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The Corner Newsletter, May 17, 2018: Platform Monopolies in NAFTA — The Body Camera Monopoly — Price Discrimination in the Airline Industry

In this issue of The Corner (Vol. 1, No. 11), we examine how platform monopolies are trying to use trade policy to escape responsiblity for the content posted on their sites. We also look at the cornering of the police body camera market and at the airline industry’s plans to engage in price discrimination based on your social media profile.  

May 17, 2018  |  by Open Markets

PLATFORM MONOPOLIES INSERT THEMSELVES INTO NAFTA NEGOTIATIONS

In April, President Trump signed the controversial SESTA-FOSTA law, which allows law enforcers to prosecute website owners who knowingly facilitate sex trafficking or prostitution. While the new law appears to target just this one activity, something much bigger is at play. SESTA-FOSTA is the first time Congress has modified Section 230 of the Communications Decency Act, a provision of law written in 1996 designed to protect early online platforms like America Online, CompuServe, and Prodigy from being held liable for what was said in their various forums.

When Section 230 passed, the argument was that these “interactive computer services” were simply platforms facilitating the free speech of others. But what was once a legislative shield for a tiny corner of the economy has now become a massive competitive advantage for some of the biggest corporations in the world. According to the Internet Association, which represents Google, Amazon, and Facebook among others, Section 230 is “a bedrock legal protection for online services.” The sex trafficking bill (its full name is the “Allow States and Victims to Fight Online Sex Trafficking Act – Stop Enabling Sex Traffickers Act”) was therefore a big loss for the platforms and marked the first step towards a full revamp of Section 230 to account for the massive growth of the internet economy over the last quarter century.

The platforms are already attempting to reverse Congress and the President. One tactic would be to use the Administration’s renegotiation of the North America Free Trade Agreement (NAFTA) to overturn SESTA-FOSTA by embedding the original version of Section 230 into the new text. This approach is not as uncommon as you might think. According to Public Citizen’s Lori Wallach, past administrations have often implemented policies rejected by Congress “through the back door of ‘trade’ agreements.”

But it’s not at all clear this will work. During the Obama Administration, trade negotiators once proposed embedding Section 230 into a little-noticed agreement called the Trade in Services Agreement (TiSA). Earlier this year, negotiators proposed putting Section 230-style principles into an e-commerce chapter at the World Trade Organization. Further complicating matters for the platforms, President Trump’s trade team has not met the May 17 deadline set by Paul Ryan for negotiators from Mexico, Canada, and the United States to come to a high-level agreement in order for this Congress to have time to vote on the pact before the next Congress takes office.

Whether Section 230 gets into NAFTA, or whether the United States Trade Representative tries to move it through other agreements, it is clear that this backdoor strategy reflects a changed environment for the platforms.

Section 230 has become a focal point of frustration for both politicians and businesses opposed to the competitive advantage it offers giant tech platforms. Earlier this month, Senator Ted Cruz attackedFacebook’s use of Section 230 to shield itself from responsibility for the content on its platform. Meanwhile, IBM, which is not a platform, endorsed SESTA-FOSTA and expressed public opposition to blanket “intermediary liability protection” in trade agreements.

A growing number of critics are also attacking Section 230 for allowing Amazon to avoid prosecution for allowing the sale of counterfeit products through its marketplace. No real-world store can legally sell counterfeit goods, but Amazon is using its putative status as a platform to do the logistics, fulfillment, payment processing, and marketing of counterfeit goods offered by nominal third parties.

 

🔊 ANTI-MONOPOLY RISING:

  • Federal Trade Commissioner Rohit Chopra released his first official statement as commissioner, in which he called for tougher punishments for corporations that repeatedly break the law. Specifically, Chopra argued that the FTC should refer repeat offenders to criminal authorities and consider exacting tougher civil penalties on recidivist corporations.
  • Reps. Bill Pascrell, Jr. (D-NJ), Frank Pallone, Jr. (D-NJ), Fred Upton (R-MI), and Greg Walden (R-OR) announced the release of a Government Accountability Office study finding, among other things, high concentration in the market for entertainment ticket sales and increased prices for everyday event attendees. The study comes one month after The New York Times reported that Live Nation wielded its market power over concert venues to hurt competitors, and eight years after the Justice Department blessed Live Nation and Ticketmaster’s merger under a consent decree. In 2010, then-Assistant Attorney General for the Antitrust Division Christine Varney said the merger would “ensure that there will be enough air and sunlight in this space for strong competitors to take root, grow, and thrive.”
  • New York congressional candidate Suraj Patel discussed his interest in anti-monopoly politics in a Tuesday blog post on Medium. In the piece, he cited Louis Brandeis’ famous quote that “We can have democracy in this country, or we can have great wealth concentrated in the hands of a few, but we can’t have both.”

 

📝 WHAT WE’VE BEEN UP TO:

  • Kevin argued for using competition policy to regulate the big tech platforms during his appearance on a panel as part of NYC Media Lab and Bloomberg’s Machines + Media conference in New York City.
  • Phillip Longman’s article “The Case for Single Price Health Care,” featured in the current issue of Washington Monthly, continues to find broad resonance. A Washington Post editorial last week endorsed a similar plan by the liberal Urban Institute. This follows a column by the conservative Washington Post columnist Robert J. Samuelson, who called Longman’s plan for applying Medicare pricing to all private health care plans “a genuine solution to our health care problem.”
  • Lina Khan spoke at a conference about the Microsoft antitrust case in Washington, D.C. on Tuesday, May 15. She argued for the need to consider enacting structural separations on gatekeepers with power to make sure they don’t abuse it.
  • Lina’s Yale Law Journal article on Amazon was cited by New York Times columnist David Leonhardt in an article about the tech giant’s baleful effects on book publishing.
  • Sarah Miller and Lina appeared on a Facebook Live video with Sen. Bernie Sanders to discuss “the greatest threat to American democracy.” They discussed the concentrated power that Google, Facebook, and other tech platforms hold over American politics and society.

 

Stun Gun Monopoly Rolls Up Body Camera Market

The debate over whether American police should wear body cameras continues, but in the meantime, one corporation is moving fast to corner the market for the new technology. Earlier this month, Axon International said it would acquire its biggest competitor, VIEVU, in a deal that poses clear problems for competition, civil rights, and privacy.

If the merger goes through, Axon will have 43 of the 54 body camera contracts that have so far been awarded to major American police departments, according to Bloomberg. Not least among those contracts, Axon will control the body camera contracts with the police departmentsof New York City, Miami, Oakland, Phoenix, and Aurora, Colorado.

Axon has become a dominant body camera provider in part because it already has a near-monopoly position in the market for stun guns. Axon, formerly known as Taser International, provides its Taser stun gun to 17,000 of the 18,000 law enforcement agencies in the U.S. According to Chad Marlow, Advocacy and Policy Counsel at the ACLU, Axon secured its “fairly dominant market position” in body cameras by “leveraging the relationships they have with police departments around their Taser products.”

Indeed some cities have signed contracts with Axon for their body cameras without going through the competitive bidding process that is typical for such government contracts. Albuquerque, San Diego, SpokaneRichmond, and Philadelphia are among those who reached no-bid contracts for body cameras from Axon. And, as The Wall Street Journal reported in 2016, Axon even told some city officials how to avoid competitive bidding processes.

Axon’s dominance also means that police departments and other buyers will have fewer providers to choose from when evaluating body cameras. And it means that Axon can drive a harder bargain. When wooing the NYPD in 2017, for instance, Axon presented a bid almost $11 million higher than the $6.4 million bid provided by VIEVU. Now, they will be the same corporation.

Moreover, Axon’s market power gives it little incentive to pursue needed innovation. For instance, before releasing video from a body camera, police departments often need to redact identifying details like faces and tattoos so as not to violate the privacy of people who engage with police. This makes it important to have body cameras with software that allows for effective redaction. But “if there’s a lack of competition in the marketplace,” says Marlow of the ACLU, “we may find features not only not being developed but disappearing. Redaction may not be available.”

Axon’s dominance also means that it may become even harder to hold the corporation to account for the problematic use of new technology. Last month, Axon announced plans to apply new artificial intelligence technologies to its products. Axon did not say specifically what AI tools it was considering, but advocates are concerned that Axon might seek to add facial recognition tech to its body cameras.

The same day that Axon announced its AI plans, 42 organizations, including the ACLU, Color of Change, and the NAACP, wrote in a letter to Axon that real-time facial recognition – which would allow officers to identify people as they are looking at them with their cameras – is “categorically unethical to deploy.” For one, they wrote, “Real-time face recognition would chill the constitutional freedoms of speech and association, especially at protests.”

Moreover, the groups wrote, because facial recognition technology is still being developed and will never be foolproof, it will “inevitably misidentify some innocent civilians as suspects. These errors could have fatal consequences.”

 

📚 WHAT WE’RE READING:

  • “The Problem With Prescription Drug Prices,” (60 Minutes, Lesley Stahl): An accessible investigation into the ways pharmaceutical corporations use their market power to overcharge and exploit patients.
  • “The Spectacular Power of Big Lens,” (The Guardian, Sam Knight): A deep look at the history and future of an eyewear industry increasingly monopolized by Italian giant Luxxotica.
  • “Inside the Ecosystem that Fuels Amazon’s Fake Review Problem,” (BuzzFeed, Nicole Nguyen): How an online subculture helps people game Amazon’s review system, often to the detriment of already-vulnerable small entrepreneurs.

 

📷 WHAT’S MISSING FROM THE PICTURE? 

Airline Ticket Prices Will Depend on Your Internet Travels

Last week, the Financial Times reported that airlines are “seeking to harness big data to personalise customer experiences.” According to reporters Camilla Hodgson and Patti Waldmeir, airlines are looking to use the massive amounts of data they collect on customers to do things like remember drink orders and match meals to flyers’ dietary restrictions.

Yet at the very end of the article comes the real news. International Airlines Group, the owner of Aer Lingus, British Airways, Iberia, and Vueling, is pursuing the ability “to predict customer demand for specific flights on specific days,” based on the public information gleaned from an individual’s posting on social media and other personal data. In other words, if your Facebook page shows that you plan to attend a wedding in New York or London next Saturday, then you may well be charged more for a ticket than the person whose social media reveal no particular travel plans.

Airlines already engage in various types of price discrimination for and against different classes of customers. The class of customers who purchase their tickets fourteen days in advance, for example, generally enjoys prices that are lower than those charged to the class of customers who purchase their tickets one day in advance. But now airlines are trying to engage in price discrimination not just among different groups of people, but for and against each of us as individuals.

The revenue management software corporation PROS, which serves dozens of airlines, provides more evidence that such discrimination in airfares is coming. The corporation was quoted by travel industry publication Travel Weekly predicting, “There will be a handful of large carriers that move toward dynamic pricing science.” Such a science could also include the ability to price discriminate. In other words, Travel Weekly explains, airlines might soon be able “to generate a person-specific fare offer that differs from the offer some other shoppers might get for the same fare inquiry at the same time.”

Would this be legal? Before airlines were largely deregulated in 1978, it certainly would not have been. Under traditional common carriage laws dating back to at least ancient Rome, charging some customers more than others for the same trip was generally forbidden. But that’s not so clear today.

University of Virginia lecturer and airline industry attorney David Kirstein explains, “Airlines are pretty much free to set their prices however they want, subject to [Department of Transportation] regulations on how those prices are disclosed.” Price discrimination based on race or gender would be illegal, but there’s no current law against personalized pricing. The only requirement, Kirstein says, might be that “if you’re doing this, you have to have a description of how these pricing practices work.”

Senator Chuck Schumer (D-NY) has already noticed the serious privacy issues airlines’ collection of big data presents. In a March 11 letter to then-Acting Chairwoman of the Federal Trade Commission Maureen Ohlhausen, Sen. Schumer asked the FTC to open an investigation into whether personalized pricing “violates the privacy of deeply personal consumer data.”

While airlines advance toward personalized pricing presents the possibility for abusing customers’ private information, airlines don’t necessarily need that information to extract the maximum each of us is willing to pay for a ticket. In 2016, The Wall Street Journal reported that many airlines already use a program called Plusgrade to auction off unsold premium seats. Though Plusgrade CEO Ken Harris claims that users always pay less than the original price, some travel columnists disagree. Regardless, the use of an auction frequently induces participants to pay more than they would have otherwise because of its psychological effects and because it allows the seller to find participants’ maximum price.

The best way to address price discrimination would be to rely on a competitive marketplace.  If airlines markets were truly competitive, then consumers would find it easy to avoid airlines that discriminated against them. But with more than 80 percent of the U.S. air travel business under the control of Delta, Southwest, United, and American Airlines, the U.S. market for air service is already highly concentrated, with many locations served by only one carrier. Further monopolization of the airline industry would only hasten the day that personalized price discrimination becomes the norm.

 

📈 VITAL STAT:

$100,000,000,000

The value of Softbank CEO Masayoshi Son’s Vision Fund, according to The Economist. By comparison, venture capital funds, as a whole, raised $64 million globally in 2016. With the massive fund, Son has invested in corporations as varied as the ride-hailing apps Uber, Didi, Ola, and Grab, the co-working corporation WeWork, the dog-walking app Wag, and the Indian e-commerce firm Flipkart, among many others.

 

👀 WHAT WE’RE WATCHING:

  • EpiPen Shortages: The United States is facing a country-wide shortage of epinephrine auto-injectors, the most famous of which is the EpiPen. The shortage illustrates one of the most serious dangers of consolidation: supply-chain fragility. When a corporation like Mylan has a de facto monopoly on the sale of life-saving epinephrine injectors, not only can it jack prices up, as it did in 2016, but any disruption in its production affects everyone who depends on the product.
  • Facebook, Google Regulate Irish Political Ads: Facebook announced that it would stop accepting ads from foreign sources in Ireland related to an upcoming abortion referendum in the country, and Google said it would not run any referendum-related ads before the vote. Their decisions to cut off so much political advertising illustrates the power that the platforms hold over politics and discourse not only in Ireland but across this country as well.
  • Goldman Pay?: Goldman Sachs and Apple are teaming up to produce a credit card that would feature the “Apple Pay” logo and represent the bank’s first foray into the credit card business. As the new card shows, America’s biggest tech corporations are increasingly leveraging their existing power to enter new markets. It remains to be seen how their entrance will affect longstanding, highly regulated markets like banking.

 

🔎 TIPS? COMMENTS? SUGGESTIONS?

We would love to hear from you—just send us an email at [email protected] and drop us a line. Give us your feedback, alert us to competition policy news, or let us know your favorite story from this issue.

 

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In America today, wealth and political power are more concentrated than at any point in our country’s history.

The Open Markets Institute, formerly the Open Markets program at New America, was founded to protect liberty and democracy from these extreme -- and growing -- concentrations of private power.

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