Antitrust Brainstorming Board with Catherine Tucker

Below, we have provided the full transcript of the interview with Prof. Catherine Tucker, Sloan Distinguished Professor of Management at MIT Sloan, recorded on August 12, 2021.

This interview was done as part of the Antitrust Brainstorming Board created by CPI with the support of the CCIA.

Thank you, Prof. Tucker, for sharing your time for this interview with CPI.

A video of the complete interview is available HERE.

* This interview reflects Prof. Tucker’s personal views and opinions and do not necessarily reflect the opinions of MIT Sloan or any other person or institution.

Do you think the current antitrust framework works for consumers?

Catherine TUCKER:

What an interesting question. And I must admit that when I’m asked questions like that, my response is that there doesn’t seem to be anything missing in the regulation as it stands. The intent seems very clear. I think all of the debate is not so much about the framework, but just how we should interpret the framework in our new digital age.

Do you believe the vertical merger guidelines need to be changed?

TUCKER:

Again, I don’t want to go as far as to say we need to change them. But what strikes me, and this is because I’m an economist, is that we have vertical merger guidelines which were set up in an era of manufacturing, where we are interested in inputs into physical production. Now, we live in a world where so much of commerce and interactions is governed by platforms. And it’s never clear to me how to think about the vertical merger guidelines in this new platform era. And let’s be clear, the world’s always had platforms, it’s not a new business model. Something like the New Zealand fish market is a platform, but what’s happened in the digital age is digitization has allowed us to scale up beyond the small corner of Auckland, New Zealand and make these platforms global in scale.

So then what we see, and this is my major reaction when asked about the vertical merger with guidelines, is we have guidelines set up for a world of manufacturing. And then when we’re trying to think about platforms, I think sometimes it’s a little bit of infinite questions about how to think of them in this more digitized world.

Do you approve of the shift from competition towards regulation?

TUCKER:

I particularly love this question and the reason I love it is I’ve just written an article on precisely this question. And look, let’s talk about why this is come about. It’s come about because in this world of digital platforms, you have these large organizations managing interactions between lots of different entities. Now, when I teach on the topic of platforms what I always talk about is I say, you have to have a real change in mindset beyond the typical MIT approach.

You’re thinking about a user interface, how it works, all these kind of things to thinking about concept we can query, which is about making sure these interactions go well. And I actually tell my students, I say to them, if you’re going to have platforms, you have to be willing to accept the role of policement and basically being a mini government. And the moment you put it in that language of being a mini government because your job as a platform is to make these interactions well, is I think exactly why we’re seeing these pulls for these to be treated more as some type of conceptual infrastructure. Again, it’s that sort of analogy to something in which people think maybe the government should be owning. Now, are you going to ask me if I think it’s a good idea or not? Because I have opinions on that, too.

How would you ensure antitrust is enforced vigorously if no changes are made to the current antitrust system?

TUCKER:

I’m probably going to slice up that question a little bit just because as an economist, I don’t want to comment too much on enforcement. What I’d like to do is to, in some sense, just offer an opinion about the extent to which we should be treating all the anti-trust regulations should be moving to what’s this idea of managing platforms infrastructure. Which as you said correctly, is one of the major things on the table. Now, one of the exercises I give my students in my platforms class is the question of, what you should do, or what E-bay should have done, when Musk prices went up tens of thousands percent back in February and March 2020. And there’s always, again, this idea someone should have done something. And again, if you’re thinking about typical things we worry about in terms of consumer protection, we don’t love things which look like price gouging or large increases in price.

So that’s what goes back to someone should have done something. And since you start off with that viewpoint, which I would say echoes your question, that someone should be doing something more. Then I asked them, well, what should someone have done? And at that point, it’s less clear. And usually, we end up with this uneasy confusion, depending on in who’s in the room, but no one loved what happened to Musk’s prices in March and February 2020. It’s not clear what government regulation would be able to do. And it’s also not clear to the extent to which government regulation could have anticipated exactly what was going to happen because let’s be clear, before that all we were worried about eBay was that every year that year’s top toy or that year’s top PlayStation got overpriced. A completely different issue to what happened. And we end up with this uneasy sort of confusion that though everyone has a feeling someone should do something, when you try and articulate what that something is, it’s not very clear what the role of government is.

What are your thoughts regarding start-up acquisitions?

TUCKER:

I feel I must be answering these questions as a teacher, but I’m going to answer this one as a teacher, too. So every year at MIT, we have all these amazing master students come in with these wonderful start-up ideas. I have the pleasure of trying to teach them how to do monetization. Well, how to make money. And I cannot tell you the number of times I try and talk them through a model that it becomes clear that they’re really not that interested in making money. Instead, the end goal is to be acquired. And in their dreams they’re always going to be acquired by Facebook or Google. That’s always the aspiration. And they’ll tell me that maybe they’re going to be as lucky as the founders of WhatsApp or something like that. That’s usually the argument. Now, obviously this is frustrating because it’d be very nice if they figured out a better way of making money.

I think what it leads me to conclude is that we can’t actually underestimate the incentives of acquisition among the entrepreneurship community. I don’t think we have great numbers or great calibration about how large incentive is, which is why my answer is so anecdotal. But I do worry that restrictions on start-up acquisitions will have a large unintentional consequence on the hot bed of entrepreneurial activity I’m always surrounded with in Cambridge, Massachusetts. So I am concerned, if you ask.

Is break-up the best solution for the digital economy and for consumers?

TUCKER:

I must admit, this is one of those ones that mystifies me. And the topic again, is a solution. And I’ll explain why. If you think about a lot of the arguments about why it is that a large digital platform might have a competitive advantage, they’re all to do with the synergies and the extent to which users on both sides of the platform are benefiting from the interactions. And economists have adjusted the scale of those different types of interactions. So the articulation of where competitive advantages are coming from was something you might have found in the old day synergies. And it seems that the solution of waking up these firms, is intentionally targeted at removing these synergies.

However, let’s be clear, those synergies are all about benefiting its users. So the consequences for welfare would definitely be negative. The only way you can justify it from the economics perspective is some idea that by hampering synergies, by hampering consumer welfare in the short term, you’re going to in some sense engender more dynamic competition. But at least from what we know from the last 20 years of entry in the digital space, it’s not even the presence of a large incumbent, which is being really the limitation on that kind of direct entry. So I honestly, I find it hard to think through the economics, which should justify break up given that the reason for the break up was that there were just too many synergies.

How would you reconcile competition and competitiveness? Should antitrust reforms take into account the potential impact on proposed changes vis-à-vis China?

TUCKER:

This is a really tricky one, right? And I will give you my own candid opinion. This is perhaps more of a personal opinion than something coming from really grounded necessarily in economics. When we’re thinking about nationalism and over competitive, we’re often stepping away from strictly economics. This is my larger concern, the U.S. has had the most amazing stroke of luck that every major tech platform has basically originated in the U.S. And if you think about it, it’s just incredible that we have managed to achieve such global prominence in this digital era, right? If you’re sort of thinking about it stochastically, it didn’t have to happen. But for some reason, people based in the U.S. ended up founding Amazon, they ended up founding eBay, they ended up founding Facebook, they ended up founding Google. And it’s just incredible. And Netflix, it was just incredible.

You start having to go to Spotify to stop thinking about firms not really located here in the U.S. I just think this is amazing. What a true triumph, if you are at all nationalistic in any way. I mean, it’s just amazing. Now, so we’ve had this amazing national triumph, if you’re inclined to national pride. And then what are we doing? Well, we’re watching a lot of anti-trust cases. And what we know about anti-trust cases is that they tend to distract organizations, right? We’ve seen it with IBM, we’ve seen it with Microsoft. It tends to lead to at best some growth and innovation as the company internally gets distracted. That is worrying. We have no way of predicting what’s going to happen in China, but maybe one way of thinking about it is that at the moment, the major platform people are using in terms of social media in countries like Indonesia, they’re using Facebook. They’re using Instagram. Quite amazing political influences in some ways. What’s going to happen if Facebook gets distracted and other tech platforms, say from China, come in? Now, that’s the geopolitical consequence. I’m an economist, don’t want to talk too much about that. But I think it is a real risk in what we’re seeing as being the pattern of the effects of anti-trust enforcement on innovation within these companies. And something we have sort of… People with more of a geopolitical familiarity than me, should be thinking about that.

Any final comments you would like to make?

TUCKER:

Yes. I would like to make this final comment. I think under the hood of all these questions is concerns about large digital platforms. And as someone who has studied them for decades and has always worked with them literally for decades, I feel how often we use them day to day just how amazing they are and how blessed we are relative to 20 years ago, in terms of our ability to access information, products, services just so quickly and easier. And I don’t want that to get lost in what is ultimately going to be a very interesting series of videos on anti-trust, just the huge benefits that these platforms provide.