ITS 380-001 Global E-Commerce Systems

Xueying Mei

CH8 – Ethical, Social, and Political Issues in E-commerce

 

P.586   Case Study Questions:

Q1: How does the first era of antitrust thinking (1890-1950s) differ from the second era?

        Answer:

During the late 19th century hundreds of small short-line railroads were being bought up and consolidated into giant systems. Separate laws and policies emerged regarding railroads and financial concerns such as banks and insurance companies. Advocates of strong antitrust laws argued the American economy to be successful requires free competition and the opportunity for individual Americans to build their own businesses. As Senator John Sherman put it, "If we will not endure a king as a political power we should not endure a king over the production, transportation, and sale of any of the necessaries of life." Congress passed the Sherman Antitrust Act almost unanimously in 1890, and it remains the core of antitrust policy. The Act makes it illegal to try to restrain trade or to form a monopoly. It gives the Justice Department the mandate to go to federal court for orders to stop illegal behavior or to impose remedies.

To create those conditions regulators relied on the tools given to them during the first era of antitrust, from 1900–1920. In that era, Congress had seen the process of concentration in American business as a dynamic force; so, the Clayton Act of 1914, as amended in 1950, gave the agencies and courts “the power to brake this force at its outset and before it gathered momentum.” The Sherman Act enabled the Department of Justice to criminally and civilly prosecute unreasonable restraints of trade and monopolistic abuses. This 1890 statute “was designed to be a comprehensive charter of economic liberty aimed at preserving free and unfettered competition as the rule of trade,” noted the Supreme Court in 1958. “It rests on the premise that the unrestrained interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices, the highest quality and the greatest material progress, while at the same time providing an environment conductive to the preservation of our democratic political and social institutions.” U.S. antitrust, as part of this competition ideal, was rediscovering the key laws from an earlier era and shaking off the inactivity that had characterized the early New Deal period. This approach was successfully exported after the War to Europe and Japan to help decentralize economic power and promote an effective competitive process.

But antitrust policy and enforcement declined during the fourth cycle (late-1970s–mid-2010s) with the rise of the Chicago School of Economics in the late 1970s, which the Reagan administration endorsed with its enforcement priorities, judicial appointments, and amicus briefs to the Supreme Court. By the Obama administration, we had neither a popular antitrust movement nor many significant antitrust prosecutions. Cartel enforcement remained robust, but otherwise antitrust enforcement waned. The government rarely challenged mergers among competitors. Challenges of vertical mergers were even rarer, with the last one litigated in 1979.

During this fourth cycle, some enforcers viewed the political and moral cases for antitrust as insufficiently rigorous and somehow diluting antitrust policy. Antitrust’s increased technicality and the use of unappealing, abstract neo-classical economic concepts broadened the gap between antitrust enforcement and public concern. Antitrust’s noneconomic goals were jettisoned for an amorphous “consumer welfare” standard. Also discarded was the historic concern about halting the momentum toward concentration in an industry, in order to arrest the economic, political, and social harms from concentrated economic power in their incipiency.

 

Q2: What is a "natural monopoly" and how has the United States dealt with natural monopolies?

        Answer:

A natural monopoly arises when average costs are declining over the range of production that satisfies market demand. This typically happens when fixed costs are large relative to variable costs. As a result, one firm is able to supply the total quantity demanded in the market at lower cost than two or more firms—so splitting up the natural monopoly would raise the average cost of production and force customers to pay more.

In order to mitigate some of the potential drawbacks of natural monopolies, governments sometimes have to get involved to regulate such firms.

In states and countries where public utilities are privately owned, they often have organizations that regulate each of them. In the United States, each state has an organization like the Public Utility Commissions (otherwise known as PUCs). These entities ensure that utility companies do not overcharge, and decide how much these companies can invest as well as what they are allowed to invest in.

Additionally, governments may also intervene to facilitate competition in a given industry, so that multiple companies can (for instance) share the same infrastructure when possible.

 

Q3: What are three possible solutions to the market dominance and anti-competitive behavior of Facebook, Google, and Amazon?

        Answer:

Facebook:

Facebook would be less powerful without WhatsApp and Instagram, in Feld’s view, but it wouldn’t be entirely de-fanged. Facebook Messenger could pick up most of the slack from WhatsApp, while Facebook photo-sharing tools might start to resemble the severed Instagram in response. You could prohibit Facebook from making any products involving photo-sharing or mobile messaging, but even that wouldn’t touch the broader problem of how to govern a universal network.

“It’s not that we shouldn’t think about a breakup,” says Feld. “It’s that we should think about a breakup. You have to consider how you’re going to address these problems.”

For Feld, the only complete fix is a specific platform regulation bill akin to the Telecom Act that spells out a new set of requirements for privacy, moderation, and all the other issues that have dogged Facebook in recent years. That’s a lot for Congress to handle, but there may be no other way through. “We’re not going to solve it all at once,” says Feld. “We need a new and comprehensive law that will address these issues because they’ve come to have an enormous and out-sized impact on our lives.”

Google:

Our best model for tech antitrust is the Department of Justice’s anti-bundling case against Microsoft in the ‘90s, which argued that Microsoft was using its control over the PC market to force out competing operating systems and browsers. If you’re looking for a contemporary equivalent, Google is probably the closest fit. On a good day, Google (or Alphabet, if you prefer) is the most valuable company in the world by market cap, with dozens of different products supported by an all-encompassing ad network. Google also has clear and committed enemies, with Microsoft, Oracle, Yelp, and even the Motion Picture Association of America calling for restrictions on the company’s power.

But according to Open Markets’ Matthew Stoller, the best long-term remedy for Google’s dominance has more to do with Google’s acquisitions. “If you’re looking for a silver bullet, probably the best thing to do would be to block Google from being able to buy any companies,” says Stoller. “Suddenly, you have to compete with Google, you can’t just be bought out by Google.”

That might sound tame compared to Europe’s billion-dollar fines, but it cuts to the core of how Google is organized. The company has acquired more than 200 startups since it was founded, including central products like YouTube, Android, and DoubleClick. The company’s modular structure is arguably a direct result of that buying spree, and it’s hard to imagine what Google would look like without it. More recent buys like Nest have fallen under the broader Alphabet umbrella, but the core strategy hasn’t changed. Would Google still be an AI giant if it hadn’t bought DeepMind? Probably, but everyone involved would have had to work a lot harder.

Even better, anti-monopoly activists would have a bunch of different ways to block those acquisitions. The Department of Justice’s antitrust division hasn’t contested Google’s acquisitions so far, but it could always change its approach. The strongest fix would come from Congress, where Sen. Amy Klobuchar (D-MN) has introduced a bill that would place an outright ban on acquisitions by any company with a market cap higher than $100 billion. (As of press time, Google is worth roughly $840 billion.)

Of course, Klobuchar’s bill doesn’t focus on Google or even tech giants, but Stoller says that kind of blockade would have a unique effect on how big companies shape the startup world. “All of these companies, from Amazon to Facebook to Google, they proactively find their competitors and buy them out,” says Stoller. “This would push VCs and entrepreneurs to truly compete with Google. Right now, their strategy isn’t to do that because they want to get acquired.”

 

Amazon:

The problem is that Amazon the store gives too much advantage to Amazon the manufacturer. And thanks to acquisitions such as Whole Foods and the power of Prime, Amazon the store keeps getting bigger.

But Stacy Mitchell, co-director at the Institute for Local Self-Reliance, says that could be solved with a Microsoft-style antitrust suit, carving Amazon up into distinct parts and setting new rules for each part. “Amazon needs to be broken up so that the platform is separated from its retail and manufacturing operations,” says Mitchell. “The platform needs to be treated like a common carrier, so it’s required to serve all comers equally.”

In short, it would be court-mandated net neutrality for The Everything Store. It would take a pretty aggressive Department of Justice to get us there, but Khan’s analysis is gaining favor in surprising corners of Washington.

 

Q4: How does the European model of antitrust differ from the American model?

        Answer:

Vertical restraints analysis is the one area where the differences between American and European approaches to restrictive contracts have been most significant. Although differences remain in the two enforcement regimes, European and American antitrust enforcers to a great and increasing extent “speak the same language” in carrying out antitrust analysis. One last point of difference merits brief mention. In addition to its use as a sword against existing monopolists, Section 2 reaches inefficient behavior that may allow a non-dominant firm to obtain a monopoly. By contrast, Article 82 does not sanction conduct, whether efficient or inefficient, until a dominant position has been obtained. Thus, EC enforcers lack the flexibility to “nip monopolies in the bud” - perhaps helping explain the somewhat more aggressive stance the Europeans take in addressing single firm conduct. I believe that Article 82 language and case law will continue to distinguish American and European practices in this regard. That is not to say that all differences between American and European merger analysis will soon disappear, for at least three reasons. First, EC enforcers tend to weigh seriously competitors’ complaints when evaluating a proposed merger. Second, EC antitrust enforcers when reviewing proposed mergers tend to use economics differently than their American colleagues. Third, and related to the second point, EC enforcement officials are willing to invoke non-standard theories and thereby entertain challenges to mergers that do not impose short term harm on - indeed, apparently benefit - consumers. Furthermore, existing differences in evaluations of economic theories and competitor complaints are not immutable and should not be overblown.

 

P.590   Projects:

Q1: Go to Google and find the Advanced Search link. Examine its SafeSearch filtering options. Surf the Web in search of content that could be considered objectionable for children using each of the options. What are the pros and cons of such restrictions? Are there terms that could be considered inappropriate to the filtering software but be approved by parents? Name five questionable terms. Prepare a brief presentation to report on your experiences and to explain the positive and negative aspects of such filtering software.

Answer:

From my understanding, after reading up on how Google SafeSearch works, it doesn’t seem to block any specific words or terms but rather most of the adult content that would show up. For example, if someone types “sex” into the SafeSearch, it will most likely block the photos and articles with “explicit content”. This brings up a great point, though; what if what someone is looking for is not technically “explicit” but the engine blocks it anyway? This is where the SafeSearch is not entirely accurate and may block content you feel is appropriate and leave content visible that you may feel is inappropriate. The latter sums up the pros and cons of Google’s Advanced SafeSearch well. That being said, I cannot really name five questionable terms because it is not the term that is blocked but the content that shows as a result of the term.

 

Q2: Develop a list of privacy protection features that should be present if a website is serious about protecting privacy. Then, visit at least four well-known websites and examine their privacy policies. Write a report that rates each of the websites on the criteria you have developed.

Answer:

Features regarding privacy should be a main priority with sites that manage personal data, like most e-commerce sites. Privacy statements are a good place to start because it gives the customer assurance that this is a legitimate site and that their information will be secure and confidential. One of the popular ways of going about this is TRUSTe Certified Privacy which is a system to aid web pages and companies to keep their customers information out of undesirable hands. Another form of privacy protection is VeriSign Secured which offer security for SSL Certificates, which are an integral part of all e-commerce websites. You have probably seen VeriSign more than ones if you use a computer moderately because there will be a green lock in the URL informing you that the data you are inputting is safe during transmission. Additionally, there is also antivirus security software available for websites, such as McAfee, which acts like it would on a computer, searching for malicious entities; these may include hackers, spyware etc.