tag:theconversation.com,2011:/ca/topics/monopoly-12948/articlesMonopoly – The Conversation2024-03-27T12:37:18Ztag:theconversation.com,2011:article/2263762024-03-27T12:37:18Z2024-03-27T12:37:18Z‘The Amazon of Sports’ has already cornered baseball’s apparel market – and is now on the verge of subsuming baseball cards, too<figure><img src="https://images.theconversation.com/files/584187/original/file-20240325-24-8sv22l.jpg?ixlib=rb-1.1.0&rect=30%2C7%2C5073%2C3638&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The U.S. sports card industry is an estimated $12 billion market.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/group-of-young-fans-hold-up-their-topps-baseball-cards-news-photo/830913124?adppopup=true">Mark Cunningham/MLB Photos via Getty Images</a></span></figcaption></figure><p>During spring training, Major League Baseball’s official uniform supplier, Fanatics, became a focal point for all the wrong reasons. </p>
<p>After arriving in Florida and Arizona, players began to complain about the quality of their new, Fanatics-manufactured uniforms. </p>
<p>One player for the Baltimore Orioles <a href="https://www.thebaltimorebanner.com/sports/orioles-mlb/orioles-players-slam-new-mlb-jerseys-like-a-knockoff-jersey-from-tj-maxx-DEXUP34CLNFNNEW3AMES56G6U4/">groused that the new uniforms looked</a> “like a knockoff jersey from T.J. Maxx.” Others were dismayed to learn that the white pants were transparent, with seams from tucked-in jerseys – <a href="https://twitter.com/JRoc23/status/1760930264828563621">and sometimes more than just seams</a> – visible to all.</p>
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<p>The spring training uniform fiasco has led to more scrutiny for Fanatics, a company that had, until recently, been widely considered an American success story. CEO Michael Rubin, a college dropout, grew Fanatics from a ski and snowboard business into what some now call “<a href="https://theathletic.com/3998333/2022/12/14/michael-rubin-business-sportsperson/">the Amazon of Sports</a>.” </p>
<p>Thanks to its connections with the leading U.S. sports leagues, Fanatics has quickly become the dominant player in nearly every aspect of the sports licensing industry. It manufactures and sells everything from team hats and T-shirts to logo-adorned <a href="https://www.fanatics.com/nhl/new-york-rangers/auto-accessories/new-york-rangers-wincraft-chrome-colored-license-plate-frame/o-4628+t-47598504+d-64881168+f-9585632+z-9-3053713359?">license plate frames</a> and <a href="https://www.fanatics.com/mlb/boston-red-sox/lawn-and-garden/boston-red-sox-bird-house/o-3432+t-92334186+d-75002380+f-539183674+z-9-1600955566?">birdhouses</a>.</p>
<p>But uniforms are not the only aspect of Fanatics’ licensing strategy that has elicited controversy. Over the past few years, <a href="https://sportscollectorsdigest.com/news/fanatics-sports-card-rights-reaction-mlb-nba-nfl-hobby">Fanatics has undertaken an aggressive campaign</a> to acquire the exclusive rights to produce the officially licensed sports trading cards for not only MLB but also the NFL and NBA. In some cases, these deals are set to run for as long as 20 years.</p>
<p>As we explain <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4739580">in a forthcoming article</a> in the University of Illinois Law Review, Fanatics’ consolidation of the sports card industry threatens to reduce the company’s incentive to innovate or invest in trading cards, risking a stagnant future for the hobby.</p>
<h2>Pro sports get exclusive</h2>
<p>In order to produce apparel or memorabilia featuring official team logos, manufacturers must secure the legal right to use the teams’ trademarks, the intellectual property that legally protects teams’ names and emblems. </p>
<p>The companies will typically acquire these legal rights by entering into contracts, called <a href="https://www.investopedia.com/terms/l/licensing-agreement.asp">licensing agreements</a>, with a particular sports league, giving the manufacturer the right to use all league and team logos on its products.</p>
<p>Historically, U.S. sports leagues have granted multiple companies these rights.</p>
<p>In recent years, however, leagues and manufacturers have tended to favor <a href="https://www.law.cornell.edu/wex/exclusive_license">exclusive licenses</a> – agreements that ensure that only a single company will have the right to use the league’s trademarks on a particular type of product. EA Sports, for instance, has held the exclusive rights to produce NFL video games – via its Madden franchise – <a href="https://kotaku.com/remember-its-not-just-the-nfls-exclusive-license-with-5988357">for nearly 20 years</a>, giving it an effective monopoly over this product line.</p>
<p>After deciding to move into the sports trading card market, Fanatics used exclusive trademark licenses <a href="https://sportscollectorsdigest.com/news/fanatics-sports-card-rights-reaction-mlb-nba-nfl-hobby">to secure the sole rights to produce MLB, NFL and NBA cards</a> in 2021.</p>
<p>While some people may see baseball cards as mere child’s play, the U.S. sports card industry <a href="https://www.verifiedmarketresearch.com/product/sports-trading-card-market/">is estimated to be a US$12 billion market</a>. Since the COVID-19 pandemic, <a href="https://theathletic.com/3447519/2022/07/26/sports-card-baseball-market/">there’s been a surge in interest</a>. </p>
<p>Moving forward, Fanatics will have near monopoly control over a large chunk of that market.</p>
<figure class="align-center ">
<img alt="A young woman wearing sunglasses, an older man wearing sunglasses, and a middle-aged man." src="https://images.theconversation.com/files/584197/original/file-20240325-28-qao0hy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/584197/original/file-20240325-28-qao0hy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=426&fit=crop&dpr=1 600w, https://images.theconversation.com/files/584197/original/file-20240325-28-qao0hy.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=426&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/584197/original/file-20240325-28-qao0hy.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=426&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/584197/original/file-20240325-28-qao0hy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=535&fit=crop&dpr=1 754w, https://images.theconversation.com/files/584197/original/file-20240325-28-qao0hy.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=535&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/584197/original/file-20240325-28-qao0hy.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=535&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Fanatics CEO Michael Rubin, right, embraces New England Patriots owner Robert Kraft at the 2019 Fanatics Super Bowl party.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/2019FanaticsSuperBowlParty-Arrivals/5f67df95733e4014af8a9b8d5d97a2ce/photo?Query=michael%20rubin&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=62&currentItemNo=34">Paul R. Giunta/Invision/AP</a></span>
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<h2>Trading card competition spurs innovation</h2>
<p>This won’t be the first time that the U.S. sports card hobby has fallen under the control of a single manufacturer. </p>
<p>Throughout the 1960s and 1970s, one of the companies recently displaced by Fanatics – the Topps Chewing Gum company – possessed largely unchallenged power over the industry.</p>
<p>Topps had acquired its monopoly in the mid-1950s after <a href="https://fanarch.com/blogs/sports-cards/is-bowman-owned-by-topps">buying out its former competitor</a>, Bowman, following a protracted legal battle. It then maintained the monopoly for decades by signing exclusive contracts with nearly every MLB player. These contracts gave Topps the sole rights to use images of the players on trading cards.</p>
<p>This lack of competition resulted in an era that featured little innovation – and, in the eyes of many collectors, uninspired offerings. Indeed, during this period, Topps would not only often rely on relatively unattractive card designs, but the company would also occasionally <a href="https://www.sportscollectorsdaily.com/woulda-coulda-shoulda-vintage-baseball-team-photos-topps-left-out/">reuse the same player photos multiple years in a row</a>.</p>
<p>The Topps monopoly was ultimately broken up by a federal court <a href="https://blogs.loc.gov/law/2019/01/baseball-card-litigation-fleer-v-topps/">in a suit filed by would-be competitor Fleer</a> under the Sherman Antitrust Act, and this decision led to a variety of new brands entering the market. </p>
<p>In addition to Fleer, the 1980s would witness the launch of a flood of new card companies, including <a href="https://www.cardboardconnection.com/donruss-baseball-card-designs-years">Donruss</a>, <a href="https://www.baseball-almanac.com/baseball_cards/baseball_card_sets.php?m=Score">Score</a> and Upper Deck. The resulting competition pushed these companies, <a href="https://books.google.com/books/about/Card_Sharks.html?id=J-_vAQAACAAJ">with Upper Deck leading the way</a>, to dramatically improve their product offerings, not only upgrading their card designs and photos, but also their printing technology and card stock.</p>
<p>Eventually, however, many card collectors became overwhelmed by the vast number of product offerings in the 1990s and early 2000s. Realizing that overproduction was dampening consumer interest, sports leagues began to grant exclusive licenses to individual card manufacturers to restrict the number of cards on the market. Topps, for instance, <a href="https://www.nytimes.com/2009/08/06/sports/baseball/06cards.html">regained its status</a> as the exclusive card manufacturer for MLB in 2009.</p>
<p>Until recently, however, different companies had held the exclusive rights to produce trading cards for the leading U.S. sports leagues, providing some degree of continued competition in the industry.</p>
<h2>Is Fanatics running afoul of antitrust law?</h2>
<p>Fanatics’ consolidation of the industry raises the specter that the hobby could once again witness the ills of monopolization in the coming years.</p>
<p>Perhaps unsurprisingly, Fanatics’ takeover of the sports card hobby <a href="https://www.cnbc.com/2023/08/07/fanatics-panini-launch-legal-battle-with-a-pair-of-lawsuits.html">is currently being challenged in court by Panini</a>, another of the companies that Fanatics supplanted.</p>
<figure class="align-center ">
<img alt="Yellow and sign reading 'PANINI' in front of manufacturing facilities." src="https://images.theconversation.com/files/584186/original/file-20240325-18-1cecuh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/584186/original/file-20240325-18-1cecuh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/584186/original/file-20240325-18-1cecuh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/584186/original/file-20240325-18-1cecuh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/584186/original/file-20240325-18-1cecuh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/584186/original/file-20240325-18-1cecuh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/584186/original/file-20240325-18-1cecuh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">The Italian collectibles company Panini filed an antitrust lawsuit against Fanatics in 2023.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/this-photo-taken-on-april-20-2018-shows-the-panini-group-news-photo/950673158?adppopup=true">Marco Bertorello/AFP via Getty Images</a></span>
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<p>The lawsuit alleges that Fanatics has violated the Sherman Antitrust Act by engaging in anti-competitive practices that have ousted Panini and other competitors from the industry. </p>
<p>In this sense, Fanatics’ re-monopolization of the U.S. sports trading card business exhibits additional parallels to the earlier Topps monopoly of the 1960s and 1970s.</p>
<p>Ultimately, Panini’s case merely underlies what may actually be bigger questions about Fanatics’ business practices in general. </p>
<p>Fanatics has used exclusive license agreements – similar to those that it has executed for sports cards – to help build its dominant position in the broader sports licensing marketplace. </p>
<p>Whether these exclusive licensing agreements are legal or not remains unresolved; the permissibility of similar exclusive trademark licenses under federal antitrust law was last raised in a 2010 case before the Supreme Court in <a href="https://www.oyez.org/cases/2009/08-661">American Needle, Inc. v. National Football League</a>. </p>
<p>In that case, a former manufacturer of NFL hats sued the NFL after the league decided to grant Reebok the exclusive rights to make its team-logoed hats beginning in 2002. American Needle alleged that the decision by 32 individually owned and operated NFL franchises to collectively license their trademarks to a single manufacturer ran afoul of <a href="https://www.law.cornell.edu/wex/sherman_antitrust_act">the Sherman Antitrust Act</a>.</p>
<p>While the Supreme Court held that the NFL-Reebok deal was subject to scrutiny under antitrust law, the parties ultimately settled the case before the courts issued a final resolution regarding the legality of the NFL’s exclusive license.</p>
<p>While sports trading cards comprise a multibillion-dollar industry, they represent just a share of the larger, <a href="https://www.grandviewresearch.com/industry-analysis/licensed-sports-merchandise-market-report">$33 billion U.S. sports licensing market</a>. </p>
<p>See-through, cheap-looking baseball pants may or may not be a consequence of a lack of competition in this market.</p>
<p>But we think it’s only a matter of time before the depletion of competition for licensed sports apparel results in higher prices and less choice for fans. The same holds true for trading cards.</p><img src="https://counter.theconversation.com/content/226376/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Fanatics’ consolidation of the sports card industry risks a stagnant future for the hobby.Nathaniel Grow, Associate Professor of Business Law and Ethics, Indiana UniversityJohn Holden, Associate Professor of Management, Oklahoma State UniversityMarc Edelman, Professor of Law, Baruch College, CUNYLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2093082023-07-16T11:57:05Z2023-07-16T11:57:05ZIncreasing monopoly power poses a threat to Canada’s post-pandemic economic recovery<figure><img src="https://images.theconversation.com/files/537149/original/file-20230712-21301-q8sobd.jpg?ixlib=rb-1.1.0&rect=282%2C0%2C3414%2C1912&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A recent report from Canada's competition watchdog found that a lack of competition in the grocery sector has led to higher prices for consumers.</span> <span class="attribution"><span class="source">THE CANADIAN PRESS/Graeme Roy</span></span></figcaption></figure><p>Canada is currently grappling with a significant economic issue: <a href="https://dx.doi.org/10.2139/ssrn.3357041">market concentration</a>. A select few corporations dominate key sectors, <a href="https://www.canada.ca/en/competition-bureau/news/2023/05/canadas-competition-moment-is-here-lets-seize-it.html">leading to reduced competition</a>, rising prices and limited purchase options for consumers.</p>
<p>Canada’s grocery industry is a prime example of this. A recent <a href="https://ised-isde.canada.ca/site/competition-bureau-canada/en/how-we-foster-competition/education-and-outreach/canada-needs-more-grocery-competition">report from the Competition Bureau</a> found that a lack of competition in the grocery sector is resulting in higher food prices. </p>
<p>The grocery industry is dominated by five major players — Loblaws, Metro, Empire (the owner of Sobeys), Walmart and Costco. These five companies <a href="https://www.cbc.ca/news/business/competition-bureau-grocery-1.6889712">account for over three-quarters of all food sales</a> in Canada.</p>
<p>The Bureau <a href="https://www.thestar.com/business/2023/06/27/what-the-grocery-report-recommends-to-improve-competition.html">recommended four policies to encourage competition</a> in the sector. These include establishing a grocery innovation strategy, encouraging new independent and international players, introducing legislation for consistent unit pricing and limiting property controls.</p>
<p>While independent grocery chains could be a viable alternative, they don’t occupy as large a presence of the market as they do in other countries. The <a href="https://globalnews.ca/news/9796699/competition-bureau-canada-grocery-study-takeaways">Canadian grocery market is heavily concentrated</a> and limits the ability of independent chains to compete by forcing them to purchase their products from larger chains.</p>
<h2>History of monopolies</h2>
<figure class="align-right ">
<img alt="A brass Hudson's Bay Company logo seen outside one of its stores" src="https://images.theconversation.com/files/537152/original/file-20230712-17-qpvwhi.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/537152/original/file-20230712-17-qpvwhi.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=385&fit=crop&dpr=1 600w, https://images.theconversation.com/files/537152/original/file-20230712-17-qpvwhi.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=385&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/537152/original/file-20230712-17-qpvwhi.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=385&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/537152/original/file-20230712-17-qpvwhi.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=484&fit=crop&dpr=1 754w, https://images.theconversation.com/files/537152/original/file-20230712-17-qpvwhi.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=484&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/537152/original/file-20230712-17-qpvwhi.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=484&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The Hudson’s Bay Company was granted a commercial monopoly over the entire Hudson Bay drainage basin, known as Rupert’s Land, in 1670.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Nathan Denette</span></span>
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<p>Canada’s economy has historically been marked by notable monopolies, thanks to its vast geographical expanse and relatively sparse population. </p>
<p>Entities like the <a href="https://canadiangeographic.ca/articles/the-untold-story-of-the-hudsons-bay-company/">Hudson’s Bay Company</a> and <a href="https://www.thecanadianencyclopedia.ca/en/article/canadian-pacific-railway">Canadian Pacific Railway company</a> played significant roles in the country’s development. This largely happened out of concern that domestic companies would be overwhelmed by American competitors unless they grew significantly.</p>
<p>Recent trends indicate this phenomenon is not only persisting, but intensifying. While <a href="https://www.cpacanada.ca/en/news/pivot-magazine/canadian-business-monopolies">Sobeys, Loblaws, Metro, Costco and Walmart dominate</a> over 60 per cent of the grocery sector, Bell, Rogers and Telus command about 89 per cent of the wireless telecommunications market.</p>
<p>The concentration of power extends beyond these sectors. <a href="https://globalnews.ca/news/9634933/canada-big-banks-analysis/">The banking industry in Canada is dominated by six banks</a> — the Royal Bank of Canada, TD Bank, Scotiabank, the Bank of Montreal, CIBC and National Bank, which collectively control about 93 per cent of the industry.</p>
<p>Similarly, <a href="https://www.statista.com/statistics/339828/market-share-of-the-canadian-brewing-industry/">the beer market is largely controlled by two multinational giants</a>, Anheuser-Busch InBev and Molson Coors.</p>
<p>And the Canadian telecommunications industry is still reeling from the recent <a href="https://www.reuters.com/markets/deals/canadas-decision-rogers-shaw-deal-may-come-friday-2023-03-31/">merger between two of the industry’s giants</a>, Rogers Communications and Shaw Communications. The implications of this deal are far-reaching.</p>
<h2>The Rogers-Shaw merger</h2>
<p>The Rogers-Shaw merger’s final approval came with <a href="https://www.cbc.ca/news/business/rogers-shaw-approval-1.6797175">21 enforceable conditions</a> Rogers and Videotron must adhere to, aimed at bolstering competition and reducing costs for customers. </p>
<p>The merger’s approval depended on Shaw selling its Freedom Mobile business to Quebecor’s Videotron. If Rogers breaches its conditions, it must pay up to $1 billion in damages. Videotron could be subject to $200 million in penalties if it fails to meet its commitments. </p>
<figure class="align-center ">
<img alt="A man holds up a sheet of paperwork as he speaks into a microphone attached to a podium" src="https://images.theconversation.com/files/537150/original/file-20230712-26-ztwm9r.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/537150/original/file-20230712-26-ztwm9r.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/537150/original/file-20230712-26-ztwm9r.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/537150/original/file-20230712-26-ztwm9r.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/537150/original/file-20230712-26-ztwm9r.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/537150/original/file-20230712-26-ztwm9r.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/537150/original/file-20230712-26-ztwm9r.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Innovation, Science and Industry Minister François-Philippe Champagne holds up a contract between the telecoms and the federal government as he speaks at a news conference about the Rogers-Shaw merger on Parliament Hill in Ottawa on March 31, 2023.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/ Patrick Doyle</span></span>
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<p>Despite these conditions, <a href="https://www.cbc.ca/news/business/rogers-shaw-merger-official-1.6799566">some remain skeptical about the impact of the merger</a> on competition in Canada’s telecommunications sector. </p>
<p><a href="https://globalnews.ca/news/9597898/rogers-shaw-merger-closes-new-telecom-giant/">Some critics have argued</a> the merger may lead to higher prices for consumers and less innovation. Carleton University political economy professor Dwayne Winseck warned it could lead to a “<a href="https://twitter.com/mediamorphis/status/1372207252363489290">tight oligopoly on steroids</a>.”</p>
<p>On the flip side, <a href="https://www.cbc.ca/news/business/rogers-shaw-internet-deal-1.5950727">other experts believe the merger could benefit consumers</a> by accelerating the rollout of 5G networks and improving infrastructure and services, particularly in rural areas.</p>
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Read more:
<a href="https://theconversation.com/heres-how-the-rogers-shaw-merger-could-benefit-canadian-customers-201132">Here's how the Rogers-Shaw merger could benefit Canadian customers</a>
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<p>However, these benefits could be offset by the potential for higher prices and less competition. The merger could lead to a dominant market share in Ontario, reducing competition and potentially leading to higher internet prices.</p>
<p>This is particularly concerning, given Ontario’s average monthly price of home internet services is <a href="https://www.cannettel.com/blog/rogers-shaw-merger-implications-internet-prices-ontario">already higher than the national average</a>. This situation underscores the need for a revamp of Canada’s competition laws.</p>
<h2>Loopholes in competition law</h2>
<p>The merger has sparked controversy because it exploited weaknesses in Canada’s anti-monopoly law, <a href="https://laws-lois.justice.gc.ca/eng/acts/c-34/fulltext.html">the Competition Act</a>, to push the deal through. </p>
<p>The Competition Act has been <a href="https://www.wealthsimple.com/en-ca/magazine/canada-monopolies">criticized for failing to prevent acquisitions</a> that allow large firms to eliminate competitive threats and solidify their dominance.</p>
<p>As Canada’s competition watchdog, the Competition Bureau can review mergers to determine if they will be harmful to competition. But since its introduction in 1986, <a href="https://www.cigionline.org/publications/merger-policy-for-a-dynamic-and-digital-canadian-economy/">the bureau has only challenged 18 mergers</a> and has never won a challenge on final judgment.</p>
<p>The law also has a high bar for intervention in a merger, <a href="https://globalnews.ca/news/9169363/merger-laws-canada-competition/">often favouring negotiated agreements</a> that include concessions or remedies that address some of the competition concerns, but not necessarily all.</p>
<p>The Competition Commissioner, Matthew Boswell, <a href="https://financialpost.com/feature/matthew-boswell-ballsy-bureaucrat-block-rogers-shaw">believes the existing competition laws are inadequate</a>. Boswell has been hamstrung by legal loopholes and unable to prevent anti-competitive mergers, like the Rogers-Shaw deal, from happening.</p>
<h2>Challenges and opportunities</h2>
<p>Along with rising consumer prices, limited purchase options and intensifying competition, the growth of monopolies in Canada has led to a host of other issues.</p>
<p>Monopolies have <a href="https://policyoptions.irpp.org/magazines/february-2022/competition-hurts-innovation-canada">the potential to stifle innovation</a> — a key driver of economic growth, as a lack of competition tends to dampen innovative efforts. Productivity growth, which is crucial for improving living standards, <a href="https://policyoptions.irpp.org/magazines/april-2023/the-low-productivity-of-canadian-companies-threatens-our-living-standards/">is also under threat</a>, as monopolies can create an environment less conducive to efficiency and progress.</p>
<p>As Canada embarks on its post-pandemic economic recovery, policymakers must ensure economic resilience and inclusiveness while preventing existing monopoly issues from worsening. </p>
<p>At the same time, there is an opportunity to reshape the economic landscape to encourage competition and foster innovation, benefiting everyone involved in the market.</p>
<p>This journey towards a more prosperous future will require rigorous scrutiny of developments like the proposed Rogers-Shaw merger and the wisdom to navigate the interplay of monopolies, competition and the broader economy.</p><img src="https://counter.theconversation.com/content/209308/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Garros Gong does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>As Canada embarks on its post-pandemic economic recovery, policymakers must ensure economic resilience and inclusiveness while preventing existing monopoly issues from worsening.Garros Gong, Ph.D. Student in Management Science, University of WaterlooLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1972742023-01-17T18:29:25Z2023-01-17T18:29:25ZHow large corporations make huge profits from hidden markups at the expense of consumers<figure><img src="https://images.theconversation.com/files/504501/original/file-20230113-24-tyvddw.jpg?ixlib=rb-1.1.0&rect=1374%2C151%2C4948%2C3734&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Abnormally high market prices funnel wealth from consumers to owners of large companies.</span> <span class="attribution"><span class="source">(AP Photo/Julia Nikhinson)</span></span></figcaption></figure><iframe style="width: 100%; height: 100px; border: none; position: relative; z-index: 1;" allowtransparency="" allow="clipboard-read; clipboard-write" src="https://narrations.ad-auris.com/widget/the-conversation-canada/how-large-corporations-make-huge-profits-from-hidden-markups-at-the-expense-of-consumers" width="100%" height="400"></iframe>
<p>Inflation, followed by poverty and social inequality are <a href="https://www.ipsos.com/en/what-worries-world-june-2022">the most pressing issues</a> worrying people around the world right now. Canada has not been immune from the rising cost of living and is still fighting an <a href="https://www.bankofcanada.ca/rates/indicators/key-variables/key-inflation-indicators-and-the-target-range/">inflation rate above the two per cent target</a> preferred by the Bank of Canada.</p>
<p>Canada’s inflation rate <a href="https://globalnews.ca/news/9397165/inflation-canada-out-of-pocket/">hit 8.1 per cent in June</a> — the highest it had been in over 40 years. While the rate has dropped slightly afterwards, it was still <a href="https://www.cbc.ca/news/business/inflation-canada-1.6693441">6.8 per cent in November</a>, easing to <a href="https://www.theglobeandmail.com/business/article-canada-inflation-statscan-cpi-december/">6.3 per cent in December</a>. </p>
<p>High prices funnel wealth from consumers to owners of large companies and <a href="https://policyalternatives.ca/sites/default/files/uploads/publications/National%20Office/2023/01/2022-breakfast-of-champions.pdf">widen the wage gap between CEOs and workers</a>. <a href="https://www.athensjournals.gr/business/2021-4433-AJBE-ECO-Colonescu-03.pdf">My research</a> shows consumer prices are higher than they should be. This is even without considering inflation, because of a less studied phenomenon: compound markup.</p>
<h2>Less competition than you think</h2>
<p>Many economists rely on philosopher <a href="https://www.adamsmith.org/about-adam-smith">Adam Smith’s</a> metaphor of the <a href="https://www.econlib.org/library/Smith/smWN.html?chapter_num=27#book-reader">invisible hand</a> to understand how the market economy works. According to Smith, the invisible hand is the natural force that drives individuals to unknowingly make economic decisions that are best for society. </p>
<p>This economic philosophy maintains the view that competition is ubiquitous in market economies such as North America and western Europe. Competition makes producers undercut other producers’ prices until prices become low enough to just compensate producers for their costs and time. </p>
<figure class="align-center ">
<img alt="A statue of a man in Victorian clothing and a powdered wig standing on a pedestal in front an ornate building" src="https://images.theconversation.com/files/504493/original/file-20230113-23-imu2t5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/504493/original/file-20230113-23-imu2t5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/504493/original/file-20230113-23-imu2t5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/504493/original/file-20230113-23-imu2t5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/504493/original/file-20230113-23-imu2t5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/504493/original/file-20230113-23-imu2t5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/504493/original/file-20230113-23-imu2t5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Statue of Scottish economist and philosopher Adam Smith on the Royal Mile in Edinburgh, Scotland.</span>
<span class="attribution"><span class="source">(Shutterstock)</span></span>
</figcaption>
</figure>
<p>But, <a href="https://www.athensjournals.gr/business/2021-4433-AJBE-ECO-Colonescu-03.pdf">as my research shows</a>, low prices are the exception, rather than the rule. Such news should surprise <a href="https://fortune.com/2014/08/13/invisible-hand-american-economy/">those who believe in the power of the invisible hand</a> to bring prices down to their lowest possible level.</p>
<p>While still advocating for the principles of free market, including for the invisible hand, Adam Smith <a href="https://www.ibiblio.org/ml/libri/s/SmithA_WealthNations_p.pdf">was aware that monopolies</a>, which would prevent competition and inflate product prices, could emerge. </p>
<h2>Prices much higher than production costs</h2>
<p>The concept of markup, which is how many times a price is higher than the cost of production, is not new. <a href="https://ised-isde.canada.ca/site/competition-bureau-canada/en">Government organizations dedicated to watching the markets</a> already exist to prevent large companies from conspiring against consumers by artificially maintaining high prices.</p>
<p>Economic literature considers only one product at a time or a few slightly differentiated products, such as Adidas and Nike, when measuring markups. Existing theories and estimations ignore that <a href="https://www.athensjournals.gr/business/2021-4433-AJBE-ECO-Colonescu-03.pdf">markups multiply when raw materials, ingredients and components travel</a> from one company to another down the production chain. </p>
<p>A company sells an overpriced component to a second company, that second company incorporates it into their yet unfinished product, then sells it at a profit to a third company, and so on. By the time the finished product reaches the consumer, its price has been successively inflated several times. </p>
<figure class="align-center ">
<img alt="A gloved hand reaches into a bakery display case to pick up a bread bun from a pile" src="https://images.theconversation.com/files/504495/original/file-20230113-12-iahg9z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/504495/original/file-20230113-12-iahg9z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=410&fit=crop&dpr=1 600w, https://images.theconversation.com/files/504495/original/file-20230113-12-iahg9z.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=410&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/504495/original/file-20230113-12-iahg9z.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=410&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/504495/original/file-20230113-12-iahg9z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=516&fit=crop&dpr=1 754w, https://images.theconversation.com/files/504495/original/file-20230113-12-iahg9z.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=516&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/504495/original/file-20230113-12-iahg9z.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=516&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Each extra step in the bread production process adds another layer of profit to the final product’s price — hence, the compound markup.</span>
<span class="attribution"><span class="source">(AP Photo/Michael Probst)</span></span>
</figcaption>
</figure>
<p>Take the bread market. My research implies that the price of bread includes substantial profit margins that go to a handful of large corporations. To produce bread, one needs wheat, which is also sold in competitive markets because all wheat is the same and there are many wheat producers.</p>
<p>To produce wheat, however, one needs fertilizers, mostly sold in <a href="https://www.fas.usda.gov/data/impacts-and-repercussions-price-increases-global-fertilizer-market">highly non-competitive markets</a> by large corporations such as <a href="https://www.statista.com/statistics/1290764/leading-fertilizer-companies-worldwide-market-capitalization/">Nutrien Ltd.</a>, <a href="https://www.statista.com/statistics/461428/revenue-of-major-farm-machinery-manufacturers-worldwide/">heavy machinery</a> sold by large corporations such as <a href="https://www.britannica.com/topic/Deere-and-Company">John Deere</a>, <a href="https://www.statista.com/statistics/257489/ranking-of-leading-agrochemical-companies-worldwide-by-revenue/">pesticides</a>, seeds and other inputs from markets dominated by large corporations. </p>
<p>Tractors need computer chips, steel, aluminium and tires that also come from large corporations. Batteries <a href="https://www.statista.com/statistics/270277/mining-of-rare-earths-by-country/">need rare earth elements</a>, which come from just a few world producers. Each extra step in the production chain adds another layer of profit to the final product’s price — hence, the compound markup. </p>
<h2>Consumer price markups are abnormally high</h2>
<p>To determine the markups of different industries compared to the costs of production, I compared the market price of products with the “natural” cost of production. This natural cost is neighbourhood-specific and takes into account the average cost of rent, profits and wages for certain areas. </p>
<p>My notion of compound markup compares market prices to this concept of natural cost, because a fair price would equal this cost in a monopoly-free economy.</p>
<p>To do this, I measured the overpricing of complex final products such as electronics and transportation services, considering all the overpriced components that the final product incorporates. For data, I used <a href="https://www.oecd.org/sti/ind/input-outputtables.htm">input-output tables</a>, which give flows of sales of intermediate goods from one industry to another. The results of this calculation are the compound markups. </p>
<p>A compound markup of three means the price of the final product is three times greater than the natural cost, considering all the intermediate phases. In contrast, the conventional markup only considers the last phase of production, where the finished good is assembled and sold to a consumer.</p>
<figure class="align-center ">
<img alt="A table that shows compound markups are substantially greater than the conventional cost of production" src="https://images.theconversation.com/files/503157/original/file-20230104-130036-dqkr7.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/503157/original/file-20230104-130036-dqkr7.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=355&fit=crop&dpr=1 600w, https://images.theconversation.com/files/503157/original/file-20230104-130036-dqkr7.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=355&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/503157/original/file-20230104-130036-dqkr7.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=355&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/503157/original/file-20230104-130036-dqkr7.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=446&fit=crop&dpr=1 754w, https://images.theconversation.com/files/503157/original/file-20230104-130036-dqkr7.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=446&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/503157/original/file-20230104-130036-dqkr7.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=446&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Table showing compound markups compared to conventional markups in a few industries. The compound markups are substantially greater than the conventional ones.</span>
<span class="attribution"><span class="source">(Constantin Colonescu)</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>These results indicate that prices are, for many of the goods and services we all need, up to five times higher than the natural costs of production. The owners of large corporations make abnormally high profits at the expense of consumers. </p>
<h2>Re-thinking market competition</h2>
<p>An invisible hand is indeed at work in the supermarket, but it is one that Adam Smith would not recognize. The real invisible hand is there to benefit the producer, not the consumer, contrary to Smith’s belief. <a href="https://wfto.com/news/fair-trade-movement-all">Concerned groups have identified fair trade</a> as a goal in international markets for years, but not so much in our daily lives and not in the context of compound pricing. </p>
<p>Governments, consumers and consumer organizations could use research like this to promote more competition in markets, advocate fair trade within a country and re-think income inequality policies. </p>
<p>Large corporations tend to monopolize intermediate markets even more than they do in final goods markets. Because of this, antitrust government agencies <a href="https://ised-isde.canada.ca/site/competition-bureau-canada/en">like Canada’s Competition Bureau</a> should supervise markets for intermediate goods such as fertilizers, agricultural machinery and rare earth elements — not just the markets for final consumer goods.</p><img src="https://counter.theconversation.com/content/197274/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Constantin Colonescu does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Prices are up to five times higher than the raw costs of production for many of the goods and services we all need.Constantin Colonescu, Associate Professor of Economics, MacEwan UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1934322022-12-07T21:39:48Z2022-12-07T21:39:48ZThe fur trade shows us that Canada has a long history of unethical business practices<figure><img src="https://images.theconversation.com/files/499658/original/file-20221207-18-cn92lf.png?ixlib=rb-1.1.0&rect=7%2C17%2C2377%2C1530&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">‘Winter fishing on the ice of the Assiniboine and Red Rivers,’ by Peter Rindisbacher, 1821.</span> <span class="attribution"><span class="source">(National Archives of Canada)</span></span></figcaption></figure><p>With rising prices caused by inflation, Canadians are struggling to afford the basic costs of living. According to a recent Angus Reid Institute study, <a href="https://angusreid.org/canada-economy-inflation-rate-hike-debt/">nearly 60 per cent of Canadians are struggling to provide food</a> for their families. Meanwhile, <a href="https://www.cbc.ca/radio/thecurrent/canada-food-price-profits-1.6629854">profits are surging for grocery retailers</a>, raising concerns about monopolies.</p>
<p>In today’s market economy, competition means standing out by offering customers more while working faster for less cost. Among top grocery retailers in Canada like Loblaws, Sobeys and Metro, it also means protecting and growing their dominant market position. The pandemic and other global crises has been <a href="https://theconversation.com/food-giants-reap-enormous-profits-during-times-of-crisis-184223">especially profitable for the food business sector</a>.</p>
<p>There is nothing new or surprising about the lengths corporations will go to maintain market dominance. Canada has a long history of big business antics, <a href="https://www.ubcpress.ca/a-legacy-of-exploitation">stretching as far back as pre-Confederation fur trade</a>.</p>
<h2>Building customer loyalty</h2>
<p>In 1670, Charles II <a href="https://www.hbcheritage.ca/things/artifacts/the-royal-charter">granted one company exclusive privileges</a> to exploit the area around Hudson Bay. For a century, bayside factories bustled with trade activity, where Hudson’s Bay Company men operated as a type of trader know as factors.</p>
<p>The fur trade was about more than exchanging goods — it was about building loyalty. Speeches and gift exchanges <a href="https://books.google.ca/books?id=4-gZSsrCr5QC&lpg=PP1&pg=PA68#v=onepage&q=lengthy%20ceremony&f=false">stretched over multiple days</a>, practices that reflected the customs of the Indigenous societies participating in the commercial trade. These were <a href="https://books.google.ca/books?id=8_um3VW2zyMC&newbks=1&newbks_redir=0&printsec=frontcover&dq=Between+Indigenous+and+Settler+Governance&hl=en&redir_esc=y#v=snippet&q=necessary%20to%20trading%20relationships&f=false">required if HBC factors wanted access to the goods</a> and for Indigenous traders to return the next season.</p>
<p>Such practices created shared obligations between the parties, although this did not stop factors from shorting Indigenous traders. By applying the “<a href="https://books.google.ca/books?id=WHpucb-sXQUC&newbks=1&newbks_redir=0&printsec=frontcover&dq=indians+in+the+fur+trade&hl=en&redir_esc=y#v=onepage&q=factor's%20standard&f=false">factor’s standard</a>,” company traders could demand more from Indigenous traders for less than was customary, or offer worse quality items in exchange for the usual quantity of furs. </p>
<p>It was risky — accusations of cheating left the company with more than dissatisfied consumers, it could cause productivity problems if the Indigenous party refused to return in the future. After all, in addition to gifts and consumer goods, the items Indigenous traders received were a type of compensation for their labours and fostered social relations.</p>
<h2>Collusion and control</h2>
<p>When trade shifted inland in the 1770s, the factor’s standard shifted too. The HBC was in direct competition with the Montreal-based North West Company, and each side <a href="https://books.google.ca/books?newbks=1&newbks_redir=0&redir_esc=y&id=4PsVAQAAMAAJ&dq=Merchant+Credit+and+Labour+Strategies+in+Historical+Perspective&focus=searchwithinvolume&q=patronize">tempted Indigenous traders away from their rival</a> by offering more in quantity or quality.</p>
<p>By the early 1800s, this became an expensive rivalry. Company men acted in ways that appeared contrary to their bottom lines, <a href="http://pam.minisisinc.com/DIGITALOBJECTS/Access/HBCA%20Microfilm/1M16/B22-A-1.pdf">driven by the desire to deny the other company profit</a>. </p>
<p>Yet amid what seemed like mutually assured destruction, the rivals conspired to <a href="https://books.google.ca/books?id=0AoqiZZZfYwC&printsec=frontcover#v=onepage&q=blacklisting&f=false">blacklist workers who deserted them</a>, floated <a href="https://books.google.ca/books?id=cQluEAAAQBAJ&printsec=frontcover&dq=legacy+of+exploitation&hl=en&newbks=1&newbks_redir=0&sa=X&redir_esc=y#v=onepage&q=informal%20collusion&f=false">the idea of an informal collusion</a>, and <a href="https://books.google.ca/books?id=LNUUAAAAYAAJ&printsec=frontcover#v=onepage&q=spencer%20sheriff%20assiniboia&f=false">secured legal protections and advantages from government officials</a> in Canada and Britain (<a href="https://archive.org/stream/cihm_18595/cihm_18595_djvu.txt">including the military</a>). Short term losses were nothing compared to long term gains in control.</p>
<p>Eventually, in an ultimate attempt to exercise control, the HBC established the Red River Colony (present-day Winnipeg) in 1812. Still <a href="https://heritage.canadiana.ca/view/oocihm.lac_reel_c16/769">dependent on Indigenous Peoples’ labour and allyship</a>, this attempt to control Indigenous Peoples’ lands shows us how far the HBC would go to flex and protect their privileges.</p>
<figure class="align-center ">
<img alt="The outside of a Loblaws grocery store" src="https://images.theconversation.com/files/495496/original/file-20221115-13-eoau6e.jpg?ixlib=rb-1.1.0&rect=0%2C359%2C5685%2C3628&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/495496/original/file-20221115-13-eoau6e.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/495496/original/file-20221115-13-eoau6e.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/495496/original/file-20221115-13-eoau6e.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/495496/original/file-20221115-13-eoau6e.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/495496/original/file-20221115-13-eoau6e.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/495496/original/file-20221115-13-eoau6e.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Big Canadian businesses, like Loblaws, take dramatic steps to maintain customer loyalty and maintain market dominance the same way pre-Confederation traders did.</span>
<span class="attribution"><span class="source">(Shutterstock)</span></span>
</figcaption>
</figure>
<h2>Still building loyalty</h2>
<p>Even though today’s market economy has changed a lot since the heyday of chartered monopolies, there are some similarities when it comes to company tricks and concerns about loyalty.</p>
<p>Faced with shrinking portion sizes and frozen or increased prices, consumers today are frustrated by “<a href="https://theconversation.com/shrinkflation-when-less-is-not-more-at-the-grocery-store-97240">shrinkflation</a>.” Some retail experts label shrinkflation a “<a href="https://www.supermarketnews.com/consumer-trends/podcast-shrinkflation-and-how-it-s-affecting-loyalty">consumer perception</a>” problem, which becomes a <a href="https://www.gartner.com/en/newsroom/press-releases/2022-07-25-gartner-survey-finds-consumers-stop-buying-from-brands-that-compromise-products">loyalty problem when consumers feel cheated</a>. Described by economics journalist Abha Bhattarai as “<a href="https://www.washingtonpost.com/business/2021/06/01/package-sizes-shrink-inflation/">retail camouflage</a>,” tricks like this are not necessarily illegal, <a href="https://morningconsult.com/2022/08/29/consumer-sensitivity-to-shrinkflation/">but they can destroy consumer trust</a>.</p>
<figure class="align-right ">
<img alt="A man in a suit speaking at a podium" src="https://images.theconversation.com/files/495495/original/file-20221115-25-yrjmqo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/495495/original/file-20221115-25-yrjmqo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=615&fit=crop&dpr=1 600w, https://images.theconversation.com/files/495495/original/file-20221115-25-yrjmqo.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=615&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/495495/original/file-20221115-25-yrjmqo.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=615&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/495495/original/file-20221115-25-yrjmqo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=773&fit=crop&dpr=1 754w, https://images.theconversation.com/files/495495/original/file-20221115-25-yrjmqo.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=773&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/495495/original/file-20221115-25-yrjmqo.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=773&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Galen G. Weston speaking to shareholders at Loblaw’s annual general meeting in Toronto, in May 2016.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Fred Thornhill</span></span>
</figcaption>
</figure>
<p>In October, Loblaw Companies president Galen G. Weston responded to customer outcry against grocery prices. This involved <a href="https://www.loblaw.ca/en/galen-announces-a-price-freeze-for-inflation">circulating a personalized note</a> announcing a three-month price freeze on one of the company’s own brands.</p>
<p>With this note, Weston tried to appear as a compassionate voice for corporate decision-making. He volunteered to share the burdens by sacrificing profits, and seemed to recognize some sense of duty while still managing to stop short of a <em>mea culpa</em>.</p>
<h2>More collusion and control</h2>
<p>Instead of increasing customer loyalty, <a href="https://www.thestar.com/business/2022/10/18/loblaws-price-freeze-nothing-but-a-publicity-stunt-critics-say.html">Weston’s public relations move backfired</a> — much like the short-lived “hero pay” for employees (<a href="https://financialpost.com/news/economy/how-hero-pay-scandal-prompted-ottawa-make-wage-fixing-illegal">now recognized as a collusive wage-fixing practice</a>). While these PR moves might have been well intentioned, they demonstrate a clear disconnect between grocery store chains and the needs of their customers.</p>
<p>Weston’s note suggested that companies like Loblaws can decide food costs at will, which undercuts claims that prices rose for reasons beyond their control, like <a href="https://www.loblaw.ca/en/galen-announces-a-price-freeze-for-inflation">rising supplier costs</a>. It also turns out that price freezes are not that special, although Loblaws framed it that way. In the industry, it is <a href="https://financialpost.com/news/retail-marketing/loblaw-no-name-price-freeze-routine">routine for prices to remain relatively stable through the winter</a>.</p>
<p>These antics are the latest in Canada’s long history of monopolies using questionable practices to protect their dominant position in the market. When considered alongside pre-Confederation fur trade, we see that market dominance is about control, which is the cornerstone of settler colonialism itself.</p><img src="https://counter.theconversation.com/content/193432/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Susan Dianne Brophy received funding for her book from the Canadian Federation for the Humanities and Social Sciences, Awards to Scholarly Publications Program. </span></em></p>A public relations move by Loblaw Companies is just the latest in a long line of big business antics stretching back to pre-Confederation fur trade in Canada.Susan Dianne Brophy, Associate Professor in Legal Studies, St. Jerome's University, University of WaterlooLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1898682022-12-05T13:27:20Z2022-12-05T13:27:20ZPharma’s expensive gaming of the drug patent system is successfully countered by the Medicines Patent Pool, which increases global access and rewards innovation<figure><img src="https://images.theconversation.com/files/498366/original/file-20221130-8007-d247y0.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C2121%2C1412&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Drug patents don't necessarily spur companies to innovate so much as restrict access to their IP.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/medicines-and-money-the-cost-of-treatment-and-royalty-free-image/1129305852">Andrii Zastrozhnov/iStock via Getty Images Plus</a></span></figcaption></figure><p>Biomedical innovation reached a new era during the COVID-19 pandemic as drug development went into overdrive. But the ways that brand companies license their patented drugs grant them market monopoly, preventing other entities from making generics so they can exclusively profit. This significantly limits the reach of lifesaving drugs, especially to low- and middle-income countries, or LMICs. </p>
<p>I am an <a href="https://www.lucyxiaoluwang.com/">economist</a> who studies <a href="https://scholar.google.com/citations?user=M0QlVjcAAAAJ&hl=en">innovation and digitization</a> in health care markets. Growing up in a developing region in China with limited access to medications inspired my interest in institutional innovations that can facilitate drug access. One such innovation is a patent pool, or a “one-stop shop” where entities can pay one low price for permission to make and distribute all the treatments covered by the pool. My recent research found that a <a href="https://doi.org/10.1016/j.jhealeco.2022.102671">patent pool geared toward public health</a> can spur not only generic drug access in LMICs but also innovation for pharmaceutical companies.</p>
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<iframe width="440" height="260" src="https://www.youtube.com/embed/hGbJclE-Tw4?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Patent pools can help increase access to expensive drugs.</span></figcaption>
</figure>
<h2>Drug patents in the global landscape</h2>
<p>Patents are designed to provide incentives for innovation by granting monopoly power to patent holders for a period of time, <a href="https://www.wipo.int/patents/en/faq_patents.html">typically 20 years</a> from the application filing date. </p>
<p>However, this intention is complicated by strategic patenting. For example, companies can delay the creation of generic versions of a drug by obtaining additional patents based on slight changes to its formulation or method of use, among other tactics. This “<a href="https://doi.org/10.1016/j.jhealeco.2012.01.004">evergreens</a>” the company’s patent portfolio without requiring substantial new investments in research and development. </p>
<p>Furthermore, because patents are <a href="https://www.wipo.int/patents/en/faq_patents.html">jurisdiction-specific</a>, patent rights granted in the U.S. do not automatically apply to other countries. Firms often obtain multiple patents covering the same drug in different countries, adapting claims based on what is patentable in each jurisdiction.</p>
<p>To incentivize technology transfer to low- and middle-income countries, member nations of the World Trade Organization signed the 1995 <a href="https://www.wto.org/english/docs_e/legal_e/27-trips_01_e.htm">Agreement on Trade-Related Aspects of Intellectual Property Rights</a>, or TRIPS, which set the minimum standards for intellectual property regulation. Under TRIPS, governments and generic drug manufacturers in low- and middle-income countries may infringe on or invalidate patents to bring down patented drug prices under certain conditions. Patents in LMICs were also strengthened to incentivize firms from high-income countries to invest and trade with LMICs.</p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/RrN7IxvAJto?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Determining what is patentable can be complicated.</span></figcaption>
</figure>
<p>The 2001 <a href="https://www.wto.org/english/thewto_e/minist_e/min01_e/mindecl_trips_e.htm">Doha Declaration</a> clarified the scope of TRIPS, emphasizing that patent regulations should not prevent drug access during public health crises. It also allowed compulsory licensing, or the production of patented products or processes without the consent of the patent owner.</p>
<p>One notable example of national patent law in practice after TRIPS is Novartis’ anticancer drug imatinib (Glivec or Gleevec). In 2013, India’s Supreme Court <a href="https://doi.org/10.1186/1744-8603-10-3">denied Novartis’s patent application</a> for Glivec for <a href="https://www.upcounsel.com/patent-obviousness">obviousness</a>, meaning both experts or the general public could arrive at the invention themselves without requiring much skill or thought. The issue centered on whether new forms of known substances, in this case a crystalline form of imatinib, were too obvious to be patentable. At the time, Glivec had already been <a href="https://doi.org/10.1136/bmj.f2099">patented in 40 other countries</a>. As a result of India’s landmark ruling, the price of Glivec <a href="https://www.ip-watch.org/2018/05/20/five-years-indian-supreme-courts-novartis-verdict/">dropped from 150,000 INR (about US$2,200) to 6,000 INR ($88)</a> for one month of treatment.</p>
<h2>Patent challenges and pools</h2>
<p>Although TRIPS seeks to balance incentives for innovation with access to patented technologies, issues with patents still remain. Drug cocktails, for example, can contain <a href="https://doi.org/10.1038/s41587-021-01137-6">multiple patented compounds</a>, each of which can be owned by different companies. Overlapping patent rights can create a “<a href="https://doi.org/10.1086/ipe.1.25056143">patent thicket</a>” that blocks commercialization. Treatments for chronic conditions that require a stable and inexpensive supply of generics also pose a challenge, as the cost burden of long-term use of patented drugs is often unaffordable for patients in low- and middle-income countries.</p>
<p>One solution to these drug access issues is <a href="https://doi.org/10.1257/0002828041464641">patent pools</a>. In contrast to the currently decentralized licensing market, where each technology owner negotiates separately with each potential licensee, a patent pool provides a “one-stop shop” where licensees can get the rights for multiple patents at the same time. This can reduce transaction costs, royalty stacking and hold-up problems in drug commercialization. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/488226/original/file-20221005-23-ac6y6n.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Diagram of licensing markets with and without a patent pool" src="https://images.theconversation.com/files/488226/original/file-20221005-23-ac6y6n.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/488226/original/file-20221005-23-ac6y6n.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=264&fit=crop&dpr=1 600w, https://images.theconversation.com/files/488226/original/file-20221005-23-ac6y6n.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=264&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/488226/original/file-20221005-23-ac6y6n.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=264&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/488226/original/file-20221005-23-ac6y6n.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=332&fit=crop&dpr=1 754w, https://images.theconversation.com/files/488226/original/file-20221005-23-ac6y6n.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=332&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/488226/original/file-20221005-23-ac6y6n.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=332&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Patent pools create a one-stop shop for multiple patients, allowing multiple licensees to enter the market.</span>
<span class="attribution"><a class="source" href="https://doi.org/10.1016/j.jhealeco.2022.102671">Lucy Xiaolu Wang</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
</figcaption>
</figure>
<p>Patent pools were first used <a href="https://www.jstor.org/stable/43186442">in 1856 for sewing machines</a> and were once <a href="https://doi.org/10.1257/0002828041464641">ubiquitous across multiple industries</a>. Patent pools gradually disappeared after a <a href="https://supreme.justia.com/cases/federal/us/323/386/">1945 U.S. Supreme Court decision</a> that increased regulatory scrutiny, hindering the formation of new pools. Patent pools were later <a href="https://firstmonday.org/ojs/index.php/fm/article/view/1912/1794">revived in the 1990s</a> in response to licensing challenges in the information and communication technology sector.</p>
<h2>The Medicines Patent Pool</h2>
<p>Despite many challenges, the first patent pool created for the purpose of promoting public health formed in 2010 with support from the United Nations and Unitaid. The <a href="https://medicinespatentpool.org/">Medicines Patent Pool, or MPP</a>, aims to spur generic licensing for patented drugs that treat diseases disproportionately affecting low- and middle-income countries. Initially covering only HIV drugs, the MPP later expanded to include hepatitis C and tuberculosis drugs, many medications on the World Health Organization’s essential medicines list and, most recently, COVID-19 treatments and technologies.</p>
<p>But how much has the MPP improved drug access?</p>
<p>I sought to <a href="https://doi.org/10.1016/j.jhealeco.2022.102671">answer</a> <a href="https://dx.doi.org/10.2139/ssrn.4016897">this question</a> by examining how the Medicines Patent Pool has affected generic drug distribution in low- and middle-income countries and biomedical research and development in the U.S. To analyze the MPP’s influence on expanding access to generic drugs, I collected data on drug licensing contracts, procurement, public and private patents and other economic variables from over 100 low- and middle-income countries. To analyze the MPP’s influence on pharmaceutical innovation, I examined data on new clinical trials and new drug approvals over this period. This data spanned from 2000 to 2017.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/488228/original/file-20221005-13-vnh0dm.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Diagram of the Medicines Patent Pool licensing structure" src="https://images.theconversation.com/files/488228/original/file-20221005-13-vnh0dm.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/488228/original/file-20221005-13-vnh0dm.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=255&fit=crop&dpr=1 600w, https://images.theconversation.com/files/488228/original/file-20221005-13-vnh0dm.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=255&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/488228/original/file-20221005-13-vnh0dm.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=255&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/488228/original/file-20221005-13-vnh0dm.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=320&fit=crop&dpr=1 754w, https://images.theconversation.com/files/488228/original/file-20221005-13-vnh0dm.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=320&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/488228/original/file-20221005-13-vnh0dm.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=320&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The Medicines Patent Pool works as an intermediary between branded drug companies and generic licensees, increasing access to drugs.</span>
<span class="attribution"><a class="source" href="https://doi.org/10.1016/j.jhealeco.2022.102671">Lucy Xiaolu Wang</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
</figcaption>
</figure>
<p>I found that the MPP led to a 7% increase in the share of generic drugs supplied to LMICs. Increases were greater in countries where drugs are patented and in countries outside of sub-Saharan Africa, where baseline generic shares are lower and can benefit more from market-based licensing.</p>
<p>I also found that the MPP generated positive spillover effects for innovation. Firms outside the pool increased the number of trials they conducted on drug cocktails that included MPP compounds, while branded drug firms participating in the pool shifted their focus to developing new compounds. This suggests that the MPP allowed firms outside the pool to explore new and better ways to use MPP drugs, such as in new study populations or different treatment combinations, while brand name firms participating in the pool could spend more resources to develop new drugs.</p>
<p>The MPP was also able to lessen the burden of post-market surveillance for branded firms, allowing them to push new drugs through clinical trials while generic and other independent firms could monitor the safety and efficacy of approved drugs more cheaply.</p>
<p>Overall, my analysis shows the MPP effectively expanded generic access to HIV drugs in developing countries without diminishing innovation incentives. In fact, it even spurred companies to make better use of existing drugs.</p>
<h2>Technology licensing for COVID-19 and beyond</h2>
<p>Since May 2020, the Medicines Patent Pool has become a key partner of the <a href="https://www.who.int/initiatives/covid-19-technology-access-pool">World Health Organization COVID-19 Technology Access Pool</a>, which works to spur equitable and affordable access to COVID-19 health products globally. The MPP has not only made licensing for COVID-19 health products more accessible to low- and middle-income countries, but also helped establish an <a href="https://medicinespatentpool.org/covid-19/mrna-technology-transfer-hub-programme">mRNA vaccine technology transfer hub</a> in South Africa to provide the technological training needed to develop and sell products treating COVID-19 and beyond.</p>
<p>Licensing COVID-19-related technologies can be complicated by the <a href="https://pubmed.ncbi.nlm.nih.gov/34194207">large amount of trade secrets</a> involved in producing drugs derived from biological sources. These often require additional technology transfer beyond patents, such as <a href="https://heinonline.org/HOL/LandingPage?handle=hein.journals/ilr101&div=32&id=&page=">manufacturing details</a>. The MPP has also worked to communicate with brand firms, generic manufacturers and public health agencies in low- and middle-income countries to <a href="https://medicinespatentpool.org/partners/how-to-get-or-give-a-licence">close the licensing knowledge gap</a>. </p>
<p>Questions remain on how to best use licensing institutions like the MPP to increase generic drug access without hampering the incentive to innovate. But the MPP is proving that it is possible to align the interests of Big Pharma and generic manufacturers to save more lives in developing countries. In October 2022, the MPP signed a licensing agreement with Novartis for the leukemia drug <a href="https://medicinespatentpool.org/news-publications-post/mpp-signs-licence-agreement-to-increase-access-to-nilotinib-for-the-treatment-of-chronic-myeloid-leukaemia">nilotinib</a> – the first time a cancer drug has come under a public health-oriented licensing agreement.</p><img src="https://counter.theconversation.com/content/189868/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Lucy Xiaolu Wang receives research funding from Cornell University and the Institute for Humane Studies.</span></em></p>The Medicines Patent Pool was created to promote public health, facilitating generic licensing for patented drugs that treat diseases predominantly affecting low- and middle-income countries.Lucy Xiaolu Wang, Assistant Professor of Resource Economics, UMass AmherstLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1938382022-11-23T19:10:59Z2022-11-23T19:10:59ZCultural industries have been captured by billionaires – a new book considers what we can do about it<figure><img src="https://images.theconversation.com/files/496333/original/file-20221121-48207-h8xs98.jpg?ixlib=rb-1.1.0&rect=0%2C5%2C1198%2C786&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Laia Alsina from The Crab Apples, September 2017.</span> <span class="attribution"><span class="source">Gabri Guerrero/Wikimedia Commons</span>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span></figcaption></figure><p>This book speaks to a disenchanted present. </p>
<p>The heady days of internet 2.0, with its anarchic disruption, empowered prosumers, flat hierarchies and sharing economies, are well behind us now. So too is the glamour of start-ups and creative entrepreneurs, remaking the self through pure willpower while transforming capitalism from the inside out, one almond latte at a time. </p>
<p>In <a href="https://scribepublications.com.au/books-authors/books/chokepoint-capitalism-9781761380075">Chokepoint Capitalism</a>, Rebecca Giblin and Cory Doctorow have added their detailed knowledge of corporate practice and their legal-technical web-weaving to the growing body of critical work on Big Tech and the stark realities of creative work. The result is a dark portrait of a cultural system captured by billionaires. </p>
<hr>
<p><em>Review: Chokepoint Capitalism – Rebecca Giblin and Cory Doctorow (Scribe).</em></p>
<hr>
<p>The tone is set from the first:</p>
<blockquote>
<p>Three massive conglomerates own the three record labels and three music publishers that control most of the world’s music. They designed the streaming industry, dominated by Spotify, which itself is (or was) partly owned by those same three labels. </p>
<p>When Disney swallowed 21st Century Fox, a single company assumed control of 35 percent of the US box office. Google and Facebook have a lock on the digital ads that are wrapped around music, videos, and news online. Google, along with Apple, is the gatekeeper of everything mobile, giving it a massive cut on games, books, music, and movies. Via Youtube, it controls video streaming […] </p>
<p>Amazon has an iron grip on book, ebook, and audio-book sales, and dominates ebook and audiobook production. The only publisher that might be able to hold its own is Penguin Random House, and then only by gulping down as many other big publishers as it possibly can.</p>
</blockquote>
<p>And so on, through radio, live music, artists’ agents, games, apps, devices – the whole ecosystem has been captured by huge corporations whose sole purpose is to reduce costs and maximise profits. </p>
<p>“Ecosystem” has a benign ring to it, but, as Giblin and Doctorow argue, a corporation is more like </p>
<blockquote>
<p>an immortal colony organism that treats human beings as inconvenient gut flora. It doesn’t have a personality and it doesn’t have ethics. Its sole imperative is to do whatever it can get away with to extract maximum economic value from humans and the planet. </p>
</blockquote>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/chokepoint-capitalism-why-well-all-lose-unless-we-stop-amazon-spotify-and-other-platforms-squeezing-cash-from-creators-194069">Chokepoint Capitalism: why we'll all lose unless we stop Amazon, Spotify and other platforms squeezing cash from creators</a>
</strong>
</em>
</p>
<hr>
<h2>‘Chickenization’</h2>
<p>Chokepoint refers to the mechanism by which this dominance is achieved. We now know that Big Tech’s business model is not “disruptive innovation”, but rather monopoly. It is Jeff Bezos’s “Get Big Fast” strategy, designed to drive competitors to the wall, lock in customers, and ratchet up prices. </p>
<p>But it is also a <a href="https://www.investopedia.com/terms/m/monopsony.asp">monopsony</a>, in which big corporations are the only buyers. “If you can only sell your product to a single entity, it’s not your customer; it’s your boss.” </p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/496336/original/file-20221121-9492-34vva7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/496336/original/file-20221121-9492-34vva7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/496336/original/file-20221121-9492-34vva7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=921&fit=crop&dpr=1 600w, https://images.theconversation.com/files/496336/original/file-20221121-9492-34vva7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=921&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/496336/original/file-20221121-9492-34vva7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=921&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/496336/original/file-20221121-9492-34vva7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1157&fit=crop&dpr=1 754w, https://images.theconversation.com/files/496336/original/file-20221121-9492-34vva7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1157&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/496336/original/file-20221121-9492-34vva7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1157&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Jeff Bezos’s successful business strategy was to ‘Get Big Fast’.</span>
<span class="attribution"><span class="source">Dennis Van Tine/AP</span></span>
</figcaption>
</figure>
<p>Giblin and Doctorow call the total control of the production process “chickenization”. Lock-in techniques pioneered by agribusiness corporations like Monsanto are being applied to live music and other cultural producers. </p>
<p>Once corporations are in a dominant position, they can afford to lobby governments to keep it that way. Big Tech’s billions can make sure that regulations are made in their favour – US radio not having to pay royalties for the music they play, for example (an arrangement the US shares only with Rwanda, Iran and North Korea). Or they can actually introduce legislation, such as California’s <a href="https://www.californialawreview.org/the-aftermath-of-californias-proposition-22/">Proposition 22</a>, which led to an explosion of gig working across the state.</p>
<p>These strategies combine to create an “anti-competitive flywheel” of great momentum. Rather than the “virtuous circle” of lower costs, lower prices, higher customer satisfaction, and industry growth, we have locked-in users, locked-in suppliers, competition eliminated, and reduced prices paid to workers and suppliers. </p>
<p>In creative industries, as elsewhere in the economy, there has been a huge shift in the returns to capital at the expense of labour, with wage stagnation the other side to an unprecedented accumulation of wealth among the elite. </p>
<p>The authors are clear as to the culprit – the Chicago School of economics, aka neoliberalism. Though its proponents are normally associated with a deregulated “free” market, a key move was their about-turn on antitrust legislation, spearheaded by the jurist Robert Bork. Monopoly was against competitive markets and so bad, right? Well, as it turns out, no. Efficient monopolies, Bork proposed, deliver good returns to consumers (in the short term) in the form of cheaper prices. </p>
<p>This argument provided the legal loophole that has allowed corporations to advance their monopolistic ambitions. As many <a href="https://www.hup.harvard.edu/catalog.php?isbn=9780674979529">historians</a> of neoliberalism have shown, the pivot away from antitrust was crucial in getting major corporations to buy in to the neoliberal agenda, giving obscure <a href="https://global.oup.com/academic/product/the-rise-and-fall-of-the-neoliberal-order-9780197519646?cc=au&lang=en&">right-wing think tanks</a> the financial boost required to enter the mainstream of policy making. </p>
<p>Big Tech has been a prime beneficiary. Its locked-in suppliers and customers are regaled with the rhetoric of free choice, while the <a href="https://www.newstatesman.com/culture/books/2021/10/the-contrarian-peter-thiel-max-chafkin-review">founders</a> exercise the world-making and world-breaking freedom reserved for masters of the universe. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/496885/original/file-20221122-18-rz3abo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/496885/original/file-20221122-18-rz3abo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/496885/original/file-20221122-18-rz3abo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=403&fit=crop&dpr=1 600w, https://images.theconversation.com/files/496885/original/file-20221122-18-rz3abo.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=403&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/496885/original/file-20221122-18-rz3abo.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=403&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/496885/original/file-20221122-18-rz3abo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=506&fit=crop&dpr=1 754w, https://images.theconversation.com/files/496885/original/file-20221122-18-rz3abo.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=506&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/496885/original/file-20221122-18-rz3abo.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=506&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">President Ronald Reagan Meeting with Judge Robert Bork in The Oval Office, July 1987.</span>
<span class="attribution"><span class="source">Wikimedia Commons</span></span>
</figcaption>
</figure>
<h2>Practical ideas</h2>
<p>Giblin and Doctorow devote the second part of their book to ways in which this situation might be challenged. Those who follow the debates around platform capitalism will be familiar with some of their arguments, as will those concerned with the exploitation and accelerated precarity of creative labour. </p>
<p>The book merges these two critical streams. The authors call for systemic answers, not just tweaking copyright, or digital locks, or even revitalising antitrust laws. The latter is important, but is phenomenally difficult. It often misses other forms of lock-in, charted in detail in the book, while the laws themselves can often be circumvented by corporations with billion-dollar war chests.</p>
<figure class="align-left zoomable">
<a href="https://images.theconversation.com/files/496324/original/file-20221120-13-3y3ohk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/496324/original/file-20221120-13-3y3ohk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/496324/original/file-20221120-13-3y3ohk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=918&fit=crop&dpr=1 600w, https://images.theconversation.com/files/496324/original/file-20221120-13-3y3ohk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=918&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/496324/original/file-20221120-13-3y3ohk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=918&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/496324/original/file-20221120-13-3y3ohk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1154&fit=crop&dpr=1 754w, https://images.theconversation.com/files/496324/original/file-20221120-13-3y3ohk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1154&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/496324/original/file-20221120-13-3y3ohk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1154&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
</figcaption>
</figure>
<p>There are other practical ideas, which are detailed in some compelling chapters. These include “transparency rights” that would cut through opaque contracts, so we know who gets paid what and on what grounds. The authors also discuss time limits on copyright, questioning the absurd length of time that those rights can be exercised after the creator’s death (over 70 years), and they discuss other ways of reforming a copyright system that, once upon a time, was there to protect creators, but now enslaves them. </p>
<p>They propose “radical interoperability” legislation to end the proprietary system that allows the ring-fencing of separate devices and operating systems. And they call for minimum wages for creatives – their proposals less focused on dollar-per-hour rates than on legal and regulatory interventions that would ensure creatives are appropriately remunerated across the range of complex transactions that typically make up their incomes: licenses, on-sales, streaming fees, collection mechanisms.</p>
<p>Collective action is also a crucial precondition to overcoming an atomised workforce. Union membership is currently growing, as the individualised glamour of the “creative entrepreneur” wears thin. More generally, Giblin and Doctorow propose that we must take back collective ownership, build citizen platforms, promote shared tech and other new forms of common production.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/496890/original/file-20221123-14-k2vnir.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/496890/original/file-20221123-14-k2vnir.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/496890/original/file-20221123-14-k2vnir.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=864&fit=crop&dpr=1 600w, https://images.theconversation.com/files/496890/original/file-20221123-14-k2vnir.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=864&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/496890/original/file-20221123-14-k2vnir.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=864&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/496890/original/file-20221123-14-k2vnir.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1086&fit=crop&dpr=1 754w, https://images.theconversation.com/files/496890/original/file-20221123-14-k2vnir.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1086&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/496890/original/file-20221123-14-k2vnir.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1086&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Under Franklin D. Roosevelt’s New Deal, artists were put to work.</span>
<span class="attribution"><span class="source">Wikimedia Commons</span></span>
</figcaption>
</figure>
<p>These ideas are not meant to be exhaustive or prescriptive; they are pointers to a radical new agenda aimed at overturning the chokepoint capitalism that is strangling us all. As the final chapter makes clear, neither systemic regulatory change nor the practical points of intervention the authors outline can work if not undertaken as a collective endeavour. </p>
<p>This does not just mean in the creative sector. The experiences of monopoly and precarity, declining wages, and ever-increasing health, housing and education costs are common to many walks of life. The authors evoke the 1930s New Deal, linking its programs to put artists to work (brilliantly outlined in Michael Denning’s book <a href="https://www.versobooks.com/books/523-523-the-cultural-front">The Cultural Front</a>) with current calls for a job guarantee. </p>
<p>Rather than a somewhat individualised and expensive universal basic income, a job guarantee would provide socially useful work for all who require it, at a decent wage. This would not only break the monopsony of having to work for the corporations on conditions set to their advantage, but make cultural production possible at a new scale outside the chickenised systems of Big Tech and Big Content. </p>
<h2>A radical edge</h2>
<p>Chokepoint Capitalism is a wake-up call. The emphasis it places on the need for a collective response to chokepoint capitalism gives the book its radical edge. The authors portray a “free-market” capitalism that, unchecked, runs inevitably to concentration and monopoly at the expense of workers and consumers alike. </p>
<p>Capitalism might not be fit for any purpose, they suggest, but in the meantime, it can be made more equitable. Workers can be properly paid, customers need not be locked-in and fleeced, and small businesses can be given entry to a level playing field. These measures would involve technical regulation but, as with the New Deal, they are ultimately about a collective struggle that aligns creative workers with those in many other sectors.</p>
<p>One of the powerful aspects of the book is that it deals with “actually existing” creative industries. It discusses art and culture (the words are used interchangeably) in a capacious and inclusive fashion.</p>
<p>The idea of the creative industries that has dominated policy thinking for three decades has produced reams of statistics for the advocacy machine. There have been five such reports this year at least. These reports tend to focus on narrowly economic categories like employment, growth and exports – all of which can be used in support of a sector that, as “art and culture”, is otherwise deemed surplus to requirements by neoliberal policymakers.</p>
<p>Reading reports by the <a href="https://unctad.org/webflyer/creative-industry-40-towards-new-globalized-creative-economy">UN</a>, the <a href="https://www.worldbank.org/en/topic/urbandevelopment/publication/cities-culture-creativity">World Bank</a>, <a href="https://www.oecd.org/cfe/notetojournalists-culture-english.htm">OECD</a> and <a href="https://www.adb.org/publications/creative-economy-2030-imagining-and-delivering-a-robust-creative-inclusive-and-sustainable-recovery">others</a>, one might be forgiven for thinking the bright new world of creative economy 4.0 (or are we at 6.0 yet?) is already with us. </p>
<p>What they all prefer to ignore is how these industries actually work, how they are organised, how they actually make their money, and with what consequences for workers and consumers. </p>
<p>“Art” – usually meaning the subsidised sector, or traditional visual and performing arts – tends to be separated from “industry”. South Australia, for example, isolates “the arts” from music, film, games and so on, which are “creative industries” and allocated to a separate ministry. The federal arts minister has no jurisdiction over the ABC, let alone the regulations and communications infrastructure with which this book is concerned. </p>
<p>The cultural commentariat follow suit, rendering the creative industries unto a commercial Caesar in the forlorn hope that the arts will be given all that “market failure” money earmarked for “Australian stories”. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/496892/original/file-20221123-18-qqd4a1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/496892/original/file-20221123-18-qqd4a1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/496892/original/file-20221123-18-qqd4a1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=300&fit=crop&dpr=1 600w, https://images.theconversation.com/files/496892/original/file-20221123-18-qqd4a1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=300&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/496892/original/file-20221123-18-qqd4a1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=300&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/496892/original/file-20221123-18-qqd4a1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=377&fit=crop&dpr=1 754w, https://images.theconversation.com/files/496892/original/file-20221123-18-qqd4a1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=377&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/496892/original/file-20221123-18-qqd4a1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=377&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">In Chokepoint Capitalism, Rebecca Giblin and Cory Doctorow consider actually existing creative industries. Image: Powderfinger at the Big Day Out, 2010.</span>
<span class="attribution"><span class="source">Steve Collis/Wikimedia Commons</span>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/creative-city-smart-city-whose-city-is-it-78258">Creative city, smart city ... whose city is it?</a>
</strong>
</em>
</p>
<hr>
<h2>Art and public policy</h2>
<p>The roots of the problem can be traced back to the 1960s, when culture began to be dominated by commercial companies. In the following decades, cheaper technologies, more education and a newly dynamic popular culture brought in a whole new range of producers, from gonzo journalists to punk rockers, street fashions and fanzines, indie labels and artists’ factories. </p>
<p>International agencies, such as UNESCO, began asking how to rethink democratic cultural policy when most production and consumption was taking place outside of the state-subsidised system. Cities from London to Melbourne, Manchester to Toronto, sought new ways to stimulate these new urban cultures and keep the proceeds in the local economy. </p>
<p>The creative industries embraced markets, entrepreneurialism and disruptive tech as the markers of our progress to the next stage of economic development. Chokepoint Capitalism, a stroll round Dorian Grey’s attic, confronts us with the reality belying that fantasy.</p>
<p>The book suggests ways out of the enclosure and, in calling for collective action, makes links with other groups and sectors similarly afflicted. In common with the growing body of critical creative-labour studies, it urges us to drop the elitism of Richard Florida’s concept of the “creative class”. It evokes art and creativity as central to who we are as humans – something that, in part, accounts for our willingness to self-exploit, and for the over-supply of creative labour that corporations exploit. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/496887/original/file-20221122-20-f027vo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/496887/original/file-20221122-20-f027vo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/496887/original/file-20221122-20-f027vo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/496887/original/file-20221122-20-f027vo.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/496887/original/file-20221122-20-f027vo.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/496887/original/file-20221122-20-f027vo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/496887/original/file-20221122-20-f027vo.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/496887/original/file-20221122-20-f027vo.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Social theorist Richard Florida developed the concept of the ‘creative class’.</span>
<span class="attribution"><span class="source">Jere Keys/Wikimedia Commons</span></span>
</figcaption>
</figure>
<p>But the book stops short of exploring how the cultural system might be reframed in public policy. Is culture an industry like any other, which must be made more equitable and open? Or is it an area of public policy like health, education, social services, all of which have their monopolies and monopsonies, their global corporations exploiting workers on the breadline, but which are recognised (just about) as delivering public benefit?</p>
<p>Nor does the book explain how the cultural system was so rapidly privatised, or how cultural consumption was reframed as the choice of sovereign individual consumers aggregated by the market. If the struggle of artists against chokepoint capitalism must be collective, then surely the cultural system also needs to be reframed as a collective concern. </p>
<p>This returns us to some of the unfinished business of the 1970s and 1980s. It is necessary to think about culture and democratic citizenship, not just in terms of state-subsidised art, but across the whole culture system. Our failure to engage with this question, leaving it up to the market to decide, has resulted in one of the most profound technological and cultural transformations in our history being handed over to a bunch of sociopaths in Northern California. Chokepoint Capitalism helps us start the daunting task of taking back control.</p><img src="https://counter.theconversation.com/content/193838/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Justin O'Connor receives funding from The Australian Research Council</span></em></p>Chokepoint Capitalism is a dark portrait of a cultural system where monopolies and monopsonies predominate to the detriment of artists.Justin O'Connor, Professor of Cultural Economy, University of South AustraliaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1923732022-10-21T07:09:24Z2022-10-21T07:09:24ZCan the EU’s Digital Markets Act rein in big tech?<figure><img src="https://images.theconversation.com/files/490360/original/file-20221018-20-907j4w.jpg?ixlib=rb-1.1.0&rect=0%2C8%2C1199%2C673&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Google's EU headquarters is located in Dublin, Ireland. The EU's new Digital Markets Act could rein in the company's power. </span> <span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:Google_Headquarters_in_Ireland_Building_Sign.jpg">Wikimedia</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>On 12 October 2022, the European Union published the final version of its new <a href="https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32022R1925&from=EN">Digital Markets Act</a> (DMA). It’s a ground-breaking piece of legislation that will regulate the business conduct of so-called digital gatekeepers – the providers of the core platform services on which businesses depend to reach their customers. Such firms enjoy a entrenched and durable market power. The DMA will enter into force on 1 November 2022, and key rules will start applying on 2 May of next year. </p>
<p>While the Digital Markets Act is not without flaws and a number of questions remain, the legislation has more potential to rein in big tech’s market power than competition law and will significantly change the way that gatekeeper platforms operate in Europe. It’s intended to address shortcomings and vulnerabilities highlighted by the UK’s <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/785547/unlocking_digital_competition_furman_review_web.pdf">Furman Report</a>, the US <a href="https://www.chicagobooth.edu/research/stigler/news-and-media/committee-on-digital-platforms-final-report">Stigler Report</a> and the EU’s <a href="https://ec.europa.eu/competition/publications/reports/kd0419345enn.pdf">Vestager Report</a>. In particular, all three argued that core platform markets are globally dominated by one or two of the same five companies: Google, Apple, Facebook, Amazon and Microsoft (GAFAM).</p>
<h2>The DMA’s objective</h2>
<p>The high degree of market concentration results from an unusual combination of factors inherent in digital platform markets: strong <a href="https://www.investopedia.com/terms/n/network-effect.asp">network effects</a>, high returns to the use of data, scale and scope economies, and the ease of exploiting <a href="https://link.springer.com/referenceworkentry/10.1007/978-1-4614-7883-6_655-1">consumer biases</a>. These factors make markets prone to tipping in favour of one or two players, and once a market has tipped, high barriers to entry make it difficult for newcomers to compete, even if they have the better product.</p>
<p>The DMA’s objective is twofold: First, to reduce barriers to entry to digital markets, making them more open to competition. Second, to make them fairer for business and end users by setting certain ground rules for the terms of use.</p>
<p>To this end, the DMA will subject gatekeepers to a set of stringent conduct rules. They’ll first be designated by the European Commission, and it is fully expected that GAFAM will all make the list.</p>
<h2>Conduct rules and penalties</h2>
<p>Once designated, gatekeepers will have six months to comply with the 22 conduct rules contained in Articles 5-7 of the DMA. These include:</p>
<ul>
<li><p>Obligations to share data with competitors and customers</p></li>
<li><p>Possibility for consumers to load apps outside of firms’ app stores</p></li>
<li><p>Mandatory interoperability of certain communications systems</p></li>
<li><p>Public disclosure of user-profiling techniques</p></li>
<li><p>Bans on favouring own services in search results</p></li>
</ul>
<p>Many of these obligations go to the very core of big tech’s business models, and it remains to be seen how the firms will adapt. Noncompliance is subject to significant financial penalties: a one-off infringement can result in fines of up to 10% of the gatekeeper’s total worldwide turnover. For repeat offences, the fine may go up to 20%, and the gatekeeper may be banned from entering into mergers and acquisitions.</p>
<figure class="align-center ">
<img alt="The European Parliament (pictured) and the Council of the European Union adopted the Digital Markets Act last summer." src="https://images.theconversation.com/files/489534/original/file-20221013-20-z4muox.jpg?ixlib=rb-1.1.0&rect=97%2C159%2C1101%2C738&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/489534/original/file-20221013-20-z4muox.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/489534/original/file-20221013-20-z4muox.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/489534/original/file-20221013-20-z4muox.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/489534/original/file-20221013-20-z4muox.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/489534/original/file-20221013-20-z4muox.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/489534/original/file-20221013-20-z4muox.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The European Parliament (pictured) and the Council of the European Union adopted the Digital Markets Act last summer.</span>
<span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:Debate_European_Parliament_%27Copyright_in_the_digital_Single_Market%27_11-9-2018.jpg">Wikimedia</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<h2>Stringent rules despite significant lobbying efforts</h2>
<p>While jurisdictions such as the <a href="https://www.promarket.org/2021/06/29/house-antitrust-bills-big-tech-apple-preinstallation/">United States</a> and the <a href="https://www.gov.uk/government/consultations/a-new-pro-competition-regime-for-digital-markets/outcome/a-new-pro-competition-regime-for-digital-markets-government-response-to-consultation">United Kingdom</a> have also been considering similar regulations, the EU’s Digital Markets Act is the first of its kind.</p>
<p>Given that it’s a complex legal experiment that will impose significant enforcement cost both on the European Commission and the gatekeepers, there has been significant push-back. The American tech sector, in particular, has argued that the DMA is <a href="https://www.nytimes.com/2022/03/24/technology/eu-regulation-apple-meta-google.html">biased against US companies</a>, and will ultimately harm European consumers because it will affect service quality and GAFAM’s incentive to innovate. Big tech reportedly engaged in <a href="https://www.politico.eu/article/big-tech-boosts-lobbying-spending-in-brussels/">significant lobbying efforts</a> to avert or at least tone down the Commission’s original legislative proposal.</p>
<p>Judging by the result, these efforts were in vain. If anything, the final text of the DMA is even stricter than the draft. The European Parliament in particular played a decisive role in extending the list of services covered by the DMA, adding new conduct rules and increasing penalties.</p>
<h2>The role of national competition agencies</h2>
<p>The big tech firms weren’t the only entities expressing displeasure with the Commission’s legislative blueprint. The EU’s national competition agencies, led by <a href="https://www.bmwk.de/Redaktion/DE/Downloads/M-O/non-paper-friends-of-an-effective-digital-markets-act.pdf">Germany, France and the Netherlands</a>, agreed with the substance of the DMA but pushed to be more involved in DMA enforcement.</p>
<p>In a rare <a href="https://www.autoritedelaconcurrence.fr/sites/default/files/DMA--JointEUNCAspaper.pdf">joint statement</a>, all 27 agencies argued that they could offer expertise and resources to strengthen the enforcement of the DMA. The fact is that once the DMA is in force, it will preclude national regulation, and leave room only for national competition rules that require an individual assessment of market power and the conduct’s actual effects in each individual case. In its final version, the DMA does empower national agencies to open investigations and collect evidence. However, in the interest of a uniform approach to enforcement, only the Commission is currently competent to assess conduct under the DMA and issue non-compliance decisions.</p>
<p>Public enforcement by the Commission will likely be supplemented in the future by private enforcement. The DMA does not explicitly stipulate that private actors who were harmed by platform conduct in violation of the DMA may sue for compensation. However, it states that the EU rules on <a href="https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32020L1828">collective redress</a> for losses caused by infringements of EU law shall apply to infringements of the DMA.</p>
<p>The DMA integrates many core concepts of the EU’s <a href="https://gdpr-info.eu/">General Data Protection Regulation</a> (GDPR), and requires the Commission to work closely with data protection bodies. This is a step forward, as regulating data-driven business models requires an interdisciplinary and inter-institutional approach, which has so far been <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4089978">neglected in EU competition law</a>.</p>
<h2>Scope for fine-tuning the DMA’s rules</h2>
<p>A key criticism of the DMA has been its <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4021843">heavy use of <em>per se</em> rules</a>, i.e., legal rules that do not require proving the actual harmful effects of the investigated conduct but outlaw the conduct as such. These have advantages and disadvantages:</p>
<ul>
<li><p>They’re relatively cheap and quick to enforce, meaning that the enforcement of the DMA could be much more effective than that of EU competition law. The <a href="https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX%3A12008E102">abuse of dominance rules</a> in particular require in-depth economic assessments, leading to average investigations in excess of five years.</p></li>
<li><p>A clear downside of <em>per se</em> rules is that they’re blunt: they may outlaw conduct that does not cause any actual harm in the individual case (resulting in “false positives”) and may fail to catch conduct that does cause harm (“false negatives”).</p></li>
<li><p>They can be circumvented by a firm adapting its business conduct to achieve the anticompetitive result in a manner that is not explicitly outlawed.</p></li>
</ul>
<p>However, in its final version, the DMA contains many corrective mechanisms that would allow the Commission to correct rules where needed. It is to be hoped that the Commission will closely monitor the effect of the DMA both on businesses and consumers, and that it will not hesitate to step in if necessary.</p>
<h2>Can the DMA achieve its aims?</h2>
<p>One shortcoming of the DMA is that it does not address the issue of gatekeeper acquisitions. Collectively, GAFAM have acquired more than 800 companies over the relatively short course of their existence. Many were innovative start-ups developing complementary technologies, which the acquiring firms subsequently integrated into their ecosystems. Just one example is WhatsApp, which Facebook snapped up for <a href="https://www.forbes.com/sites/parmyolson/2014/10/06/facebook-closes-19-billion-whatsapp-deal/">US$19 billion in 2014</a>. The deal has continued to make headlines, and not for the best reasons: In 2017, the EU fined Facebook <a href="https://ec.europa.eu/commission/presscorner/detail/pl/IP_17_1369">110 million euros for providing “misleading information”</a> about the takeover, and in 2020, the US Federal Trade Commission sued the company for <a href="https://www.ftc.gov/news-events/news/press-releases/2020/12/ftc-sues-facebook-illegal-monopolization">“illegal monopolization”</a> over the deal.</p>
<p>Despite <a href="https://journals.sagepub.com/doi/abs/10.1177/0003603X221082748?journalCode=abxa">growing concern</a> about this trend, the European competition agencies and their US counterparts have not yet prohibited a single big tech acquisition, and the question arises whether the existing merger rules, developed in the age of brick-and-mortar-outlets, are fit for the digital economy. The DMA would have been the opportunity to review EU merger control’s theories of harm and standards of proof for the platform economy.</p>
<p>The DMA only applies to core platform services offered to users established or located in the European Union. It does not regulate gatekeeper services provided to users established and located in other jurisdictions. It remains to be seen whether the <a href="https://www.brusselseffect.com/">“Brussels effect”</a> will strike again, with gatekeepers complying with the DMA’s relatively stringent standards outside the EU. Alternately, the gatekeepers could seek to operate services differently in jurisdictions with lower (or currently even nonexisting) regulatory standards. Presumably, there will be some degree of alignment on points that are not overly costly for gatekeepers, but also differences where these are overall profitable.</p><img src="https://counter.theconversation.com/content/192373/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Anne C. Witt ne travaille pas, ne conseille pas, ne possède pas de parts, ne reçoit pas de fonds d'une organisation qui pourrait tirer profit de cet article, et n'a déclaré aucune autre affiliation que son organisme de recherche.</span></em></p>While the EU’s ground-breaking legislation to regulate “digital gatekeepers” has its flaws, it could rein in big tech and significantly change how it operates in Europe – and perhaps the world.Anne C. Witt, Professor of Law, Augmented Law Institute, EDHEC Business SchoolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1882692022-09-23T12:33:33Z2022-09-23T12:33:33ZNew study seeks to explain the ‘Mandela Effect’ – the bizarre phenomenon of shared false memories<figure><img src="https://images.theconversation.com/files/485906/original/file-20220921-24-2f1xe7.jpg?ixlib=rb-1.1.0&rect=6%2C3%2C2222%2C1456&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">When asked to recall the popular children's book series 'The Berenstain Bears,' many people make the same error by spelling it 'The Berenstein Bears.'</span> <span class="attribution"><a class="source" href="https://www.gettyimages.co.uk/detail/news-photo/lori-carhart-of-agoura-reads-a-book-called-learn-about-news-photo/563565289?adppopup=true">Stephen Osman/Los Angeles Times via Getty Images</a></span></figcaption></figure><p>Imagine the Monopoly Man.</p>
<p>Is he wearing a monocle or not?</p>
<p>If you pictured the character from the popular board game wearing one, you’d be wrong. In fact, <a href="https://www.cracked.com/article_24565_hard-truth-time-monopoly-guy-never-had-monocle.html">he has never worn one</a>.</p>
<p>If you’re surprised by this, you’re not alone. Many people possess the same false memory of this character. This phenomenon takes place for other characters, logos and quotes, too. For example, Pikachu from Pokémon is often thought to have a black tip on his tail, <a href="https://www.cbr.com/pikachu-black-tail-belief-theory/">which he doesn’t have</a>. And <a href="https://www.reddit.com/r/MandelaEffect/comments/99hv43/fruit_of_the_loom_cornucopia/">many people are convinced</a> that the Fruit of the Loom logo includes a cornucopia. It doesn’t.</p>
<p>We call this phenomenon of shared false memories for certain cultural icons the “visual Mandela Effect.” </p>
<p>People tend to be puzzled when they learn that they share the same false memories with other people. That’s partly because they assume that what they remember and forget ought to be subjective and based on their own personal experiences.</p>
<p>However, research we have conducted shows that people tend to <a href="https://doi.org/10.1016/bs.plm.2019.02.001">remember and forget the same images</a> as one another, regardless of the diversity of their individual experiences. Recently, we have shown these similarities in our <a href="https://psyarxiv.com/nzh3s">memories even extend to our false memories</a>.</p>
<h2>What is the Mandela Effect?</h2>
<p>The term <a href="https://mandelaeffect.com/nelson-mandela-died-in-prison/">“Mandela Effect” was coined by Fiona Broome</a>, a self-described paranormal researcher, to describe her false memory of former South African president Nelson Mandela dying in prison in the 1980s. She realized that many other people also shared this same false memory and wrote an article about her experience on her website. The concept of shared false memories spread to other forums and websites, <a href="https://www.reddit.com/r/MandelaEffect/">including Reddit</a>. </p>
<p>Since then, examples of the Mandela Effect have been widely shared on the internet. These include names like “the Berenstain Bears,” a children’s book series that is falsely remembered as spelled “-ein” instead of “-ain,” and characters like Star Wars’ C-3PO, who is falsely remembered with two gold legs <a href="https://screencrush.com/c3po-silver-leg/">instead of one gold and one silver leg</a>.</p>
<figure class="align-center ">
<img alt="T-shirt tag featuring a logo with drawings of fruit." src="https://images.theconversation.com/files/486259/original/file-20220923-8064-7iecsl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/486259/original/file-20220923-8064-7iecsl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/486259/original/file-20220923-8064-7iecsl.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/486259/original/file-20220923-8064-7iecsl.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/486259/original/file-20220923-8064-7iecsl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/486259/original/file-20220923-8064-7iecsl.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/486259/original/file-20220923-8064-7iecsl.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The Fruit of the Loom logo has never had a cornucopia.</span>
<span class="attribution"><a class="source" href="https://upload.wikimedia.org/wikipedia/commons/c/c1/Fruit_of_the_Loom%2C_t-shirt_label.jpg">Wikimedia Commons</a></span>
</figcaption>
</figure>
<p>The Mandela Effect became fodder for conspiracists – the false memories so strong and so specific that <a href="https://doi.org/10.1111/tops.12348">some people see them as evidence of an alternate dimension</a>.</p>
<p>Because of that, scientific research has only studied the Mandela Effect as an example of how conspiracy theories spread on the internet. There has been very little research looking into the Mandela Effect as a memory phenomenon. </p>
<p>But understanding why these icons trigger such specific false memories might give us more insight into how false memories form. The visual Mandela Effect, which affects icons specifically, was a perfect way to study this. </p>
<h2>A robust false memory phenomenon</h2>
<p>To see whether the visual Mandela Effect really exists, <a href="https://doi.org/10.31234/osf.io/nzh3s">we ran an experiment</a> in which we presented people with three versions of the same icon. One was correct and two were manipulated, and we asked them to select the correct one. There were 40 sets of icons, and they included C-3PO from the Star Wars franchise, the Fruit of the Loom logo and the Monopoly Man from the board game. </p>
<p>In the results, which have been accepted for publication in the journal Psychological Sciences, we found that people fared very poorly on seven of them, only choosing the correct one around or less than 33% of the time. For these seven images, people consistently identified the same incorrect version, not just randomly choosing one of the two incorrect versions. In addition, participants reported being very confident in their choices and having high familiarity with these icons despite being wrong. </p>
<p>Put together, it’s clear evidence of the phenomenon that people on the internet have talked about for years: The visual Mandela Effect is a real and consistent memory error.</p>
<figure class="align-center ">
<img alt="An example of a set of images shown from the study, with three versions of a yellow cartoon animal." src="https://images.theconversation.com/files/486260/original/file-20220923-19-qehx50.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/486260/original/file-20220923-19-qehx50.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=375&fit=crop&dpr=1 600w, https://images.theconversation.com/files/486260/original/file-20220923-19-qehx50.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=375&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/486260/original/file-20220923-19-qehx50.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=375&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/486260/original/file-20220923-19-qehx50.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=471&fit=crop&dpr=1 754w, https://images.theconversation.com/files/486260/original/file-20220923-19-qehx50.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=471&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/486260/original/file-20220923-19-qehx50.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=471&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The correct version of Pikachu is the one on the left. Most participants in the study not only chose a wrong version of the popular cartoon character, but they also chose the same wrong one – the Pikachu with the black tip on its tail.</span>
<span class="attribution"><span class="source">Wilma Bainbridge and Deepasri Prasad</span>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<p>We found that this false memory effect was incredibly strong, across multiple different ways of testing memory. Even when people saw the correct version of the icon, they still chose the incorrect version just a few minutes later. </p>
<p>And when asked to freely draw the icons from their memory, people also included the same incorrect features.</p>
<h2>No universal cause</h2>
<p>What causes this shared false memory for specific icons? </p>
<p>We found that visual features like color and brightness could not explain the effect. We also tracked participants’ mouse movements as they viewed the images on a computer screen to see if they simply didn’t scan over a particular part, such as Pikachu’s tail. But even when people directly viewed the correct part of the image, they still chose the false version immediately afterward. We also found that for most icons, it was unlikely people had seen the false version beforehand and were just remembering that version, rather than the correct version.</p>
<p>It may be that there is no one universal cause. Different images may elicit the visual Mandela Effect for different reasons. Some could be related to prior expectations for an image, some might be related to prior visual experience with an image and others could have to do with something entirely different than the images themselves. For example, we found that, for the most part, people only see C-3PO’s upper body depicted in media. The falsely remembered gold leg might be a result of them using prior knowledge – bodies are usually only one color – to fill in this gap. </p>
<p>But the fact that we can demonstrate consistencies in false memories for certain icons suggests that part of what drives false memories is dependent on our environment – and independent of our subjective experiences with the world.</p><img src="https://counter.theconversation.com/content/188269/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>People are puzzled when they learn they share the same false memories with others. That’s partly because they assume that what they remember and forget ought to be based only on personal experience.Deepasri Prasad, Ph.D. Student in Cognitive Neuroscience, Dartmouth CollegeWilma Bainbridge, Assistant Professor of Psychology, University of ChicagoLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1830162022-05-19T12:23:54Z2022-05-19T12:23:54ZBaby formula industry was primed for disaster long before key factory closed down<figure><img src="https://images.theconversation.com/files/464068/original/file-20220518-15-f6cjil.jpg?ixlib=rb-1.1.0&rect=211%2C125%2C4204%2C2814&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Cities are trying to address the baby formula shortage with community drives.</span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/BabyFormulaShortage/978d1f02dc1043938f71dadae095fe96/photo?Query=baby%20formula&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=263&currentItemNo=34">AP Photo/David J. Phillip</a></span></figcaption></figure><p>The conditions that led to a <a href="https://theconversation.com/whats-behind-the-us-baby-formula-shortage-and-how-to-make-sure-it-doesnt-happen-again-182929">shortage of baby formula</a> were set in motion long before the February 2022 closure of the Similac factory <a href="https://www.washingtonpost.com/business/2022/05/14/baby-formula-shortage-sturgis/">tipped the U.S. into a crisis</a>.</p>
<p>Retailers nationwide <a href="https://datasembly.com/news/out-of-stock-rate-in-april-2022-copy/">reported supplies of baby formula were out of stock</a> at a rate of 43% during the week ended May 8, 2022, compared with less than 5% in the first half of 2021. In some states, such as <a href="https://www.cbsnews.com/news/baby-formula-shortage-rationing-national-crisis/">Texas and Tennessee</a>, shortages were over 50%, which has prompted parents to <a href="https://www.wsj.com/articles/baby-formula-shortage-leaves-parents-scouring-country-for-supplies-11652466530">travel long distances</a> and <a href="https://www.eatthis.com/news-baby-formula-shortage-price-gouging/">pay exorbitant sums of money</a> to grab dwindling supplies of formula for their babies.</p>
<p>News that the Food and Drug Administration and Similac-maker Abbott <a href="https://www.nytimes.com/2022/05/16/health/baby-formula-shortage-fda.html">have reached a deal</a> to reopen the formula factory in Sturgis, Michigan, is welcome news for desperate parents, but it will do little to alleviate the shortage anytime soon. This is in no small part because of the very nature of America’s baby formula industry.</p>
<p>I <a href="https://ilitchbusiness.wayne.edu/profile/dx7877">research and teach supply chain management</a>, with a special focus on the health care industry. The closure of the Similac factory may have lit the fuse for the nationwide shortage, but a combination of government policy, industry market concentration and supply chain issues supplied the powder. </p>
<h2>What prompted the baby formula shortage</h2>
<p>On Feb. 17, Abbott <a href="https://www.similacrecall.com/us/en/home.html">initiated a voluntary recall</a> after <a href="https://www.miamiherald.com/news/recalls/article258913143.html">four infants</a> were hospitalized with infections from the bacteria <em>Cronobacter sakazakii</em> – two of them died – after consuming baby formula manufactured in their Sturgis facility. The factory was also shut down.</p>
<p>The FDA has identified no new cases but has <a href="https://www.washingtonpost.com/business/2022/05/14/baby-formula-shortage-sturgis/">not yet approved reopening</a> the Sturgis facility, which is responsible for about half of Abbott’s U.S. supply. Abbott said it <a href="https://abbott.mediaroom.com/2022-05-16-Abbott-Enters-into-Consent-Decree-with-U-S-Food-and-Drug-Administration-for-its-Sturgis,-Mich-,-Plant-Agreement-Creates-Pathway-to-Reopen-Facility">entered into a consent decree</a> with the FDA that paves the way to reopening the facility once certain conditions are met. </p>
<p>Shortages of baby formula have led major U.S. retailers including Target, CVS, Walgreens and Kroger to <a href="https://www.reuters.com/business/healthcare-pharmaceuticals/baby-formula-shortage-forces-cvs-health-limit-purchases-2022-05-10/">restrict the amount of formula</a> a consumer may purchase. These shortages <a href="https://www.washingtonpost.com/health/2022/05/18/baby-formula-shortage-impact/">are disproportionately hurting low-income families</a> and those who do not have the resources to travel long distances to find alternative sources of baby formula. </p>
<figure class="align-center ">
<img alt="Shelves at a a grocery store are mostly bare with a small number of baby formula packages here and there" src="https://images.theconversation.com/files/464118/original/file-20220518-19-fb0u1m.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/464118/original/file-20220518-19-fb0u1m.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/464118/original/file-20220518-19-fb0u1m.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/464118/original/file-20220518-19-fb0u1m.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/464118/original/file-20220518-19-fb0u1m.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/464118/original/file-20220518-19-fb0u1m.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/464118/original/file-20220518-19-fb0u1m.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Baby formula is in short supply across the U.S.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/BabyFormulaShortage/c7645da15acb467ba6b2bf3c6a588f82/photo?Query=baby%20formula&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=265&currentItemNo=105">AP Photo/Michael Conroy</a></span>
</figcaption>
</figure>
<h2>Government-created monopolies</h2>
<p>The root of the problem begins with a concentration of production. </p>
<p>Two companies – Abbott and Reckitt Benckiser, which makes Enfamil – <a href="https://www.wsj.com/articles/baby-formula-shortage-could-last-months-11652371827?mod=hp_lead_pos3/">dominate the industry with about 80% of the U.S. market</a>. Nestlé, which sells baby formula in the U.S. under its Gerber brand, controls another 10%. </p>
<p>Part of the reason these companies are so entrenched in their position is that Abbott, Reckitt and Nestlé <a href="https://www.ers.usda.gov/amber-waves/2011/september/infant-formula-market/">are the only makers approved</a> by the U.S. government to provide baby formula through the Special Supplemental Nutrition Program for Women, Infants and Children, <a href="https://www.fns.usda.gov/wic">known as WIC</a>, which provides supplemental food to low-income families. </p>
<p>WIC, which <a href="https://www.ers.usda.gov/amber-waves/2004/september/sharing-the-economic-burden-who-pays-for-wic-s-infant-formula/#:%7E:text=Taxpayers%20alone%2C%20however%2C%20do%20not,formula%20purchased%20by%20WIC%20participants.">reimburses companies at 15%</a> of the wholesale cost, <a href="https://www.ers.usda.gov/amber-waves/2011/september/infant-formula-market/">is responsible for 92%</a> of supermarket sales of milk-based powder formula in 12-to 16-ounce containers and 51% of all sales in other sizes. </p>
<p>The federal government provides WIC grants to each state, which then contracts with one of the three companies. While WIC is a critical program to feed the most vulnerable, government support of this program has the unintended consequence of creating a de facto monopoly in each state.</p>
<p>The amount of WIC funding to these three established companies makes it difficult for any startup to make significant inroads in the baby formula industry. There is little chance they can capture the market share necessary to justify a significant investment. Since only a handful of manufacturing facilities are approved for production of baby formula in the U.S., <a href="https://www.cnbc.com/2019/08/02/silicon-valley-is-eyeing-the-giant-market-for-infant-formula.html">startups don’t have the volume</a> required to produce in these facilities. </p>
<h2>Import restrictions</h2>
<p>Another reason for the intense concentration is import controls.</p>
<p><a href="https://www.whitehouse.gov/briefing-room/statements-releases/2022/05/12/fact-sheet-president-biden-announces-additional-steps-to-address-infant-formula-shortage/">About 98% of the formula consumed</a> in the U.S. is produced domestically, whether by a U.S. or international company. While facilities abroad such as those in Mexico, Chile, Ireland and the Netherlands meet the FDA’s nutrition standards, a <a href="http://www.doi.org/10.1097/MPG.0000000000002395">failure to meet its labeling guidelines</a> prevents them from exporting to the U.S. As a result, <a href="https://www.nytimes.com/2020/04/18/parenting/baby/european-formula.html">some consumers order unapproved formula</a> over the internet from Europe and elsewhere, which may then be confiscated at the border. </p>
<p>International manufactures also face high tariffs, which <a href="https://www.freightwaves.com/news/protectionism-red-tape-hinder-baby-formula-resupply-analysts-say">can be as high as 17.5%</a> depending on volume. That’s one reason Canadian producers, which are subsidized by their government, <a href="https://www.freightwaves.com/news/protectionism-red-tape-hinder-baby-formula-resupply-analysts-say">have mostly steered clear</a> of the U.S. market. And the United States Mexico Canada Agreement, which came into force in 2020, included a provision that made it even harder for Canada to ship baby formula south in an effort to protect domestic producers. </p>
<h2>‘Lean’ supply chains</h2>
<p>The pandemic-related problems that have beleaguered global supply chains have also played a role. </p>
<p>Like in other industries, baby formula makers have long tried to make their supply chains as “lean” and efficient as possible. That means they aimed to minimize the amount of time baby formula spent sitting – unprofitably – on warehouse shelves and send the goods from factory to retailer as quickly as possible. The problem is that when there’s a surge in demand or a drop in supply, shortages can result. The leaner the supply chain, the larger the potential disruption. </p>
<p>The WIC program also encourages a lean supply chain because <a href="https://www.ers.usda.gov/amber-waves/2004/september/sharing-the-economic-burden-who-pays-for-wic-s-infant-formula/#:%7E:text=Taxpayers%20alone%2C%20however%2C%20do%20not,formula%20purchased%20by%20WIC%20participants.">it reimburses just 15%</a> of the wholesale price. The huge volume means the companies can still be profitable, but the lower margins per sale encourage them to keep a very efficient supply chain.</p>
<p>In March 2020, <a href="https://www.theatlantic.com/ideas/archive/2022/05/baby-formula-shortage-abbott-recall/629828/">formula sales surged</a> as people stockpiled pretty much everything. But that led sales to drop as parents worked through all that extra formula. That prompted makers to reduce production. And now in 2022, demand jumped again, <a href="https://www.fda.gov/news-events/press-announcements/fda-takes-important-steps-improve-supply-infant-and-specialty-formula-products">especially after reports spread</a> of the Similac recall. And with demand soaring and supply down significantly because of the Sturgis plant’s closure, shortages were inevitable.</p>
<figure class="align-center ">
<img alt="A woman in a white lab coat and wearing a black mask holds a bottle of frozen breast milk in a big clear bottle" src="https://images.theconversation.com/files/464115/original/file-20220518-25-knccop.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/464115/original/file-20220518-25-knccop.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/464115/original/file-20220518-25-knccop.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/464115/original/file-20220518-25-knccop.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/464115/original/file-20220518-25-knccop.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/464115/original/file-20220518-25-knccop.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/464115/original/file-20220518-25-knccop.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Milk banks are trying to ease the formula shortage by distributing frozen milk donated by lactating mothers.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/BabyFormulaShortage/a37d842efd3c4a399e7604b62971dbee/photo?Query=baby%20formula&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=265&currentItemNo=42">AP Photo/David Zalubowski</a></span>
</figcaption>
</figure>
<h2>Shortage is far from over</h2>
<p>Both the Biden administration and companies have announced a variety of measures to end the shortage. </p>
<p>Some companies, such as Reckitt, say they <a href="https://www.reuters.com/business/healthcare-pharmaceuticals/baby-formula-shortage-forces-cvs-health-limit-purchases-2022-05-10/">have stepped up production</a> and are running factories <a href="https://www.wsj.com/articles/why-baby-formula-shortage-11652188230?mod=article_inline">seven days a week</a> to get more formula to stores. </p>
<p>The FDA is expected to soon announce the <a href="https://www.whitehouse.gov/briefing-room/statements-releases/2022/05/12/fact-sheet-president-biden-announces-additional-steps-to-address-infant-formula-shortage/">loosening of import rules</a> for baby formula, and some states are allowing WIC recipients to use their rebates to buy formula from companies other than the one on the contract. Abbott has already agreed to <a href="https://www.washingtonpost.com/business/2022/05/14/baby-formula-shortage-sturgis/">honor rebates</a> for competitor products in states where they have WIC contracts. </p>
<p><a href="https://www.reuters.com/business/healthcare-pharmaceuticals/baby-formula-shortage-forces-cvs-health-limit-purchases-2022-05-10/">Abbott</a> and <a href="https://www.bloomberg.com/news/articles/2022-05-17/nestle-ships-baby-formula-to-us-from-europe-to-help-shortage">Nestlé</a> are also speeding up shipments from their FDA-approved facilities overseas. </p>
<p>The best way to end the shortage – getting the Sturgis plant online and its formula on retail shelves – <a href="https://www.fastcompany.com/90751300/baby-formula-shortage-panic-buying">will take two months</a>.</p>
<p>Ultimately, preventing this kind of situation from happening again will require changes to government policy and business practices. I believe the government’s de facto monopolies should be opened up to more competition. And formula makers may just have to accept a little less profit from supply chain efficiencies as a cost of doing business – and as a way to ensure families won’t again be faced with the loss of a product so vital to their babies’ survival.</p><img src="https://counter.theconversation.com/content/183016/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kevin Ketels does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The closure of a factory in Michigan is the incident that put new parents across the US on edge, but the real causes for the shortage of baby formula are many years in the making.Kevin Ketels, Assistant Professor, Teaching, Global Supply Chain Management, Wayne State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1784972022-03-17T16:55:15Z2022-03-17T16:55:15ZProvincial competition law needed to address the power of gig work platforms<figure><img src="https://images.theconversation.com/files/452278/original/file-20220315-17-1aeiqvu.jpg?ixlib=rb-1.1.0&rect=0%2C368%2C5414%2C3194&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Gig work is at a greater risk of monopsony than other platforms because of the role platform owners play as regulators and collectors of user data.</span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><p>With the invention of gig-based platforms like Uber and SkipTheDishes, the gig economy has not just become an integral part of the labour industry, but also digital society as well. </p>
<p>Along with the meteoric rise in popularity of these platforms, many of these companies have “monopsonies” in their industries. A <a href="https://www.investopedia.com/terms/m/monopsony.asp">monopsony</a> is similar to a <a href="https://www.investopedia.com/terms/m/monopoly.asp">monopoly</a>, except instead of a single <em>seller</em> dominating a supply of goods and services, a single <em>buyer</em> controls the market.</p>
<p>Businesses gain monopsony power in labour markets when workers lack meaningful outside options for employment. <a href="https://equitablegrowth.org/monopsony-market-power-labor-market/#:%7E:text=The%20classic%20example%20of%20a,of%20labor%20in%20the%20town.">When workers have fewer options for where to work</a>, they are forced to take on unstable, exploitative work for less pay to make ends meet.</p>
<p>Currently, government regulators have limited tools to address the market power of these gig-based platforms. Recent discussions on <a href="https://lmic-cimt.ca/what-does-gig-work-mean">gig work</a> in Canada have focused on benefits like <a href="https://www.canada.ca/en/employment-social-development/programs/ei/consultation-better-program-backgrounder.html">reforming Employment Insurance</a> and classification (<a href="https://gigworkersunited.ca/">seeking employee status</a>), but have overlooked anti-competitive behaviour and the role of employer monopsony. </p>
<h2>Gig work especially vulnerable</h2>
<p><a href="https://www.investopedia.com/terms/g/gig-economy.asp">Gig work</a> — especially those housed on digital platforms — are at a greater risk of monopsony than other platforms because platform owners are also the regulators and collectors of user data. For instance, Uber <a href="http://economicstudents.com/2017/03/uber-is-problematic-but-youll-keep-using-it-anyway/">acts like a monopsonist</a> when it purchases all trips from riders before connecting them to drivers. </p>
<p>Some scholars have argued that <a href="https://doi.org/10.1093/jeclap/lpab017">gig work platforms are essentially price-fixing schemes</a> between contract workers, which is yet another manifestation of monopsony power. </p>
<p>Gig platforms’ use of data may also further increase the monopsony power they wield against workers. For instance, <a href="https://doi.org/10.1093/ser/mwab028">carrot-and-stick incentives</a> based on data collected, like <a href="https://www.wired.com/story/how-to-fix-ratings-in-the-gig-economy/">rating systems</a>, <a href="https://www.varicent.com/blog/variable-compensation-and-the-gig-economy">bonuses</a> and the <a href="https://www.zdnet.com/article/ruled-by-algorithms-gig-workers-remain-powerless-against-automated-decision-making/">threat of being punished by management</a>, can coerce workers into taking jobs they may not usually consider.</p>
<figure class="align-center ">
<img alt="A woman moving grocery bags from a shopping cart into the trunk of a car" src="https://images.theconversation.com/files/452280/original/file-20220315-27-v28zqj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/452280/original/file-20220315-27-v28zqj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=384&fit=crop&dpr=1 600w, https://images.theconversation.com/files/452280/original/file-20220315-27-v28zqj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=384&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/452280/original/file-20220315-27-v28zqj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=384&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/452280/original/file-20220315-27-v28zqj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=482&fit=crop&dpr=1 754w, https://images.theconversation.com/files/452280/original/file-20220315-27-v28zqj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=482&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/452280/original/file-20220315-27-v28zqj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=482&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Carrot-and-stick incentives, like rating systems and bonuses, can coerce workers into taking jobs they may not usually consider working.</span>
<span class="attribution"><span class="source">(AP Photo/Ben Margot, File)</span></span>
</figcaption>
</figure>
<p>Given that technology trends are enhancing monopsony power through algorithms, regulators must examine the tools that they have to curb this power. They should also empower themselves with new ones built for modern markets, controlled by digital technologies and algorithms. </p>
<p>Our <a href="https://vivicresearch.ca/PDFS/Competition-Data-Driven-Markets-Final-Report-2022.pdf">new working paper</a> co-authored with <a href="https://www.linkedin.com/in/ana-qarri-b25a6858/?originalSubdomain=ca">Ana Qarri</a>, a recent graduate of McGill University’s Faculty of Law, uses labour monopsony power as a case study to explore competition issues in data-driven markets.</p>
<h2>Provincial legislation is needed</h2>
<p>One of our recommendations to better address monopsony power in labour markets is to establish separate provincial competition legislation targeted specifically at employers. </p>
<p>Our analysis found that authorities traditionally focus on addressing the strategies companies use to exert their monopsony power, like <a href="https://www.competitionpolicyinternational.com/no-poach-and-wage-fixing-agreements-in-canada-so-whats-the-issue/">wage-fixing and non-poaching agreements</a>. However, they have done little to address monopsony directly, mainly because <a href="https://laws-lois.justice.gc.ca/eng/acts/C-34/">competition law</a> does not provide many tools for tackling it at its root. </p>
<p>Even in instances where competition law does provide tools for protecting workers, it is likely that the Competition Bureau is not enforcing the law to the full extent. The most notable example is mergers and acquisitions that <a href="https://economics.princeton.edu/working-papers/monopsony-in-the-labor-market-new-empirical-results-and-new-public-policies/">lead to monopsony power in some labour markets</a>.</p>
<figure class="align-right ">
<img alt="A man in a suit standing up and giving a speech" src="https://images.theconversation.com/files/452281/original/file-20220315-17-1cymjso.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/452281/original/file-20220315-17-1cymjso.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=705&fit=crop&dpr=1 600w, https://images.theconversation.com/files/452281/original/file-20220315-17-1cymjso.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=705&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/452281/original/file-20220315-17-1cymjso.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=705&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/452281/original/file-20220315-17-1cymjso.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=886&fit=crop&dpr=1 754w, https://images.theconversation.com/files/452281/original/file-20220315-17-1cymjso.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=886&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/452281/original/file-20220315-17-1cymjso.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=886&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Canada’s minister of industry, François-Philippe Champagne, recently announced that Canada’s competition law will be examined.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Adrian Wyld</span></span>
</figcaption>
</figure>
<p>While the Competition Bureau has the power to investigate and even challenge mergers that lead to substantial monopsony power, we found no evidence that it ever has. A provincial authority may be better positioned to address competition issues in labour markets, given that labour law is generally under the purview of the province. </p>
<p>Such an authority could consider <a href="https://accesstomarkets.org/the-latest/potentially-unfair-or-coercive-business-contract-terms/">coercive contract terms</a> that prevent workers and consumers from enforcing their rights under law and other anti-competitive tactics that entrepreneurs and small business owners may face. </p>
<p>Industry Minister François-Philippe Champagne <a href="https://www.canada.ca/en/innovation-science-economic-development/news/2022/02/minister-champagne-maintains-the-competition-acts-merger-notification-threshold-to-support-a-dynamic-fair-and-resilient-economy.html">recently announced</a> that Canada’s competition law will be examined, specifically mentions addressing wage fixing agreements, which is encouraging. </p>
<p>This update could also make it possible for Canada’s competition commissioner to pursue cases against digital platforms on the basis that they are price-fixing conspiracies for contractors operating on platforms, as <a href="https://doi.org/10.1093/jeclap/lpab017">some scholars</a> have proposed. </p>
<h2>Workers need protection</h2>
<p>However, there has been little demonstrated awareness of the role of monopsony power in influencing worker welfare, both in the government and in competition and labour policy circles. The absence of a strong role for the provinces on competition issues may have contributed to the <a href="https://www.cigionline.org/articles/canadas-competition-law-is-it-really-up-to-the-task/">general lack of innovation on the topic</a>.</p>
<p>Still, the province currently has a <a href="https://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03886.html">memorandum of understanding</a> with the bureau that promotes co-operation and knowledge exchange. Last year Canada’s labour minister made Ontario the first province to <a href="https://www.thestar.com/business/2021/10/25/ontario-government-bans-noncompete-clauses-freeing-up-workers-to-change-jobs.html">ban non-compete agreements</a>, which restrict workers’ abilities to change jobs freely. </p>
<p>Policy-makers should aim to prevent — and even reduce — monopsony power itself. Readdressing gig workers through the Employment Standards Act will not curb the monopsony power digital firms hold over workers. </p>
<p>While employee reclassification will unlock more benefits and worker rights, such as termination pay, minimum wage, minimum or core benefits, pay stubs and notice of termination, an entirely new legislative approach is needed to curb the profound and growing ability of gig platforms to obtain and exert monopsony power over workers in Canada.</p><img src="https://counter.theconversation.com/content/178497/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Vasiliki "Vass" Bednar is affiliated with the Public Policy Forum (Fellow) and the Centre for International Governance Innovation (CIGI) (Senior Fellow).
She has received funding from the Ministry of Innovation, Science and Economic Development and the Ministry of Government and Consumer Services (Ontario) for policy research on competition. She has also received funding from the Ministry of Labour, Training and Skills Development of Ontario as a member Ontario's Workforce Recovery Advisory Committee (2021-2022). </span></em></p><p class="fine-print"><em><span>Robin Shaban is the owner and co-founder of Vivic Research. They have received funding from Unifor and the Canadian Centre for Policy Alternatives for research and educational services related to competition policy. Robin is affiliated with the Canadian Centre for Policy Alternatives. </span></em></p>New legislation could strengthen the social contract between workers and platforms.Vasiliki Bednar, Executive Director, Master of Public Policy in Digital Society Program and Adjunct Professor of Political Science, McMaster UniversityRobin Shaban, PhD Candidate, School of Public Policy and Administration, Carleton UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1771412022-02-16T01:49:15Z2022-02-16T01:49:15ZHarnessing the fossil fuel industry to combat climate change? It’s more than a pipe dream<figure><img src="https://images.theconversation.com/files/446637/original/file-20220215-23-13g6p2p.jpg?ixlib=rb-1.1.0&rect=19%2C0%2C6441%2C4242&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Many might choke at the suggestion Big Oil could play a key role in saving the climate. But, culpability for past actions aside, it is worth considering how fossil fuel interests might be recruited to combat global warming.</p>
<p>International commitments to achieving net-zero greenhouse gas emissions by 2050 leave less than three decades to achieve monumental change. A healthy dose of pragmatism will be essential.</p>
<p>Allowing time for new technologies to emerge might not be enough. Consumers will be reluctant to switch from familiar fossil fuels to untried or inconvenient new technologies with limited infrastructure – even if they are cheaper.</p>
<p>By the same token, new fuel infrastructures will not become competitive unless they achieve scale, meaning existing infrastructures will enjoy scale-related cost advantages unless sufficient users migrate to the new technologies.</p>
<p>Breaking this cycle is as much an economic challenge as a technological one. Harnessing the massive infrastructure and resources of the fossil fuel industry could be one way to meet that challenge.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/446638/original/file-20220215-19-1njzczt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/446638/original/file-20220215-19-1njzczt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=353&fit=crop&dpr=1 600w, https://images.theconversation.com/files/446638/original/file-20220215-19-1njzczt.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=353&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/446638/original/file-20220215-19-1njzczt.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=353&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/446638/original/file-20220215-19-1njzczt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=443&fit=crop&dpr=1 754w, https://images.theconversation.com/files/446638/original/file-20220215-19-1njzczt.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=443&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/446638/original/file-20220215-19-1njzczt.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=443&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Would it be better to repurpose existing infrastructure than build from scratch?</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
</figcaption>
</figure>
<h2>Accelerating net-zero targets</h2>
<p>History shows the mass market adoption of new technologies is driven by their convenience and cost-effectiveness compared to what they replace. And large vested interests can be key to rolling out the required infrastructures.</p>
<p>For example, canals and railways in industrial revolution Britain were not built for ordinary travellers. They were sponsored by industrialists wanting more cost-effective transport options.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/cop26-leaves-too-many-loopholes-for-the-fossil-fuel-industry-here-are-5-of-them-171398">COP26 leaves too many loopholes for the fossil fuel industry. Here are 5 of them</a>
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<p>A <a href="https://www.cognitus.co.nz/_files/ugd/022795_b18d64b71e934fbfbff4fc4d8e14b180.pdf">recent study</a> I authored on transitioning to net-zero emissions in transport and other sectors highlighted another (perhaps unexpected) solution: repurposing existing fossil fuel supply chains and infrastructures to supply low- or zero-emission fuels.</p>
<p>This could represent an affordable way to transition more rapidly to net-zero than by building entirely new infrastructures.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/446639/original/file-20220215-15-1t8xb0q.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/446639/original/file-20220215-15-1t8xb0q.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/446639/original/file-20220215-15-1t8xb0q.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/446639/original/file-20220215-15-1t8xb0q.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/446639/original/file-20220215-15-1t8xb0q.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/446639/original/file-20220215-15-1t8xb0q.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/446639/original/file-20220215-15-1t8xb0q.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Hydrogen fuel cell vehicles are already on the road in some countries.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
</figcaption>
</figure>
<h2>The hydrogen alternative</h2>
<p>Central to any viable solution is certainty. For instance, vehicle buyers face the risk of choosing a new technology that fails to take off, or opting for one that is displaced by another.</p>
<p>Electric vehicles (EVs) are a case in point. At the turn of the 20th century they challenged both steam and fossil fuel vehicles (FFVs) in the race to replace the horse, until they were eclipsed by FFVs.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/for-hydrogen-to-be-truly-clean-it-must-be-made-with-renewables-not-coal-128053">For hydrogen to be truly 'clean' it must be made with renewables, not coal</a>
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<p>Modern EVs have taken an early lead in replacing FFVs, despite a less-than-ideal <a href="https://www.sciencedirect.com/science/article/pii/S030626192030533X">environmental footprint</a>. But major carmakers in <a href="https://www.greencarreports.com/news/1134191_japanese-expand-hydrogen-internal-combustion-engines">Japan</a>, <a href="https://www.reuters.com/technology/german-auto-giants-place-their-bets-hydrogen-cars-2021-09-22/">Europe</a> and <a href="https://www.reuters.com/article/china-autos-hydrogen-idUSKBN2650L0">China</a> are actively exploring rival clean technologies, with <a href="https://www.autocar.co.uk/car-news/technology-news/under-skin-will-hydrogen-combustion-engines-become-viable">hydrogen</a> the most likely contender.</p>
<p>Hydrogen technology is perhaps as developed now as EVs were a decade ago, and is rapidly improving. It’s not inconceivable that EVs could be displaced, given the ability of hydrogen to fuel heavy transport, aviation and shipping.</p>
<p>Hydrogen might ultimately <a href="https://www.mbie.govt.nz/assets/a-vision-for-hydrogen-in-new-zealand-green-paper.pdf">fuel all transport and much industry</a>, affording it important scale advantages.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1490849750312050688"}"></div></p>
<h2>Adaptation and affordability</h2>
<p>In practice, hydrogen would be transported in <a href="https://firstgas.co.nz/news/firstgas-group-announces-plan-to-decarbonise-gas-pipeline-network-in-new-zealand/">modified gas networks</a> and likely distributed through <a href="https://www.waitomogroup.co.nz/environmental">new or existing petrol stations</a>. It <a href="https://www.mbie.govt.nz/assets/a-vision-for-hydrogen-in-new-zealand-green-paper.pdf">could be made</a> using renewable electricity to split water, or from natural gas with carbon dioxide emissions from manufacturing captured and stored in depleted gas fields.</p>
<p>A recent <a href="https://www.apep.uci.edu/PDF_White_Papers/Roadmap_Renewable_Hydrogen_Production-UCI_APEP-CEC.pdf">Californian study</a> predicts hydrogen produced using renewable electricity will reach price parity with existing fuels this decade. </p>
<p><a href="https://www.toyota.com/mirai/">Toyota</a> and <a href="https://www.stuff.co.nz/the-press/news/127275953/councillor-can-now-hit-accelerator-on-hydrogenfuelled-car">Hyundai</a> have already released consumer hydrogen cars, and New Zealand recently imported its first <a href="https://www.hyundai.co.nz/trucks/xcient/fuel-cell">hydrogen-powered truck</a>. Hydrogen refuelling infrastructure is also emerging both <a href="https://www.hiringa.co.nz/hydrogen-refuelling-network">locally</a> and <a href="https://www.statista.com/statistics/1026719/number-of-hydrogen-fuel-stations-by-country/">globally</a>.</p>
<p>Promisingly, hydrogen combustion vehicles are already <a href="https://abcnews.go.com/Technology/wireStory/toyota-testing-hydrogen-combustion-engines-race-cars-80764552">under development</a>, raising the possibility of retro-fitting existing FFVs to run on hydrogen (just as FFVs were <a href="http://www.stuff.co.nz/business/487977/Flashback-to-LPG">converted to run on natural gas</a> after oil price shocks in the 1970s).</p>
<p>This could substantially reduce the cost of replacing New Zealand’s <a href="https://www.nzta.govt.nz/resources/new-zealand-motor-vehicle-register-statistics/national-vehicle-fleet-status/">3.5 million private vehicles</a> with low-emissions alternatives – an unavoidable challenge in decarbonising transport.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/electric-cars-wont-save-the-planet-without-a-clean-energy-overhaul-they-could-increase-pollution-118012">Electric cars won't save the planet without a clean energy overhaul – they could increase pollution</a>
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<h2>Managed market solutions</h2>
<p>Why would fossil fuel companies make the necessary clean energy investments? Because they see it as sufficiently profitable compared to the alternatives.</p>
<p>Rather than abandoning much of their existing assets and switching to electricity generation and distribution to profit from a transition to EVs, they could repurpose their considerable assets and resources to produce and distribute hydrogen (or some other clean fuel).</p>
<p>Fossil fuel companies could be assured of playing a key role in the transition if governments picked a winner among competing clean technologies – but this would be politically hazardous.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/oil-companies-are-thinking-about-a-low-carbon-future-but-arent-making-big-investments-in-it-yet-122365">Oil companies are thinking about a low-carbon future, but aren't making big investments in it yet</a>
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<p>Usefully, there is another approach that avoids those risks: <a href="https://openknowledge.worldbank.org/bitstream/handle/10986/11677/multi0page.pdf?sequence=1&isAllowed=y">franchise bidding</a> – a much-used policy tool that replaces competition <em>in</em> markets with competition <em>for</em> markets.</p>
<p>Under this approach, governments would plan fossil fuel reductions over time, but auction a monopoly right to develop a clean energy alternative. That right would be time-limited and subject to performance standards and pricing oversight.</p>
<p>Creating a monopoly right allows economies of scale. Critically, vehicle manufacturers and buyers, fuel manufacturers and infrastructure investors can be confident they are not investing in the “wrong” technology – they all know the way forward.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"817216581021233152"}"></div></p>
<h2>Efficiency and equity</h2>
<p>Furthermore, auctioning the monopoly right means governments avoid the political hazards of picking a winner. And proceeds from such an auction could be used to subsidise clean vehicle uptake or conversion of existing vehicles to clean fuels.</p>
<p>Finally, an auction can induce parties to participate when they might otherwise prefer no new technologies to emerge at all. Confronted with the prospect of owning a declining technology while a competitor enjoys the monopoly right to build the new one, winning the auction would look like the least-worst future.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/what-big-oil-knew-about-climate-change-in-its-own-words-170642">What Big Oil knew about climate change, in its own words</a>
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<p>Fossil fuel companies should have a substantial head start in winning such an auction, given their highly developed infrastructures, massive balance sheets and skilled workforces.</p>
<p>They could also ensure a more orderly transition away from fossil fuels to clean ones, since they would manage the supply of both.</p>
<p>And whether fossil fuel companies or other clean energy suppliers win, by holding a franchise-bidding auction the net-zero transition in transport is achieved more quickly, efficiently and equitably.</p><img src="https://counter.theconversation.com/content/177141/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Meade is Principal Economist at Cognitus Economic Insight. Research funding for the study cited in this article was provided by companies owning electricity and/or natural gas distribution networks. The views expressed in that study, and in this article, are the author’s alone. </span></em></p>If governments auctioned off monopoly rights to produce and distribute clean fuels, Big Oil might be forced to buy into a greener transport future.Richard Meade, Senior Research Fellow, Auckland University of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1682802021-09-27T20:14:58Z2021-09-27T20:14:58ZYour household power bills could be 15% cheaper, if Australia’s energy regulator was doing its job<figure><img src="https://images.theconversation.com/files/422591/original/file-20210922-24-ld6kvh.jpg?ixlib=rb-1.1.0&rect=0%2C75%2C5568%2C3625&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Joe Castro/AAP</span></span></figcaption></figure><p>If you’re like most Australians, the single biggest chunk of your energy bill — about 40% — goes to a network services company, which owns and operates the transmission lines or pipes delivering electricity or gas to your home.</p>
<p>But evidence from takeover bids for Australia’s last two publicly listed electricity network services companies suggests you are paying more than you should.</p>
<p>These prices are set by the Australian Energy Regulator, because network services are monopolies: you can choose your energy retailer, but not the lines or pipes through which the electricity or gas flow. </p>
<p>It’s the regulator’s job to determine a fair price for these services — one that doesn’t shortchange the service provider or <a href="https://www.aer.gov.au/about-us">gouge consumers</a>.</p>
<p>But the Australian Energy Regulator has not been getting these pricing decisions right, according to calculations that can be made using the bids by overseas investors for <a href="https://www2.asx.com.au/markets/company/ast">AusNet Services Ltd</a>, the biggest energy network provider in Victoria, and <a href="https://www2.asx.com.au/markets/company/SKI">Spark Infrastructure Group</a>, whose assets include South Australia’s electricity distribution network.</p>
<p>Being listed on the stock exchange, they must disclose financial information. This information enables analysts to calculate how much investors value them compared to the Australian Energy Regulator.</p>
<p>This calculation — known as Regulated Asset Base (RAB) multiple — suggests the regulator has been allowing energy network companies to charge way more than necessary. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/energy-prices-are-high-because-consumers-are-paying-for-useless-profit-boosting-infrastructure-86045">Energy prices are high because consumers are paying for useless, profit-boosting infrastructure</a>
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</em>
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<hr>
<h2>Valuing AusNet</h2>
<p>AusNet owns and operates almost all of the electricity transmission system in Victoria, and also big gas and electricity distribution networks. It is the subject of a takeover battle between Brookfield Asset Management, a Canadian infrastructure fund, and APA Group, Australia’s largest natural gas infrastructure business. </p>
<p>On September 20, it was revealed that Brookfield offered to acquire AusNet for A$2.50 a share. The day after APA Group offered a mix of cash and equity that it said valued Ausnet at A$2.60 per share.</p>
<p>These bids provide a baseline to calculate the Regulated Asset Base multiple: the the ratio of investors’ valuation to the regulator’s valuation. </p>
<p>How much an investor is prepared to pay for a share indicates their expectation of the future dividend (or profits) those shares will return. How much the regulator’s allows a company to charge is based on what it sees as a fair return to shareholders.</p>
<p>From this information the Regulated Asset Base multiple can be calculated. </p>
<p>A multiple of 1 would mean the investors’ valuation equals the regulator’s valuation. A number lower than 1 would mean the regulator is setting prices too low. A number greater than 1 means it is setting prices too high. </p>
<p>Brookfield’s offer, according to <a href="https://www.afr.com/chanticleer/low-rates-fuel-bid-frenzy-20210920-p58t8k">The Australian Financial Review</a>, gives Ausnet a multiple of 1.68. This suggests the Australian Energy Regulator is allowing AusNet to charge prices 68% higher than Brookfield would be happy to accept. APA’s bid suggests a RAB multiple even higher. </p>
<p>Of course, it is not entirely as simple as that. Not all of AusNet’s revenue come from regulated assets. This may slightly affect the valuation of AusNet. Assuming AusNet’s unregulated businesses are as profitable as its larger regulated businesses, we estimate the RAB multiple is 1.54. </p>
<h2>Valuing Spark Infrastructure</h2>
<p>Spark Infrastructure owns controlling interests in two Victorian electricity distributors (Citipower and Powercor), Transgrid in NSW, and South Australia’s main distribution network, SA Power Networks.</p>
<p>In August, Spark’s board approved a <a href="https://www.afr.com/companies/infrastructure/spark-infrastructure-accepts-5-2-billion-takeover-20210823-p58l0l">A$5.2 billion takeover</a> offer from US private equity giant Kohlberg Kravis Roberts and the Ontario Teachers’ superannuation fund.</p>
<p>This offer gives Spark a <a href="https://www.afr.com/chanticleer/low-rates-fuel-bid-frenzy-20210920-p58t8k0">RAB multiple of 1.5</a>. This suggests the monopolies Spark has a share in are charging prices 53% higher than needed to adequately compensate investors</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/youre-paying-too-much-for-electricity-but-heres-what-the-states-can-do-about-it-93654">You're paying too much for electricity, but here's what the states can do about it</a>
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<h2>Vanishing transparency</h2>
<p>The impact on customers will vary, but these calculations suggests network services charges should be about two-thirds current levels. This would make household electricity bills about 15% lower than now. </p>
<p>I am not suggesting the regulator should set prices consistent with a RAB multiple of 1. But prices should not favour monopoly owners as much these takeover valuations suggest they do.</p>
<p>The underlying issue here is not new. Official inquiries over the past decade — the <a href="https://webarchive.nla.gov.au/awa/20190509030847/http://www.garnautreview.org.au/update-2011/garnaut-review-2011.html">Garnaut Climate Change Review update</a> in 2011, the Senate inquiry into energy bills <a href="https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Former_Committees/electricityprices/electricityprices/report/index">in 2012</a> and the Productivity Commission’s review of electricity network regulation <a href="https://www.pc.gov.au/inquiries/completed/electricity/report">in 2013</a> —
all concluded energy regulation erred excessively in favour of investors at the expense of consumers. </p>
<p>The Australian Energy Regulator and the Australian Energy Markets Commission (which oversees all energy markets) have responded to these inquiries with new rules, guidelines, committees and processes. </p>
<p>Yet the problem remains — and if these takeovers are successful then AusNet and Spark Infrastructure will almost certainly be delisted. We will then lose vital information on RAB multiples that allows objective assessment of the regulator’s decisions.</p><img src="https://counter.theconversation.com/content/168280/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Bruce Mountain does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Takeover bids for Australia’s last listed energy network companies suggest these monopolies are charging way more than necessary.Bruce Mountain, Director, Victoria Energy Policy Centre, Victoria UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1677242021-09-15T09:07:47Z2021-09-15T09:07:47ZShadow states are the biggest threat to democracy in Africa: fresh reports detail how<figure><img src="https://images.theconversation.com/files/420728/original/file-20210913-16-1legi69.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The militarisation of the Zimbabwean government raises serious questions about who really wields political power - President Emmerson Mnangagwa or army leaders.
</span> <span class="attribution"><span class="source">Mujahid Safodien/AFP via Getty Images</span></span></figcaption></figure><p>The capture of democratic political systems by private power networks is arguably the greatest threat to civil liberties and inclusive development in Africa. That’s the conclusion of two new reports that address the issue of threats to democracy on the continent.</p>
<p>The first <a href="https://www.democracyinafrica.org/democracy-capture-and-the-shadow-state-in-africa">report</a> is published by Ghana’s <a href="https://afrobarometer.org/our-network/core-partners/ghana-center-democratic-development-cdd-ghana">Centre for Democratic Development</a>. It focuses on the capture and subversion of democratic institutions in Benin, Ghana, Kenya, Mozambique and Nigeria. </p>
<p>These case studies reveal that even in more democratic states such as Benin and Ghana, ruling parties can “hijack” democracy and appropriate its benefits. They do this by capturing the institutions of democracy itself. This includes electoral commissions, judiciaries, legislatures and even the media and civil society. </p>
<p>The net effect is to undermine transparency and accountability. This in turn facilitates the abuse of power, especially in more authoritarian contexts.</p>
<p>The second <a href="https://www.democracyinafrica.org/democracy-capture-and-the-shadow-state-in-africa">report</a> was curated by <a href="https://democracyinafrica.org/">Democracy in Africa</a> and takes a slightly different approach. It looks at how unelected networks can infiltrate and subvert state structures. </p>
<p>In particular, it maps the emergence of shadow states in the Democratic Republic of Congo (DRC), Uganda, Zambia and Zimbabwe. These case studies show that networks of unelected businessmen, civil servants, political fixers and members of the presidents’ families wield more power than legislators.</p>
<p>By mapping how these networks are organised across different groups and countries, the report reveals how influential and resilient certain groups have become. It also shows how many shadow states have been integrated into transnational financial and – in some cases – criminal networks.</p>
<p>This is not an “African” issue. Similar processes have been identified in a number of different countries and regions. These include <a href="https://www.tandfonline.com/doi/abs/10.1080/00856401.2012.702723">Bangladesh</a>, <a href="https://www.ft.com/content/3490dbb8-4050-11e7-9d56-25f963e998b2">Brazil</a> and the <a href="https://www.vox.com/policy-and-politics/2020/5/13/21219164/trump-deep-state-fbi-cia-david-rohde">US</a>. But this does not mean that the need to recognise and confront these issues is any less pressing. </p>
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Read more:
<a href="https://theconversation.com/chieftaincy-conflicts-in-ghana-are-mixed-up-with-politics-whats-at-risk-166602">Chieftaincy conflicts in Ghana are mixed up with politics: what's at risk</a>
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<p>States with higher levels of democracy capture are prone to becoming more authoritarian, corrupt and abusive.</p>
<h2>Democracy capture and the shadow state</h2>
<p>According to politics professor <a href="https://theconversation.com/profiles/emmanuel-gyimah-boadi-178880">Emmanuel Gyimah-Boadi</a>, democracy capture <a href="http://democracyinafrica.org/democracy-capture-and-the-shadow-state-in-africa/">occurs when</a></p>
<blockquote>
<p>a few individuals or sections of a supposedly democratic polity are able to systematically appropriate to themselves the institutions and processes as well as dividends of democratic governance. </p>
</blockquote>
<p>In other words, democracy capture expands the idea of “<a href="http://democracyinafrica.org/democracy-capture-and-the-shadow-state-in-africa/">state capture</a>” to include all political institutions and democratic activities including civil society and the media. </p>
<p>The term is widely used in South Africa to refer to the undue influence of special interest groups <a href="https://www.sastatecapture.org.za/">over state institutions</a>.</p>
<p>Indeed what is striking about this process is the well-structured networks that encompass a broad range of individuals from government to the security forces, traditional leaders, private businesses, state-owned enterprises, and their family members. According to a <a href="https://www.loot.co.za/product/ivor-chipkin-shadow-state/svsw-5528-g590">separate study</a> by South African academics <a href="http://www.gapp-tt.org/personnel/ivor-chipkin/">Ivor Chipkin</a> and <a href="https://theconversation.com/profiles/mark-swilling-213526">Mark Swilling</a>,
what distinguishes these actors is their privileged “access to the inner sanctum of power in order to make decisions”.</p>
<p>One helpful way of conceptualising these networks is the idea of <a href="https://www.oxfordreference.com/view/10.1093/acref/9780191828836.001.0001/acref-9780191828836-e-302">shadow states</a> developed by the influential
political scientist <a href="https://www.taylorfrancis.com/chapters/edit/10.4324/9780429047268-8/business-conflict-shadow-state-case-west-africa-william-reno">William Reno</a>.</p>
<p>For Reno, a shadow state is effectively a system of governance in which a form of parallel government is established by a coalition of the president, militias, security agencies, local intermediaries and foreign companies. In extreme versions such as <a href="https://www.scholars.northwestern.edu/en/publications/corruption-and-state-politics-in-sierra-leone-2">Sierra Leone</a> real power no longer lies in official institutions of government such as the legislature.</p>
<p>This kind of shadow state is characterised by the existence of private armies and a severely limited, almost imaginary, formal state. </p>
<p>More recently, researchers have identified manifestations of the shadow state in <a href="https://www.researchgate.net/profile/Hussein-Solomon/publication/252882619_The_Shadow_State_in_Africa_A_Discussion/links/5759308008ae9a9c954af80f/The-Shadow-State-in-Africa-A-Discussion.pdf">countries</a> that are not in the middle of civil war and have stronger formal political systems. Good examples include <a href="http://democracyinafrica.org/democracy-capture-and-the-shadow-state-in-africa/">Kenya</a> and <a href="http://democracyinafrica.org/democracy-capture-and-the-shadow-state-in-africa/">Zambia</a>. </p>
<p>In these cases, the shadow state is more oriented towards hampering the activities of opposition parties and ensuring impunity for its members.</p>
<h2>Africa is not a country</h2>
<p>The nine case studies featured in the two reports show that the extent of democracy capture varies significantly. It is lower in states like Ghana, where robust electoral contestation among rival parties has seen multiple transfers of power. It’s much higher in states such as Zimbabwe, where the government has never changed hands.</p>
<p>The shape and resilience of unelected power networks also varies in important ways. In Uganda, the shadow state is run by an axis of President Yoweri Museveni’s family, a “military aristocracy” and interlocutors in the business community. </p>
<p>In Benin, President Patrice Talon has exploited the weakness of the legal system, the judiciary and the legislature to expand his power. Through this process he has turned one of the continent’s most vibrant democracies into a near political monopoly.</p>
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Read more:
<a href="https://theconversation.com/guinea-has-a-long-history-of-coups-here-are-5-things-to-know-about-the-country-167618">Guinea has a long history of coups: here are 5 things to know about the country</a>
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<p>The picture is different again in the DRC. International military alliances were critical to the way that former presidents <a href="https://www.sahistory.org.za/people/laurent-kabila">Laurent Kabila</a> and <a href="https://www.aljazeera.com/news/2011/11/22/profile-joseph-kabila-2">Joseph Kabila</a> took and held power. This led to a shadow state that has been more profoundly shaped by transnational smuggling networks and <a href="http://democracyinafrica.org/democracy-capture-and-the-shadow-state-in-africa/">the activities of the security forces</a>.</p>
<p>The situation in Zambia is also distinctive. Under former president Edgar Lungu, the security forces were less relevant than the nexus between politicians, government officials and businessmen. This led to rampant corruption and mismanagement. But it did not prevent a transfer of power <a href="https://theconversation.com/why-edgar-lungu-and-his-party-lost-zambias-2021-elections-166513">in 2021</a>.</p>
<p>In contrast, in Zimbabwe the government has been progressively <a href="http://democracyinafrica.org/democracy-capture-and-the-shadow-state-in-africa/">militarised</a>, penetrating further areas of the state and the economy. This raises serious questions about whether President Emmerson Mnangagwa – or army leaders – holds real power.</p>
<p>It is, therefore, important to map the shadow state on a case-by-case basis because no two networks are the same. The differences between them reveals who really holds power.</p>
<h2>The consequences</h2>
<p>Shadow states have a negative impact on democracy and accountability. But the damage they do goes well beyond this. It undermines inclusive development through three related processes:</p>
<ul>
<li><p>creating a culture of impunity, which facilitates corruption and diverts resources from productive investments </p></li>
<li><p>manipulating government expenditure and other public resources and opportunities to sustain the patronage networks and ensure the shadow state’s political survival </p></li>
<li><p>creating monopolistic or oligopolistic conditions that increase prices and enable companies with links to the shadow state to make excessive profits.</p></li>
</ul>
<p>The result is that resources and investment are systematically diverted into private hands. </p>
<p>In Uganda, Museveni issues <a href="http://democracyinafrica.org/democracy-capture-and-the-shadow-state-in-africa/">tax waivers</a> to business allies in return for election support. This denies the treasury hundreds of millions of dollars in revenue. </p>
<p>In Zimbabwe, <a href="http://democracyinafrica.org/democracy-capture-and-the-shadow-state-in-africa/">companies in league with the ruling party</a> and the military have used these connections to establish near monopolies in key sectors of the economy that exploit the public. In one case, this led to <a href="https://www.businesslive.co.za/fm/features/africa/2018-12-13-the-politics-of-petrol-in-zimbabwe/">severe fuel shortages</a> that artificially inflated prices.</p>
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Read more:
<a href="https://theconversation.com/south-africans-hold-contradictory-views-about-their-democracy-159647">South Africans hold contradictory views about their democracy</a>
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<p>When added to the billions of dollars lost through straightforward corruption, theft and fraud, it is clear that these processes represent one of the most significant barriers to inclusive development in Africa. Unless these networks are challenged, they will continue to keep citizens in poverty while enriching those connected to the shadow state.</p>
<p><em><a href="https://afrobarometer.org/our-network/leadership/henry-kwasi-prempeh">Professor H. Kwasi Prempeh</a>, executive director of the Ghana Centre for Democratic Development, co-authored this article</em></p><img src="https://counter.theconversation.com/content/167724/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Nic Cheeseman has received funding from CDD-Ghana and the Rift Valley Institute.</span></em></p>The extent of democracy capture varies markedly between countries. It’s much higher in states such as Zimbabwe, where the government has never changed hands.Nic Cheeseman, Professor of Democracy, University of BirminghamLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1627572021-06-15T05:36:00Z2021-06-15T05:36:00ZUS lawmakers are taking a massive swipe at big tech. If it lands, the impact will be felt globally<figure><img src="https://images.theconversation.com/files/406365/original/file-20210615-2626-19e6r0n.jpg?ixlib=rb-1.1.0&rect=152%2C50%2C5383%2C3719&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Kathy Willens/AP</span></span></figcaption></figure><p>Five antitrust laws proposed in the United States aim to aggressively rein in the market power of “big tech” companies and change the way they do business.</p>
<p>The set of bills, introduced <a href="https://cicilline.house.gov/press-release/house-lawmakers-release-anti-monopoly-agenda-stronger-online-economy-opportunity">on June 11</a>, targets the enormous economic power wielded by the likes of Amazon, Apple, Facebook and Google (owned by parent company Alphabet).</p>
<p>The expansive proposals range from breaking up different businesses run by big tech, to more effectively preventing mergers known as “<a href="https://www.wired.com/story/ftc-special-order-review-big-tech-killer-acquisitions/">killer acquisitions</a>”, in which big tech companies buy up rivals to stamp out threats to their market power.</p>
<p>The proposals would represent a massive change to US antitrust laws. US courts applying these laws currently tend to favour the growth of large companies and regard their economic power as a sign of <a href="https://truthonthemarket.com/2021/06/13/ny-abuse-of-dominance-bill-attacks-consumer-welfare-and-the-us-antitrust-tradition/">superior economic efficiency</a>. </p>
<p>Each of the bills has some support from both Democrats and Republicans. It’s remarkable the proposals have survived to this stage, in the face of record <a href="https://www.citizen.org/article/big-tech-lobbying-update/">lobbying</a> by big tech companies in Washington.</p>
<p>Even if only some of the proposals are passed as law, they will likely have significant consequences for the way big tech does business globally.</p>
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Read more:
<a href="https://theconversation.com/big-tech-isnt-one-big-monopoly-its-5-companies-all-in-different-businesses-92791">'Big Tech' isn't one big monopoly – it's 5 companies all in different businesses</a>
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<h2>Who is targeted as “big tech” and why?</h2>
<p>The five bills — collectively called “A Stronger Online Economy: Opportunity, Innovation and Choice” — would apply to any “covered platform” which:</p>
<ul>
<li>has at least 50 million active monthly users in the US</li>
<li>has an owner with minimum net annual sales or market capitalisation of US$600 billion </li>
<li>and is a critical trading partner for the supply of any product or service on or directly related to the platform.</li>
</ul>
<p>This would capture at least Amazon, Apple, Facebook and Google. The proposals are the result of a 16-month investigation into these companies by the US House Judiciary Subcommittee on Antitrust. </p>
<p>The investigation famously saw the <a href="https://www.theverge.com/2020/7/29/21335706/antitrust-hearing-highlights-facebook-google-amazon-apple-congress-testimony">chief executives of Apple, Amazon, Facebook and Google</a> each testify before members of the committee. This culminated in a <a href="https://www.govinfo.gov/content/pkg/CPRT-117HPRT47832/pdf/CPRT-117HPRT47832.pdf">450-page report</a> published by the majority Democrats in October last year.</p>
<p>The report slammed various strategies used by the companies as being monopolistic and harmful to innovation, competition and consumers. It said:</p>
<blockquote>
<p>To put it simply, companies that once were scrappy, underdog startups that challenged the status quo have become the kinds of monopolies we last saw in the era of oil barons and railroad tycoons.</p>
</blockquote>
<h2>How the proposals would change big tech</h2>
<p>The measures included in the bills are extensive, but four key proposals stand out. First, big tech companies could be forced to split or sell certain businesses, in cases where running both the business and the platform <a href="https://cicilline.house.gov/sites/cicilline.house.gov/files/documents/Ending%2520Platform%2520Monopolies%2520-%2520Bill%2520Text.pdf">creates a conflict of interest</a>.</p>
<p>For example, <a href="https://www.wsj.com/articles/amazon-scooped-up-data-from-its-own-sellers-to-launch-competing-products-11587650015">Amazon has been accused of using data</a> gained about third-party sellers in its marketplace, to gain a competitive advantage for its own Amazon Basics products.</p>
<p>Similarly, Apple might be stopped from selling its own products in competition with others in its app store or music store.</p>
<p>Second, platforms could be prevented from <a href="https://cicilline.house.gov/sites/cicilline.house.gov/files/documents/American%2520Innovation%2520and%2520Choice%2520Online%2520Act%2520-%2520Bill%2520Text.pdf">advantaging their own products over rivals’ products</a> on their platform, unless they could prove it wouldn’t harm competition.</p>
<p>Google, for instance, has been accused of advantaging its services such as Google Shopping in search results. This kind of preferencing may prevent rival services getting a leg up, even if they offer a better service.</p>
<p>Third, the proposals target “<a href="https://www.wired.com/story/ftc-special-order-review-big-tech-killer-acquisitions/">killer acquisitions</a>” made by big tech companies. These refer to cases where Amazon, Facebook, Apple and Google buy up smaller competitors.</p>
<p>These acquisitions may prevent better or more innovative products emerging. They remove a vital competitive threat, and venture capitalists may be discouraged from funding remaining rivals.</p>
<p>Consider WhatsApp, which began as a champion of privacy in instant messaging. Those <a href="https://www.politico.com/news/2021/05/14/whatsapp-privacy-policy-update-488366">privacy protections have been eroded</a> since Facebook was allowed to buy WhatsApp in 2014.</p>
<p>Under one of the bills, big tech companies would face greater hurdles to achieve killer acquisitions. It would place the onus on the acquiring company to first prove it doesn’t compete with the target company.</p>
<p>Finally, another proposal would require platforms to allow consumers to easily and securely transfer their digital history on a platform to themselves or to another platform. For instance, they could seamlessly transfer their Facebook history to another platform, and make the switch between platforms without losing their data.</p>
<h2>How likely is it the proposals will become law?</h2>
<p>Lobbyists for big tech are already hard at work in Washington, arguing such laws would weaken successful US companies, which would then be overtaken by rivals from China.</p>
<p>On the other hand, there are representatives from both major US political parties backing each of the bills, which could increase the chances of success.</p>
<p>However, this doesn’t amount to a general consensus between the parties. Each tends to support measures against big tech for different reasons.</p>
<p>Many Republicans believe the platforms have <a href="https://www.nytimes.com/2021/06/11/technology/big-tech-antitrust-bills.html">a bias against their party</a> and want to see more conservative-friendly rivals emerge. Democrats, meanwhile, focus on threats to democracy from the platforms’ economic power and their ability to spread misinformation, including about public health and politics.</p>
<p>While it’s unlikely all the proposals will ultimately become law, the strategy and support from both sides of politics means at least some changes will probably be legislated.</p>
<p>Splitting the measures into different bills also increases the chances some will be passed. If they were all included in one, a lack of support for one or two proposals could stop them all in their tracks.</p>
<h2>Consequences in Australia and the world over</h2>
<p>The effects of the proposed antitrust legislation will be felt well beyond the US.</p>
<p>Where measures are successfully imposed on a US company, it may decide to implement the same changes globally. For instance, Google last week announced it would make changes to its operations globally to comply with <a href="https://theplatformlaw.blog/2021/06/08/google-fined-e-220-million-by-french-autorite-de-la-concurrence-for-breaching-competition-law-in-ad-tech-offers-commitments/">commitments Google made</a>, following abuse of dominance complaints from the European Union (EU). </p>
<p>The EU has already been considering its own <a href="https://www.nytimes.com/2020/12/15/technology/big-tech-regulation-europe.html">more stringent laws</a> against large digital platforms. Lawmakers in other countries are likely to be influenced by these moves.</p>
<p>In Australia, the Australian Competition and Consumer Commission has had its Digital Platforms Inquiry extended into an ongoing <a href="https://www.accc.gov.au/focus-areas/inquiries-ongoing/digital-platform-services-inquiry-2020-2025">five-year inquiry</a> and is expected to make recommendations to government throughout this period.</p>
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Read more:
<a href="https://theconversation.com/accc-world-first-australias-federal-court-found-google-misled-users-about-personal-location-data-159138">ACCC 'world first': Australia's Federal Court found Google misled users about personal location data</a>
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<img src="https://counter.theconversation.com/content/162757/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Katharine Kemp receives funding from The Allens Hub for Technology, Law and Innovation. She is a Member of the Advisory Board of the Future of Finance Initiative in India, the Centre for Law, Markets & Regulation and the Australian Privacy Foundation.</span></em></p>The five bills would apply to Apple, Amazon, Facebook and Google. If some (or all) of them become law, we can expect some major changes in how they do business.Katharine Kemp, Senior Lecturer, Faculty of Law & Justice, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1588782021-04-16T06:12:35Z2021-04-16T06:12:35ZChina’s record fine against Alibaba spells the end of big tech’s romance with the state<figure><img src="https://images.theconversation.com/files/395389/original/file-20210416-18-1rdet68.jpg?ixlib=rb-1.1.0&rect=54%2C27%2C5960%2C4290&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">ALEX PLAVEVSKI/EPA</span></span></figcaption></figure><p>China’s state-run <a href="https://www.bloomberg.com/news/articles/2021-04-13/china-orders-34-tech-firms-to-curb-excesses-in-antitrust-review">anti-monopoly bureau</a> has tightened its regulations on big tech players, as shown by its recent move against the country’s largest e-commerce company, Alibaba Group.</p>
<p>Alibaba was <a href="https://www.bbc.com/news/business-56713508">hit with</a> a record antitrust fine of 18.2 billion yuan (more than A$3.6 billion) over the weekend for supposedly abusing its market dominance. The company, which operates the digital payment platform Alipay and offers bank loans to entrepreneurs, issued a <a href="https://www.forbes.com/sites/robertolsen/2021/04/10/jack-mas-alibaba-hit-with-28-billion-fine-for-abusing-its-dominant-market-position/?sh=7297894937d1">public apology</a>:</p>
<blockquote>
<p>Alibaba accepts the penalty with sincerity and will ensure its compliance with determination. To serve its responsibility to society, Alibaba will operate in accordance with the law with utmost diligence, continue to strengthen its compliance systems, and build on growth through innovation.</p>
</blockquote>
<p>Meanwhile, questions have been asked about the whereabouts of Alibaba’s founder Jack Ma. In October last year, Ma lashed out at China’s <a href="https://www.abc.net.au/news/2021-01-10/alibaba-investigation-amid-speculation-jack-ma-whereabouts-china/13042044">financial watchdogs and banks</a>. </p>
<p>Among other complaints, he criticised the state-managed financial sector and was subsequently hauled into a meeting with regulators. After that, the always-visible Ma was not seen in public for months. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/395390/original/file-20210416-15-11zeriv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Jack Ma rocking out on stage" src="https://images.theconversation.com/files/395390/original/file-20210416-15-11zeriv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/395390/original/file-20210416-15-11zeriv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/395390/original/file-20210416-15-11zeriv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/395390/original/file-20210416-15-11zeriv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/395390/original/file-20210416-15-11zeriv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/395390/original/file-20210416-15-11zeriv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/395390/original/file-20210416-15-11zeriv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Jack Ma, founder of Alibaba Group, put on a performance at the company’s 20th anniversary in 2019.</span>
<span class="attribution"><span class="source">ICHPL Imaginechina/AP</span></span>
</figcaption>
</figure>
<p>Ma’s sudden withdrawal is just one of several developments that point to a huge shift in the regulation of China’s digital space. The lenience once accorded to tech companies by the state no longer holds true. </p>
<p>And recent actions against Alibaba may signal the beginning of the end of the romance between Chinese big tech and the government.</p>
<h2>A fawning apology</h2>
<p>The first real test for this relationship came late last year. China’s State Administration for Market Regulation charged Alibaba’s affiliate Ant Group (also owned by Ma) with anti-competitive behaviour. </p>
<p>Some of Ma’s <a href="https://www.bbc.com/news/technology-56448688">comments</a> around that time were not received well in Beijing. In October, <a href="https://www.reuters.com/article/us-ant-group-ipo-suspension-regulators-i-idCAKBN27L1BB">he claimed</a> China’s banks operated with a “pawn-shop mentality”.</p>
<p>According to <a href="https://www.wsj.com/articles/china-president-xi-jinping-halted-jack-ma-ant-ipo-11605203556">reports</a>, President Xi Jinping himself authorised the subsequent withdrawal of Ant Group’s initial public offering launch on the Shanghai and Hong Kong stock exchanges.</p>
<p>The company was then forced to incorporate itself as a financial institution and subject itself to supervision by China’s state-controlled central bank.</p>
<p>The anti-monopoly ruling dealt out to Ant Group last year, and Alibaba more recently, aren’t incompatible with corporate governance in Western democracies. However, the chief executives of Western tech companies generally <a href="https://theconversation.com/facebook-is-merging-messenger-and-instagram-chat-features-its-for-zuckerbergs-benefit-not-yours-147261">don’t make fawning apologies</a> to government following accusations of anti-competitive behaviour. </p>
<h2>Back when big tech was in the state’s pocket</h2>
<p>There was a time in China when big tech firms lived the dream. Historically, China’s regulators have given its internet companies much more latitude than afforded to the tightly controlled state-owned media.</p>
<p>In 2000, when Alibaba was just one year old, only <a href="https://www.internetlivestats.com/internet-users/china/">1.8% of the Chinese population was online</a>. This number now exceeds 50% of the population.</p>
<p>As my colleagues and I explain in <a href="https://anthempress.com/china-s-digital-presence-in-the-asia-pacific-hb">our book</a>, the Chinese government’s decision in 2007 to require all video-sharing platforms to be licensed led to the rapid market dominance of Baidu, Alibaba and <a href="https://www.fool.com/investing/2021/04/12/after-massive-alibaba-fine-tencent-fears-it-could/">Tencent</a>. These were followed by Bytedance (which owns TikTok), Kuaishou and Meituan. </p>
<p>The licensing requirement was a response to pressure from international copyright holders, including the Motion Picture Association of America. It eliminated less financially robust operators, many of whom were breaching copyright.</p>
<hr>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/china-could-be-using-tiktok-to-spy-on-australians-but-banning-it-isnt-a-simple-fix-142157">China could be using TikTok to spy on Australians, but banning it isn’t a simple fix</a>
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<p>Aware of their social responsibility, many big tech leaders espoused the Chinese Dream: Xi Jinping’s roadmap for national rejuvenation. And Alibaba led the way. </p>
<p>Over the past decade it <a href="http://www.xinhuanet.com/english/2019-08/02/c_138278689.htm">set up</a> rural e-commerce hubs called Taobao villages to play to the government’s tune of “<a href="https://www.scmp.com/economy/china-economy/article/3116360/revitalising-chinas-rural-regions-xi-jinpings-next-priority">rural revitalisation</a>”.</p>
<p>In 2015, when the central government announced a campaign to activate grassroots entrepreneurship, Alibaba partnered with the local provincial government in Zhejiang. The resulting project was aptly named “Dream Town”, which the <a href="http://tsxz.zjol.com.cn/system/2016/07/08/021219849.shtml">governor of Zhejiang</a> described as:</p>
<blockquote>
<p>a new type of mass entrepreneurial space, a giant incubator, a young entrepreneurial community, a new information economy motor, an internet start-up ecosystem.</p>
</blockquote>
<p>All the while, Alibaba had been adding several enterprises to its war chest, mostly acquisitions of smaller companies. It took the major share of popular video site Youku Tudou and bought into the film business, getting closer to younger audiences.</p>
<h2>The state steps in</h2>
<p>China’s internet companies have built the infrastructure of China’s digital economy, which is now estimated to account for <a href="https://www.globaltimes.cn/page/202101/1212840.shtml">36.2% of GDP</a>. This growth is largely due to the forces unleashed by China’s new breed of digital capitalists. </p>
<p>Alibaba has invested heavily in research and development over the years. It has <a href="https://www.cnbc.com/2019/09/11/we-went-inside-alibabas-global-headquarters-heres-what-we-saw.html">a modern campus</a> in the Yuhang district in Hangzhou, recruiting foreign talent. Other tech giants aren’t far behind. Tencent has similar campuses in Guangzhou and Shenzhen, and Huawei has one in Dongguan.</p>
<p>As Stephen Barthlomeusz of the Sydney Morning Herald <a href="https://www.smh.com.au/business/companies/disrupted-china-is-slamming-the-brakes-on-big-tech-20201117-p56faf.html">notes</a>, the state regulator’s recent targeting of Alibaba (and <a href="https://www.bbc.com/news/business-56741551">other major tech companies</a>) doesn’t come without cost.</p>
<p>China’s tech market has driven growth and innovation. In fact, China’s <a href="http://www.lawinfochina.com/display.aspx?id=6351&lib=law&EncodingName=big5">anti-monopoly laws</a> have existed since at least 2007. But their enforcement was lacking, as the state opted for innovation by <a href="https://www.bloomberg.com/opinion/articles/2018-04-12/china-is-nationalizing-its-tech-sector">nationalising the tech sector</a> and letting it develop.</p>
<p>Putting a squeeze on activities now runs the risk of slowing down China’s economy. At the same time, the Chinese public is <a href="https://www.scmp.com/comment/opinion/article/3115061/china-joins-other-governments-seeing-dark-side-big-tech-or-has-it">growing disillusioned</a> with the predatory practices of big tech. Sound familiar? </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/hundreds-of-chinese-citizens-told-me-what-they-thought-about-the-controversial-social-credit-system-127467">Hundreds of Chinese citizens told me what they thought about the controversial social credit system</a>
</strong>
</em>
</p>
<hr>
<h2>The visible hand</h2>
<p>At the same time, China’s tech companies owe a great deal of their success to the government. The state allowed them to benefit from policies designed to keep foreign competitors at bay, and to attract human capital back to China to work in these enterprises. </p>
<p>In return, the companies have helped the Chinese state further its technocratic model of surveillance, through investing in the <a href="https://www.wired.co.uk/article/china-social-credit-system-explained">social credit system</a> and facial recognition.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/395393/original/file-20210416-23-1icxf8g.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/395393/original/file-20210416-23-1icxf8g.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/395393/original/file-20210416-23-1icxf8g.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/395393/original/file-20210416-23-1icxf8g.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/395393/original/file-20210416-23-1icxf8g.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/395393/original/file-20210416-23-1icxf8g.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/395393/original/file-20210416-23-1icxf8g.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/395393/original/file-20210416-23-1icxf8g.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">China’s social credit system is a national surveillance mechanism that will track citizens, companies and government entities, rating their ‘trustworthiness’. The state missed its rollout deadline for last year.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
</figcaption>
</figure>
<p>But the market no longer offers the pretence of distance from government intervention. And new laws allow the Chinese government to <a href="https://www.smh.com.au/business/banking-and-finance/jack-ma-s-ant-group-is-becoming-a-member-of-a-club-he-despises-20210413-p57irp.html">access information</a> about the users of China’s tech platforms. </p>
<p>This is the status of the relationship going forward. The question now is whether this will lead to a permanent chill. In the year celebrating the <a href="https://www.ap.org/live-and-location-services/events/china-anniversary">100th anniversary</a> of the Chinese Communist Party, perhaps it would be more expedient for China’s tech companies to toe the party line. </p>
<p>With the state’s propaganda apparatus reminding people of its victory over capitalism, it’s in the interest of incumbent players to adopt the principles of socialism, rather than play to their shareholders.</p><img src="https://counter.theconversation.com/content/158878/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael Keane has received funding from the Australian Research Council. </span></em></p>It would be useful for China’s big tech firms to toe the party line. But the once mutually-beneficial relationship between these companies and the government is becoming increasingly strained.Michael Keane, Professor of Chinese Digital Media and Culture, Queensland University of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1531192021-02-22T13:46:23Z2021-02-22T13:46:23ZFacebook’s free speech myth is dead – and regulators should take notice<figure><img src="https://images.theconversation.com/files/385404/original/file-20210221-19-18q8ra9.jpg?ixlib=rb-1.1.0&rect=13%2C0%2C4479%2C2775&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.alamy.com/facebook-logo-seen-on-the-smartphone-and-blurred-australian-flag-on-the-background-screen-concept-stafford-united-kingdom-february-18-2021-image405794748.html?pv=1&stamp=2&imageid=8C906DAB-C458-4A6D-90AB-AD9DBE690C0C&p=1396470&n=0&orientation=0&pn=1&searchtype=0&IsFromSearch=1&srch=foo%3dbar%26st%3d0%26pn%3d1%26ps%3d100%26sortby%3d2%26resultview%3dsortbyPopular%26npgs%3d0%26qt%3dfacebook%2520australia%26qt_raw%3dfacebook%2520australia%26lic%3d3%26mr%3d0%26pr%3d0%26ot%3d0%26creative%3d%26ag%3d0%26hc%3d0%26pc%3d%26blackwhite%3d%26cutout%3d%26tbar%3d1%26et%3d0x000000000000000000000%26vp%3d0%26loc%3d0%26imgt%3d0%26dtfr%3d%26dtto%3d%26size%3d0xFF%26archive%3d1%26groupid%3d%26pseudoid%3d%26a%3d%26cdid%3d%26cdsrt%3d%26name%3d%26qn%3d%26apalib%3d%26apalic%3d%26lightbox%3d%26gname%3d%26gtype%3d%26xstx%3d0%26simid%3d%26saveQry%3d%26editorial%3d%26nu%3d%26t%3d%26edoptin%3d%26customgeoip%3dGB%26cap%3d1%26cbstore%3d1%26vd%3d0%26lb%3d%26fi%3d2%26edrf%3d0%26ispremium%3d1%26flip%3d0%26pl%3d">mundissima/Alamy Stock Photo</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc/4.0/">CC BY-NC</a></span></figcaption></figure><p>Facebook’s recent decision to <a href="https://apnews.com/article/facebook-blocks-australia-news-access-fed95e78e8bf30f167eb1a2d893ac89c">block its Australian users</a> from sharing or viewing news content provoked a worldwide backlash and accusations of hubris and bullying. Although the company has now reversed its decision following an agreement with the Australian government, the row has exposed the fragility of Facebook’s founding myth: that Mark Zuckerberg’s brainchild is a force for good, providing a public space for people to connect, converse and cooperate.</p>
<p>An inclusive public space in the good times, Facebook has yet again proved willing to eject and exclude in the bad times – as a private firm ultimately has the right to do. Facebook seems to be a bastion of free speech up to and until the moment its revenue is endangered. At that point, as in the case of the Australian news ban, it defaults to a private space.</p>
<p><a href="https://journals.uic.edu/ojs/index.php/fm/article/view/10603/9549">My recent paper</a> explores social media’s spatial hybridity, arguing that we must stop seeing companies like Facebook as public spaces and “platforms” for free speech. Equally, given their ubiquity and dominance, we shouldn’t see them solely as private spaces, either. Instead, these companies should be defined as “corpo-civic” spaces – a mixture of the two – and regulated as such: by internal guidelines as well as external laws.</p>
<p>Facebook’s disagreement with the Australian government was over a <a href="https://www.crn.com.au/news/accc-warns-google-facebook-laws-are-just-the-start-559690">new set of laws</a> drawn up there to counter big tech’s monopoly power. The law in question responds to news companies’ complaints that they are losing advertising revenue to dominant content-sharing platforms such as Facebook and Google. <a href="https://parlinfo.aph.gov.au/parlInfo/download/legislation/ems/r6652_ems_2fe103c0-0f60-480b-b878-1c8e96cf51d2/upload_pdf/JC000725.pdf;fileType=application%2Fpdf">The law</a> compels Facebook to agree a fee with news companies in an effort to reimburse them for the advertising revenue they lose to Facebook.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/385401/original/file-20210221-19-xbv39x.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A graph showing how Facebook have a growing share of display advertising in Australia" src="https://images.theconversation.com/files/385401/original/file-20210221-19-xbv39x.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/385401/original/file-20210221-19-xbv39x.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=311&fit=crop&dpr=1 600w, https://images.theconversation.com/files/385401/original/file-20210221-19-xbv39x.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=311&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/385401/original/file-20210221-19-xbv39x.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=311&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/385401/original/file-20210221-19-xbv39x.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=391&fit=crop&dpr=1 754w, https://images.theconversation.com/files/385401/original/file-20210221-19-xbv39x.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=391&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/385401/original/file-20210221-19-xbv39x.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=391&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Facebook’s growing share of display advertising revenue in Australia is one reason for the new law.</span>
<span class="attribution"><a class="source" href="https://www.accc.gov.au/system/files/ACCC%20Digital%20Platforms%20Service%20Inquiry%20-%20September%202020%20interim%20report.pdf">ACC Digital Platforms Services Inquiry: Interim report, September 2020</a></span>
</figcaption>
</figure>
<p>Despite threatening to withdraw from Australia, Google eventually chose to <a href="https://www.nytimes.com/2021/02/17/technology/facebook-google-australia-news.html">agree to those fees</a>. Facebook didn’t follow suit. Instead, as if by the flick of a switch, the company turned off the news in Australia. Caught in the crossfire and also finding themselves blocked on Facebook were <a href="https://www.cnbc.com/2021/02/18/facebook-blocked-charity-and-state-health-pages-in-australia-news-ban.html">charities and government organisations</a>, as well as <a href="https://www.theguardian.com/world/2021/feb/19/facebooks-australia-ban-threatens-to-leave-pacific-without-key-news-source">Pacific communities</a> outside of Australian jurisdiction. </p>
<p>The news block has played poorly for Facebook. Having claimed impotence in the face of growing disinformation for years, Facebook’s new-found iron fist <a href="https://www.wired.co.uk/article/facebook-australia-rupert-murdoch">has raised eyebrows</a>. But this apparent inconsistency can be explained – though perhaps not justified – when we see Facebook as a public space with private interests.</p>
<p>Social media firms aren’t the only organisations straddled between the private and the public. Shopping centres are a common example in the offline world. So are some apparently public spaces like New York’s Zuccotti Park where, in 2011, <a href="https://www.theguardian.com/world/blog/2011/nov/25/occupy-wall-street-eviction-inevitable">Occupy Wall Street protesters</a> found themselves evicted both by police and by the park’s private owners, Brookfield Properties.</p>
<figure class="align-center ">
<img alt="A busy shopping centre with many people walking around, some blurred" src="https://images.theconversation.com/files/385531/original/file-20210222-17-tmyhqc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/385531/original/file-20210222-17-tmyhqc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/385531/original/file-20210222-17-tmyhqc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/385531/original/file-20210222-17-tmyhqc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/385531/original/file-20210222-17-tmyhqc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/385531/original/file-20210222-17-tmyhqc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/385531/original/file-20210222-17-tmyhqc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Shopping centres are a common example of spaces that are both public and private.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/shopping-198234164">estherpoon/Shutterstock</a></span>
</figcaption>
</figure>
<p>Social media platforms operate similarly. Just as a shopping centre relies on footfall, Facebook profits from active users on its platform. For Facebook, this profit is generated <a href="https://www.nasdaq.com/articles/what-facebooks-revenue-breakdown-2019-03-28-0">almost entirely</a> via the revenue provided by online advertising. </p>
<p>It shouldn’t surprise us that, when confronted with a law that could force Facebook to part with an unspecified amount of its revenue, the company showed resistance – even if that deprived Australian users of news content and a <a href="https://privacyinternational.org/long-read/2852/protecting-civic-spaces">civic space to share and discuss it</a>. </p>
<h2>Nazis and nipples</h2>
<p>Facebook’s brief Australian news block is the latest example of a social media company falling short of its own principles. Governed by “community standards” that are <a href="https://www.justsecurity.org/70035/the-republic-of-facebook/">effectively in-platform laws</a>, platforms such as Facebook have a history of enforcing their rules on an ad-hoc basis. For years, researchers have <a href="https://journals.sagepub.com/doi/abs/10.1177/1461444809342738?journalCode=nmsa">argued</a> that this system is inadequate, inconsistent and open to abuse.</p>
<p>Most glaring is social media’s inconsistent enforcement of its own community standards. Facebook and Instagram’s moderation has previously targeted <a href="https://www.tandfonline.com/doi/abs/10.1080/14680777.2020.1783805?journalCode=rfms20">women’s nipples</a> and has <a href="https://www.bbc.co.uk/news/blogs-trending-50222380">forced sex workers offline</a>, while self-professed Nazis were only forced from Facebook after their participation in the US Capitol riots on January 6 2021.</p>
<p>During the run-up to the US election in 2020, Mark Zuckerberg actually <a href="https://www.latimes.com/business/technology/la-fi-tn-facebook-aspen-zuckerberg-regulation-20190626-story.html">invited regulation from the government</a>, which seemed to be an admission that Facebook had grown beyond its ability to regulate itself. Yet, as we’ve seen with events in Australia, the corporate half of these online civic spaces baulks at any external regulation that might be bad for business.</p>
<h2>Corpo-civic spaces</h2>
<p>So how should we regulate these hybrid spaces with competing and sometimes contradictory interests? My recent paper turns to “<a href="https://www.oxfordreference.com/view/10.1093/oi/authority.20110803103943995">third space theory</a>” for answers. Third space theory has been used to understand spatially ambiguous places, like when people’s homes become their workplaces, or when people feel a tension between their <a href="https://www.jstor.org/stable/40647476">ancestral and adopted homes</a>.</p>
<p>When applied to ambiguous spaces between the “corporate” and the “civic”, third space theory can help us better understand the unique regulatory challenges associated with social media companies. Facebook, for instance, is neither a wholly corporate nor a wholly civic space: it’s a corpo-civic one.</p>
<p>A corpo-civic governance approach would recognise that to heavily penalise and restrict social media companies would be to risk dismantling valuable civic spaces. At the same time, to see Facebook solely as a platform for free speech gives it licence to place maximising profits above ethics and human rights. </p>
<p>Instead, a corpo-civic governance model could apply international human rights standards to content moderation, putting the protection of people above the protection of profits. This is not dissimilar from the standards we expect of shopping centres, which may have their own private security policies but which must nevertheless abide by state law. </p>
<p>Because social media platforms are global and not local like shopping centres, it will be important for the laws that govern them to be transnational. Facebook may have briefly blocked the news for Australians, but it wouldn’t make the same decision for hundreds of millions of users across several different countries.</p>
<p>Australia might be “<a href="https://foreignpolicy.com/2021/02/09/australia-google-regulation-internet-big-tech-silicon-valley-media/">Ground Zero</a>” for laws aimed at reining in big tech, but it’s certainly not the only country drafting them. Having those state regulators work together on transnational policies will be crucial. In the meantime, events in Australia are a warning for tech companies and state regulators alike about social media’s hybrid nature, and the tension between people and profits that emerge from corpo-civic spaces.</p>
<p><em>This article was updated on February 23 2021 after Facebook agreed a compromise with the Australian government to reverse the news block.</em></p><img src="https://counter.theconversation.com/content/153119/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Carolina Are does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Facebook’s choice of profits over the people is difficult to reconcile with its commitment to free speech.Carolina Are, Researcher and visiting lecturer, City, University of LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1540602021-01-29T01:25:48Z2021-01-29T01:25:48ZIf Google does pull its search engine out of Australia, there are alternatives<figure><img src="https://images.theconversation.com/files/381048/original/file-20210128-19-1lmbpzf.jpg?ixlib=rb-1.1.0&rect=80%2C440%2C5029%2C3377&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock/Wachiwit</span></span></figcaption></figure><p>The Australian government’s <a href="https://www.theguardian.com/media/2020/dec/09/australia-is-making-google-and-facebook-pay-for-news-what-difference-will-the-code-make">push</a> to make Google pay news organisations for linking to their content has seen the search giant threaten to <a href="https://about.google/google-in-australia/an-open-letter/">pull out of Australia</a>. </p>
<p>Google Australia’s managing director Mel Silva said if the government’s proposal goes ahead, “we would have no real choice but to stop making Google Search available in Australia”.</p>
<p>Prime Minister Scott Morrison pushed back saying he won’t respond to “<a href="https://thenewdaily.com.au/news/politics/2021/01/22/pm-responds-google-threat/">threats</a>”. Even the Council of Small Business Organisations Australia says Google needs “<a href="https://www.theguardian.com/technology/2021/jan/27/ignore-threats-to-shut-search-in-australia-and-force-google-to-pay-small-business-groups-say">strong and stringent</a>” regulation because of its monopoly on searching the web.</p>
<h2>What if Google pulls out?</h2>
<p>Google’s proposal to make Google Search unavailable in Australia means we would need to search the web using other systems and tools. If this really happens, we could no longer go to <a href="https://www.google.com/">google.com</a> and <a href="https://www.google.com.au/">google.com.au</a> to search the web.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/its-not-fair-and-it-wont-work-an-argument-against-the-accc-forcing-google-and-facebook-to-pay-for-news-145391">It's not 'fair' and it won't work: an argument against the ACCC forcing Google and Facebook to pay for news</a>
</strong>
</em>
</p>
<hr>
<p>It is important to note that Google is not just web search. Google’s parent company <a href="https://abc.xyz/">Alphabet Inc</a> also runs key web portals such as YouTube, and productivity tools such as Gmail, Google Calendar, Google Docs and Google Maps (which actually <a href="https://www.businessinsider.com.au/google-maps-australia-tech-inventions-2020-2">started in Australia</a>). Those services are not going to be removed from the Australian market, even if web search does get pulled out.</p>
<p>Online advertising is another sector in which Google is the market leader and where it makes money. Pulling Google web search out from Australia does not mean businesses would no longer be able to advertise using Google’s services. </p>
<p>But with no Google Search here, those adverts would no longer appear ahead of any other search results and be visited by Australian users.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/381044/original/file-20210128-23-guuupy.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A Google Search result showing an ad for The Conversation ahead of any search results." src="https://images.theconversation.com/files/381044/original/file-20210128-23-guuupy.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/381044/original/file-20210128-23-guuupy.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=201&fit=crop&dpr=1 600w, https://images.theconversation.com/files/381044/original/file-20210128-23-guuupy.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=201&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/381044/original/file-20210128-23-guuupy.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=201&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/381044/original/file-20210128-23-guuupy.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=253&fit=crop&dpr=1 754w, https://images.theconversation.com/files/381044/original/file-20210128-23-guuupy.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=253&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/381044/original/file-20210128-23-guuupy.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=253&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Google Search places paid advertising ahead of any search results.</span>
<span class="attribution"><span class="source">Google.com/screenshot</span></span>
</figcaption>
</figure>
<p>Businesses would still be able to put their adverts on other Australian websites that use the <a href="https://ads.google.com/">Google Ads</a> service.</p>
<p>The issue with this scenario is that Google’s key competitive advantage is the ability to access <a href="https://www.wired.com/story/google-tracks-you-privacy/">data from people</a> using its search services. Pulling web search out from the Australian market would mean Google missing out on that data from people in Australia.</p>
<h2>The alternatives to Google</h2>
<p>Google is the dominant search engine in Australia — it has <a href="https://gs.statcounter.com/search-engine-market-share/all/australia">94% of the web search market in Australia</a> — but there are other search services.</p>
<p>The <a href="https://gs.statcounter.com/search-engine-market-share/all/australia">second most popular</a> search engine in Australia is <a href="https://www.bing.com/">Bing</a>, developed by Microsoft and often integrated into other Microsoft products such as its Windows operating system and Office tools.</p>
<p>Another less popular search option is <a href="https://au.yahoo.com/">Yahoo</a>, which also offers its own news and email service.</p>
<p>Other alternatives include niche search engines that offer unique tools with special features.</p>
<p>For example, <a href="https://duckduckgo.com/">DuckDuckGo</a> is a search engine that has recently risen in popularity thanks to a commitment to protecting its users’ privacy.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/381224/original/file-20210128-15-8jrbh.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="The DuckDuckGo homepage" src="https://images.theconversation.com/files/381224/original/file-20210128-15-8jrbh.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/381224/original/file-20210128-15-8jrbh.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=303&fit=crop&dpr=1 600w, https://images.theconversation.com/files/381224/original/file-20210128-15-8jrbh.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=303&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/381224/original/file-20210128-15-8jrbh.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=303&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/381224/original/file-20210128-15-8jrbh.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=381&fit=crop&dpr=1 754w, https://images.theconversation.com/files/381224/original/file-20210128-15-8jrbh.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=381&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/381224/original/file-20210128-15-8jrbh.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=381&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">DuckDuckGo is gaining support.</span>
<span class="attribution"><a class="source" href="https://duckduckgo.com/">DuckDuckGo/Screen shot</a></span>
</figcaption>
</figure>
<p>Contrary to the web search products from Google and Microsoft, DuckDuckGo does not store its users’ search queries or track their interactions with the system.</p>
<p>The quality of DuckDuckGo’s search results has improved over time, and is now <a href="https://www.theguardian.com/technology/askjack/2019/dec/12/duckduckgo-google-search-engine-privacy">comparable</a> to that of the most popular search engines.</p>
<p>It says it now processes a daily average of more than <a href="https://duckduckgo.com/traffic">90 million search queries</a>, up from just over 51 million the same time last year.</p>
<p>Despite not drawing on users’ data to refine its search algorithms, the technology behind DuckDuckGo and other smaller players is based on the same machine-learning methods that others are using.</p>
<h2>Search the web, save the planet</h2>
<p>Another interesting and recent proposal of an alternative web search engine is <a href="https://www.ecosia.org/">Ecosia</a>. This system is unique as it focuses on sustainability and positive climate impact.</p>
<p>Its mission is to reinvest the income generated by search advertisements (the same business model Google Search is using) to <a href="https://info.ecosia.org/">plant trees</a> in key areas around the world.</p>
<p>So far, it says it has 15 million users and has contributed to planting more than 100 million trees, about 1.3 every second.</p>
<h2>Will Google really abandon Australia?</h2>
<p>Tim Berners-Lee, widely regarded as the inventor of the web, has <a href="https://www.theguardian.com/media/2021/jan/20/australias-proposed-media-code-could-break-the-world-wide-web-says-the-man-who-invented-it">pointed out</a> that the idea of asking web platforms to pay to post links runs counter to his fundamental concept.</p>
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Read more:
<a href="https://theconversation.com/webs-inventor-says-news-media-bargaining-code-could-break-the-internet-hes-right-but-theres-a-fix-153630">Web's inventor says news media bargaining code could break the internet. He's right — but there's a fix</a>
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<p>That said, it is also unfair for a search engine to make money using content that others have created.</p>
<p>It is also true that most of Google’s revenue already comes from asking others to pay for links on the web. This is <a href="https://ads.google.com/intl/en_au/home/how-it-works/">how Google’s online advertising works</a>: Google Ads makes advertisers pay for every impression users get or click users make to navigate to the advertised web page.</p>
<p>In some cases, if users end up <a href="https://support.google.com/google-ads/answer/1722022?hl=en-AU&ref_topic=3119146">buying the advertised product</a>, Google gets a payment.</p>
<p>More likely than Google pulling out of the Australian market, the government and the search giant should diplomatically find a compromise in which Google still provides its web search product in Australia and there will be a return to news organisations for Google making use of their content.</p>
<hr>
<p><em>This article was updated to clarify how Google can receive payments from advertisers for purchases.</em></p><img src="https://counter.theconversation.com/content/154060/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gianluca Demartini receives funding from the Australian Research Council and Facebook.</span></em></p>There are other ways to search the web without Google, and some options help protect your privacy while another is good for the planet.Gianluca Demartini, Associate professor, The University of QueenslandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1537872021-01-25T02:04:16Z2021-01-25T02:04:16ZIs news worth a lot or a little? Google and Facebook want it both ways<p>Executives from Google and Facebook have <a href="https://www.theguardian.com/media/2021/jan/22/google-threatens-to-shut-down-search-in-australia-if-digital-news-code-goes-ahead">told a Senate committee</a> they are prepared to take drastic action if Australia’s news media bargaining code, which would force the internet giants to pay news publishers for linking to their sites, comes into force. </p>
<p>Google would have “no real choice” but to cut Australian users off entirely from its flagship search engine, the company’s Australian managing director Mel Silva told the committee. Facebook representatives in turn said they would remove links to news articles from the newsfeed of Australian users if the code came into effect as it currently stands.</p>
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Read more:
<a href="https://theconversation.com/expect-delays-and-power-plays-google-and-facebook-brace-as-news-media-bargaining-code-is-set-to-become-law-151690">Expect delays and power plays: Google and Facebook brace as news media bargaining code is set to become law</a>
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<p>In response, the Australian government shows no sign of backing down, with Prime Minister Scott Morrison and Treasurer Josh Frydenberg <a href="https://www.abc.net.au/news/2021-01-22/scott-morrison-google-facebook-tech-news/13082222?nw=0">both</a> <a href="https://www.theaustralian.com.au/breaking-news/josh-frydenberg-hits-out-against-googles-threats-to-pull-search-engine/news-story/d4dd54eac07f19606fa440d29eae6439">saying</a> they won’t respond to threats. </p>
<p>So what’s going on here? Are Google and Facebook really prepared to pull services from their Australian users rather than hand over some money to publishers under the bargaining code?</p>
<h2>Is news valuable to Facebook and Google?</h2>
<p>Facebook claims news is of little real value to its business. It doesn’t make money from news directly, and claims that for an average Australian user less than 5% of their newsfeed is made up of links to Australian news.</p>
<p>But this is hard to square with other information. In 2020, the University of Canberra’s <a href="https://www.canberra.edu.au/research/faculty-research-centres/nmrc/digital-news-report-australia-2020">Digital News Report</a> found some 52% of Australians get news via social media, and the number is growing. Facebook also boasts of its investments in news via deals with publishers and new products such as Facebook News. </p>
<p>Google likewise says it makes little money from news, while at the same time investing heavily in news products like <a href="https://support.google.com/news/publisher-center/answer/10018888?hl=en">News Showcase</a>.</p>
<p>So while links to news may not be direct advertising money-spinners for Facebook or Google, both see the presence of news as an important aspect of audience engagement with their products. </p>
<h2>On their own terms</h2>
<p>While both companies are prepared to give some money to news publishers, they want to make deals on their own terms. But Google and Facebook are two of the largest and most profitable companies in history – and each holds far more bargaining power than any news publisher. The news media bargaining code sets out to undo this imbalance.</p>
<p>What’s more, Google and Facebook don’t appear to want to accept the unique social role of news, and public interest journalism in particular. Nor do they recognise they might be involved somehow in the decline of the news business over the past decade or two, instead pointing the finger at impersonal shifts in advertising technology.</p>
<p>The media bargaining code being introduced is far too systematic for them to want to accept it. They would rather pick and choose commercial agreements with “genuine commercial consideration”, and not be bound by a one-size-fits-all set of arbitration rules.</p>
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Read more:
<a href="https://theconversation.com/changing-the-rules-to-control-monopolies-could-see-the-end-of-facebook-domination-149940">Changing the rules to control monopolies could see the end of Facebook domination</a>
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<h2>A history of US monopolies</h2>
<p>Google and Facebook dominate web search and social media, respectively, in ways that echo the great US monopolies of the past: rail in the 19th century, then oil and later telecommunications in the 20th. All these industries became fundamental forms of capitalist infrastructure for economic and social development. And all these monopolies required legislation to break them up in the public interest.</p>
<p>It’s unsurprising that the giant ad-tech media platforms don’t want to follow the rules, but they must acknowledge that their great wealth and power come with a moral responsibility to society. Making them face up to that responsibility will require government intervention.</p>
<p>Online pioneers <a href="https://en.wikipedia.org/wiki/Vint_Cerf">Vint Cerf</a> (now VP and Chief Internet Evangelist at Google) and <a href="https://en.wikipedia.org/wiki/Tim_Berners-Lee">Tim Berners-Lee</a> (“inventor of the World Wide Web”) have also made submissions to the Senate committee advocating on behalf of the corporations. They made high-minded claims that the code will break the “free and open” internet.</p>
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Read more:
<a href="https://theconversation.com/webs-inventor-says-news-media-bargaining-code-could-break-the-internet-hes-right-but-theres-a-fix-153630">Web's inventor says news media bargaining code could break the internet. He's right — but there's a fix</a>
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<p>But today’s internet is hardly free and open: for most users “the internet” is huge corporate platforms like Google and Facebook. And those corporations don’t want Australian senators interfering with their business model.</p>
<p>Independent senator Rex Patrick hit the nail on the head when he asked why Google wouldn’t admit the fundamental issue was about revenue, rather than technical detail or questions of principle. </p>
<h2>How seriously should we take threats to leave the Australian market?</h2>
<p>Google and Facebook are prepared to go along with the Senate committee’s processes, so long as they can modify the arrangement. The don’t want to be seen as uncooperative.</p>
<p>The threat to leave (or as Facebook’s Simon Milner put it, the “explanation” of why they would be forced to do so) is their worst-case scenario. It seems likely they would risk losing significant numbers of users if they did so, or at least having them much less engaged – and hence producing less advertising revenue. </p>
<p>Google has already run <a href="https://www.smh.com.au/politics/federal/google-admits-to-removing-local-news-content-in-experiment-20210113-p56tux.html">small-scale experiments</a> to test removing Australian news from search. This may be a demonstration that the threat to withdraw from Australia is serious, or at least, serious brinkmanship.</p>
<p>People know news is important, that it shapes their interactions with the world – and provides meaning and helps them navigate their lives. So who would Australians blame if Google and Facebook really do follow through? The government or the friendly tech giants they see every day? That’s harder to know.</p>
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<p><em>For transparency, please note The Conversation has also <a href="https://theconversation.com/the-conversations-submission-to-the-australian-senate-inquiry-into-the-news-media-bargaining-code-153532">made a submission</a> to the Senate inquiry regarding the News Media and Digital Platforms Mandatory Bargaining Code.</em></p><img src="https://counter.theconversation.com/content/153787/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tim Dwyer receives funding from the Australian Research Council for media policy projects researching media pluralism and online news, and platform governance.</span></em></p>The titans of online advertising don’t want to be forced into putting a value on linking to news.Tim Dwyer, Associate Professor, Department of Media and Communications, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1536302021-01-21T02:30:32Z2021-01-21T02:30:32ZWeb’s inventor says news media bargaining code could break the internet. He’s right — but there’s a fix<p>The inventor of the World Wide Web, <a href="https://www.vanityfair.com/news/2018/07/the-man-who-created-the-world-wide-web-has-some-regrets">Tim Berners-Lee</a>, has <a href="https://www.businessinsider.com.au/media-bargaining-code-tim-berners-lee-2021-1">raised concerns</a> that Australia’s proposed News Media and Digital Platforms Mandatory Bargaining Code could fundamentally break the internet as we know it.</p>
<p>His concerns are valid. However, they could be addressed through minor changes to the proposed code. </p>
<h2>How could the code break the web?</h2>
<p>The news media bargaining code aims to level the playing field between media companies and online giants. It would do this by forcing Facebook and Google to pay Australian news businesses for content linked to, or featured, on their platforms.</p>
<p>In a <a href="https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/TLABNewsMedia/Submissions">submission</a> to the Senate inquiry about the code, Berners-Lee wrote:</p>
<blockquote>
<p>Specifically, I am concerned that the Code risks breaching a fundamental principle of the web by requiring payment for linking between certain content online. […] The ability to link freely — meaning without limitations regarding the content of the linked site and without monetary fees — is fundamental to how the web operates.</p>
</blockquote>
<p>Currently, one of the most basic underlying principles of the web is there is no cost involved in creating a hypertext link (or simply a “link”) to any other page or object online. </p>
<p>When Berners-Lee first devised the World Wide Web in 1989, he effectively <a href="https://home.cern/science/computing/birth-web">gave away</a> the idea and associated software for free, to ensure nobody would or could charge for using its protocols. </p>
<p>He argues the news media bargaining code could set a legal precedent allowing someone to charge for linking, which would let the genie out of the bottle — and plenty more attempts to charge for linking to content would appear. </p>
<p>If the precedent were set that people could be charged for simply linking to content online, it’s possible the underlying principle of linking would be disrupted.</p>
<p>As a result, there would likely be many attempts by both legitimate companies and scammers to charge users for what is currently free.</p>
<p>While supporting the “right of publishers and content creators to be properly rewarded for their work”, Berners-Lee asks the code be amended to maintain the principle of allowing free linking between content.</p>
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Read more:
<a href="https://theconversation.com/google-news-favours-mainstream-media-even-if-it-pays-for-australian-content-will-local-outlets-fall-further-behind-146565">Google News favours mainstream media. Even if it pays for Australian content, will local outlets fall further behind?</a>
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<h2>Google and Facebook don’t just link to content</h2>
<p>Part of the issue here is Google and Facebook don’t just collect a list of interesting links to news content. Rather the way they find, sort, curate and present news content adds value for their users. </p>
<p>They don’t just link to news content, they reframe it. It is often in that reframing that advertisements appear, and this is where these platforms make money.</p>
<p>For example, <a href="https://www.w3.org/History/1989/proposal.html">this link</a> will take you to the original 1989 proposal for the World Wide Web. Right now, anyone can create such a link to any other page or object on the web, without having to pay anyone else.</p>
<p>But what Facebook and Google do in curating news content is fundamentally different. They create <a href="https://medium.com/better-programming/link-previews-more-than-meets-the-eye-aa13c77c6d69">compelling previews</a>, usually by offering the headline of a news article, sometimes the first few lines, and often the first image extracted. </p>
<p>For instance, here is a preview Google generates when someone searches for Tim Berners-Lee’s Web proposal:</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/379685/original/file-20210120-21-190yp8s.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Results page for the Google Search 'tim berners lee www proposal'." src="https://images.theconversation.com/files/379685/original/file-20210120-21-190yp8s.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/379685/original/file-20210120-21-190yp8s.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=556&fit=crop&dpr=1 600w, https://images.theconversation.com/files/379685/original/file-20210120-21-190yp8s.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=556&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/379685/original/file-20210120-21-190yp8s.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=556&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/379685/original/file-20210120-21-190yp8s.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=698&fit=crop&dpr=1 754w, https://images.theconversation.com/files/379685/original/file-20210120-21-190yp8s.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=698&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/379685/original/file-20210120-21-190yp8s.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=698&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">This is a screen capture of the results page for the Google Search: ‘tim berners lee www proposal’.</span>
<span class="attribution"><span class="source">Google</span></span>
</figcaption>
</figure>
<p>Evidently, what Google returns is more of a media-rich, detailed preview than a simple link. For Google’s users, this is a much more meaningful preview of the content and better enables them to decide whether they’ll click through to see more.</p>
<p>Another huge challenge for media businesses is that increasing numbers of users are taking headlines and previews at face value, without necessarily reading the article.</p>
<p>This can obviously decrease revenue for news providers, as well as perpetuate misinformation. Indeed, it’s one of the reasons Twitter began asking users to actually <a href="https://www.theverge.com/2020/9/25/21455635/twitter-read-before-you-tweet-article-prompt-rolling-out-globally-soon">read content before retweeting it</a>. </p>
<p>A fairly compelling argument, then, is that Google and Facebook add value for consumers via the reframing, curating and previewing of content — not just by linking to it.</p>
<h2>Can the code be fixed?</h2>
<p>Currently <a href="https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r6652">in the code</a>, the section concerning how platforms are “Making content available” lists three ways content is shared:</p>
<ol>
<li>content is reproduced on the service</li>
<li>content is linked to </li>
<li>an extract or preview is made available. </li>
</ol>
<p>Similar terms are used to detail how users might interact with content.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/379684/original/file-20210120-23-ujhd1j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Extract showing the way 'Making content available' is defined in the Treasury Laws Amendment (News Media and Digital Platforms Mandatory Bargaining Code) Bill 2020" src="https://images.theconversation.com/files/379684/original/file-20210120-23-ujhd1j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/379684/original/file-20210120-23-ujhd1j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=448&fit=crop&dpr=1 600w, https://images.theconversation.com/files/379684/original/file-20210120-23-ujhd1j.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=448&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/379684/original/file-20210120-23-ujhd1j.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=448&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/379684/original/file-20210120-23-ujhd1j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=563&fit=crop&dpr=1 754w, https://images.theconversation.com/files/379684/original/file-20210120-23-ujhd1j.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=563&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/379684/original/file-20210120-23-ujhd1j.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=563&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The News Media and Digital Platforms Mandatory Bargaining Code 2020 outlines three main ways by which platforms make news content available.</span>
<span class="attribution"><span class="source">Australian Government</span></span>
</figcaption>
</figure>
<p>If we accept most of the additional value platforms provide to their users is in curating and providing previews of content, then deleting the second element (which just specifies linking to content) would fix Berners-Lee’s concerns. </p>
<p>It would ensure the use of links alone can’t be monetised, as has always been true on the web. Platforms would still need to pay when they present users with extracts or previews of articles, but not when they <em>only</em> link to it. </p>
<p>Since basic links are not the bread and butter of big platforms, this change wouldn’t fundamentally alter the purpose or principle of creating a more level playing field for news businesses and platforms. </p>
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Read more:
<a href="https://theconversation.com/its-not-fair-and-it-wont-work-an-argument-against-the-accc-forcing-google-and-facebook-to-pay-for-news-145391">It's not 'fair' and it won't work: an argument against the ACCC forcing Google and Facebook to pay for news</a>
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<p>In its current form, the News Media and Digital Platforms Mandatory Bargaining Code could put the underlying principles of the world wide web in jeopardy. Tim Berners-Lee is right to raise this point. </p>
<p>But a relatively small tweak to the code would prevent this, It would allow us to focus more on where big platforms actually provide value for users, and where the clearest justification lies in asking them to pay for news content.</p>
<hr>
<p><em>For transparency, it should be noted The Conversation has also <a href="https://theconversation.com/the-conversations-submission-to-the-australian-senate-inquiry-into-the-news-media-bargaining-code-153532">made a submission</a> to the Senate inquiry regarding the News Media and Digital Platforms Mandatory Bargaining Code.</em></p><img src="https://counter.theconversation.com/content/153630/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tama Leaver receives funding from Australian Research Council (ARC); he is currently a Chief Investigator in the ARC Centre of Excellence for the Digital Child.</span></em></p>The code could require Google and Facebook to pay up for simply including links to news articles from other sites. This has never been a requirement on the web.Tama Leaver, Professor of Internet Studies, Curtin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1519792020-12-18T13:29:01Z2020-12-18T13:29:01ZWhy Facebook antitrust case relies so heavily on Mark Zuckerberg’s emails<figure><img src="https://images.theconversation.com/files/375710/original/file-20201217-15-1tuqj8o.jpg?ixlib=rb-1.1.0&rect=320%2C65%2C4539%2C3169&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Mark Zuckerberg's own words are key evidence in the FTC lawsuit against Facebook. </span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/DigitalServicesActAvaazStunt/baf6ee5368e9479db9e2b8a61149c0c3/photo?Query=zuckerberg&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=2374&currentItemNo=6">AP Images/Olivier Matthys</a></span></figcaption></figure><p>Facebook CEO Mark Zuckerberg’s own words play a starring role in the <a href="https://www.ftc.gov/news-events/press-releases/2020/12/ftc-sues-facebook-illegal-monopolization">government’s case to break up his social network</a>. </p>
<p>“It is better to buy than compete,” he allegedly wrote in an email in 2008, according to the lawsuit. Four years later, after Facebook purchased what he had called a “very disruptive” photo-sharing app, he celebrated by explaining to a colleague in another email: “Instagram was our threat. … One thing about startups though is you can often acquire them.”</p>
<p>As an antitrust professor preparing a new spring course called “Antitrust for Big Tech,” I read the <a href="https://www.ftc.gov/enforcement/cases-proceedings/191-0134/facebook-inc-ftc-v">FTC’s Dec. 9 complaint</a> with great interest. I have taught my students for years that internal documents can come back to haunt antitrust defendants. But I have never seen a plaintiff’s case rely so heavily on a CEO’s own words. </p>
<p>As I read the FTC’s summary of the arguments it plans to make at trial, I began to highlight every direct quote from an internal Facebook communication. My highlighter ran out of ink. </p>
<p>Basing a monopolization case on a CEO’s own explanations of his conduct may seem like a straightforward strategy to most people. But among judges and antitrust scholars, <a href="http://www.arizonalawreview.org/pdf/47-3/47arizlrev609.pdf">it’s actually controversial</a>, as it is sure to be in this case. </p>
<p>Despite that controversy, the FTC’s choice to hoist Facebook by its own petard makes sense. Zuckerberg’s emails are voluminous and specific in describing how the mergers will insulate his company from competition. They avoid most of the problems critics have with using what lawyers call “hot documents” to make an antitrust case.</p>
<h2>It worked against Microsoft</h2>
<p>And anyway, it’s worked before.</p>
<p>The case against Facebook bears similarities to <a href="https://www.law.berkeley.edu/files/US_v_Microsoft3.pdf">U.S. v. Microsoft</a>, the landmark 2001 case that found the software company liable for monopolization. Here, the FTC will have to prove that Facebook, like Microsoft, acquired its market power in the social media market by excluding rivals, not merely by making a great product. And in both cases, internal statements by executives play a big role.</p>
<p>In the case, the government produced a <a href="https://www.justice.gov/sites/default/files/atr/legacy/2006/03/03/20.pdf">1995 memo</a> in which Microsoft founder Bill Gates identified Netscape as “a new competitor ‘born’ on the internet.” A few years later, another executive allegedly <a href="https://archive.nytimes.com/www.nytimes.com/library/cyber/week/011298microsoft.html">said</a>, “We are going to cut off [Netscape’s] air supply.” </p>
<p>When Microsoft proceeded to do so by impeding Netscape’s access to Windows users, statements like these made it hard for the company to argue that its conduct wasn’t predatory, and Microsoft <a href="https://www.investopedia.com/ask/answers/08/microsoft-antitrust.asp">lost the case</a>. </p>
<p>As successful and intuitive as the strategy is, courts are surprisingly <a href="https://law.justia.com/cases/federal/appellate-courts/F2/744/588/459746/">reluctant</a> to hang their antitrust rulings on internal documents revealing an executive’s intent.</p>
<h2>The problem with relying too much on internal emails</h2>
<p>Judges often say that <a href="https://openjurist.org/892/f2d/1355/morgan-v-l-ponder-k">antitrust law is interested only</a> in the economic effects of a business’s conduct – such as whether it suppressed competition – not the motives of its executives. <a href="https://law.justia.com/cases/federal/appellate-courts/F2/744/588/459746/">Critics have argued</a> that CEOs are not economists and are sometimes prone to chest-thumping braggadocio, making their emails and other communications better for wowing juries than making an economic argument. </p>
<p>Judges and scholars worry that juries will see all <a href="https://openjurist.org/881/f2d/1396/aa-poultry-farms-inc-v-rose-acre-farms-inc">aggressive comments as evidence</a> of exclusionary intent. But you can “destroy” a competitor by outdoing him; economists call that competition. </p>
<p>For example, Facebook’s <a href="https://www.theverge.com/2020/7/29/21345723/facebook-instagram-documents-emails-mark-zuckerberg-kevin-systrom-hearing">employee manual reads</a>: “If we don’t create the thing that kills Facebook, something else will.” That sounds ominous, but creating things to keep rival startups at bay <a href="https://scholarship.law.columbia.edu/cgi/viewcontent.cgi?article=2768&context=faculty_scholarship">is exactly what the antitrust laws</a> want Facebook to do – innovate. </p>
<p>More fundamentally, relying on statements like these – where a defendant seems to reveal subjective intent – is controversial because the <a href="https://scholarship.law.bu.edu/cgi/viewcontent.cgi?article=1668&context=faculty_scholarship">law is unclear</a> about why or whether a defendant’s intent to suppress competition matters at all. The clearest statement we get on the issue – from <a href="https://law.justia.com/cases/federal/appellate-courts/F2/148/416/1503668/">U.S. v. Alcoa</a> – is enigmatic: “To read the [law] as demanding any ‘specific’ intent, makes nonsense of it, for no monopolist monopolizes unconscious of what he is doing.” </p>
<p>Even lawyers haven’t been able to figure out exactly what that means.</p>
<figure class="align-center ">
<img alt="Facebook CEO Mark Zuckerberg speaks via video conference during a House Judiciary subcommittee hearing on antitrust in Washington on July 29, 2020." src="https://images.theconversation.com/files/375780/original/file-20201217-23-1648aur.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/375780/original/file-20201217-23-1648aur.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/375780/original/file-20201217-23-1648aur.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/375780/original/file-20201217-23-1648aur.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/375780/original/file-20201217-23-1648aur.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/375780/original/file-20201217-23-1648aur.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/375780/original/file-20201217-23-1648aur.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Lawmakers have been increasingly grilling tech companies like Facebook in recent years.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/FacebookAntitrust/cbfdeffc37184e40a4ea1e17ff17edf8/photo?Query=Zuckerberg%20AND%20antitrust&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=30&currentItemNo=1">Graeme Jennings/Washington Examiner via AP</a></span>
</figcaption>
</figure>
<h2>The role of intent as evidence</h2>
<p>On the other hand, other types of evidence may not be enough to make an antitrust case.</p>
<p>The inquiry in a monopolization case is often framed as whether the monopolist enjoys its market position because it excluded rivals or because it made a better or cheaper product. The difficulty with using only objective market evidence to answer that question is that the evidence usually points in both directions. </p>
<p>Defendants can almost always identify some product improvement that came from their conduct, muddying the waters of the plaintiff’s story of exclusion. In the Facebook case, the <a href="https://about.fb.com/news/2020/12/lawsuits-filed-by-the-ftc-and-state-attorneys-general-are-revisionist-history/">company has pointed</a> to Instagram’s growing user base and improved interface during its time under Facebook’s control. </p>
<p>So in most monopolization cases, courts get stuck if they try to use only market facts to answer the ultimate question: Did the monopolist flourish because of the improvements or because of diminished competition?</p>
<p>That’s where “<a href="https://scholarlycommons.law.case.edu/cgi/viewcontent.cgi?article=1435&context=caselrev">intent evidence</a>” – information about what a defendant was thinking – can help. If a CEO intended a merger to insulate her company from competition, it likely did in fact insulate the company from competition. Judges will attribute some of the company’s dominance to exclusion, and that violates the antitrust laws.</p>
<p>That’s why judges will turn to evidence of intent, especially if it is more than just economically ambiguous declarations of war against rivals.</p>
<h2>Neutralizing competitors</h2>
<p>Unfortunately for Facebook, Zuckerberg’s emails are <a href="https://www.businessinsider.com/ftc-facebook-lawsuit-makes-zuckerberg-emails-public-instagram-whatsapp-competition-2020-12?utm_source=copy-link&utm_medium=referral&utm_content=topbar">explicit and detailed</a> in describing his desire to avoid competing with Instagram and WhatsApp. The court will find that relevant – and possibly damning.</p>
<p>For example, in the months leading up to the acquisition, Facebook’s chief financial officer outlined three reasons for buying Instagram:</p>
<blockquote>
<p>“1) neutralize a potential competitor?… 2) acquire talent?… 3) integrate their products with ours in order to improve our service?” Zuckerberg responded, “It’s a combination of (1) and (3).” </p>
</blockquote>
<p>Zuckerberg goes on to explain Instagram’s competitive threat at length. By the time he gets to the product improvement explanation, he’s changed his mind. “(3) is also a factor, but in reality we already know [Instagram’s] social dynamics and we will integrate them in the next 12-24 months anyway.”</p>
<p>[<em>Deep knowledge, daily.</em> <a href="https://theconversation.com/us/newsletters/the-daily-3?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=deepknowledge">Sign up for The Conversation’s newsletter</a>.]</p>
<p>After the Microsoft case, many companies adopted communications policies that discourage the creation of documents just like these. Google, for one, circulates a five-point antitrust “communications safety” <a href="https://www.documentcloud.org/documents/7016657-Five-Rules-of-Thumb-for-Written-Communications.html">policy</a> to employees. </p>
<p>What I find truly remarkable about this case is not the volume of internal quotes in the complaint, but the paper trail a sophisticated CEO like Zuckerberg created of Facebook’s transgressions – which is now why a federal antitrust lawsuit poses an existential threat to his company.</p><img src="https://counter.theconversation.com/content/151979/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Rebecca Haw Allensworth does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>While relying on internal documents can be controversial, Zuckerberg’s emails are so detailed and specific that they’re impossible to ignore.Rebecca Haw Allensworth, Professor of Law, Vanderbilt UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1499912020-11-13T03:49:12Z2020-11-13T03:49:12ZSplit decision: Telstra’s carve-up plan comes 23 years too late for competition and customers<p>Telstra’s plan to split into three entities is the most radical shake-up of Australia’s largest telecommunications company since the Howard government began privatising it in 1997.</p>
<p>But as David Hetherington, a senior fellow at progressive think tank Per Capita, has suggested, it <a href="https://twitter.com/davidheth/status/1326698783443349504?ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7Ctwgr%5Etweet">comes 23 years too late</a>. </p>
<p>In privatising a public monopoly – controlling the copper wires and other infrastructure – the Howard government created a perfect storm for imperfect competition. It meant Telsta competed against other telcos to which it provided critical infrastructure services – hardly an ideal situation.</p>
<p>With the politicised and botched roll-out of the National Broadband Network, the market has become even murkier. </p>
<p>The NBN model championed by the Labor governments of Kevin Rudd and Julia Gillard – fully replacing the century-old copper-wire network connecting the nation’s homes and business with fibre optics – might have corrected the mistakes made in in the way Telstra was privatised, putting monopoly infrastructure back in public hands.</p>
<p>But the Abbott government neutered that by choosing to roll out a half-baked NBN, and now the federal government has its eyes on privatising the broadband network.</p>
<p>This is why Telstra wants to split into three entities. It is positioning to acquire NBN, putting itself back in a monopoly position. That might be good for shareholders. But it’s not good for competition and consumers.</p>
<h2>Strategic sense – for shareholders</h2>
<p>Telstra’s <a href="https://www.fool.com.au/tickers/asx-tls/announcements/2020-11-12/3a555182/proposed-corporate-restructure-roic-and-guidance/">plan</a> is this. Its existing infrastructure business, InfraCo, will continue to operate Telstra’s fixed-line assets. Mobile infrastructure will be hived off to form InfraCo Towers. The third entity, ServeCo, will own the active parts of Telstra’s mobile phone business, which includes its radio access network and spectrum assets that maintain the network’s coverage.</p>
<p>This makes strategic sense for Telstra. </p>
<p>In 2010, to make way for the National Broadband Network, the Australian parliament passed legislation requiring Telstra to split its retail and wholesale division, and sell its copper and cable broadband networks to the government-owned NBN Co.</p>
<p><a href="https://www.itnews.com.au/news/analysts-nbn-co-the-winner-from-any-telstra-split-156321">Analysts</a> at the time said it was a plus for Telstra as it would get a return on its ageing assets and free it up to focus on higher-margin revenue businesses such as its Next G Mobile and HFC Cable networks. </p>
<p>But it has lost an estimated <a href="https://www.afr.com/chanticleer/the-real-cost-of-the-nbn-to-telstra-20200213-p540dx">A$3.5 billion</a> in earnings from giving up control of its network. </p>
<h2>Positioning for a privatised NBN</h2>
<p>The split will give Telstra the opportunity to acquire a privatised NBN. </p>
<p>Federal Communications Minister Paul Fletcher last year <a href="https://www.smh.com.au/business/companies/fletcher-rules-out-nbn-sale-to-telstra-20190709-p525j0.html">ruled out</a> any chance of Telstra acquiring the NBN. No entity delivering retail telecommunications could own the broadband network, he said. “NBN cannot be owned by a vertically integrated telco.”</p>
<p>The restructure answers that: it won’t be Telstra buying NBN but InfraCo.</p>
<p>As Telstra’s chief financial officer, Vicki Brady, told <a href="https://www.morningstar.com/news/dow-jones/2020111112031/telstra-to-restructure-for-nbn-privatization-tower-monetization-update">Dow Jones</a>:</p>
<blockquote>
<p>The government has indicated at some point their intention is to privatise NBN and we wanted to make sure we had the optionality at that point to make sure we are at the table.</p>
</blockquote>
<p>Analysts now say Telstra is the most appropriate partner for a privatised NBN. It could potentially deliver a better service for NBN customers and create a more efficient Telstra.</p>
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Read more:
<a href="https://theconversation.com/what-should-be-done-with-the-nbn-in-the-long-run-99294">What should be done with the NBN in the long run?</a>
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<p>Certainly NBN Co isn’t doing very well. In February it reported a half-year net loss after tax of <a href="https://www.abc.net.au/news/2020-02-11/nbn-on-track-and-on-budget-says-ceo-stephen-rue/11953694">A$2.8 billion</a>, adding to consecutive multibillion-dollar losses. It latest half-year result was a big improvement, but still <a href="https://www.zdnet.com/article/nbn-halves-ebitda-loss-in-fy20-as-revenue-grows-by-a-third/">a A$648 million loss</a>. </p>
<p>The NBN’s biggest problem is that its creation has been muddied by politics.</p>
<p>The Abbott Coalition government (elected in 2013) proclaimed it could deliver the NBN for less money by cutting back from a purely fibre-optic network to a mixed bag of fibre, coaxial cable, a century-old copper network and <a href="https://theconversation.com/around-50-of-homes-in-sydney-melbourne-and-brisbane-have-the-oldest-nbn-technology-115131">second-rate technology</a>. </p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/around-50-of-homes-in-sydney-melbourne-and-brisbane-have-the-oldest-nbn-technology-115131">Around 50% of homes in Sydney, Melbourne and Brisbane have the oldest NBN technology</a>
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<p>It promised to deliver the NBN for $29.5 billion, rather the estimated A$50 billion for Labor’s plan. The result: costs have blown out <a href="https://www.itnews.com.au/news/nbn-co-to-buy-telstra-network-for-11-billion-215939">fixing outdated technology</a> and NBN Co has delivered an inferior product.</p>
<p>The NBN is way over budget, over deadline and is delivering a product that’s slow and expensive. Global rankings of download speeds show Australia in 62nd place. That puts it just ahead of Montenegro, Kosovo and Kazakhstan, but trailing Uruguay.</p>
<h2>Cause for competition scepticism</h2>
<p>Telstra’s chief executive, Andy Penn, <a href="https://exchange.telstra.com.au/restructuring-telstra-our-most-significant-change-since-privatisation/">says the split</a> will improve efficiency post-NBN and ensure customers will get the best possible service. But its track record doesn’t necessarily support such confidence.</p>
<p>In 2011, for example, the Australian Competition and Consumer Commission <a href="https://www.accc.gov.au/media-release/accc-calls-for-comment-on-telstra%E2%80%99s-structural-separation-undertaking-and-draft">expressed concern</a> about Telstra’s insufficient assurance its wholesale business would treat its former retail arm and its competitors equally during the rollout of the broadband network. The competition watchdog <a href="https://www.accc.gov.au/media-release/accc-accepts-telstras-structural-separation-undertaking">green-lighted</a> the separation plan only after Telstra made changes including on pricing transparency.</p>
<p>Certainly Telstra is a technology leader in areas like mobile. But its customer service is notoriously bad. Just try calling Telstra. It is not an easy company to deal with compared to some of its competitors in the mobile and broadband retail market. </p>
<p>There should be scepticism about how effective the restructure will be and whether it can deliver a better NBN. </p>
<p>Private monopolies are rarely the best solution for customers.</p><img src="https://counter.theconversation.com/content/149991/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Leon Gettler does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Telstra is positioning itself to acquire a privatised NBN. That might be good for shareholders, but not for competition and consumers.Leon Gettler, PhD Candidate, RMIT UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1485252020-10-22T18:58:54Z2020-10-22T18:58:54ZVital Signs: Google’s huge market share doesn’t automatically make it a monopoly<figure><img src="https://images.theconversation.com/files/364639/original/file-20201021-13-wfh5gm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">shutterstock</span> </figcaption></figure><p>This week the United States Department of Justice (DoJ) filed <a href="https://int.nyt.com/data/documenttools/doj-google-suit/c21c1a2b24b81aa1/full.pdf">a lawsuit accusing Google</a> of using “anticompetitive tactics to maintain and extend its monopolies in the markets” for search and advertising.</p>
<p>It is the most significant antitrust case since the US government took on Microsoft in 1998 for using its dominant position as the provider of the Windows operating system to force PC makers to bundle its Internet Explorer web browser. </p>
<p>That case was fought out in US courts for years before Microsoft agreed to settle in 2001. This case will no doubt be heavily litigated, and likewise take years to conclude. But it’s not too soon to consider the basic economics.</p>
<p>The bottom line is more complicated than one might think. Yes, Google has a huge share of the search-engine market – 92% globally <a href="https://gs.statcounter.com/search-engine-market-share">according to statcounter.com</a>, compared with 2.8% for Microsoft’s Bing, 1.6% for Yahoo! and 0.5% for DuckDuckGo. </p>
<p>But does that give Google a lot of “market power” – the ability to charge high price or produce low-quality products? Probably not. </p>
<p>To judge if a company like Google is really a monopolist, it is crucial to understand the difference between ordinary markets (like those for clothes, cars, or breakfast cereal) and technology markets (like those for internet search, social media, or ride sharing).</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-us-is-taking-on-google-in-a-huge-antitrust-case-it-could-change-the-face-of-online-search-148519">The US is taking on Google in a huge antitrust case. It could change the face of online search</a>
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<h2>Markets with ‘network externalities’</h2>
<p>Any introductory economics textbook will tell you a large market share is smoking-gun evidence of market power; and that with market power comes the ability to shut out competitors, charge high prices and even get away with producing low-quality products.</p>
<p>Economists of all stripes agree that regulating monopolies and making markets more competitive benefits consumers, through lower prices and better products.</p>
<p>Indeed, this was the motivation behind the so-called “trust-busting” movement in the US in the early 20th century. The most famous scalp was John D. Rockefeller’s Standard Oil, which the US Supreme Court ordered in 1911 be broken up into 34 separate companies. (The break-up made Rockefeller <a href="https://www.forbes.com/sites/carlodonnell/2014/07/11/the-rockefellers-the-legacy-of-historys-richest-man/#54c4d3f23c26">the world’s richest man</a>). </p>
<p>But internet search isn’t like oil. Neither is social media, ride sharing or platforms like Amazon. These are what economists call “markets with network externalities”. That is, when more consumers use the product, it becomes more valuable for other consumers.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/lawmakers-keen-to-break-up-big-tech-like-amazon-and-google-need-to-realize-the-world-has-changed-a-lot-since-microsoft-and-standard-oil-143517">Lawmakers keen to break up 'big tech' like Amazon and Google need to realize the world has changed a lot since Microsoft and Standard Oil</a>
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<p>Facebook is useful because it connects one with lots of other users. A thousand little, disconnected social media platforms would be much less useful. Amazon connects lots of sellers with million of consumers. This is hugely valuable for both. Google connects lots of consumers with advertisers and information. Again, this is valuable to both sides of the market.</p>
<p>Because network externalities mean — all else being equal — the bigger the market share the more valuable the company’s product is to consumers, we tend to see one dominant company and a few smaller ones in such markets.</p>
<p>Just because tech companies have a big share of the market now, however, doesn’t mean they are destined to keep it. </p>
<p>Remember Netscape? In the mid-1990s <a href="https://www.visualcapitalist.com/internet-browser-market-share/">it had a 80% share</a> in the browser market, before losing it to Microsoft’s Internet Explorer.</p>
<figure class="align-center ">
<img alt="Netscape Navigator Version 1.11" src="https://images.theconversation.com/files/364637/original/file-20201021-17-hka99r.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/364637/original/file-20201021-17-hka99r.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/364637/original/file-20201021-17-hka99r.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/364637/original/file-20201021-17-hka99r.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/364637/original/file-20201021-17-hka99r.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/364637/original/file-20201021-17-hka99r.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/364637/original/file-20201021-17-hka99r.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Netscape Navigator version 1.11.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/oimax/2141263830">OiMax/flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
</figcaption>
</figure>
<p>But Internet Explorer’s dominance, peaking at 95% share in the early 2000s, didn’t last either. It now claims barely <a href="https://gs.statcounter.com/search-engine-market-share">1% of the browser market</a>.</p>
<p>This is why companies in markets with network externalities are never asleep. Uber and Facebook are constantly running experiments to innovate their products, as are other companies like Amazon and, you guessed it, Google.</p>
<h2>Influencers and defaults</h2>
<p>An important part of the Department of Justice’s suit against Google is that it allegedly pays Apple as much as <a href="https://www.wsj.com/articles/googles-exclusive-search-deals-with-apple-at-heart-of-u-s-lawsuit-11603221146?mod=hp_lead_pos1">US$11 billion a year</a> to be the default search engine on the Safari browser on every iPhone. </p>
<p>This is a bit like paying for a social media influencer to plug your product — with a twist. Making something the default doesn’t mean the user has to use it, but the small effort to choose an alternative means most don’t bother.</p>
<p>But if it really wasn’t a good product and didn’t deliver good search results, wouldn’t consumers (a) remove it and (b) be less likely to buy iPhones?</p>
<p>There’s a big difference between something being a default and there being no choice. Articulating this difference may end up being an important part of how the Google litigation plays out.</p>
<p>Indeed, Microsoft making Internet Explorer the default browser in Windows <a href="https://www.extremetech.com/computing/196170-microsoft-is-finally-allowed-to-once-again-set-ie-as-the-default-browser-in-windows">has been an ongoing source of back and forth</a> with US and European competition authorities.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/twitter-is-banning-political-ads-but-the-real-battle-for-democracy-is-with-facebook-and-google-126260">Twitter is banning political ads – but the real battle for democracy is with Facebook and Google</a>
</strong>
</em>
</p>
<hr>
<h2>Ultimately misguided</h2>
<p>As with the suits against Standard Oil and Microsoft, the case against Google will be decided by the courts, perhaps ending with the US Supreme Court. The outcome will be instructive as to whether other tech companies like Amazon, Facebook or Uber will also wind up in the firing line.</p>
<p>Ironically, at a time of extreme polarisation in US politics, breaking up big tech companies is popular on the left and the right. </p>
<p>But we should remember that consumers are huge beneficiaries from these tech companies. Think about how much it used to cost to take and print photographs. A <a href="https://www.pc.gov.au/research/completed/growing-digital-economy/growing-digital-economy.pdf">2018 International Monetary Fund report</a> cites research suggesting US consumers would need more than US$25,000 a year to compensate for the loss of free services from tech companies. </p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/364672/original/file-20201021-15-1pduiy.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/364672/original/file-20201021-15-1pduiy.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/364672/original/file-20201021-15-1pduiy.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=380&fit=crop&dpr=1 600w, https://images.theconversation.com/files/364672/original/file-20201021-15-1pduiy.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=380&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/364672/original/file-20201021-15-1pduiy.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=380&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/364672/original/file-20201021-15-1pduiy.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=477&fit=crop&dpr=1 754w, https://images.theconversation.com/files/364672/original/file-20201021-15-1pduiy.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=477&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/364672/original/file-20201021-15-1pduiy.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=477&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.imf.org/en/Publications/Policy-Papers/Issues/2018/04/03/022818-measuring-the-digital-economy">International Monetary Fund, Measuring the Digital Economy, 2018</a></span>
</figcaption>
</figure>
<hr>
<p>That’s a lot.</p>
<p>What is crucial for competition regulators around the world to note is that the markets in which big technology companies operate are not like other markets. Because of network externalities they tend to have big “in” firms (with a large market share) and smaller “out” firms (with small market shares but providing competitive discipline).</p>
<p>That doesn’t mean these markets aren’t competitive. It means the “in” companies have a lot to lose by being leapfrogged by a small competitor. Which is why they work so hard to innovate and keep prices low.</p><img src="https://counter.theconversation.com/content/148525/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Holden does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Just because a tech company has a big share of the market doesn’t mean it has the power to keep it.Richard Holden, Professor of Economics, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1485192020-10-21T04:51:58Z2020-10-21T04:51:58ZThe US is taking on Google in a huge antitrust case. It could change the face of online search<p>The US Department of Justice (DoJ) has filed an <a href="https://www.justice.gov/opa/pr/justice-department-sues-monopolist-google-violating-antitrust-laws">antitrust lawsuit against Google</a> for unlawful monopolisation. The department says Google’s conduct harms competition and consumers, and reduces the ability of new innovative companies to develop and compete.</p>
<p>It’s the most important monopolisation case in the US since 1998, when the DoJ brought <a href="https://www.justice.gov/atr/us-v-microsoft-courts-findings-fact">proceedings against Microsoft</a>. </p>
<p>It’s possible the current proceedings, given their timing, are politically motivated. US President Donald Trump and other Republicans have repeatedly <a href="https://www.washingtonpost.com/technology/2019/08/06/trump-accuses-google-anti-conservative-bias-without-providing-evidence/">voiced</a> the <a href="https://www.theverge.com/2019/8/6/20756734/trump-google-anti-conservative-bias-claims-tweets">view</a> that Google is prejudiced against conservative beliefs. </p>
<p>But even if Democratic candidate Joe Biden is elected president, this action against Google is unlikely to go away.</p>
<p>The ramifications for Google, if the court rules against it, could ultimately be dramatic. The DoJ’s associate deputy attorney general, Ryan Shores, has refused to rule out seeking orders to break up the tech giant, <a href="https://www.nytimes.com/2020/10/20/technology/google-antitrust.html">saying</a> “nothing is off the table”.</p>
<h2>Google’s monopoly power</h2>
<p>Google’s economic power is no secret. Regulators around the world, including in the European Union, are investigating the company’s conduct and bringing actions under competition, consumer and privacy laws. </p>
<p>US Attorney General William Barr said the new DoJ action:</p>
<blockquote>
<p>[…] strikes at the heart of Google’s grip over the internet for millions of American consumers, advertisers, small businesses and entrepreneurs beholden to an unlawful monopolist. </p>
</blockquote>
<p>Specifically, the DoJ claims Google is illegally <a href="https://www.justice.gov/opa/press-release/file/1328941/download">monopolising the markets</a> for online search and search advertising (the advertising that appears alongside search results). </p>
<p>According to the DoJ, Google’s US market share is roughly:</p>
<ul>
<li><p>88% in the market for general search services</p></li>
<li><p>70% in the search advertising market. </p></li>
</ul>
<p>However, holding a dominant position isn’t against the law. A company is allowed to enjoy a dominant position or even a complete monopoly, as long as it doesn’t do so by unlawful means. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-accc-is-suing-google-for-misleading-millions-but-calling-it-out-is-easier-than-fixing-it-143447">The ACCC is suing Google for misleading millions. But calling it out is easier than fixing it</a>
</strong>
</em>
</p>
<hr>
<h2>So what has Google allegedly done wrong?</h2>
<p>The DoJ’s main complaint is Google has entered into several “exclusionary agreements” that preserve its monopoly power by <a href="https://www.accc.gov.au/business/anti-competitive-behaviour/exclusive-dealing">hindering competition</a> from rivals (and potential rivals). Exclusionary agreements are deals that restrict the ability of at least one party to deal with other players. </p>
<p>The DoJ says Google spends billions of dollars each year on: </p>
<ul>
<li><p>long-term agreements with Apple that require Google to be the default search engine on Apple’s Safari browser</p></li>
<li><p>exclusivity agreements that forbid pre-installation of competing search services by certain mobile device manufacturers and distributors</p></li>
<li><p>arrangements that force certain mobile device manufacturers and distributors to pre-install Google search applications in prime locations on mobile devices and make them undeletable, regardless of consumer preference</p></li>
<li><p>using monopoly profits to buy preferential treatment for its search engine on devices, web browsers and other search access points. </p></li>
</ul>
<p>The DoJ claims these agreements have created a “continuous and self-reinforcing cycle of monopolisation” in the market for online search and search advertising (which relies on Google’s dominance in online search).</p>
<p>Google has responded by describing the court action as “deeply flawed”. In a <a href="https://blog.google/outreach-initiatives/public-policy/response-doj">blog post</a> it said: </p>
<blockquote>
<p>[…] people don’t use Google because they have to, they use it because they choose to. </p>
</blockquote>
<p>It also said users are free to switch to other search engines. </p>
<p>But even if that’s technically true, Google’s agreements for pre-installation, default settings and preferential treatment give it a substantial advantage over its rivals. </p>
<h2>Does any of this matter when Google is ‘free’?</h2>
<p>Google provides services that are hugely valued the world over — and with no direct financial cost to the user. That said, “free” services can still cause harm. </p>
<p>According to the DoJ, by restricting competition Google has harmed search users, in part “by reducing the quality of search (including on dimensions such as privacy, data protection, and use of consumer data)”. This is an important recognition that price is not all that matters.</p>
<p>The logic behind this claim is that other search engines with better track records on privacy, such as <a href="https://duckduckgo.com/privacy">DuckDuckGo</a>, might otherwise be more successful than they are. </p>
<p>Or, to frame that another way, Google might actually have to compete vigorously on privacy, instead of allegedly imposing privacy-degrading terms on its users. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/364645/original/file-20201021-15-q4rsc5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="DuckDuckGo logo" src="https://images.theconversation.com/files/364645/original/file-20201021-15-q4rsc5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/364645/original/file-20201021-15-q4rsc5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/364645/original/file-20201021-15-q4rsc5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/364645/original/file-20201021-15-q4rsc5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/364645/original/file-20201021-15-q4rsc5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/364645/original/file-20201021-15-q4rsc5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/364645/original/file-20201021-15-q4rsc5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">DuckDuckGo says it ‘does not collect or share personal information’ from users.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
</figcaption>
</figure>
<h2>What might happen if the action succeeds?</h2>
<p>If Google is found to have contravened the prohibition against monopolisation under the <a href="https://www.justice.gov/atr/competition-and-monopoly-single-firm-conduct-under-section-2-sherman-act-chapter-1">US Sherman Act</a>, it could face substantial fines and damages claims.</p>
<p>But perhaps more concerning for Google would be the prospect of the DoJ seeking to break up Google’s various businesses. </p>
<p>Google owns a range of highly successful services, including Google search, Google Chrome, the Android operating system, and numerous ad tech (“advertising technology”) services. Google’s position and access to data in one business arguably give it advantages in its other businesses.</p>
<p>Eleven Republican attorneys general from various US states have joined the proceedings and could individually seek remedies.</p>
<p>The action won’t be having a major impact any time soon, though. Google’s lawyers estimate the case would only come before the US District Court for the District of Columbia in a year.</p>
<h2>Could our competition watchdog be taking notes?</h2>
<p>Google could contravene Australia’s misuse of market power law under the Competition and Consumer Act 2010, if it has engaged in conduct of the kind alleged by the DoJ that has an effect on Australian markets. </p>
<p>As part of its 2019 <a href="https://www.accc.gov.au/publications/digital-platforms-inquiry-final-report">Digital Platforms Inquiry</a>, the Australian Competition and Consumer Commission (ACCC) said Google has substantial market power in the general search and search advertising markets in Australia. It has a market share of about 95% in both cases. </p>
<p>If this is true, it would be unlawful for Google to engage in any conduct that substantially lessens competition in a market (or has the purpose or likely effect of doing so). This could include entering exclusionary agreements that affect Australian markets. </p>
<p>So far, the ACCC has twice brought <a href="https://www.abc.net.au/news/2019-10-29/google-faces-accc-federal-court-misleading-use-of-data/11649356">proceedings against Google</a>, alleging it misled users about how it collects and uses their data. It is also investigating the conduct of Google and Facebook, in particular, in digital advertising markets as part of its <a href="https://www.accc.gov.au/focus-areas/inquiries-ongoing/digital-advertising-services-inquiry/issues-paper">ad tech inquiry</a>. </p>
<p>While Australia’s consumer watchdog might wait and see how proceedings against Google fare in the US <a href="https://www.reuters.com/article/us-europe-tech-google-antitrust-analysis-idUSKBN242623">and the EU</a>, the recent DoJ action could encourage the ACCC in any action it might be contemplating under Australian law on misuse of market power.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/every-step-you-take-why-googles-plan-to-buy-fitbit-has-the-acccs-pulse-racing-141052">Every step you take: why Google's plan to buy Fitbit has the ACCC's pulse racing</a>
</strong>
</em>
</p>
<hr>
<img src="https://counter.theconversation.com/content/148519/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Katharine Kemp receives funding from The Allens Hub for Technology, Law and Innovation. She is a Member of the Advisory Board of the Future of Finance Initiative in India, the Centre for Law, Markets & Regulation and the Australian Privacy Foundation.</span></em></p>It’s the biggest monopolisation case since a 1998 lawsuit against Microsoft. But it may be several years before a settlement of any kind is reached.Katharine Kemp, Senior Lecturer, Faculty of Law, UNSW, and Academic Lead, UNSW Grand Challenge on Trust, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1472612020-10-01T20:05:45Z2020-10-01T20:05:45ZFacebook is merging Messenger and Instagram chat features. It’s for Zuckerberg’s benefit, not yours<p>Facebook Messenger and Instagram’s direct messaging services will be integrated into one system, Facebook has <a href="https://about.instagram.com/blog/announcements/say-hi-to-messenger-introducing-new-messaging-features-for-instagram">announced</a>. </p>
<p>The merge will allow shared messaging across both platforms, as well as video calls and the use of a range of tools drawn from both platforms. It’s currently being rolled out across countries on an opt-in basis, but hasn’t yet reached Australia.</p>
<p>Facebook CEO Mark Zuckerberg <a href="https://www.facebook.com/notes/mark-zuckerberg/a-privacy-focused-vision-for-social-networking/10156700570096634/">announced</a> plans in March last year to integrate Messenger, Instagram Direct and WhatsApp into a unified messaging experience. </p>
<p>At the crux of this was the goal to administer end-to-end encryption across the whole messaging “ecosystem”. </p>
<p>Ostensibly, this was part of Facebook’s renewed focus on privacy, in the wake of several highly publicised scandals. Most notable was its poor data protection that allowed political consulting firm <a href="https://www.theguardian.com/news/2018/mar/17/cambridge-analytica-facebook-influence-us-election">Cambridge Analytica</a> to steal data from 87 million Facebook accounts and use it to target users with political ads ahead of the 2016 US presidential election.</p>
<p>In a <a href="https://about.fb.com/news/2020/09/new-messaging-features-for-instagram/">statement</a> released yesterday on the new merge, Instagram CEO Adam Mosseri and Messenger vice president Stan Chudnovsky wrote:</p>
<blockquote>
<p>… one out of three people sometimes find it difficult to remember where to find a certain conversation thread. With this update, it will be even easier to stay connected without thinking about which app to use to reach your friends and family.</p>
</blockquote>
<p>While that may seem harmless, it’s likely Facebook is actually attempting to make its apps inseparable, ahead of a <a href="https://www.bloomberg.com/news/articles/2020-09-15/ftc-said-to-prepare-possible-antitrust-lawsuit-against-facebook">potential anti-trust lawsuit</a> in the US that may try to see the company sell Instagram and WhatsApp. </p>
<p><div data-react-class="InstagramEmbed" data-react-props="{"url":"https://www.instagram.com/p/CFxRG23pZXV","accessToken":"127105130696839|b4b75090c9688d81dfd245afe6052f20"}"></div></p>
<h2>Together, with Facebook, 24/7</h2>
<p>The Messenger/Instagram Direct merge will <a href="https://mashable.com/article/facebook-messenger-instagram/">extend to</a> features rolled out during the pandemic, such as the “<a href="https://about.fb.com/news/2020/09/introducing-watch-together-on-messenger/">Watch Together</a>” tool for Messenger. As the name suggests, this lets users watch videos together in real time. Now, both Messenger and Instagram users will be able to use it, regardless of which app they’re on.</p>
<p>With the integration, new privacy challenges emerge. Facebook has <a href="https://about.fb.com/news/2020/09/privacy-matters-cross-app-communication/">already acknowledged</a> this. And these challenges will present despite Facebook’s overarching privacy policy applying to every app in its app “family”. </p>
<p>For example, in the new merged messaging ecosystem, a user you previously blocked on Messenger won’t automatically be blocked on Instagram. Thus, the blocked person will be able to <a href="https://about.fb.com/news/2020/09/privacy-matters-cross-app-communication/">once again contact you</a>. This could open doors to a plethora of unexpected online abuse.</p>
<h2>Why this is good for Mark Zuckerberg</h2>
<p>This first step – and Facebook’s <a href="https://www.facebook.com/notes/mark-zuckerberg/a-privacy-focused-vision-for-social-networking/10156700570096634/">full roadmap</a> for the encrypted integration of WhatsApp, Instagram Direct and Messenger – has three clear outcomes.</p>
<p>Firstly, end-to-end encryption means Facebook will have <a href="https://www.justice.gov/opa/press-release/file/1207081/download">complete deniability</a> for anything that travels across its messaging tools. </p>
<p>It won’t be able to “see” the messages. While this might be good from a user privacy perspective, it also means anything from bullying, to <a href="https://milwaukeenns.org/2014/05/21/special-report-diploma-mill-scams-continue-to-plague-milwaukees-adult-students/">scams</a>, to illegal drug sales, to <a href="https://www.justice.gov/usao-ednc/pr/jacksonville-man-sentenced-child-pornography-case">paedophilia</a> can’t be policed if it happens via these tools. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/facebooks-push-for-end-to-end-encryption-is-good-news-for-user-privacy-as-well-as-terrorists-and-paedophiles-128782">Facebook's push for end-to-end encryption is good news for user privacy, as well as terrorists and paedophiles</a>
</strong>
</em>
</p>
<hr>
<p>This would stop Facebook being blamed for hurtful or illegal uses of its services. As far as moderating the platform goes, Facebook would effectively become “invisible” (not to mention moderation is <a href="https://journals.sagepub.com/doi/10.1177/2056305120948186">expensive and complicated</a>). </p>
<p>This is all great news for Mark Zuckerberg, especially as Facebook stares down the barrel of <a href="https://www.theverge.com/2020/7/29/21335706/antitrust-hearing-highlights-facebook-google-amazon-apple-congress-testimony">potential anti-trust litigation</a>.</p>
<p>Secondly, once the apps are merged, functionally they will no longer be separate platforms. They will still <em>exist</em> as separate apps with some separate features, but the vast amount of personal data underpinning them will live in one giant, shared database. </p>
<p>Deeper data integration will let Facebook know users more intimately. Moreover, it will be able to leverage this new insight to target users with more advertising and expand further.</p>
<p>Finally, and perhaps most concerning, is that by integrating its apps Facebook could legitimately respond to <a href="https://www.wsj.com/articles/ftc-preparing-possible-antitrust-suit-against-facebook-11600211840">anti-trust lawsuits</a> by saying it can’t separate Instagram or WhatsApp from the main Facebook platform – because they’re the same thing now. </p>
<p>And if they can’t be separated, there’s no way Facebook could sell Instagram or WhatsApp, even if it wanted to. </p>
<h2>100 billion messages a day</h2>
<p>The messaging traffic across Facebook’s platforms <a href="https://about.fb.com/news/2020/09/new-messaging-features-for-instagram/">is vast</a>, with more than 100 billion messages sent daily. And this has <a href="https://www.warc.com/newsandopinion/news/pandemic-lifts-social-media-use-but-for-how-long/43552">only</a> <a href="https://www.nytimes.com/interactive/2020/04/07/technology/coronavirus-internet-use.html">increased</a> during the COVID-19 pandemic.</p>
<p>With the sheer size of its user database, Facebook continues to either purchase, or squash, its competition. Concerns about the company being a monopoly aren’t without merit. </p>
<p><a href="https://www.theverge.com/2018/9/4/17816572/tim-wu-facebook-regulation-interview-curse-of-bigness-antitrust">Researchers</a> and <a href="https://www.theverge.com/2019/5/9/18538106/facebook-co-founder-chris-hughes-breakup-regulation-ftc-us-government">founding Facebook employees</a> have called to have the company split up – and for Instagram and Whatsapp to become separate again.</p>
<p>Just a few months ago, Facebook released its Instagram-housed tool <a href="https://about.instagram.com/blog/announcements/introducing-instagram-reels-announcement">Reels</a> which bears a striking resemblance to TikTok, another social app sweeping the globe. </p>
<p>It seems this is just another example of Facebook trying to use the sheer size of its network to stifle growing competition, aided (perhaps unwittingly) by Donald Trump’s anti-China sentiment.</p>
<p>If competition is important to encouraging innovation and diversity, then the newest development from Facebook discourages both these things. It further entrenches Facebook and its services into the lives of consumers, making it harder to pull away. And this certainly isn’t far from monopolistic behaviour.</p>
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Read more:
<a href="https://theconversation.com/trumps-tiktok-deal-explained-who-is-oracle-why-walmart-and-what-does-it-mean-for-our-data-146566">Trump's TikTok deal explained: who is Oracle? Why Walmart? And what does it mean for our data?</a>
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<img src="https://counter.theconversation.com/content/147261/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tama Leaver receives funding from Australian Research Council (ARC); he is currently a Chief Investigator in the ARC Centre of Excellence for the Digital Child.</span></em></p>Having an end-to-end encrypted messaging ‘ecosystem’ is a great way for Facebook to evade the full wrath of the law. It has come at a convenient time, too.Tama Leaver, Associate Professor in Internet Studies, Curtin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1447282020-08-20T04:21:45Z2020-08-20T04:21:45ZApple, Google and Fortnite’s stoush is a classic case of how far big tech will go to retain power<figure><img src="https://images.theconversation.com/files/353765/original/file-20200820-18-zko22e.jpg?ixlib=rb-1.1.0&rect=98%2C58%2C2896%2C1935&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>There has been a clash of clans in mobile gaming, with angry birds Apple, Google and Epic Games in a saga over in-app payments. </p>
<p>Video game developer Epic’s massively popular “<a href="https://www.digitaltrends.com/gaming/history-of-battle-royale-games/">battle royale</a>” game Fortnite was <a href="https://www.theverge.com/2020/8/13/21366438/apple-fortnite-ios-app-store-violations-epic-payments">removed</a> from Apple’s App Store and the Google Play Store last week.</p>
<p>Android players can still download the game directly via the Epic Games mobile app, but for Apple iOS users the decision means no new downloads. Currently installed versions of the game will still work, but iOS players will be unable to update the game and participate in the next season of Fortnite, beginning on August 27. </p>
<p>The boot from Apple and Google was in response to Epic’s implementation of a direct in-app payment system, designed to circumvent Apple’s and Google’s own payment systems and their <a href="https://www.theverge.com/2020/4/3/21206400/apple-tax-amazon-tv-prime-30-percent-developers">30% fee</a> charged on <a href="https://www.apple.com/ios/app-store/principles-practices/">in-app purchases and app sales</a>. Epic’s move is a clear violation of Apple’s <a href="https://developer.apple.com/app-store/review/guidelines/">rules</a> for app monetisation. </p>
<h2>Epic taking charge</h2>
<p>Following Apple’s and Google’s removal of Fortnite from their app stores, <a href="https://www.theverge.com/2020/8/13/21367963/epic-fortnite-legal-complaint-apple-ios-app-store-removal-injunctive-relief">Epic filed</a> an antitrust lawsuit against Apple in Californian courts, followed by another <a href="https://www.bbc.com/news/technology-53777379">against Google</a>.</p>
<p>The game develoepr also launched the hashtag <a href="https://www.epicgames.com/fortnite/en-US/news/freefortnite">#FreeFortnite</a> and aired an in-game parody of Apple’s <a href="https://www.youtube.com/watch?v=VtvjbmoDx-I">famous “1984” ad</a> which, at the time it was released, was Apple’s own response to IBM’s dominance of the computing industry.</p>
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<iframe width="440" height="260" src="https://www.youtube.com/embed/VtvjbmoDx-I?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Apple’s iconic 1984 ad launching its Macintosh computers.</span></figcaption>
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<p>The parody renders the ad in Fortnite’s graphical style, but retains its original symbolism of oppression and control. Epic, valued at <a href="https://www.forbes.com/sites/mikeozanian/2020/06/16/epic-games-now-worth-more-than-twice-as-much-as-major-league-soccer/#faa5129202a7">US$17 billion</a>, is attempting to portray itself as Apple did back in 1984: as an underdog facing down a corporate behemoth. </p>
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<iframe width="440" height="260" src="https://www.youtube.com/embed/euiSHuaw6Q4?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Epic Games’s parody ad appropriated the 1984 Apple commercial, aired on television during the Super Bowl.</span></figcaption>
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<h2>What’s at stake in this show of platform power?</h2>
<p>The fight escalated this week, with Apple <a href="https://www.theverge.com/2020/8/17/21372480/apple-epic-threat-developer-tools-agreement-unreal-engine-fortnite">threatening to terminate</a> Epic’s enrolment in the Apple Developer Program should it not resolve its breach of Apple’s policy.</p>
<p>Membership in the program is required for creating and distributing iOS software. Losing its enrolment wouldn’t just affect Epic, or Fortnite, but potentially anyone using Epic’s widely adopted <a href="https://www.unrealengine.com/en-US/">Unreal Engine</a> game development technology. </p>
<p>Considering there are more than a billion users of Android and iOS based mobile devices, these punitive responses (particularly from Apple) are being characterised by many as anti-competitive and monopolistic, including by Epic’s chief executive Tim Sweeney. </p>
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<p>In the past, other companies such as <a href="https://variety.com/2020/digital/news/apple-app-store-eu-antitrust-probes-spotify-1234636728/">Spotify</a>, <a href="https://www.businessinsider.com.au/microsoft-calls-out-apple-xbox-game-pass-roadblock-2020-8?r=US&IR=T">Microsoft</a> and <a href="https://www.theverge.com/2020/4/3/21206400/apple-tax-amazon-tv-prime-30-percent-developers">Amazon</a> have also protested Apple’s 30% fee and strict control over the App Store. But none has so brazenly attacked Apple in the public sphere. </p>
<p>Apple’s and Google’s response to this saga has highlighted the power of big tech platforms. As in the case of app stores, these platforms are enclosed and tightly regulated systems. You must play by the owner’s rules, or you’re expelled. </p>
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Read more:
<a href="https://theconversation.com/apple-arcade-and-google-stadia-aim-to-offer-frictionless-gaming-if-your-nbn-plan-can-handle-it-123359">Apple Arcade and Google Stadia aim to offer frictionless gaming, if your NBN plan can handle it</a>
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<p>In this case, Apple and Google know their app stores – where millions of users download their apps – are crucial to the financial success of developers on their platform. </p>
<p>As such they can exert their power over developers, who don’t really have anywhere else to go.</p>
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<a href="https://images.theconversation.com/files/353767/original/file-20200820-22-lwimi7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A gamer plays Fortnite on a PC" src="https://images.theconversation.com/files/353767/original/file-20200820-22-lwimi7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/353767/original/file-20200820-22-lwimi7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=371&fit=crop&dpr=1 600w, https://images.theconversation.com/files/353767/original/file-20200820-22-lwimi7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=371&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/353767/original/file-20200820-22-lwimi7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=371&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/353767/original/file-20200820-22-lwimi7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=467&fit=crop&dpr=1 754w, https://images.theconversation.com/files/353767/original/file-20200820-22-lwimi7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=467&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/353767/original/file-20200820-22-lwimi7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=467&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">According to Fortnite’s Twitter account, more than 12 million concurrent players got online for an event earlier this year.</span>
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<p>Reminiscent of antitrust charges <a href="https://www.investopedia.com/ask/answers/08/microsoft-antitrust.asp">against Microsoft in the 1990s</a>, critics of Apple and Google have described the tech behemoths as anti-competitive monopolies charging an unreasonable 30% transaction fee. </p>
<p>This falls to 15% in the case of subscription-based apps but only after an initial year of Apple charging the 30% fee. For perspective, PayPal only charges <a href="https://cdn2.unrealengine.com/apple-complaint-734589783.pdf">2.9%</a> of the value of each transaction.</p>
<h2>What does Epic want?</h2>
<p>Epic argues the mobile games market should be more like the PC market. For instance, Microsoft and Apple don’t get to charge a percentage on every transaction we make through our computers just because they developed the operating system.</p>
<p>Given <a href="https://www.theverge.com/2020/8/18/21373875/epic-games-fortnite-apple-google-ban-playbook-in-game-events">the speed with which Epic responded</a> to Apple’s ban, it appears Epic anticipated it and was prepared for this outcome. </p>
<p>Is Epic’s lawsuit ultimately aiming to renegotiate the percentage of app store cuts?</p>
<p>Maybe Epic believes it’s in a strong enough position to push back against Apple and Google, given Fortnite’s <a href="https://www.gamesradar.com/au/how-many-people-play-fortnite/">massive popularity</a> and revenues, as well as the uptake of and value created by software using the Unreal Engine. </p>
<p>Or perhaps, given Apple’s previous <a href="https://www.theverge.com/2020/8/6/21357771/apple-cloud-gaming-microsoft-xcloud-google-stadia-ios-app-store-guidelines-violations">pre-emptive bans</a> of Google Stadia and Microsoft xCloud, Epic believes Apple has overplayed its hand. </p>
<p>The mobile games industry is a massive source of revenue for app store operators. Perhaps Epic is banking on Apple and Google eventually deciding gaming is too lucrative to cast aside, and hoping they will succumb to renegotiating fees.</p>
<h2>Epic will probably be fine</h2>
<p>Epic claims, in the long run, it’s doing this for everyone.</p>
<p>If it can force Apple to reduce the 30% fee, or launch an alternative game store on iOS with lower fees, developers will have to sell fewer game copies to make a profit. According to Epic, this means more games for everyone.</p>
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<p>But it’s also an opportunity for Epic to amplify its platform power by more aggressively expanding its games store into the mobile marketplace.</p>
<p>Regardless of what happens now, don’t feel too sorry for Epic. It’s one of the world’s most profitable video game developers and a <a href="https://www.epicgames.com/store/en-US/">platform owner</a> in its own right (although at 12% it takes a <a href="https://www.epicgames.com/store/en-US/about#:%7E:text=There%20is%20no%20catch%3B%20the,and%20makes%20us%20a%20profit.">smaller app store cut</a> than Apple). </p>
<p>While Android players can still access Fortnite, only iOS players who already have the game installed will be able to keep playing. Alternatively, they may have to shell out <a href="https://www.businessinsider.com.au/iphones-with-fortnite-selling-on-ebay-for-thousands-2020-8?r=US&IR=T">thousands</a> for a secondhand iPhone with Fortnite installed. </p>
<p>And whether or not iOS players will experience much of the upcoming season – that will be determined by Epic’s next move.</p>
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Read more:
<a href="https://theconversation.com/time-well-spent-not-wasted-video-games-are-boosting-well-being-during-the-coronavirus-lockdown-135642">Time well spent, not wasted: video games are boosting well-being during the coronavirus lockdown</a>
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<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Fortnite developer Epic Games deployed its own in-app payment system to circumvent a 30% transaction fee taken by Apple and Google. Fortnite got the boot, and multiple lawsuits ensued.Ben Egliston, Postdoctoral research fellow, Digital Media Research Centre, Queensland University of TechnologyKyle Moore, Sessional Academic in the Department of Media and Communications, University of SydneyMarcus Carter, Senior Lecturer in Digital Cultures, SOAR Fellow., University of SydneyLicensed as Creative Commons – attribution, no derivatives.