FTC’s Joshua Wright Lectures at Clemson on April 2 — Video archive available

Federal Trade Commissioner Joshua D. Wright presented a Big Ideas About Information lecture on April 2, 2015 at Clemson University.   Sponsored by the Information Economy Project and the John E. Walker Department of Economics, Commissioner Wright spoke on Regulation in High-Tech Markets: Public Choice, Regulatory Capture, and the FTC.  

A prolific scholar in law and economics, Joshua Wright was appointed to the Federal Trade Commission by President Obama in January 2013. Commissioner Wright’s lecture focused on the tendency for regulatory regimes to frustrate technological innovation. An example is the tax industry, heavily regulated for almost a century. Continue reading

Hazlett and Wright Pen Wall Street Journal Op-Ed on FCC Over-Management of the Internet

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The-Wall-Street-Journal-LogoJoshua Wright, IEP Scholar on leave and current FTC Commissioner, joined Thomas Hazlett to write an Op-Ed in the Wall Street Journal titled “Micromanaging the Web Would Be a Macro Mistake.” The Op-Ed warns of the issues that arise when the FCC attempts to over manage internet regulations, such as net neutrality. In an attempt to prevent anti-competitive behavior by ISPs, net neutrality regulations have actually had an anti-consumer effect. A much more efficient means to control anti-competitive behavior already exists in the form of anti-trust law.

The full article follows:

Micromanaging the Web Would Be a Macro Mistake
The FCC doesn’t seem to realize that antitrust law is enough to ensure fairness.

Thomas W. Hazlett And
Joshua D. Wright
July 13, 2014

The cry for Internet regulation is familiar. “Net neutrality” rules are the most recent episode in a recurring story in which proponents seek to limit competition while claiming that nothing less than the future of the Internet is at stake.

More than a decade ago there was Open Access, a proposal for the Federal Communications Commission to let third parties use cable TV lines at regulated wholesale rates so they could offer competing broadband service. Proud corporate supporters included GTE, a large phone company competing with cable operators, and AOL, then the largest Internet service provider. Their argument mirrored that of net-neutrality proponents today: Without it, the major Internet service providers would create their own fast lanes and stifle competition. The Clinton administration’s FCC rejected the idea, and the fears proved groundless. The Internet continued to grow rapidly with innovations from Google to Facebook.

That history makes the current debate over network-neutrality rules seem surreal. Columbia Law professor Timothy Wu, for instance, declared during a June congressional hearing that the modern Internet was nurtured on principles of neutrality that the FCC is only trying to enshrine, protecting against “new rules that reportedly would put a price tag on climbing aboard the Internet.”

Not so. The modern, open Internet evolved in the marketplace, with customers and firms making unregulated deals. The government’s primary contribution has been to clear out the “public utility” regulations that would have stifled it. As FCC Commissioner Ajit Pai explained in February when the FCC announced its latest attempt to salvage net-neutrality rules: “The Internet was free and open before the FCC adopted net-neutrality rules. It remains free and open today. Net neutrality has always been a solution in search of a problem.”

Moreover, Internet access has always required parties to ante up, and those who have paid more have received superior terms. Consider backbone providers, which are data transport networks that form the core of the Internet. They connect with other large networks called “peers” free of charge. Smaller networks and Internet service providers, on the other hand, pay for the same service. Content suppliers such as Apple, MTV and Major League Baseball use private, high-capacity pipes to avoid jams and improve customer experience. They pay content delivery networks like Akamai to access these pipes; giant data pushers such as Google run their own. These fast lanes improve the web, wired and wireless. Fast lanes are features, not bugs.

The fear among net-neutrality supporters is that major Internet service providers such as Verizon or Comcast will engage in anticompetitive behavior known as vertical foreclosure. Comcast, for instance, might prevent customers from viewing Disney -owned programs like ESPN, so as to favor its own network, NBC Sports. This fear overlooks the fact that not only is ESPN’s content widely available via Comcast and competing services, but such behavior is already unlawful, if harmful to consumers, without net-neutrality rules, thanks to antitrust law.

Nevertheless, the FCC imposed neutrality regulations in 2007 and 2010. The D.C. Circuit vacated both sets of rules. FCC Chairman Tom Wheeler, who seems to believe the third time is the charm, is now advancing a proposal that would give the agency power to review individual agreements between Internet companies on a case-by-case basis. Such micromanagement is sure to be inimical to the Internet’s development.

Critics challenged the agency in 2010 to produce empirical evidence of vertical foreclosure by Internet service providers, and the FCC came up with what it claimed was a supportive econometric study. The study looked at cable video, not broadband markets. The FCC’s report, which relied entirely on anecdotes, was remarkable in one sense: It found but a handful of allegations. As FCC Chief Economist Gerald Faulhaber put it in a 2011 paper, “By any standard, four complaints about an entire industry in over a decade would seem to be cause for a commendation, not for restrictive regulations.”

There is evidence, however, that net-neutrality regulation harms Internet users. In 2011, the FCC filed a complaint against Metro PCS, a small company less than 1/10th the size of Verizon Wireless, for violating net neutrality. The provider offered “all you can eat” mobile service—voice, text and data—for just $40 a month. There was a twist: Though most video streaming was blocked to avoid network congestion, users could watch unlimited YouTube videos because Google (YouTube’s parent) had engineered a compression technique that prevented traffic jams.

MetroPCS had a neutrality “problem.” It favored Google’s content over other streaming sites. Yet Metro PCS had no financial stake in Google, customers got extra content and lost nothing, and no competitive harm occurred. The D.C. Circuit eventually struck down the FCC’s rules, mooting the complaint, but not before the agency revealed its suspicion of new technological fixes undertaken by upstart rivals offering consumers superior services.

The FCC claims that a neutrality mandate serves consumers, but overwhelming historical and economic evidence suggests otherwise. While antitrust law is not without its own history of abuse, it has developed a consumer-centric framework based on economic analysis and evidence. Antitrust law gives consumers a chance to reap the benefits from business arrangements like those between MetroPCS and Google while protecting them from those that truly harm competition.

If you think the Internet is broken today, wait until the FCC administers case-by-case approvals of traffic agreements to fix it.

Mr. Hazlett is a professor of economics at Clemson University and previously served as Chief Economist of the FCC. Mr. Wright, a lawyer and economist, is a member of the Federal Trade Commission.

Joshua Wright thinks the FTC should not be designing your iPad

Former IEP Senior Fellow Joshua Wright, currently a commissioner at the Federal Trade Commission, gave a strong dissent to an FTC settlement with Apple Inc. The Wall Street Journal ran an article describing Wright’s objections to the settlement. As stated in the article:

In his dissent Mr. Wright, an expert in law and economics formerly with George Mason University, said the FTC majority ignored the legal requirement that the agency find a “substantial injury to consumers which is not reasonably avoidable” and that regulators conduct a cost-benefit analysis to ensure that any damage caused by the alleged unfair practice is “not outweighed by countervailing benefits to consumers or competition.”

Read the article in the Wall Street Journal here.

The full text of Joshua Wright’s dissent can be found here.

Wright on Uber and New Business Models in the Online World

FTC Commissioner Joshua Wright, formerly a senior fellow at IEP, recently published an op-ed in the Washington Post about the role of competition in bringing about consumer benefits. In particular, Wright highlights the innovative business models the Internet enables in the taxi market:

A wave of creative destruction is now crashing down upon the taxicab industry. Until recently, a consumer hailed a cab on the street or telephoned a dispatch service and paid with cash. New smartphone applications such as Uber and Hailo are revolutionizing the industry by using GPS-enabled wireless devices to match consumers and drivers with the tap of a screen and a credit card payment. As is to be expected with any outbreak of creative destruction and innovation, consumers are reaping the benefits and entrenched interests are fighting back to suppress this new form of competition. The entrenched interests include not only taxicab drivers but the bodies that regulate them.

Read the whole piece here.

Thierer and Skorup on Tim Wu’s Separations Principle

IEP’s Brent Skorup and Adam Thierer, senior research fellow at the Mercatus Center, have published a law review article on vertical integration in the information economy in the Federal Communications Law Journal. From the abstract:

Are information sectors sufficiently different from other sectors of the economy such that more stringent antitrust standards should be applied to them preemptively? Columbia Law School professor Tim Wu responds in the affirmative in his book The Master Switch: The Rise and Fall of Information Empires. Wu proposes preventing vertical mergers in the information economy and the mandatory divestiture of vertically integrated companies. To implement this, Wu proposes a Separations Principle for the information economy, which would segregate information providers into three buckets, which we have labeled information creators, information distributors, and hardware makers.

This article outlines Wu’s separations proposal, explains why his fears regarding vertical relationships should be rejected by regulatory and antitrust policymakers, and illustrates the legal and practical problems his Separations Principle poses. Wu justifies his Separations Principle by citing monopolies and market power in the information economy. He also advocates using U.S. antitrust authorities to enforce his Principle.

We argue that the antitrust harms he fears are not present, and we highlight scholarship on the accepted benefits of vertically integrated firms. We show that Wu’s remedies are policy preferences wrapped in the language of competition law. In fact, the information economy is largely competitive and does not warrant interventionist regulatory enforcement. Since much of American economic vitality flows from the information economy and technology, policymakers should reject a radical antitrust remedy like Wu’s preemptive Separations Principle.

Download (PDF, Unknown)

IEP Senior Fellow Joshua Wright Confirmed as FTC Commissioner

Days ago the U.S. Senate unanimously confirmed Professor Joshua Wright, an Information Economy Project Senior Fellow, as commissioner at the Federal Trade Commission. As reported at The Hill’s Hillicon Valley and other news sources, Professor Wright’s confirmation took place after the holidays on January 1 after a months-long vetting by the Senate. FTC Commissioners serve seven-year terms. Because of this appointment and the obligations it entails, Prof. Wright will take a leave of absence as Senior Fellow at IEP.

Professor Wright’s most recent work with IEP included a 2012 article in the Indiana Law Review, The Law and Economics of Network Neutrality (co-authored with IEP Director Thomas Hazlett).

Congratulations to Commissioner Wright!