Where Consumer is King
Today the Federal Trade Commission and the Department of Justice held joint hearings to help determine what forms of "single firm conduct" should be outlawed under Section 2 of the Sherman Act, the catch-all "attempted monopolization" clause. Below I have reproduced portions of FTC Chairman Deborah Platt Majoras's opening remarks. I am withholding comment at this time, because I am more interested in hearing what readers of this blog think. (A PDF version of Majoras' unedited remarks can be found here.)
At the start of any new endeavor, it is important to reflect on why we are undertaking it. Beginning in 1990, the McKinsey Global Institute, lead by founding director, William W. Lewis, undertook a twelve-year study of the economic performance of thirteen nations, seeking to understand globalization and, more fundamentally, the disparities between rich and poor. The study showed that levels of productivity made the difference between rich and poor nations. What, though, made the difference in levels of productivity? The answer, they found, was undistorted competition in product markets. In his book in which he reports the results of the study, Mr. Lewis says, “Most economic analysis ends up attributing most of the differences in economic performance to differences in labor and capital markets. This conclusion is incorrect. Differences in competition in product markets are much more important.�McKinsey also asked why the highly productive United States has higher competitive intensity than other nations. Mr. Lewis sums up the answer by saying that, in the United States, “Consumer is king.� More specifically, “[t]he United States adopted the view that the purpose of an economy was to serve consumers much earlier than any other society,� and we continue to “hold this view more strongly than almost any other place.� He concludes that, in fact, “Consumers are the only political force that can stand up to producer interest, big government, and the technocratic, political, business, and intellectual.�
This is why we are here. The FTC and the Antitrust Division have the responsibility to ensure that competition in U.S. markets is free of distortion and that consumers are protected not from markets but through markets unburdened by anticompetitive conduct and government-imposed restrictions. This work is critical, indeed central, to the well-being of the American people. Over the past few decades, the United States has substantially deregulated critical industries, including transportation, telecommunication, and energy, to the substantial benefit of the U.S. economy. As government regulators give way to free markets, much of the responsibility for protecting competition shifts to competition agencies and courts. While competition is distorted when governments regulate or intervene excessively, it also is true that private actors can and do distort competition.
Breaking up cartels, preventing mergers that will substantially reduce competition, and halting conduct that goes beyond aggressive competition to distorting competition is vital to promoting vigorous competition and maximizing consumer welfare. We have developed a great deal of consensus regarding appropriate antitrust policy as it relates to cartels, mergers, and other horizontal conduct, as a result of which our enforcement has become more transparent and predictable, making it easier for market participants to make decisions.
Unilateral or “single-firm� conduct, however, still vexes. Even though we can find some respectable measure of consensus around principles that should apply, we find a range of opinions from knowledgeable people about how to apply those principles to enforcement in the market. The question of the proper test that our agencies should apply to conduct of a single firm with market power now has dominated antitrust debate for several years.
We are not alone. Across the globe over the past quarter century, economic systems in which the state owns firms and central planners set prices and levels of output have given way to market competition, where the forces of supply and demand determine prices and allocate resources. U.S. government officials and private citizens have worked hard to promote the economic and political benefits of free markets throughout the world. With attempts to introduce market economies have come new competition authorities, today numbering 100, when only 15 year ago, there were less than two dozen. Even countries that for decades have had nearly total state control over their economies, such as China, are now dedicating substantial resources to drafting competition laws and establishing competition agencies.
[ . . . ]
Competition issues related to single-firm behavior likely will continue to implicate a substantial volume of commerce. A thorough examination of the application of the U.S. antitrust laws and economic theory to real-world single-firm conduct not only should advance the ball in the United States, but also will aid U.S. efforts to promote cooperation and convergence among competition authorities throughout the world. We have much to work with. Already, a number of experienced experts have proposed the adoption of a single test for evaluating nearly all types of potentially exclusionary conduct. Some argue for a test that focuses on the impact of the conduct on consumer welfare. Others support analyzing whether the conduct involves the short-term sacrifice of profit. Others support a “no economic sense� test, which asks whether the cost of engaging in the exclusionary conduct makes sense only because the conduct serves to eliminate competition. Judge Posner has written that the inquiry should focus on whether the conduct excludes equally efficient rivals. Still other practitioners and scholars oppose the adoption of a single unilateral conduct test, and instead favor consideration of different tests for particular types of potentially exclusionary conduct.
[ . . . ]
First, the only type of unilateral conduct that should implicate the antitrust laws is conduct that produces durable harm to competition, leading to higher prices, reduced output, lower quality, or lower rates of innovation. As much as we may value the success of particular companies, the health of such companies by itself is not the concern of the antitrust laws. To think otherwise, and focus the inquiry on harm to competitors, is not only bad and discredited economics, but would introduce an element of subjectivity into the antitrust laws that would significantly undermine their effectiveness across the board.
Second, there is consensus that antitrust standards that govern unilateral conduct must not deter competition, efficiency, or innovation. This is why we frequently worry about “false positives.� Pervasive and aggressive competition, in which firms consistently try to better each other by providing higher quality goods and services at lower costs, is crucial to maximizing consumer welfare and economic growth. Thus, the antitrust laws should never condemn market power that is obtained through the development of superior products and services, regardless of how many competitors are driven from the market or whether it produces a monopoly.
[ . . . ]
At bottom, we must remember that antitrust is the means, not the end. Rather, the end is undistorted competition, driven by “King and Queen Consumer.� The challenge is to keep the competition undistorted, without distorting it ourselves in the process.
Comments (19)
Lisa Casanova
My main thought: where do I go to get so wise that I can intervene in every market just the right way to keep it running in smooth, flawless competition all the time? I don't see how human beings could do something that complex, but I'm just a dumb grad student.
Published: June 20, 2006 8:39 PM
uwe kluba
it would be nice if the ftc would act in the way above described. the recent history shows otherwise.
Published: June 20, 2006 8:48 PM
sdhawgman
Now I know that GOD is a WOMAN...Deborah Platt Majoras's wants to choose WHICH Companies that possess superior innovations should succeed as evidenced by the following statement in reference to single-firm behavior ..." As much as we may value the success of particular companies, the health of such companies by itself is not the concern of the antitrust laws.
Someone tell Deborah that antitrust laws are not organic material with a pulse. Laws are incapable of CONCERN. But Cartels with the ability to grease the palms of the FTC HAVE CONCERN about innovators such as Rambus that develop disruptive technology. I'm sure we can find CONCERN in emails between Micron, Hynix and Samsung as they were plotting to "Fix Prices" in an attempt to destroy Rambus.
Deborah likes to talk out of both sides of her mouth. She say the following: "This is why we are here. The FTC and the Antitrust Division have the responsibility to ensure that competition in U.S. markets is free of distortion and that consumers are protected not from markets but through markets unburdened by anticompetitive conduct and government-imposed restrictions."
So Debbie wants FREE MARKETS but also wants to restrict them at her discretion....All in the name of the CONSUMER. How Heroic! I guess Steve Appleton the CEO of Micron can be considered a consumer. He urged the FTC to try and destroy Rambus with anti-competitive behavior.
My final words "The FTC is a DISCRACE".
sdhawgman
Published: June 20, 2006 9:21 PM
infringeon2003
Ms. Majoras is not defining what kinds of "conduct" she is opposed to.
However, it is clear to me that she is directly targeting intellectual property firms such as Rambus and Qualcomm who make their money off the licensing of intellectual property.
What other types of firms have the power to affect competition as much as such a firm?
Apparently, conglmerate corporation are not on her list. Just the small companies with revolutionary patents which can be most efficiently produced by the existing manufacturers
due to the cost of the production facillities.
The FTC is acting like the protector of cartel
and conglomerates at the expense of inovation and creativity.
The revolving door between industry and the FTC needs to be closed to prevent its further corruption.
Published: June 20, 2006 9:42 PM
M E Hoffer
"The FTC is acting like the protector of cartel
and conglomerates at the expense of inovation and creativity."
They are truly their Master's keeper.
And, the rest of the alphabet-soup agancies follow, in lockstep, the same prescribed proscriptions.
Published: June 20, 2006 9:48 PM
M E Hoffer
sweet spelling: agencies
Published: June 20, 2006 9:49 PM
James Rutowski
... We have developed a great deal of consensus regarding appropriate antitrust policy as it relates to cartels, mergers, and other horizontal conduct, as a result of which our enforcement has become more transparent and predictable, making it easier for market participants to make decisions......
Now that they have developed some concensus on what took place, how about doing something about the anti-competitive behavior that was furthered along by Micron and company and ultimately by the FTC!
Published: June 20, 2006 10:19 PM
Winocaroad
"The challenge is to keep the competition undistorted, without distorting it ourselves in the process."
At the behest of what are now admitted cartelist, the FTC conducted the most expensive prosecution (persecution?) in their history. Their Chief Administrative Law Judge conducted a trail that totally exonerated Rambus with over 1500 findings of fact overwhelmingly in their favor.
If the FTC truly believes in "undistorted competition" they would bring this charade to a close. It has languished for over two years since the ALJ's Initial Decision.
Commissioner Majoras why is this taking so long? When will you remove the boot from the back of Rambus' neck? It is now patently obvious (pun intended) that the cartelists used the FTC to try to destroy a small company with superior technology. If that technology had not been subverted, we all would have benefited from the increased productivity that could have come from that technology.
What is even more galling is that these cartelists used bits and pieces of Rambus’ own technology to try to destroy them. They did this by price fixing and collusion, the very things you profess to detest.
Please end this farce!
Published: June 20, 2006 11:41 PM
Bill Private Property Owner
Translate: The FTC can do what ever it wants with others property provided they can come up with some damage to some consumer. I translate the FTCs comments as Private Property is unimportant relative to our definition of competition.
The sad part is that the FTC could not be more WRONG. The more respect for private property rights the more competition. The real truth is that ONLY force can eliminate competition.
Published: June 21, 2006 12:12 AM
cynical
The FTC should be eliminated right now... right now.
Published: June 21, 2006 12:16 AM
jstudhawk
The FTC is another part of the American goverment that still uses the disguise of "fairness" and holds Rambus hostage for years while they fiddle around. Now that they have backed the wrong horse in this race they should withdraw gracefully and admit they were wrong. They spent more "taxpayers" money then any other case in the FTC's history only to prove they were WRONG! MOVE ON!
Published: June 21, 2006 3:36 AM
yourdeadmeat69
The FTC is the Federal TRADE Commission, not the Federal "protect the patent organization", and the insane concept of single firm monopolies is a blind for targeting those small innovative firms that invent the better mousetrap, pure and simple. The should be talking Microsoft, not firms like RMBS--but the FTC's job is to side with the largest industry that has the most employees, not the small firms that innovate, create a product or solution to a problem, and charge a royalty. Innovation companies with intellectual process that charge a royalty, like RMBS for example, are at best an annoying cost of business-a nuisance that increases final price to the consumer, who is hid behind in the phrase "the consumer is king" in order to justify the wholesale theft of ideas that is the open and notorious FTC standard.
That's why it is ok for end product manufacturers to collude, steal, or workaround, in concert, against anti-trust laws, to overcome such nuisances. This is the rationale that binds the FTC to those industries, in concert openly, or by policy. That's why large firm lawyers can claim no patent has validity unless proven in courts--the Patent Office becomes a shopping cart filled with potential freebies unless the creative genius that created the patent is willing to pay legal fees and undertake decades of mind numbing costly litigation.
This is why openly in court the justification of such cartel behavior is in the thought process "we make something is more important than you inventing something" the age old argument that practical realities are more important than innovative ideas, and that such innovation is a nuisance without worth or protection.
The fact that such innovation is NOT protected will dry up such industry is never brought up, since innovators will continue to believe the hollow protections of the Patent system, and continue to innovate. What else can they do? Work in factories filled with masses yearning to build to print?
If this seems utterly bizarre, remember your grade school dogfights and heirarchical rules of behavior. Only this time make believe all the F to D+ students got together and beat the crap out of the A students after class, as usual. but-- This time, instead of the authorities coming to the rescue, the 40% have the blessing of the administration who watchdogs their behaviour because there are more of them (40%) and the audiance that gathers to watch these beatings (the "customer") happens to have a small vested interest in this circus
Using policy, the FTC clearly targets all industries that simply come up with better mousetraps in favor of massive build to print organizations, huge factories that create the output devices. These are the engines of commerce. These are the multitudes of zugs to be protected against these evil brains.
To counter, in court the presumption goes to the patent holders, and truth justice and the American way has to take a decade to prevail, if judges are honest, over these bullies who clearly have advocacy in the form of the FTC.
The last time a group got screwed over like this is reminicent of what happened at the end of the Civil War when returning vets, guarenteed land and a stake, were denied same.
They took to the streets of DC and used thier military skills to riot and take DC apart.
Certainly I am not advocating violence, but you get the drift of how far, in this internet age, it takes folks to get the message that if screwed over consistently and persistently by a system wholesale in the business of screwing the little guy and beating up the nerds can take your thinking.
There is no such thing as a one firm monopoly, and if there were, it has to be because they created a product that nobody else has. Certainly, like Microsoft, ubiqutous and overarching everything we do, that bears scrutiny.
But to openly squelch innovation so that Bill Gates never happens again? Sorry, but Gates recent behavior, in which he touts giving full time to carrying out the disposition of his billions to charity, speaks volumes for the individual entrepreneur who comes up with the better mousetrap.
The house of intellectual ideas will always be at the mercy of the factory employers whose jealousy goes back to the schoolyard. And they have an advocate, the FTC, which smiles and permits the carnage under the guise of protecting the consumer who watches laughs and yawns.
This IS the system.
Published: June 21, 2006 4:50 AM
JA
The FTC is a politically driven agency representing the supporters of congresspersons and senators. The agency looks the other way when memory manufacturers steal intellectual property from Rambus, but instead choose to persecute the victim of the theft--Rambus.
The agency is also trying to extend its statutory powers beyond those granted by Congress. There needs to be a strong watchdog of the FTC.
Published: June 21, 2006 7:03 AM
otter6
interesting. On a global scale, there does seem to be a growing attitude that says "whats yours SHALL be shared with me", ie a form of wealth transfer. In the end, this will lead to more and more "policies" that advocate demonizing some of the current practices such as the patent laws that give the patent holder the right to benefit, and maybe to a bigger degree, maybe lead to policies/laws that dictate how "much" benefit he/she is allowed to get from their innovation/effort. So maybe, this is the angle from which the FTC cometh...
I tend to believe that given the FTC's stated desired remedies in a particular litigation effort that is being dragged out by the FTC long after its ALJ has ruled, I would venture a guess the FTC's efforts are focused on finding out a way to give them the power to limit the patent holders benefits.
So with that as a backdrop, as I read her "first" and "second" paragraphs, you can sense the conflict. The conflict being that Majoras has to admit innovation is key, that competition is key, and that patents/innovation can grant a company market power; that she has to acknowledge this is an acceptable "aspect" of the free markets; but that the conflict realizes because the FTC has little "power" to restrict how much benefit the patent holder can reap.
So one can sense that she is trying to find a way for the FTC to be able to limit HOW MUCH market power/benfit a company obtains. Anything above what the FTC would determine is acceptable would (under new FTC policies) trigger "anti-consumer/anti-trust" "concerns" and give the FTC the power to take legal action against a firm that chose to exceed what the FTC deems as the maximum benefit.
For instance, lets take a firm that has patents that another firm needs to be able to make a product, if say the patent holder set terms the licensee would have to meet, but didn't like, I can see them crying to the FTC that its "going to hurt my production output, its going to hurt the consumer too much, etc"... (like maybe a firm that has fought against a patent holder and now faces the possibility of having to sign a license, but that could now try to use the FTC to help them get 'better' terms?)
In otherwords, while the FTC currently can't block the patent holders rights (and make no mistake, in a current litigation effort, a FTC counsel has made it clear he thinks the FTC has the right to block a patent holder from benefitting from their patents already), they can try to restrict his/her rewards by saying they are simply looking out for the consumer.
Simply, the FTC appears to be looking for a way to becoming the last word on licensing terms. And to prosecute those that don't "play by the FTC's wishes".
as always, just my views/opinions.
Published: June 21, 2006 7:23 AM
Dan Zukowski
Majoris should mention the anti-competitive behavior of congressional power such as Congressman Otter using the FTC to create and withhold technology from the consumer in the name of protecting a company in which they have investments such as Micron....He even wrote the letter to DOJ for leniency..Come to find out, Micron is one of the dirtiest Price Fixing consumer harming companies in the country...Where is the study in regards to Abuse Of Power in the FTC/DOJ?
Published: June 21, 2006 7:34 AM
douglasrathburn
Mckinsey and Majoras miss the point. Productivity is the well-spring of prosperity, but government intervention to protect the consumer is not what creates it.
Ask yourself this question. Who has increased the productivity of the world more over the last 15 years. The FTC/DOJ, or Microsoft, one of the companies they persecute?
Published: June 21, 2006 7:35 AM
Dan Coleman
“Most economic analysis ends up attributing most of the differences in economic performance to differences in labor and capital markets. This conclusion is incorrect. Differences in competition in product markets are much more important.�
Perhaps one day this will be further revised to: "Most economic analysis ends up attributing most of the differences in economic performance to differences in competition in product markets. This conclusion is incorrect. Differences in private property rights are much more important."
Published: June 21, 2006 8:30 AM
nordic prince
if the ftc believes:
'At bottom, we must remember that antitrust is the means, not the end. Rather, the end is undistorted competition, driven by “King and Queen Consumer.� The challenge is to keep the competition undistorted, without distorting it ourselves in the process.'
then how can they justify appealing Judge McGuire's decision that they have no case against rmbs?...in light of the DOJ convictions/guilty pleas by the infringers?...isn't it totally clear who is violating anti-trust laws?
the ILLogical conclusion of the ftc's actions is anyone who holds a patent violates anti-trust laws
paying royalties to a patent holder is no different than paying for any other part of the manufacturing process...you pay for the silicon, you pay for the machinery, you pay for the intellectual property...all part of the cost of doing business
Published: June 21, 2006 10:55 AM
Philanthropic Patriot
The first three paragraphs are great, right up until this little unsubstantiated comment, "it also is true that private actors can and do distort competition".
From there on out, everything she said was in direct opposition to what came before it. The sad part is, the FTC probably has no clue they are contradicting themselves.
I mean she even puts in this little doozie of a quote (emphasis mine). “Consumers are the only political force that can stand up to producer interest, BIG GOVERNMENT, and the technocratic, political, business, and intellectual.� Then she goes on to explain how big government is going to make it all work right. Give me a break.
Published: June 21, 2006 7:32 PM