inconsistent with our dedication
to a free press as a vital ingredient of democracy.
CLI believes that who are devoted to a free press and those who believe in
the efficacy of the institution of property rights need to cooperate to develop
property-rights-based rules for news organizations that will provide a sound
economic basis.
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Software Project
For almost a decade, CLI staff members have been involved in the debate/discussion/conflict
over proprietary versus open source software.
During the past few years, peace seemed have broken out, as most software
professionals agreed that each method of production has its pluses and minuses,
and that ample room exists for both, depending on the circumstances. Customers
have also made clear that they see a need for both kinds of products, and that
they do not want squabbling among the vendors to expose them (the customers)
to risks and inconvenience.
Recently, however, the conflict has arisen again in the context of the Open
Government Initiative.. Some arguing that open government equates to open source.
CLI is preparing a report reviewing the issues, pointing out the relative
advantages of each form, and the advantages to the government and society of
embracing both.
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Telecommunications
Project
Telecommunications, including the Internet, is a complex, adaptive, dynamic,
iterative, evolutionary system. No such system should be subjected to command-and-control
regulations directed toward pre-determined ends. Such mechanisms will stifle
innovation and investment, and lead to stagnation.
Current intellectual constructions used in public discussions of how this
system should be controlled are inadequate, oscillating between the extremes
of "the unregulated free market" and "administrative regulation
in the public interest."
CLI is examining this question of how to develop a sensible intermediate approach
to government interaction with the telecom world, an approach that recognizes
the system’s special characteristics, and is assessing the ability of proposed
institutional structures to achieve this goal.
Does anyone really believe that process-laden, lawyer-intensive, notice-and-comment-heavy,
full-bore Administrative Procedure Act institutions are optimal tools for regulating
the Internet? What are the alternatives? What can be learned from principles
of common law common carriage, from the consultation process of the U.K. Office
of Communications (Ofcom), from U.S. experience with regulatory negotiation (RegNeg),
from academic analysis of networks and complex adaptive systems, and from history?
(Many issues of current concern were encountered in the railroad boom of the
late 19th Century, and the work of the regulators and business executives of
that era has not gotten the respect that it deserves.)
We suspect that the long-term solution lies in self-regulatory institutions
created by contract, operating with government oversight but not detailed regulation.
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China Project
Both the U.S. and China are concerned with promoting prosperity and economic
growth and with maintaining just and efficient governments. Both face serious
challenges: dealing with the consequences of the financial crisis; building and
upgrading infrastructure; coping with the impact of demographic change; reacting
to globalization. Meeting these challenges will strain the economic and political
institutions of each nation.
Most U.S. commentary comparing the two nations simply assumes that China needs
to become more like America. This assumption is foolish. Serious thinkers in
the United States are concerned about the condition of the United States as a
polity, and perceive a need for institutional renewal and reform. At a macro
level, this requires attention to major political institutions. At a micro level,
it dictates modesty in advising China to use U.S. systems as models. For example,
should China want to import U.S. structures of antitrust law, or telecommunications
regulation, or tort liability, or drug review? Is the U.S, moving in the right
direction in its increasing disregard of property rights?
China can benefit from studying U.S. institutions, but the lessons will be
negative as well as positive. The analysis will warn China about what to avoid
as well as what to emulate. Learning from one’s mistakes is good, but learning
from the mistakes of others is even better. The United States can also learn
from this process, because a critic is often the best friend.
CLI wants to promote creative cross-fertilization on both economic and political
issues, starting with areas with which we are most familiar: competition
policy; telecommunications; property rights, including intellectual property;
administrative law.
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