SSNIPpets (20) – Daniel Sokol on what to read
It seems that the EU–US “trade war” simply does not happen since people are far too busy making money instead of answering a call to arms. As pacifists (if not money makers), we also look over the Atlantic to our friends to find out what we can learn from the oldest but one antitrust regime in the world. We are happy that Professor Daniel Sokol gives us some ideas, and it does not take us by surprise that he focuses on the future – on technology. Here are his SSNIPpets: small, but significant news, information and pleasantries – our pet project!
Thank you for the opportunity to serve as a guest blogger. Let me start with a general theme for this post. Lots of antitrust/competition law scholarship has turned to interesting questions of technology and online markets. Some research questions go to issues of market definition and market power. Other scholarship has turned to issues of online vertical restraints such as selective distribution in online settings, online MFNs and RPM, abuse of dominance, Fintech and competition, Big Data, and AI related collusion. There are too many papers now out to provide even a representative sample. This is an exciting turn for the field, one that owes its “modern” origin to the Microsoft case but an emphasis that has become more pronounced in the past five or so years.
Reading European papers
Given this interest in the interface of competition law and technology relating to online platforms, some things really surprise me about the scholarship. A number of papers that I read among European competition law scholars don’t really engage with the underlying economics of the behavior or merger. From someone accustomed to all papers among US and Canadian competition law scholars engaging at some level with economic analysis (some more than others), this development strikes me as odd. Ultimately, competition law serves to regulate business behavior against unlawful actions that distort markets. Misunderstand (or neglect) the underlying economics and it becomes very difficult to craft an effective legal rule or a legal intervention against anti-competitive behavior.
Why is there this lack of focus? There are a number of reasons. First, the law and economics tradition is far more fundamental to US law schools than European ones. People with advanced training in economics exist at many schools in the United States and a number of students come with backgrounds in economics and other related fields such as finance. You find less of this in Europe with students beginning law school at 18. This is also a problem for corporate/company law where students in the United States and Europe sometimes lack basic financial literacy. Schools in the US correct this through specialized courses in finance and accounting as well as “boot camps”. You find less of this in Europe in law schools.
It’s not just academia, though
However, some of the lack of economic analysis in European scholarship is a difference regarding decision-makers. I blame in part a very legalistic approach to case analysis and the use of economic expertise by European courts. Relative to the United States, European courts are less likely to cite articles at all and almost never cite economics articles. In the United States this is common. This is an area where a number of European competition law scholars are making a difference. These include (but are not limited to): Pinar Akman, Pablo Ibanez-Colomo, Ariel Ezrachi, Nicolas Petit, Heike Schweitzer, and Andreas Stephan among others. However, there are not enough people reading the economics literature.
I don’t think that law professors need to be economists. However, they should be able to read related literature as many economics theory papers and empirical papers shape ideas and much of the great competition law scholarship has been translating economic insights into legal arguments. The basic point I want to make is that you cannot be a good competition law professor if you don’t have at least a minimal sense of how economics impacts competition law. I think that the same is true for competition lawyers in practice. Economic analysis underlies so much of competition law.
Turn to tech
Technology related competition law leads to a different problem. My sense is that both North American and European competition law systems (and academics in both jurisdictions) are off for a different reason. If you cannot understand the law without understanding the economics, it is also the case that you cannot understand the economics without understanding the underlying technology. If economic models do not appreciate issues such as technological barriers to entry or how platforms work (to give just two examples), the models will be off and the findings from incorrect models will lead to mistaken conclusions both for theory and empirical work. In this vein, the UK’s CMA is a leader in creating a distinct technology unit to better understand this reality. Kudos to the CMA for leading the world in rethinking how to address technology in a competition authority.
On the academic side, ask how many competition law articles cite the relevant literature from journals in strategic management, information systems, marketing, and operations management. The answer is very few. This needs to change as many insights from these other fields help competition law professors to better understand technology and its implications for competition law analysis both as a matter of theory and empirics.
Some suggestions
Whose work do I like from these other disciplines? There are many but let me provide a sampling of people whose work I read:
Marshall Van Alstyne, Boston University
Anandhi Bharadwaj, Emory
Kevin Boudreau, Northeastern
Anthony Dukes, USC
Chiara Farronato, Harvard Business School
Andrey Fradkin, Boston University
Chris Foreman, Cornell
Annabelle Gawer, University of Surrey
Anindya Ghose, NYU
Avi Goldfarb, University of Toronto
Andrei Hagiu, Boston University
Anja Lambrecht, London Business School
Geoff Parker, Dartmouth College
Anita Rao, University of Chicago
Melissa Schilling, NYU
Rob Seamans, NYU
Rahul Telang, Carnegie Mellon University
Ken Wilbur, UCSD
Feng Zhu, Harvard Business School
Yi Zhu, University of Minnesota
There has been a number of people who have pushed for a more technological based approach in recent years. Obvious to the readers of this blog should be the work of Rupprecht on the importance of technology to competition law. Also of interest should be some earlier work by Shapiro and Varian (their famous 1998 book Information Rules) plus to note what people get wrong (Posner’s 2000 article on antitrust in the new economy) and what is perhaps the best competition book of the past 5 years Agrawal, Gans & Goldfarb’s book Prediction Machines: The Simple Economics of Artificial Intelligence. I’ll plug a number of the chapters in my Cambridge Handbook of Antitrust, Intellectual Property, and High Tech.
Finally, there will be some interesting presentations on innovation related issues at the FTC hearings On Competition and Consumer Protection in the 21st Century.
Professor D. Daniel Sokol is the University of Florida Research Foundation Professor and University Term Professor at the University of Florida Levin College of Law and Senior Of Counsel at Wilson Sonsini Goodrich & Rosati.
4 thoughts on “SSNIPpets (20) – Daniel Sokol on what to read”
It is true that competition law is an area of law where economics is more important than in others. However, referring to economics in judicial decisions presumes that there are absolute truths in economics that should influence our decision of what is just. I think that is not the case. Models and empirical research in economics are very often highly disputed. If you ask three economists how to decide an antitrust case you will probably get five different judgements. Ignoring this has led to a number of very laissez-faire decisions in the US, especially those that referred to Chicago School “truths” or the impalpable consumer welfare concept that can now be viewed as being overly simplifying. Also in the recent Ohio v. Amex judgement of the Supreme Court, the court cited a lot of acadmic papers but did not seem to be able to look through the economics, as the dissenting opinion shows.
Ultimately, antitrust decisions are, like all other court decisions, questions of justice, not of economics. If companies or individuals have been treated unjustly, this behaviour should be prohibited. As in any other area of law determining what is just lies at the heart of every antitrust decision, and this does not have to be a question of economics.
So how does one identify the factors for justice? It strikes me as more indeterminate than economic analysis. Certainly, lawyers also have different ideas as to justice.
Are there some areas of disagreement in economic analysis – of course. As a matter of framework for case analysis, does that mean that it is illegitimate – no. Far from it. In some areas, there is an economic consensus. Those are the areas in which it is easiest to craft legal rules based on economic analysis and where outcomes are, therefore, from an economic perspective, better. In other areas where there is disagreement, this may change over time. In the United States, the Supreme Court is explicit about how antitrust law changes with shifts in the economics (including prior times when economics suggested in some areas more aggressive enforcement and current times where it suggests the same). Advances in economics has meant better tools, for example, in merger analysis to identify anti-competitive theories of conduct and mergers have been challenged successfully based on these changes.
As for American Express, I think that you misread the decision. Both the opinion and the dissent identify that two sided markets are different because of the insights of economics. However, each side disagrees as to how to address two sided markets.
To be clear: I do not think economics should be entirely left out of antitrust analysis. I think there needs to be a healthy balance between economic analysis and normative evaluation. Certainly economics, especially behavioural economics, should play a larger role in the education of lawyers. Perhaps the middle ground is somewhere between the EU and US approaches. In light of this, I found the blog post a little one-sidedly in favour of an US-style all-econ approach which misses that it is important to remember why antitrust decisions are made by lawyers, not economists. Law is the science of making just decisions, and economics has a different purpose.
Regarding Amex: of course both sides consider economics, yet they are in fundamental disagreement what this means. The dissent shows how easily academic articles can be misinterpreted. E.g., the majority bases its decision to a good part on just one sentence of an article (p. 16 of the dissent) and cuts out important statements of the articles (p. 20).
Since this is a reading list, the list perhaps deserves a European look towards the relationship of law & economics, such as in “A Legal Theory without Law” by Ernst-Joachim Mestmaecker.
It seems to me that some of the differences are based in the legal systems. Judges take another position in the U.S. legal system than in (continental) European systems: In Europe, judges “create” less law than in the U.S. And in competition law the European view is rather that the economic background is pre-determined in the law – i.e. the legislator has decided on which economic theories are applied and has implemented them in the law. However, there are plenty and wide spaces to fill, so Professor Sokol’s American perspective provides rich food for thought and action.
Some German courts increasingly cite economic literature. The Regional Court of Dortmund springs to my mind. However, that is mostly economic literature published in law journals.
I wonder if German courts are – so far – hesitant to rely on economic literature because they are unsure if economic theories are (where the law leaves gaps) part of the law or part of the facts. The court could only introduce them to the proceedings on its own if they are part of law (which I believe to be correct). If they are part of the facts, the court could not act on its own, and it would have to involve an expert witness (i.e. an economist) in many cases.