WORTH READING re-distribution of op-ed on Net Neutrality -- a reaction and a reply from one of the authors

[David Farber <dave () farber net>]

From: David P. Reed [dpreed () reed com]
Sent: Saturday, May 10, 2008 11:50 AM
To: David Farber
Cc: ip
Subject: Re: [IP] re-distribution of op-ed on Net Neutrality   -- a
reaction and a reply from one of the authors

I read through the long comment by Chris Yoo below, and as a non-lawyer
interested in policy, I ask the following simple question:

Is there a well-regarded (one might ask for scientifically reasoned)
argument that antitrust law as currently interpreted and practiced has a
substantial impact measured in some currency like $ on social welfare?

Otherwise this entire argument is about nothing more than vaporware
proceeding from a faith that competition (however loosely defined)
creates social welfare best.   AFAIK, this is largely an article of
faith, just as the "End of History" was a grand article of faith posited
by many of the same people as "truth".

It is just not fair to imply that the core of "today's settled antitrust
law" carries even the level of weight as Darwin's Theory of Evolution.
There have been no replicable studies of its practice.

Law professors and lawyers who don't challenge its truthiness squarely
are merely behaving as dogmatic mandarins always do - asserting
authority of professional status, rather than rigor of reasoning,
experiment, or argument.

I say this not as FOX News or Hillary Clinton would call an elitist, but
as a person who genuinely is unconvinced by magical faith in
authorities.


________________________________________

From: Christopher S. Yoo [csyoo () law upenn edu]
Sent: Saturday, May 10, 2008 3:51 PM
To: David Farber
Subject: RE: [IP] re-distribution of op-ed on Net Neutrality   -- a reaction and a reply from one of the authors


I think David Reed's question is right on.  The areas of antitrust law
most closely related to the network neutrality debate are the law of
vertical integration and vertical restraints (preference to proprietary
inputs, exclusivity contracts, tying to implement price discrimination,
etc.).  Unsurprisingly, the theoretical literature is all over the map,
with studies coming down on both sides.

Perhaps the most important development in antitrust law is the
improvement of empirical tools.  These have given us real insight into
whether the current focus of antitrust law is actually benefiting
consumers.  There have been two recent surveys of the empirical
literature that are quite telling.

The first was conducted by four members of the FTC's staff and was
published in the International Journal of Industrial Organization.  It
examined 22 existing empirical studies on vertical restraints (including
a number on issues like exclusivity in cable television that are quite
analogous to network neutrality) and found "a paucity of support for the
proposition that vertical restraints/vertical integration are likely to
harm consumers."  Indeed, only one study unambiguously found that
vertical integration harmed consumers, and in that case, "the losses are
miniscule ($0.60 per cable subscriber per year)".  On the other hand, "a
far greater number of studies found that the use of vertical restraints
in the particular context studied improved welfare unambiguously."  The
survey thus concluded that "[m]ost studies find evidence that vertical
restraints/vertical integration are pro-competitive."  The weight of the
evidence thus "suggests that vertical restraints are likely to be benign
or welfare enhancing,"

Another survey was conducted by two respected academics (Francine
Lafontaine and Margaret Slade) and was just published last month by the
MIT Press in the Handbook of Antitrust Economics.  It surveyed
twenty-three published empirical studies of vertical restraints.
Despite the relatively small sample size, the authors found the
empirical evidence to be "quite striking," "surprisingly consistent,"
"consistent and convincing," and even "compelling."  As a general
matter, "privately imposed vertical restraints benefit consumers or at
least do not harm them," while government mandated vertical restraints
or restrictions on vertical restraints "systematically reduce consumer
welfare or at least do not improve it."  Together "[t]he evidence ...
supports the conclusion that in these markets, manufacturer and consumer
interests are apt to be aligned, while interference in the market [by
the government] is accomplished at the expense of consumers (and of
course manufacturers)."  The authors conclude that "the empirical
evidence suggests that in fact a relaxed antitrust attitude towards
[vertical] restraints may well be warranted."

So there does seem to be some scientific support for claim the current
thrust of antitrust law as it relates to the network neutrality debate
(as well as other areas of competition policy) is promoting economic
welfare.  It is, of course, always possible to quibble with empirical
studies.  But I would think that this growing corpus of work published
in peer reviewed journals should be sufficient to put the burden on the
other side of the debate to adduce at least some evidence to the
contrary.

Which brings me to one of my pet peeves in this debate.  It seems to me
that the question David asks should apply with equal force to both sides
of this debate.  In other words, we should also inquire whether network
neutrality proponents have "a well-regarded (one might ask for
scientifically reasoned) argument" that mandating network neutrality
would have "a substantial impact measured in some currency like $ on
social welfare."

The problem is that when asked the types of questions that that David
Reed poses here, the other side of the debate has generally either
invoked anecdotes or pointed to straight theory papers.  Anecdotes and
theory can be helpful, but cannot ultimately resolve how likely it is
that the practice will enhance social welfare and seem inadequate when
weighed against the sizable peer-reviewed empirical literature I have
described above.  At this point, the onus would seem to lie on the other
side of the debate to prove that their arguments are not mere
"vaporware" that are "largely an article of faith."

I take it as high praise that the other side of this debate has always
complimented me for basing my arguments on facts.  I would encourage
anyone interested to look through the transcripts of the FCC hearings,
the House Judiciary hearings, the House Commerce hearings, or any of the
many deliberations in which I have participated and make their own
assessment of which side is trying to get by simply by invoking a
"magical faith in authorities."

In other words, I think that David Reed is asking absolutely the right
questions.  I just would like to see both sides of the debate held to
the same, appropriately high standards.

________________________________________

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