Recently, the General Administration of Market Supervision (GAMS) issued the Antitrust Guidelines on the Platform Economy (Draft for Comment). The media circle combined with Ant's suspension of the listing event to set off a storm of anti-monopoly public opinion.

A New Fortune article, "Reaper: Tencent Ali's 20 Trillion Ecosystem," points out: "Through investment and mergers and acquisitions on the scale of 500 billion-600 billion yuan in recent years, Tencent and Alibaba have each constructed an ecosystem with a market capitalization of 10 trillion yuan, which swelled by 10 times in five years. In comparison, the total market capitalization of listed companies controlled by the local government of Shanghai is 2.8 trillion yuan; the total market capitalization of more than 300 listed companies in Shenzhen is 11 trillion yuan; and the total market capitalization of the A-share market is 10 trillion U.S. dollars. The capital energy of Tencent and Ali has even been able to match that of a first-tier city.1"

Many people are y impressed by the many conveniences that the Internet giants have brought to their lives, but they are also worried about their dominant market power and the wealth concentration effect that they have triggered.

In Europe and the US, antitrust investigations are like the sword of Damocles hanging over Facebook and Google. Will Tencent and Ali face similar regulation and investigation?

Antitrust, has been a very controversial topic. Administrative monopoly, in economics has long been formed **** knowledge, no longer need to discuss. But on the investigation of natural monopolies, economists are very divided.

How to define monopoly? What are the criteria for anti-monopoly? Is "greatness the original sin"? Does antitrust support or discourage innovators, and does the market concentration created by giants such as Facebook, Google, Tencent, and Ali increase economic efficiency or undermine social welfare?

Antitrust is not only a legal issue, but also a complex economics issue. This article analyzes natural monopoly and antitrust law from the perspective of a brief history of antitrust in the United States, using economic principles.

Table of Contents of this article

I. Muddled Antitrust

II. Dueling Academic Battles

III. Reapers in the Age of Algorithms

(8,000 words in the body, 30' of reading time, read it in silence, thank you for sharing it)

In 1890, the world's The Antitrust Act, the world's first antitrust law, was born. This law, known as the "economic constitution", was the product of political struggle.

In the last two decades of the 19th century, U.S. conglomerates invented trusts to unite large, similar firms in a concerted effort to dominate markets and control prices. This led to a severely dualistic economy2, with an inner core of trusts and large corporate economic circles, and an outer periphery of a vast number of fiercely competitive small businesses and a distressed underclass of workers formed around the inner core.

In 1904, the total amount of capital held by trusts in various sectors of the U.S. economy amounted to $20.4 billion, of which one-third was in the hands of seven large trusts. 1910, trusts accounted for the following shares of production in a number of U.S. industrial sectors: textile industry was 50%, glass manufacturing was 54%, cotton printing and dyeing 60%, food manufacturing 60%, brewing industry 72%, food and beverage manufacturing 60%, and food and beverage manufacturing 72%. The brewing industry was 72%, the metal industry (excluding iron and steel) was 77%, the chemical industry was 81%, and the iron and steel industry was 84%.3

On the periphery, a large number of small and medium-sized business owners, farmers, and the working class were squeezed by the trusts to squeeze out their living space, and were on the verge of being eliminated by the society. Underclass farmers, small business owners, anti-monopoly parties, and the United Labor Party erupted into vigorous anti-trust movements, such as the Grange Movement, the Greenback Paper Money Movement, and the Anarchist Movement, in an attempt to break the dreary political air of the Gilded Age.

So the law, which was born out of political demands, lacked sufficient legal justification and was "rudimentary". Article 2 of the law prohibits "monopolization" and conspiracies to monopolize. However, neither the text nor the annexure to the Act gives the exact meaning of "monopoly" or specifies article by article what conduct is prohibited.

Sherman, the lawmaker, argued that the exact criteria should be left to the judge: "It is difficult to draw a precise line between legitimate and illegitimate business combinations by defining the legal vocabulary. It must be left to the courts in each individual case to decide whether it is legal or not."

This is, of course, the practice of American case law. But Sherman also recognized that the antitrust laws "do not announce a new principle of law, but merely grant those old, well known principles of common law to our complex state and federal judiciaries."

The law seems to have been introduced only to quell public anger, and has remained a dead letter for more than a decade. Here's what someone said about the law at the time, "The Act, in and of itself, has done nothing and solved nothing except quell the clamor for antitrust lawsuits - any lawsuits - to be filed. "

Ironically, the Antitrust Act was followed by a rapid rise in trust organizations, and in 1904 there were 318 trusts in the U.S. ***, 93% of which arose after the Act was introduced in 1890.

At the same time, there have been some bizarre rulings. 1895, the first antitrust case was the famous U.S. Federal Government v. Knight Co. At that time, the U.S. Refined Sugar Company attempted to integrate four large companies, including Knight Company, which controlled 98% of the U.S. refined sugar industry, by exchanging shares. The U.S. federal government took Knight and the other companies to court, and the lawsuit went to the Supreme Court.

The justices held that the four companies controlled absolute market share, and that this behavior constituted a monopoly. But the key issue was that the Antitrust Act applies only to trade and commerce, not to manufacturing.

The full name of the law is the Protection of Trade and Commerce from Unlawful Restraints and Monopolies Act, and it does not cover production, manufacturing or industry. In the end, the judge ruled 8-1 against the government.

With this ruling, all the manufacturing trusts at the time were exempt from the Antitrust Act. Instead, union organizations and workers' strikes became anti-trust targets. At that time, concerted actions such as workers joining together to strike and demand wage increases were considered a form of monopolistic behavior, and union organizations were considered monopolistic.

In 1894, when the Pullman Strike refused to transport the mail, the federal government took the strike leader, Eugene Debs, to the Supreme Court for "restraint of trade". The justices convicted Debs under the antitrust laws.

From 1890 to 1897, twelve of the thirteen earliest cases in which the Antitrust Act was found to have been violated were against labor organizations. Of the 18 antitrust cases from 1890-1900, none of the trusts were dissolved.

In this way, this politically inspired law was turned into a tool for political struggle, which in turn led to more violent social confrontation.

During those turbulent years, President William McKinley created an economic boom and became known as the "Prosperity President". However, it was widely believed that President McKinley was a puppet of the capitalists, who nicknamed him "Hannah's Boy". At the time, there was a famous industrialist named Mark Hanna, who was engaged in mining, iron production, and shipbuilding in the Lake Erie region, and was known for rigging elections, and he was nicknamed "The Political Boss". Hanna single-handedly made McKinley governor and then ran a successful campaign for the presidency.

In 1901, President McKinley was assassinated by an anarchist, and Vice President Theodore Roosevelt succeeded him as president. The assassination of McKinley made Roosevelt y feel that the American society is undercurrent and crisis. As a reformer of the **** and party, Roosevelt raised his sword to the trusts as soon as he came to power. He tried to come to a "decapitation action" to set the record straight, directing the federal Department of Justice to launch an antitrust lawsuit against Northern Securities.

What is Northern Securities? Northern Securities owns the world's largest railroad network, including the North Atlantic Railroad, the Quincy Railroad, and the Chicago Railroad. The gold masters behind it are Wall Street giants J.P. Morgan and Rockefeller.

Old Morgan was furious when he heard the bad news in his apartment. Old Morgan could not have imagined that the young politician, who had been supported and financed by him, would turn on himself in his second year in power.

Morgan hired a team of the nation's top lawyers to fight Roosevelt to the bitter end, and the case eventually went to the Federal Supreme Court, where the justices ruled 5-4 in 1903 that the company had violated the Antitrust Act.

This case has been called the "first shot at antitrust monopolization in the United States in the 20th century," and dramatically reversed the Federal Supreme Court's attitude toward trusts. Since then, Roosevelt initiated 44 lawsuits against large corporations, 25 of which he won, and successfully dismantled the beef and oil trusts. Roosevelt was called the "tamer of trusts".

After Roosevelt, President Wilson, a Democrat, signed the Federal Trade Commission Act and the Clayton Act, which improved the U.S. antitrust legal system.

In 1918, the federal government charged the Chicago Board of Trade with alleged monopolization for its price-fixing practices. Instead of convicting the defendants of violating the law, the district court ultimately allowed the federal government to settle with the trade association. At the time, Justice Brandeis used the rule of reason in this case. The so-called rule of reason is a rule that determines whether a restriction is illegal by considering all of the facts of the conduct, not just the large size. Later, many judges cited this case and the rule of reason in their rulings.

Up to this point, the U.S. antitrust law mainly combats unfair competition behaviors such as price fixing, exclusionary behavior, and restriction of competition. However, due to the lack of a rigorous definition of monopoly in jurisprudence, in specific rulings, judges did not fully follow the rule of reason, sometimes falling into the inertia of the "inference of guilt of large enterprises.

In 1937, the federal government filed an antitrust lawsuit against Alcoa, Canadian Aluminum, and 64 of their shareholders and executives, alleging as many as 140 violations. The famous judge of the Second Circuit Court of Appeals, Lenid Hand, found the defendants guilty of the charges in a very simple way: the defendants had a market share share of more than 90%.

He noted that "90% market share is enough to constitute a monopoly; 60-64% market share is questionable as to whether it constitutes a monopoly; and 33% is certain not to."

"Big is original sin"? The jurisprudence is highly controversial and ignorant. Antitrust efforts desperately need the professional support of economists.

It was in 1936 that the federal Antitrust Office hired its first-ever economist. But the role of the Bureau's economists in antitrust cases was limited to data collection and litigation support. Judge Posner described it as follows in 1971, "Today the economists in the [Justice Department's antitrust] bureau are the maidservants of the lawyers and have been neglected."

Professor Mason of Harvard University and his disciple Bain, absorbing the monopolistic competition theories of Chamberlain and Mrs. Robinson, came up with the famous theory of industrial organization, structuralism. This theory holds that market structure determines market performance. Bain examined 42 U.S. sample manufacturing industries from 1936-1940 and concluded that concentration was positively related to firm performance. Bain also examined the relationship between barriers to entry and profits in 20 U.S. manufacturing industries. The results were that average returns were significantly higher under high barriers than under low barriers.

The Harvard School's research is equivalent to arguing that "big is the original sin", pointing out that large enterprises use high barriers and market concentration advantages to obtain excessive profits, impede technological progress and reduce market efficiency; at the same time, tell the government and the judge, to see whether a company is suspected of monopoly, only need to look at the market structure --The government and judges are also told to look at the structure of the market to see if a company is suspected of monopolizing.

The Harvard School's structuralism is very much to the liking of the U.S. judiciary, and has been called "the first salvo of the economic revolution in antitrust law. This theory permeated antitrust legislation and judicial decisions in a big way.

In 1965, Professor Donald Turner of the Harvard School became Assistant Attorney General. He attracted a group of young economists to antitrust work. At his urging, in 1968 the Justice Department issued the Merger Guidelines - "developed by a group of economic and policy experts in conjunction with career attorneys in the Department of Justice's Antitrust Bureau ****, which embodies a framework for industrial organization analysis."

In reality, the Harvard School's structuralism is seriously flawed. This theory lacks a solid theoretical foundation and rigorous logical reasoning and mathematical arguments. Do large firms necessarily reduce economic efficiency and impede technological innovation?

The economist Thomas DiLorenzo once wrote in his book, International Business, that large firms are not necessarily more efficient or less efficient. DiLorenzo published an important article in the International Review of Law and Economics. This article pointed out that throughout the 1880s, real GDP growth was 24%, whereas the real growth rate of monopoly output at that time was documented to be 175%.

Large corporate organizations also greatly reduced product prices. Carnegie Steel reduced the price of rails from $160 per ton in 1875 to $17 per ton nearly 25 years later; Rockefeller depressed the price of refined petroleum from more than 30 cents per gallon to 5.9 cents per gallon in 1897; and the railroad network of the Northern Securities dramatically expanded the sales market for Great Lakes mills, facilitating the formation of a unified U.S. domestic market and a dramatic drop in commodity prices; By the 1920s, the old Ford invented the assembly line, the price of the car in a short period of time down to the civilian price, and from then on the car into the common people.

Why are large companies efficient?

Classical economists have long argued that the free market is the only way to allocate resources efficiently, and in 1931, Ronald Harry Coase, still a student at the London School of Economics, won a scholarship to study industrial structure in the United States. Coase found that large industrial firms in the United States implemented effective management (the Taylor Revolution) and were internally very economically efficient. He was keenly aware that organizational schemes within firms were as efficient as free markets. He introduced transaction costs to put his ideas into the famous The Nature of the Firm (1937). Later, new institutional economists such as Williamson endorsed the internal efficiency of firms and economic organizations in general. This theory amounted to a rejection of the structuralism of the Harvard School.

Beginning in the 1970s, the United States fell into a stagflationary crisis, the rise of neoliberalism, and the Chicago School's idea of "economic efficiency above all else" became popular. Studies by economists such as Stigler, Demsetz, and Posner told the federal government and judges that economic efficiency, rather than market share and concentration as advocated by the Harvard School, was the main factor in determining whether or not a company was a monopoly.

As the information industry began to take off, Chicago performanceism set off the "second wave of the antitrust revolution," and fiercely confronted the Harvard School's structuralism in the new technological era.

One is the 1974 Federal Government v. AT&T case.

The lawsuit was based on the company's practice of subsidizing its network with monopoly profits from electronic equipment; preventing MCI or other carriers from linking to local manufacturers, and monopolizing the market for telecommunications equipment by refusing to buy equipment from non-Bell suppliers.

The lawsuit lasted nearly a decade, and AT&T agreed in 1982 to accept the Justice Department's ruling package. Two years later, the largest telephone and telecommunications company in the United States was legally split into seven large regional telephone holding companies, retaining only its long-distance business, as well as Bell Labs and Western Electric, which had been cut by 80% in size and sales.

The breakup of AT&T was widely seen as a boost to competition and innovation in communications. However, people quickly responded that the force that defeated the monopoly was not antitrust, but technological innovation - the burgeoning information revolution. After the breakup of the Bell System, innovations in mobile communications systems were steadily eroding the Bell System's natural monopoly based on wireline communications.

In his book Economics, Samuelson wrote: "The disintegration of the Bell System revealed clearly to men the truth that rapidly advancing technological innovations need not depend on the power of monopolies.4"

The second case was Federal Government v. IBM in 1969.

The cause of action was monopolization or attempted monopolization of the market for general-purpose digital electronic computer systems, particularly commercially designed computers; preventing competitors from entering the industry by lowering prices, and introducing new products, reducing the attractiveness of the products of other firms, and so on.

This was a protracted lawsuit, fought over a decade. At the time, the influence of the Chicago School on antitrust judicial action was increasing, the federal Department of Justice and the Supreme Court's antitrust thinking was in transition, and the decision was a difficult one.

IBM argued that the government was punishing success, not anti-competitive behavior. What the government is doing is punishing companies that foresaw the enormous potential of the computer revolution and dominated the industry through their "superior technology, vision, and industry."

IBM also pointed out that its share of the proceeds from the sale of EDP products and the provision of services in the United States was not a monopoly in the marketplace, as the government claimed. monopoly position. The market share it held was 56.4 percent in 1961, 54 percent in 1968, and declined to 40.7 percent in 1972.

In 1982, William Baxter, the head of the Reagan administration's antitrust bureau, decided to drop the lawsuit as "unnecessary". His explanation was that, unlike telecommunications, the computer industry was unregulated and subject to strong competitive market pressures. He argued that the industry is competitive by nature, and that the government's attempts to reorganize the computer market may harm the efficiency of the economy rather than promote it.

Compared to AT&T, IBM was fortunate.

In the competition between "big is the original sin" and "efficiency", the latter won more support. The Chicago School's Posner, who was appointed by President Reagan to the federal Seventh Court of Appeals, brought his efficiency principles from Economic Analysis of Law to antitrust cases. He said, "If the losers are not out of the game and the winners are penalized instead, even if a sufficient number of firms are still competing in the marketplace, that competition is nothing more than artificial and contrived. "5"

The 1992 Guidelines for Horizontal Mergers of Firms, issued by the Department of Justice in conjunction with the Federal Trade Commission, essentially abandoned the structuralist ideology and instead used economic efficiency before and after the merger as the benchmark for judgment.

The growing information technology revolution is crushing monopolies. The Chicago School taught the world that there is no real monopoly, no permanent monopoly, but only the ever-moving wave of technology.

The organizational structure of the Antitrust Division after 1983 shows economists on an equal footing with lawyers. Since then, U.S. antitrust work has entered a rational phase dominated by economists.

By this point, there was a shift in the liberal economists' view of antitrust law. Initially, they supported antitrust law on the basis of the Cournot model, but today many of them turn the other way. For example, Friedman believes that antitrust laws do more harm than good. Coase also said, "I'm annoyed by the antitrust laws. When prices go up, judges say it's a monopoly; when prices go down, judges say it's predatory pricing or dumping; when prices stay the same, judges say it's a form of price collusion. What does the judge really want?"

So, starting in the 1980s, antitrust efforts became less obsessed with specious "monopolies" - market share, excess profit taking, predatory pricing, dumping - and shifted their target more to illegal competition by big The goal is to shift the goalposts more to the illegal competition of large firms, such as price-fixing, bundling, and restricting competition.

As Judge Posner put it, "The truly unilateral acts by which a business seeks or maintains monopoly profits are to defraud the patent office or to blow up a competitor's plant. And fraud and violence are, in turn, generally sufficiently penalized by other statutes.5"

Take, for example, the famous case of Federal Government v. Microsoft. The lawsuit was based on Microsoft's use of its monopoly in the field of operating systems to force the sale of its applications in bundles; the Justice Department demanded that Microsoft be split in two. In the end, the Bush administration decided not to try to split Microsoft up, but to prohibit Microsoft's tying practices, while requiring Microsoft to ensure compatibility between Windows and non-Windows software.

The outcome of the Microsoft case demonstrates once again that antitrust investigations have little to do with monopolization per se, and that they target illegal competitive behavior. More and more jurists and economists believe that the problem of monopoly should be left to free competition, technological innovation to solve monopoly, and the law to solve illegal competition.

However, with the rise of Internet giants such as Facebook and Google, some people are concerned about the giants' ability to dominate the super market.

Facebook is firmly established as the world's social leader, with Instagram and WhatsApp at its disposal. 1.59 billion daily users and 2.41 billion monthly users on Facebook, spread across major countries around the world.

Google dominates the global search engine and mobile operating system. In the United States, Google's search engine market share is as high as 86.4%, and in Europe, it is 91.4%. Google Android, has an absolute 85.9% share of the global smartphone market.

Facebook and Google's market dominance may exceed that of historical giants like Northern Securities, Standard Oil, and the Telephone and Telegraph Company.

At this point, the idea of "big is evil" is back in vogue. Earlier this year, in August, two US senators tried to introduce a new bill called the Monopoly Deterrence Act. If the bill is passed, Facebook, Apple and other technology giants, may face severe punishment - a fine of 15% of the revenue of the U.S. market.

In the last decade or so, one of the most common antitrust charges against Internet giants in Europe and the United States has been abuse of market dominance. This charge seems to be an "inference of guilt".

In fact, there is a certain non-legitimacy to the Internet giants' dominant market position - the control of private data.

Data is a private resource for users, and data ownership is a private right. However, Internet giants do not use distributed systems, and private data is monopolized by centralized databases. So, the market dominance of Internet giants is actually the dominance of private data. In the age of algorithms, private data is very likely to be abused by giants in the name of "big data".

In recent years, Facebook has been the subject of a number of congressional investigations into its involvement in a data abuse scandal, in which a British company called Cambridge Analytica was exposed as having improperly accessed the data of 87 million Facebook users. The U.S. Federal Trade Commission then launched an investigation into Facebook.

During the hearing, a lawmaker asked founder Zuckerberg, "Is Facebook listening to what its users are saying? Zuckerberg politely replied, "We allow users to upload and share videos that they take, and those videos do have sound, and we do record that sound and analyze that sound to better serve our users."

Zuckerberg was at a loss for words: Facebook stores private data about its users, and it matches that data with information. This involves two major problems: first, the user's private information is recorded; second, the information is algorithmically controlled (matching). In the United States, such behavior is suspected of violating personal privacy and controlling freedom of speech. During the election period, it may also be suspected of interfering with the election and threatening US democratic politics.

In the end, the US Federal Trade Commission approved the settlement agreement by a 3-2 vote. The settlement came at the cost of Facebook paying a $5 billion fine - the largest fine ever issued by the US government to a tech company.

Recently, Chinese officials have emphasized that operators in the platform economy with a dominant market position should not engage in illegal competitive behaviors such as abusing their dominant market position to "choose one", denigrating goodwill, and holding transactions hostage, or relying on algorithmic recommendations, artificial intelligence, and big data meta-analysis. The "invisible" unfair competition behavior.

British economist Pegu in 1920 "Welfare Economics" in accordance with the degree of price discrimination, divided into the first level of price discrimination, price discrimination, second level of price discrimination, third level of price discrimination 6. Among them, the first level of price discrimination, also known as full price discrimination, the same goods for each different buyers are using different prices.

The Robinson Patman Act, introduced in the United States in 1936, is a law against price discrimination. This law provides that to determine the price discrimination is illegal need to meet two conditions: First, the same goods for different consumers using different prices; Second, this behavior on the destruction of competition or cause harm to consumers. As you can see, this law prohibits price discrimination on one level.

Usually, companies are not able to achieve first-degree price discrimination, and first-degree price discrimination often exists because the private data of all customers are dominated without compensation. So the objection to first-degree price discrimination is not against price discrimination itself, but the illegal behavior behind it, such as the misuse of private data behind big data killing.

Amazon is the "initiator" of the Internet's big-data ripoffs, and in 2000, it implemented a different pricing policy for the same DVD, with new users seeing a price of $22.74, but older users whose algorithms recognized their intent to buy showing a price of $26.24. If a cookie was removed, the price immediately went back up. If the cookie was deleted, the price went right back down. Soon after this tactic was discovered and complained about by users, Amazon CEO Bezos publicly apologized, saying it was just an experiment and promising not to engage in price discrimination again.

I analyzed big data kills maturity in the article "Algorithm, that is, exploitation". Big data kills familiarity, that is, Internet platforms use the dominant advantage of controlling private data, with the help of algorithms to implement "first-level price discrimination" against each user, maximizing the extraction of each user's "consumer surplus".

Look at the problem of ants. Jack Ma mocked the Basel Accord as an old people's club. However, the leverage of ants far exceeds the regulatory requirements of the Basel Accord. Perhaps, Jack Ma believes that Ant's big data risk control can break through this regulatory leverage ratio based on advantages over banks' statistical risk control.

However, Ma Yun missed the point that the ant has the algorithmic advantage of the big data bank, because it is free to control the private data of hundreds of millions of users, occupying the dominant advantage of private data. The ant can become a "giant elephant", it is the use of algorithms to dominate private data. Theoretically, the ant can use the algorithm to implement full price discrimination, maximizing the capture of each user's "transaction surplus". When each user's wealth scale is tilted to the ant, the default rate will certainly rise, the ant constructed the moat anti-algorithm swallowed, and at the same time trigger systemic financial risks.

This is price discrimination in the age of algorithms, a threat to the financial system.

In Welfare Economics, Peguy established the condition of optimal efficiency of the market that private marginal revenue = social marginal revenue. What does that mean? This equation means that "no one can take advantage of another". When a country has such a fair law (the system is endogenous), the economy is optimally efficient, and theoretically there are no externalities.

In the era of big data, Internet giants compulsorily take possession of private data for free, which implies a private marginal gain social marginal gain, i.e., Internet giants take advantage of private individuals. This will surely trigger externalities that undermine economic efficiency and social welfare. If it is not possible to privatize private data in the short term by technological means, then the Internet giants must be put in the spotlight. That's where antitrust law comes in.

References:

1 Reaper: Tencent Ali's $20 trillion ecosystem, Tao Juan, New Fortune;

2 Cambridge Economic History of the United States (Volume 2), Stanley L. Engelman et al. People's Posts and Telecommunications Publishing House;

4 A Century of U.S. Federal Antitrust Law, Li Shengli, Law Publishing House;

5 Antitrust Law, Richard A. Posner China University of Political Science and Law Publishing House,

6 Welfare Economics, Piku, Commercial Press.