Happy (belated) Juneteenth, and (not belated) Father’s Day! This week’s read is a primer on a fairly underrated news story from the past week.
Takeaway: Lina Khan’s ascension to the chairmanship of the FTC suggests that we are in a pivotal moment for the future of antitrust regulation, and that we should expect major actions taken against several “Big Tech” companies.
This past week, Lina Khan was confirmed as chair of the FTC*. Chances are that if you saw this headline last week, you ignored it. But I think it is quite important, and I’d like to share why.
Who is Lina Khan?
As you can read in the linked article, Lina Khan is a 32-year old (!) legal scholar who rose to prominence four years ago (while in law school (!)) when she wrote a law review piece arguing that Amazon required antitrust action despite providing customers with goods at lower prices than would be attainable if it were broken up. This piece vaulted her into an intellectual circle of prominent critics of “bigness” that are frequently labelled as Neo-Brandeisians. Other prominent Neo-Brandeisians include Tim Wu and Zephyr Teachout.
What is Neo-Brandeisianism?
Perhaps the best illustration of Neo-Brandeisianism requires contrasting it with business-as-usual.
Since Continental Television v. GTE Sylvania the “Chicago School” has been the primary driver of antitrust regulation. To the Chicago School, bright-lined regulation and proactive action were less important than the “rule of reason” which suggested that monopolistic-like firms were tolerable so long as they were not extracting rents (unearned revenue) from customers. In this way, all eyes were focused on the prices consumers paid.
To risk oversimplifying things, that is to say that if a widget company came along and took full control of the widget market, that isn’t a problem for the Chicago School so long as the firm is providing the same quality widgets to consumers at a lower cost than before.
The intellectual underpinning for the Chicago School really can be seen in the two graphs below. Under monopoly, firms use their market power to price goods above the marginal cost to the firm (they set the price at Pm rather than Ppc). This results in rents for the firm (excessive profits) and deadweight loss (lower economic efficiency) for society as some transactions do not occur in this higher priced market but would have occurred if the price was set (lower) under perfect competition.
A regulatory apparatus built on the idea that “monopoly is bad insofar as it makes a specific market less efficient due to higher prices” is narrowly tailored and results in fairly clear cases focused almost exclusively on price. It also does not lend itself to proactive action. It is reactive to realized prices in the marketplace. Is the price of widgets lower than before and quality the same or better? If yes to both, then under the Chicago School there’s nothing to be done.
Now let’s turn to the new kids on the block.
Neo-Brandeisianism is as an intellectual movement within antitrust scholarship named after late SCOTUS Justice Louis Brandeis, who was (among other things) known for his critiques of big business. In Brandeis’s view, concentrated economic power perpetuated a “curse of business,” bringing upon society negative effects that were not just seen in consumer prices.
In particular, monopolies and mega-firms were seen as “arresting progress” by stifling any fledgling competition and harming their employees and the political system writ large. For Brandeis, big firms blocked individual’s ability for economic opportunity by putting downward pressure on wages and blocking entrepreneurial upstarts. This lack of economic opportunity, he argued, destabilized democracy; if democracy assures self-governance, then citizens must be able to place checks on not just political power but economic power too.
The Neo-Brandeisians appear to be in this same tradition, with two critical pieces in the new framework.
First, the new framework puts an emphasis on practices such as predatory pricing and monopsonistic hiring. For Neo-Brandeisians, a very large firm could be subsidizing its activity in one market via its profits in another, using that subsidy to lower its prices to a level that forces out any competition and allows the very large firm to then later operate without any competitive pressure on its activities.
Second, the new framework puts a larger emphasis on social and political considerations. It could be the case that a given firm is actually great for consumers but that it uses its market power to distort regulation, keep wages low, and undermine democracy. As a firm grows larger, so too does its importance in the economic activities of the nation, and therefore the incentive in the short term to protect that firm’s interests.
In both of these cases, the prevailing antitrust regime (for all intents and purposes, the Chicago School) does not really even have a framework or vocabulary for discussing if these things are problems worth considering.
These concerns are particularly salient in Big Tech, where firms in many cases are competing in dozens, if not hundreds, of markets and at times are both the market-maker and a market participant.
Whoopty do, what does it all mean, Basil?
I do not intend to make any precise claims about Neo-Brandeisianism and what, exactly, its adherents want. Foremost, this is not a well-established playing field — most companies under scrutiny are less than 30 years old, the (new) intellectual tradition is only a few years old, and hasn’t really had a chance to either (a) pursue court cases or (b) make regulations. Nor will I make any normative claims about what should happen regarding specific companies. Ultimately, these are tricky questions that are incredibly case-specific, and I’m far from an expert.
What I can say is that this is a big moment and that I’m sympathetic to the Neo-Brandeisian perspective.
We should expect the FTC to move aggressively against Big Tech and other large firms in the next few years, both in the courts and through its rule-making capabilities (the latter of which has not been used frequently in recent decades). This will be a break from the last fifty years, and what happens (or is blocked from happening) in the courts and committee rooms will likely impact all of us significantly as citizens and consumers.
I believe we have entered a pivotal moment in the history of American industrial organization, and we should be close paying attention, because what happens now very well may be what prevails for the next fifty years.
See end of newsletter for disclosure re: Big Tech.
In this house we love graphs.* [$] They might just save your life.
Emily Oster doing good work, per usual.* Neat paper on how (potentially spurious) health advice can become self-reinforcing as health-conscious people hear about the advice and follow it. (s/o Connocher Murphy)
Trying something new this week: Earworms of the month. Here are the (mostly old) songs that I cannot get out of my head:
Alaska - Maggie Rogers; I don’t even know with this one, folks. It has been so stuck in my head that I even listen to it when weightlifting. Managed to hit a new PR listening to it, so I guess is a certified banger?
Loving Is Easy - Rex Orange County and Benny Sings; the top goodvibes song, perhaps ever?
Chicago - Flipturn; sounds like biking by the lake for hours
Real Love Baby - Father John Misty; an evergreen earworm. Has yet to get old.
Stay Schemin - Rick Ross; old 😤 but 😤 gold
1 0 0 . m i l ’ - J. Cole and Bas; listen to it, then go to sleep, wake up, and listen to it again…
Would love to hear some of the songs y’all can’t get out of your head.
Graph(s) of the week
[New Things Under The Sun] This graph is actually from a paper, but I link here Matt Clancy’s post because (a) the post is worth reading and much more accessible, and (b) the newsletter is generally one of the best to hit my inbox, and I think you should subscribe.
What’s going on in this graph? It is showing that in order to keep a steady rate of progress on a technological problem (in this case, putting more semiconductors on a transistor) we see a steady increase in the number of people working on that problem. That is to say that we have to invest more in R&D to keep pace with the growth we are accustomed to. Check out the post for similar data and insights on agricultural yields, health innovations, and machine learning models.
[WSJ] These data from the Atlanta Fed confirm the oft-repeated advice: if you want a raise, you’re probably better off moving jobs.
Keep the faith,
Disclosure: In my role at the Center for RISC I regularly work with several companies that are in the collective consciousness parts of “Big Tech.”
While this work falls squarely within the responsibilities of my role at RISC, a role for which I am compensated, I have not, to my knowledge: (a) ever directly received compensation from one of these companies (their subsidiaries/agents/delegates, etc.), pecuniary or otherwise, for this work, nor (b) ever been responsible for work that induced any of these company’s to donate to the University of Chicago, the Data Science for Everyone Coalition, or any other organizations to which I am affiliated, if ever such a donation occurred, nor (c) been coerced in any manner into moderating or self-censoring my writing due to professional or personal connections with these companies.