Following yearly tradition, I’m happy to present the antitrust books you should have read last year. In each of the 2019 and 2020 editions, I expressed surprise at the exceptional amount of competition law publishing, and this year is no different. Looking for explanations for this extended anomaly, two candidates emerge: either I wasn’t paying close enough attention before and the anomaly exists only in my mind, or we are amid a continued antitrust revival that is also reflected in the literature (perhaps even started by it). I am leaning towards the latter explanation.

Any good piece of research should delineate its scope. As in the past years, the inquiry covers antitrust books aimed at a wider audience. This excludes textbooks, edited collections and other purely academic books. I’ve stuck to selecting just six, of which I’m presenting three in this first part: The Profit Paradox, Chinese Antitrust Exceptionalism and The Platform Delusion.

‘The Profit Paradox: How Thriving Firms Threaten the Future of Work’ by Jan Eeckhout

In short: The central thesis of The Profit Paradox is that market power is now so widespread, from tech to textiles, that it lowers production and the demand for labour. ‘Instead of creating jobs, profitability due to market power lowers wages and destroys work.’ (p. 75) The effects are felt primarily by the less educated, whose wages have declined—not the more educated, who have even seen wage increases. This wage inequality is driven by inequality between firms, and in particular the rise of ‘superstar firms’. Those superstar firms (many of them tech companies) have gained leading position by being highly productive, but have also exploited their technological advantage to fend off competitors, giving rise to ‘permanent technological superiority’ (p. 43). This has led to exceedingly high mark-ups by top firms.

The book’s thesis is a bit counterintuitive. Eeckhout’s answer to the question ‘what’s wrong with firms making profits?’ is that, without market power, those firms would sell higher quantities, for which they would need to hire more workers (indeed, the firms could become larger with less market power). (pp. 65–67) When it comes to solutions, Eeckhout clarifies that this is not ‘a book about antitrust, [but] antitrust is at the root of resolving market power’. (p. 243) He proposes a number of concrete solutions, including ‘inverse data patents’ (an obligation to put data in the public domain after some time), inverting the burden of proof in merger control, and interoperability (especially in naturally monopolistic markets).

Favourite chapter: Eeckhout does not expect you to take his word when it comes to shifts in the economy, but brings data—loads of it. This is on display particularly in chapter 2, ‘The Art of Managing the Moat’, where he collects evidence of the rise in market power and the falling labour share. The data used in the book is also available at theprofitparadox.com.

Quotable: ‘While the juxtaposition of the Chicago and Brandeisian schools is still present in the debate, it is far too simplistic and outdated. Many practitioners and academics do not identify with either of the two.’ (p. 252) Now that the antitrust debate is increasingly polarized, Eeckhout’s recognition of the fact that there are no schools of thought, ‘only individual thinkers with an opinion and research to back up their claims’ is refreshing. (p. 245)

Further reading: Eeckhout references various works that made it into my lists of previous years, including The Antitrust Paradigm (p. 243) and Radical Markets (p. 255). Thomas Philippon’s The Great Reversal also addresses many of the same topics. Eeckhout has actually reviewed that book, largely agreeing with the assessment but also pointing out differences. For example, in contrast to Philippon, Eeckhout maintains that market power has not evolved differently in Europe compared to the United States. Finally, I have to mention Robert Bork, whose classic book presumably inspired the title of Eeckhout’s book. That book, The Antitrust Paradox, has recently been re-released, which means you no longer have to shell out $100 for a second-hand copy of the 1978 or 1993 version.

‘Chinese Antitrust Exceptionalism: How the Rise of China Challenges Global Regulation’ by Angela Zhang

In short: Chinese regulators are increasingly flexing their muscles, especially in the tech sector, but their inner workings have always remained obscure. In Chinese Antitrust Exceptionalism, Angela Zhang illuminates the intricate ways in which China regulates, particularly through its Anti-Monopoly Law. She starts by delving into the bureaucracy of the various agencies that regulated competition (which have meanwhile been absorbed into the State Administration for Market Regulation). Rather than looking at demand as a driver of regulation, she takes a supply perspective, viewing the agencies as policy entrepreneurs. Accordingly, the increase in enforcement can be explained in part by competition between agencies. Zhang also demystifies the rareness of appeals against antitrust decisions in China: firstly, agencies hold vast administrative discretion, which effectively makes it possible for them to hold companies hostage; secondly, agencies not only use their legislative tools, but also strategically leverage state media to shame companies, which can inflict serious damage.

Zhang shines a valuable light on an underexplored topic. She not only relies on formal antitrust decisions, which often offer little insight (if they are available at all), but goes behind the scenes through interviews with relevant players (lawyers, administrative officials, judges). Zhang also relies heavily on law and economics, relying on concepts such as transaction/agency costs and path dependence as well as public choice theory to explain the shape and operation of the system. (This methodology is clear from the start, or even before: the book is dedicated to Richard Posner, who served as Zhang’s doctoral advisor at the University of Chicago.) In the end, Zhang argues for increased integration between China and the West despite the difficulties it entails. After all, such economic interdependence makes conflict less likely, and is one of the few ways for the West to retain some leverage over China.

Favourite chapter: In addition to examining how China regulates, Zhang also looks at how China is regulated. Chapter 3, ‘The EU Merger Probe into China, Inc.’ discusses how the European Commission has dealt with M&A by Chinese State-owned enterprises (SOEs). The Commission has relied on a legalistic approach, grouping various SOEs under a Chinese conglomerate. However, even though the Chinese State has de jure voting power to influence SOEs, it may de facto lack the ability and incentive to do so. A more facts-based analysis—that is already applied to European SOEs—is thus called for, not only to avoid a double standard, but also because viewing Chinese SOEs as a single economic entity allows them to bypass scrutiny of minority acquisitions.

Quotable: In an interesting passage, Zhang focuses on the faith of antitrust academia in China: ‘Moreover, as businesses cannot take agencies to court, there is little market demand for academic criticism of agency decisions in China. Indeed, Chinese antitrust scholars are not just assessed by their scholarly works but more importantly, by their connections with and proximity to the antirust regulators.’ (p. 106) Zhang includes a cautionary tale of one academic who broke this pattern, showing how the consequences of that deviation further chill criticism.

Further reading: The book sits in its own category.

‘The Platform Delusion: Who Wins and Loses in the Age of Tech Titans’ by Jonathan Knee

In short: In The Platform Delusion, Jonathan Knee questions whether the incumbent platforms are as resilient as they are often made out to be. He defines ‘platform’ as any business of which the core value proposition lies in the connections they enable and enhance. Whatever the exact definition, Knee laments that the concept has been over-used: ‘As is often the case, when a moniker emerges that afford a premium valuation, all manner of enterprises twist themselves in knots to claim a credible association with the term.’ (p. 4) As ‘accidental investment banker’, he focuses on the ability of platforms deliver exceptional financial results. However, durable exceptional returns must stem from a competitive advantage, i.e. ‘the structural characteristics that allow a company to do what its rivals cannot’. (p. 17) And competitive advantage is just another term for ‘barrier to entry’ (or, using Buffett’s favourite term, ‘economic moat’), so the book is really about entry barriers in platform markets—a topic of interest to antitrust enforcers all around the world.

More specifically, the ‘platform delusion’ refers to a fallacy with four core tenets, including that all platforms exhibit powerful networks effects and that network effects inexorably lead to winner-take-all markets. While most platforms do benefit from network effects, this is a demand-side competitive advantage that needs to be complemented with supply-side advantages (data, technology, learning and significant fixed costs) to be durable. More generally, Knee encourages ‘a certain amount of humility about generalizing too readily from legitimate structural tendencies of digital ecosystems’. (p. 48) An interest in antitrust also permeates the book, which should not be surprising given that he taught classes at Columbia together with Tim Wu, who is mentioned at various points in the book. Knee welcomes the fact that regulators are waking up to the potential dangers of Big Tech, but cautions against a singular approach to enforcement. (p. 52)

Favourite chapter: In Part II of the book, Knee identifies the weaknesses of each of the FAANG companies. While each chapter is interesting, I particularly enjoyed no. 7, ‘Netflix: Content Was Never King and Still Isn’t’. Knee brings a wealth of knowledge and experience of media markets, which he previously brought together The Curse of the Mogul: What’s Wrong with the World’s Leading Media Companies. He isn’t enamoured with Netflix. For one, it’s not even a platform: ‘[E]xcept as a strained metaphor, Netflix is no more a “marketplace” than any other business that invests in product to attract more customers.’ (p. 145) In addition, ‘Netflix faces a long list of mind-bogglingly deep-pocketed competitors who have decided that they want to be in this business.’ (p. 159) Pick your stocks accordingly…

Quotable: At times, Knee gets more specific when it comes to antitrust. A good, perhaps controversial, example: ‘Inexplicably, unlike its European counterpart, US antitrust law does not include a blanket prohibition on “abuse of dominant position.”’ (p. 255) However, none other than Herbert Hovenkamp shares that view.

Further reading: Knee references various books on the business strategy of platforms, such as The Business of Platforms. For a more formal treatment, The Economics of Platforms by Belleflamme and Peitz provides an indispensable companion. And for a closer look at the internal operation of one platform, the book Amazon Unbound by Brad Stone (of The Everything Store fame) is worth your time.

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Stay tuned for part 2 of ‘the antitrust books you should’ve read in 2021’!

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