Google, Amazon, and Booking: anti-monopoly gathers pace
Google, Amazon, and Booking: anti-monopoly gathers pace
Regulators are sharpening their teeth at last
Welcome to The Counterbalance, the newsletter of the Balanced Economy Project. This edition focuses on three signficant new episodes: one in Europe, barely noticed, and two big, meaty (and widely publicised) moves in the U.S. There’s more good news from the growing anti-monopoly network too, an important new book on Big Pharma, a landscape analysis of antitrust and climate, and a leading lawyer lamenting how progressives focusing on civil rights ignored corporate power, and thus lost out on both.
The main news in anti-monopoly comes from the United States:
We'll get to that good news, with a short focus on the Google and Amazon cases in particular. But we are a non-US organisation so we'll focus on something significant, even big, in Europe - which barely raised eyebrows outside the Competition Bubble.
The EU’s “unexplainable departure” on Booking
Update: for something a little nerdier, see this piece on Booking by Max von Thun of Open Markets Institute.
The European Commission last month blocked a proposed acquisition by Booking.com, whose services will likely be familiar to most readers.
Booking has an estimated 60 percent share in the €100 billion market for online travel agencies (OTAs), the Commission estimates: its ambition is to become an unbeatable digital platform, a one-stop shop for consumers organising trips, not just for hotels, but for flights, car rentals, transport and more. Booking has been on a shopping spree, buying rivals in ways that not only help it expand the range of services it can provide – but also eliminate competitors.
The Commission’s block on its attempt to buy eTraveli, a Swedish online travel agency that specialises in selling flights, is a major speed bump - and not just for Booking.
It is already pretty rare for the Commission to block mergers: this would be just the 11th out of nearly 3,500 in the past decade (just 0.3 percent!)
But something else about this decision is causing anxiety in the competition bubble in Brussels: a new approach that is, as Booking laments, an “unexplainable departure” from business as usual.
To block mergers, regulators need a “theory of harm” that will get through courts - and with the Booking case we see a potentially powerful new one, that the Commission has not used before.
The exact EC wording here is telling:
“The transaction would have allowed Booking to expand its travel services ecosystem, which revolves around its hotel OTA business. A flight OTA product is a crucial growth avenue in this ecosystem as it would generate significant additional traffic to Booking’s platform.” [Commission’s emphasis.]
The key word here is 'ecosystem.'
Narrow approaches, economic wizardry
Giant firms and platforms like Booking are conglomerates, or ecosystems, with many connections between their different parts, where power in one part can be leveraged to build power in others (so, for example, if you book a flight on Booking, chances are you’ll be persuaded to book a hotel there too, and vice versa). Each part gives power to the others: this is like what Amazon’s Jeff Bezos calls the 'flywheel' effect.
But until now, merger control procedures have hinged on narrow theories of harm that carefully avoid looking at this kind of system-wide power, effectively ignoring size and bigness and instead focusing only on specific markets.
The companies bring in economists wielding models, often with Alice-in-Wonderland conclusions. One is the idea that these mergers, which literally reduce the number of competitors in a market, increase competition.
For example, the proposed Vodafone-Three merger in the UK, which Vodafone boss Margherita Della Valle said would be "great for competition." Her logic was that there are four Mobile Network Operators in the UK, two of them need more competition - so merging Vodafone and Three will create a more forceful operator, increasing competition for their rivals, see?
This is the common "clash of the titans" argument: if King Kong is fighting Godzilla, but it’s unfair because Godzilla is too small, then you make the fight fairer by making Godzilla bigger. Looked at through a narrow lens, this might make sense. Widen the frame to include the collateral damage, though, and the real world looks different.
Another common, more wonkish argument, is "Elimination of Double Marginalisation" (EDM.) Let’s say two monopolists with complementary offerings in a supply chain merge. Before the merger, each marked up their prices as monopolists, but this reduce overall demand. Once they merge they only need one markup, so demand rises, so that merger is efficient, see?
EDM is not only a weird piece of economic wizardry but, as (for example) a recent paper by John Kwoka and Margaret Slade explains, rests on many dubious assumptions: its often unquestioned use, as they put it, is "a critical policy error".
Just a small increment
In the Booking / eTraveli case, a standard approach would look at the acquisition as only a small increment (an estimated 1-3 percent increase in market share) that won’t affect the particular market much, so can be ignored.
There are fights over “defining the relevant product market”, which play into the hands of economic consultancies wielding models, such as RBB Economics’ “nothing to see here” intervention (using the steel industry as an example, for goodness’ sake) to justify Google’s acquisition of DoubleClick in 2007. That “little” deal helped Google subjugate the publishing industry and subvert our democracies.
Looking at an ecosystem as a whole rather than narrow markets can potentially cut through the wizardry.
Scholars have put forwards “ecosystems” theories of harm for some time, and indeed the UK’s Competition and Markets Authority, arguably the most courageous, robust and innovative competition authority in Europe1, has been experimenting with them in a limited way.
In this case, the EC sees a problem in a potential increase in dominance that relates to buying a business (in this case flight booking) that is only indirectly related to Booking’s core (hotel search and booking) business: in other words, a small business in a different ‘antitrust market’. It said:
“Booking benefits from network effects . . . The transaction would have allowed Booking to expand its travel services ecosystem, which revolves around its hotel OTA business. A flight OTA product is a crucial growth avenue in this ecosystem as it would generate significant additional traffic to Booking's platform.”
The novelty is the concern about a general increase in traffic and network effects, making life harder for competitors to challenge the monopoly. If Booking becomes even bigger by expanding its ecosystem, it may operate as a digital gatekeeper able to set the terms of commerce in ways that - even if the EU's new Digital Markets Act shows teeth - no competitor could realistically contest its dominance.
This merger block brings a new and potentially powerful concept into the game. Imagine applying that ‘ecosystem’ logic to giant banks, or to Big Tech firms: the latter have made over 1,000 acquisitions in the past decade, and until 2021 not a single regulator, anywhere, blocked a single one.
“We hate behavioural remedies”
Booking had tried to get the deal through by offering “behavioural commitments” to play nice. (An alternative is “structural” remedies, e.g. divesting parts of the business, breaking up dominant firms.)
In antitrust cases, the strong preference has been for behavioural approaches. But recently the Commission has shown more spine: notably threatening this year to break up Google, with outgoing Commissioner Margrethe Vestager stating that:
“A remedy requiring Google just to change its behaviour would allow Google to continue doing what it has been doing so far, just under a different disguise.”
In the Booking case, the Commission gave short shrift to these behavioural promises, calling its Kayak system untransparent and discriminatory, adding that any commitments would have been “difficult to monitor effectively, especially because of Kayak’s algorithm working as a black box.”
And a healthier, more generalised skepticism is becoming apparent.
“I don’t think I know a single enforcer that likes behavioural remedies,” said Olivier Guersent, Director-General at the EU’s Directorate-General for Competition (DG Comp,) quoted in Politico’s Fair Play last month. “We actually hate it. It’s usually ineffective, it’s very sensitive to asymmetries of information that always exist, and it’s terribly intensive in resources to monitor.”
This case isn’t over – Booking is of course planning an appeal – but it is a welcome sign that new thinking may be starting to break out.
We’re still in the early stages of how this will play out but it’s significant.
Much more immediate, though, is what’s happening in the United States: gigantic moves that would have been unthinkable just a few years ago.
The Google trial
The first big antitrust trial of the modern era began on September 12 with the US Department of Justice's lawsuit against Google's search engine monopoly. Google has a roughly 90 percent US market share in general search and search delivered $162 billion in revenues last year: 57 percent of all Google's revenues. The Department of Justice's case is based on the fact that Google sets defaults on its Android operating system to favour its search engine, and pays billions to other companies like Apple to make Google the default search engine on devices and browsers. Unlike the case's main predecessor - the Microsoft trial in 1988 - the judge has ruled that it should be held mostly in secret, helping Google control the messaging (see the Big Tech on Trial blog.)
Google's main argument is that it has such a large market share, and other companies set it as default, simply because it is better, and that those multi-billion payments (estimated at $20 billion a year to Apple alone to set Google search as default) are like the payments chocolate companies make to supermarkets to display their wares prominently near checkouts: perfectly legal. Their arguments are dubious but in truth US courts are so pro-big business that it's quite possible the DoJ and the state attorneys-general bringing the case will lose. In which case, Google will be considered ungovernable: the next step will be to ask Congress to change the laws.
Google faces other hefty antitrust lawsuits too: the pendulum is swinging.
The Amazon lawsuit: higher, not lower prices
The U.S. Federal Trade Commission (FTC) and 17 state Attorneys-general on September 26th, sued Amazon for monopolisation, following the logic of FTC Chair Lina Khan's landmark academic papers: Amazon's Antitrust Paradox, in 2017, and The Separation of Platforms and Commerce, two years later. The suit, like those papers, argue that Amazon's business model is riddled with profitable conflicts of interest: notably that it "control[s] the essential infrastructure on which their rivals depend": that Amazon is referee and player at the same time (or, as a small business campaigner told us, "Amazon is the Dungeon Master"). In recent decades, the answer has been to try to play whack-a-mole and police these conflicts, and extract “behavioural” promises from the player/referee not to favour its own team. This new lawsuit wants to administer stronger medicine: among other things, "structural relief" - breaking up Amazon along the lines of these conflicts.
This won't be an easy case, because Amazon is so convenient and popular. The real arguments are too abstract to reach most people: that Amazon is more convenient than rivals because it buys, stifles, steamrollers or kills anyone who looks like they might offer a better service. But there is one argument that may get better public traction: that Amazon may be forcing prices up, not down as most people suppose. Its monopoly gives it a one-two punch. First, Amazon has power to extract immense fees from sellers on its platform, through pay-to-play advertising, access to Prime, to the Buy Box, and to much else. As the lawsuit says, "Amazon now takes nearly one out of every two dollars of sales from sellers who use its fulfillment services, many of whom are small businesses with already thin margins." Those immense fees boost the prices sellers must charge, of course. The second punch is that Amazon can also coerce sellers on its platform not to offer lower prices elsewhere, off Amazon. What’s more, according to a new paper by Rory van Loo and Nikita Aggarwal on the topic, Amazon has built “a marketplace of consumer misperception” bamboozling consumers about prices. So this combination, and other gambits (check out "Project Nessie") spreads price rises widely across the economy.
The very same thing seems to be happening outside the US, of course: read all about it in SOMO's landmark recent report, Amazon's European Chokehold.
News from the networks:
The UK should not accept Amazon's commitments to play nice
The UK’s Competition and Markets Authority (CMA) last year launched an investigation into Amazon’s behaviour, and it responded with a set of commitments to behave better. The commitments are self-serving and full of holes, but in July the CMA issued a note signaling its provisional decision to accept them. The Balanced Economy Project, SOMO and the Open Markets Institute sent the CMA a submission urging it to reject Amazon’s offer; pursue its investigation into Amazon’s marketplace practices to its conclusion, and seriously consider “structural remedies” (ie forcing Amazon to split off parts of its business). Our shared submission is here.
EU parliament votes for open justice principles to apply to court proceedings
Our allies achieved further impact when the EU Parliament's Legal Affairs Committees (JURI) unanimously in favour of giving the public, civil society and the media a right of access to documents, positions and arguments exchanged in court proceedings, subject to some exceptions. A press release from Patrick Breyer's office highlights the role of a joint network statement (drafted and co-ordinated by Article 19) pushing for open justice principles to apply to future CJEU (EU Court of Justice) proceedings, in line0 with international standards on access to information. We urged that the reform should mandate the right of public access to the full range of CJEU’s documents and documents about its judicial proceedings; and that court documents should be made public as a rule with only very narrow exemptions allowed. We now need to watch that the European Commission and EU Council don't water this down.
Why the EU Commission dumped Google's favourite consultant
Corporate Europe Observatory and LobbyControl achieved a major victory when they exposed a shocking conflict of interest: the EU's Directorate for Competition (DG COMP) hired the consultancy firm RBB Economics to evaluate one of its merger control tools - a firm that has been instrumental in pushing through Big Tech mergers and acquisitions, and which has been widely criticised as a key player in the pro-monopoly competition establishment. As a result of the NGOs' work, the EU Ombudsman opened an investigation and the European Commission (as a result of that) dropped RBB Economics as its consultant.
Also from LobbyControl and CEO, their report Lobbying power of Amazon, Google and Co. continues to grow updates their earlier work on in 2021 on the lobbying power and influence of digital corporations, and shows a "huge increase" in digital lobbying in Brussels since then.
SOMO's The Counter is now live
Our colleagues at SOMO, the Netherlands-based Centre for Research on Multinational Corporations, have launched The Counter, a new global helpdesk to provide expert investigative resources to activists and those with a genuine need in investigating multinationals. The Counter team investigates companies – big, small, public, private, or letterbox – by “following the money” to reveal corporate and capital structures, shell companies in tax havens, hidden profits, secret owners, supply chains, and influential investors. "We want to help communities figure out who or what they are up against since it is not always clear who is in charge."
SOMO is also hiring a coordinator to lead the Merger Monitoring Project, to work with a global coalition of civil society organisations. Deadline: Oct 13.
Vodafone-Three merger proposal under heavy fire
Our report opposing a major merger of Mobile Network Operators Vodafone and Three, co-authored with Tommaso Valletti, continues to make waves, now via a UK parliamentary "Debate Pack" on the merger, and also in a useful complementary report from the Unite union. (The public doesn't like it either: you can weigh in here, if Twitter/X is your thing.) Other mergers are in the offing - such as Orange and MasMovil in Spain - that should be opposed for similar reasons: all the evidence shows that they raise prices for mobile consumers, increase returns to shareholders, but do not increase investment levels, contrary to what the companies alway claim.
Financial regulators need to watch out for "competitiveness" Trojan Horse
We contributed to and co-signed a letter by 31 prominent economists and other actors, warning of the several dangers in interpreting UK financial regulators' new secondary "competitveness and growth" objective. "Competitiveness,” depending on how it is defined, may conflict with growth, creating immediate tension and confusion inside the objective. We received a detailed response. This follows an earlier letter, signed by over 50 prominent economists (and us), urging the government not to adopt a competitiveness objective of any kind: our latest letter is an attempt to minimise the damage now that a secondary objective has been introduced.
Other news
AI co-operation agreements are really mergers - Germany's Mundt
Andreas Mundt, the head of Germany's Bundeskartellamt, says it like it is: these co-operation agreements (such as Microsoft's agreement with OpenAI, could be thought of as “mergers in all but name”. As Cristina Caffarra puts it: it’s incredible we are watching the same playbook unfold all over again, with early mergers going under the radar and escaping being vetted. Watch out for a meaty forthcoming report on AI and market power, from our colleagues at Open Markets Institute (Europe.)
The non-price effects of mergers and acquisitions
This paper summarises the economic literature on non-price effects of mergers and acquisitions (M&As), specificallyon innovation, product variety, and sustainability. The vast majority of evaluations of horizontal M&As finds large negative effects on innovation inputs and outputs. (Results are mixed for outcomes related to variety and product quality, and literature on merger effects on sustainability is still scarce.
South Africa takes on Big Pharma
South Africa’s Competition Commission has launched an "unprecedented" investigation into US-based Johnson & Johnson for “excessive” prices for a key tuberculosis drug, bedaquiline and for blocking the import of cheaper generics through "evergreening" (or patent manipulation): a shocking exercise of life-or-death power. Health advocacy groups say South Africa is being charged more than twice as much for bedaquiline as other middle- and low-income countries. The author of this Counterbalance, who once needed hefty drug treatment for TB, possibly contracted in South Africa, will be paying close attention.
Pharmanomics
In this context, we’d like to plug an excellent new book by one of our allies.
Since the 1990s, Big Pharma has protected its property through the patent system. The business has focused not on researching new medicines but on building monopolies. This system has helped restructure our economy away from invention and production and fundamentally reshaped the relationship between richer and poorer countries, as access to new medicines and permission to manufacture them is ruthlessly policed. Just two Covid vaccines delivered profits of $1,000 per second: “Within just over a year of the pandemic being declared, Big Pharma’s vaccines had created nine new billionaires.” Nick offers a pathway to a fairer, safer system for all.
What I Most Regret About My Decades of Legal Activism
Caroline Fredrickson, a Biden appointee to the Presidential Commission on the Supreme Court of the United States, used to believe that the crowning achievements of American legal system's were the expansion of constitutional rights such as stopping school segregation, bolstering free speech, or securing reproductive rights.
In a stellar legal career, she writes in The Atlantic, "I was focused on preserving and enlarging civil rights" against a conservative backlash. But progressives ignored the other, quieter part of the backlash -- the unshackling of economic forces -- that would eventually overturn so many gains.
"In my decade running the American Constitution Society, I never gave much thought to political-economic issues such as antitrust and competition policy — they were just not on our agenda," she wrote. Liberal judges championing progressive positions on issues such as abortion and voting rights simultaneously issued terrible opinions entrenching corporate power. And, "by delivering measurable wins to business-side conservatives, they have helped fuel an engine designed precisely to unravel the civil rights they held so dear."
"Progressives, especially, must recognize that preserving constitutional freedoms depends on winning the fight for economic liberties. Treating them as separate goals will ultimately mean losing out on both."
Antitrust and Sustainability: A Landscape Analysis -
Denise Hearn, Cynthia Hanawalt, and Lisa Sachs, Columbia Center on Sustainable Investment.
Does it make sense to allow antitrust exemptions so actors can collaborate on pursuing climate goals, in the face of a conservative backlash? Who should be allowed to coordinate to shape markets? Under what terms? And in whose benefit? More broadly, can competition policy pursue both climate justice and economic justice simultaneously? Complementing our own work in this area, here and here.
Thanks for reading.