President Biden's recent Executive Order announced a government-wide effort to fight overconcentration, monopolization, and unfair competition. To unpack the implications of this Order, Vega's Director of Business Development, Alison Palo, interviews expert Professor Daniel Spulber from Northwestern University, who shares his insights about what businesses should be thinking about in light of this Order and how economic analysis can help evaluate its implications.
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Alison Palo: Hi! Thank you so much for joining us today. My name is Alison Palo. I'm the Director of Business Development at Vega Economics and our guest today is Daniel Spulber, a Professor at the Kellogg School of Management at Northwestern University. He's a seasoned testifying expert and has expertise in the areas of antitrust, platforms and two-sided markets, technology and innovation, and intellectual property. Today, he's going to be giving us some of his insights on the recent Executive Order on antitrust. Let's jump right into it.
Alison Palo: Professor Spulber, can you give us some of your initial reactions to the Executive Order?
Prof. Spulber: Thanks very much, Alison. It's great to talk with you today. Yes, I would like to talk with you a little bit about the White House Executive Order on promoting competition in the American economy. The Order is a very important and interesting one. The Order concerns a number of things. It talks about excessive concentration in industry, abuses of market power, and the potential harmful effects of monopoly and monopsony. The Order includes a wide scope of parts of the economy, labor markets, agricultural markets, internet platform industries, healthcare markets— the full gamut— insurance, hospitals, prescription drugs, and so on, even repair markets, and finally, U.S. markets that are affected by international trade. The Order addresses a number of things with somewhat greater depth. Digital platforms and the issue of whether or not internet platforms could exclude entrants or exploit personal data and how they might use that information. The Order also encourages the Chair of the Federal Communications Commission to re-adopt net neutrality rules. Looking at across the economy, the Order says that it asserts as U.S. policy that the answer to the rising power of foreign monopolies and cartels is not the tolerance of domestic monopolization, but rather the promotion of competition and innovation by firms small and large, at home, and worldwide. So, this is an important Order it has a broad sweep and I think it it's worthy of thinking about what it might entail for the future.
Alison Palo: Great. What are some of the implications of a whole-of-government approach?
Prof. Spulber: Well, this is very important. I think it shouldn't be overlooked. The notion of the whole-of-government approach is that the antitrust agencies— and here we're thinking of the antitrust division of the DOJ and the Federal Trade Commission— should be supplemented by activity at the regulatory agencies. So for example, regulatory agencies such as the Federal Communications Commission, the Department of Agriculture, and so on. The idea is that antitrust activity goes a little bit beyond its traditional boundaries and is supplemented by activities of other agencies and in fact coordination across agencies. I think that's quite important. It means that there's a whole-of-government approach to address such things as market concentration, monopolization, unfair competition, and so on, as well as other activities which may or may not be viewed as part of traditional antitrust such as net neutrality rule making and other activities at the Federal Communications Commission that I had mentioned before. What this means for antitrust, and for businesses in particular, is that it will require companies to think a little bit outside the box and understand that there may be antitrust concerns (and antitrust scrutiny of activities) but that these may go hand in hand with regulatory activities on the part of the regulatory agencies. This means that we need to know a lot more about the economic implications of potential changes in economic policy, as well as antitrust policy.
Alison Palo: Is there anything specific businesses should be thinking about in light of these new measures?
Prof. Spulber: Yes, there are many things. I think it really depends on what industry you're operating in, and what agencies you typically interact with, and what particular aspects of technology that you're dealing with in your industry. Overall, I would say to businesses that the antitrust landscape may be changing a little bit as indicated by this Executive Order. I think that we can help businesses cope with these changes, help them understand them better, and see what changes might lie ahead. I think we can, for example, help industry with a better understanding of the antitrust intellectual property interface. I'm talking about patents, but I'm also talking about copyrights, trademarks, and even trade secrets, as part of this overall landscape. The Order says that they want to help ensure that the intellectual property system while incentivizing innovation—that's very important—does not also unnecessarily reduce competition in these and other input markets beyond that which was reasonably contemplated by the Patent Act. The antitrust intellectual property relationship has always been in a state of flux and it's very important to see that those two sides are complementary. In other words, protection of competition may also mean protection of intellectual property and at the same time, protection of intellectual property may help protect incentives for competition. The reason for this is that innovation has become more and more a part of competition and the statement does recognize that it mentions innovation at various points. But today, all industries are to one extent or another engaged in innovation. And so it's very important for business leaders to understand that there will be some intellectual property implications of this Executive Order on competition.
Prof. Spulber: Another thing to think about is a renewed focus on mergers. Mergers have always been an area of interest for antitrust and today there's a little bit of a change in focus taking into account not just horizontal concentration or vertical restraints, but also the effects of how a merger may change the innovation of the firm that's being acquired (or the acquiring firm) will it increase incentives to innovate or decrease incentives for innovation. There's a greater recognition that mergers may have an impact beyond simply affecting short-term prices. The prices continue to be very important, but now innovation is on stage and sharing in that importance.
Prof. Spulber: Another important thing that I would highlight is that there's increased emphasis on platforms. Certainly, it's in the news and the congress has weighed in on platforms. This Executive Order, although it mentions platforms briefly, it's becoming more and more important. It's part of antitrust today and the focus of antitrust is increasingly on platform industries, and so it's very important to understand how digital industries are affected by mergers and acquisitions, increased importance of artificial intelligence, use of data and competition, and just concentration in the digital marketplace.
Prof. Spulber: Another thing I'd like to point out there is that it mentions, very briefly, but it its important not to miss it, it mentions 5G. It says that we need to "promote or encourage a fair and representative standard setting process and undertaking any other measures that might promote increased openness innovation again and competition in markets for 5G equipment." So technology standards have become more important, they affect competition, they infect incentives for innovation, and here we see technology standards appearing in an Order about antitrust. So, I think it's important that every industry is affected by technology standards, it's not just 5G, it's every industry. It's important for industries to be aware that there may be antitrust aspects of a standard setting.
Alison Palo: Finally, I was curious how can economic analysis be helpful for companies in light of this executive order.
Prof. Spulber: Well, I think that first of all, we can be very helpful to companies and understanding what this Executive Order might mean for them. And for me that would mean working with Vega Economics and drawing on the strength and experience and skills of the Vega Economics staff, and using their considerable experience and knowledge we would do things like review the necessary documents, gather data, form economic models, and perform empirical analysis to test hypothesis and understand those models better. I think economics does best when it helps attorneys and business leaders better understand market institutions. In other words, how do markets work? Are there posted prices? Is there negotiation? What kinds of contracts are formed? What kinds of agreements? Who are the buyers and sellers, and what do they typically do? And economics can be helpful in understanding “What is the nature of competition in a particular industry?” to help describe that for decision makers and finders of fact. I think that I bring considerable expertise in helping to describe and understand business institutions. I think economics can be helpful to understand better what is intellectual property? What is the role of intellectual property for managers as they survey the intellectual property of the firm? It's more important than ever because of the open innovation that we see in the marketplace where companies are interacting to produce innovations. I think that the whole-of-government approach in the Order that I mentioned to you a moment ago means that economics is more important and useful than ever before. Why? Because all kinds of parts of the economy are being brought in here. So, for example, agriculture or telecommunications, or standard setting in a variety of industries. Economic analysis can be useful in understanding the economic implications of both regulation and antitrust. Now I have extensive experience working in many different industries with all kinds of regulatory agencies, the Federal Communications Commission, the International Trade Commission, the USPTO, and so on. And I think that it may be useful when approaching antitrust today to at least have some background in a variety of industries and to bring that experience to bear in understanding what the main issues are. So this Executive Order makes clear the need for broader understanding of the economy when addressing antitrust.
Alison Palo: Sounds great. Well Professor Spulber, thank you so much for your insights. This was very helpful, and we look forward to hearing more from you! Thank you for everybody that joined.
Prof Spulber: Thank you very much, Alison. It's been a pleasure talking to you today. Thank you so much.
Alison Palo: Thank you.