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  • Los Angeles Times: In the age of Uber and Snapchat, antitrust law needs an update

    Todd Buchholz, Los Angeles Times: In the age of Uber and Snapchat, antitrust law needs an update

    In the age of Uber and Snapchat, antitrust law needs an update

    By: Todd Buchholz and Victoria Buchholz

    Consumer watchdog groups have denounced the pending AT&T and Time Warner merger, claiming that it would put too much power in the hands of too few.

    They needn’t worry. Powerful hands are losing their grip. The gig economy, low financing rates and speedier technology have created a more accessible marketplace that requires less trust-busting by federal officials.

    Every high schooler learns about the “robber barons,” the 19th century industrialists who stomped on competitors and ruled over trains, steel and oil. President McKinley launched the trust-busting era to bring down those titans. But here is what the schoolbooks leave out: During that period, consumer prices in the United States were flat to falling, while per capita gross domestic product steadily rose. It is hard to understand why the barons used their sweeping power to increase output and cut prices when economic textbooks teach us that monopolists do the opposite.

    The answer? Their market power was not permanent and they were constantly fighting off invaders, circumstances that required them to keep prices down.

    Trust-busting continued throughout the 20th century. The Nixon administration launched a 13-year fight against IBM before slinking away in 1982. Now, IBM doesn’t even make personal computers. In 1998, with great fanfare, the Clinton administration dragged a fidgety Bill Gates into a deposition and accused him of enforcing a stranglehold on Internet computing. Meanwhile, Steve Jobs was in Cupertino, Calif., unveiling the iMac and plotting to rip open markets with the iPod and iPhone. The Federal Trade Commission fought a merger between Blockbuster and the Hollywood Entertainment video company in 2005, worried that these hapless firms were locking up the VHS and DVD markets.

    Now the FTC is concerned that the most valuable company in the world, Apple, is being bullied by the 98th most valuable company in the world, Qualcomm. In an announcement last week, the FTC alleged that Qualcomm demands Apple pay money and sign long-term contracts in exchange for using Qualcomm’s latest technology. This used to be called capitalism. Here, antitrust crusaders are actually trying to defend a Goliath against a relative David — a new but equally inane strategy.

    In today’s modern economy, barriers to entry are falling, not rising. Invaders are poised nearly everywhere. Procter & Gamble owned a 70% share of the men’s razor market until some daring dude launched the Dollar Shave Club with an outrageous YouTube ad called “Our Blades are [expletive] Great” that went viral in 2012 and attracted millions of subscribers. After ballooning from a bookstore to a global superstore, Amazon continues to scare firms in varied sectors, not with higher prices but with lower prices and quicker delivery — even delivery by drone. The world’s former category-killer, Wal-Mart, has been fretting about how to compete.

    Airbnb has increased the number of rooms available in U.S. cities by 20%. Uber is worth more than Hertz and Avis combined. In the heyday of antitrust enforcement, the 1960s and 1970s, start-up firms needed to raise tens of millions of dollars to build factories and hire employees. Now, firms with compelling intellectual property and strong leadership can take on market leaders with a website, a few swivel chairs and a single-serve coffee-maker. Even areas that once seemed off-limits to the private sector are attracting competition. The risky, previously untouchable commercial space industry has grown super-competitive, with Jeff Bezos’ Blue Origin, Richard Branson’s Virgin Galactic, Elon Musk’s SpaceX, and Boeing and Arianespace vying for business.

    Does this dynamic environment mean that President Trump should fire the FTC and the Department of Justice’s antitrust division? Of course not. But their methods should be scrutinized and harmonized.

    Under current law, merging firms must answer to either the FTC or the DOJ or both. Sometimes bureaucrats seem to flip a coin to decide which team handles the case. They employ different standards and examine different evidence. Last year, the House of Representatives passed the Standard Merger and Acquisition Reviews Through Equal Rules Act, the “SMARTER Act,” which offers a sensible approach. It would require the FTC and DOJ to follow the same evidentiary standards and procedures.

    The agencies should also focus on areas where intervention could do the most good. Worrisome anticompetitive behavior often results when businesses benefit from government favors. For instance, the federal government should challenge states that prevent Tesla from selling cars directly to consumers. Such states force consumers to visit local dealerships, whose owners are often contributors to state legislators. Most important, antitrust enforcement should focus on cases where mergers would actually damage consumers through persistently higher prices.

    The merger between AT&T and Time Warner may raise eyebrows, but the deal is not particularly threatening in an era when 30% of millennials have already “cut the cord” from their cable provider and a nimble new content company such as Snapchat attracts 160 million viewers to watch 10 billion videos each day. Instead of entertainment, regulators should examine local hospital mergers, which tend to raise prices for patients who are not usually in a position to shop around.

    Antitrust enforcement needs an update. In today’s quick-paced economy, we have no more use for a lumbering bureaucracy than we do MSN Live messenger or a Blockbuster video store.

    Todd G. Buchholz is a former White House director of economic policy and the author of “The Price of Prosperity: Why Rich Nations Fail and How to Renew Them.” Victoria J. Buchholz is an intellectual property attorney.  

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