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- [00:01]
A
You're listening to Is Business Broken, A podcast from the Mehrotra Institute for Business, Markets and Society at Boston University Questrom School of Business. I'm Kurt Nickish. Last week on the show, we introduced self regulation, the practice of businesses setting their own guardrails without government. But what are the limits to private actors policing themselves? At what point should government intervene in the public interest? And also companies getting together to set their own rules. When does that cross into antitrust territory and become collusion? To help us answer these questions, we're joined by someone uniquely qualified, Jonathan Kanter. Jonathan served as Assistant Attorney General for the Antitrust division in the Biden administration, and he led groundbreaking lawsuits against some of the world's largest tech companies, including Google and Apple, fighting to balance the scales where market power, competition, and the public interest collide. He has seen firsthand how self regulation works and doesn't work inside the halls of America's most powerful industries. We're also joined by Tim Simcoe, David J. McGrath Jr. Professor of strategy and innovation at BU Questrom. Tim brings deep expertise in the dynamics of industry cooperation and how regulation and competition intersect in surprising ways. Let's get into it. Jonathan, thanks so much for joining the show.
- [01:39]
B
Great to be with you.
- [01:40]
A
And Tim, great to have you back.
- [01:42]
C
It's fun to be here.
- [01:44]
A
So let's start broad. You've both worked extensively on antitrust issues. In your experience, do those two concepts complement each other or are they just by their nature more at odds?
- [01:57]
B
So they're largely at odds. Self regulation often implies competitors or industry participants working together, and antitrust as a default promotes industry competitors working apart.
- [02:12]
C
I think Jonathan's perspective, I mean, so to go all the way back to Adam Smith, I don't have the exact quote, but he talks about anytime business people are in a room together, something like collusion is going to emerge. And that's kind of the default posture of antitrust, and potentially for good reason.
- [02:29]
A
But.
- [02:29]
C
But that might be slightly overstated. I think there are times when we think businesses may need to coordinate on some rules. I mean, I guess I agree with Jonathan that they are conceptually at odds in that they serve potentially different purposes, but I'm not sure that that rules out that they may work well together in the public interest at times.
- [02:53]
A
Jonathan, the Biden administration was vocal about concerns about big tech, and you led some lawsuits against some of the biggest players from Google to Apple. And so that's a good industry to talk about. What are some of the ways that big tech companies self regulate today? That you had to keep an eye on?
- [03:14]
B
Well, I think big tech companies or monopolists in general become private regulators. To me, what I have found is that when the people imposing the rules or the companies imposing the rules have conflicts of interest, that is when most of the anti competitive concerns arise. And so, for example, if you own the platform and then you impose rules on platform participants, but you also participate on the platform, that creates a conflict of interest. And the same thing is true in broader standards bodies. If you're involved in a standards body that's supposed to make an open standard so that everybody can innovate, but you happen to have a conflict of interest because you own certain IP or you have other commercial interests in adoption of the standard, that conflict of interest can result in making decisions that aren't necessarily for the betterment of the public, but instead are compromised by the platform owner.
- [04:15]
A
We're using the word platform a lot and I think we should recognize that platforms are a very coveted thing to achieve. I know a tech startup that was having trouble getting funding, but as soon as they used the word platform, where we're creating a marketplace for this thing, doing like, the eyes of the venture capitalists just lit up. And they wanted to fund it because it gives a sense of like a moat and economic power from having one and running one. So we get that there are moneyed interests in holding one of those and being able to set the rules. But there are things like governing app stores, but privacy rules, child safety policies, content moderation. There are a lot of things that are in the public interest that these platforms do exercise. Like, you know, to what extent do companies act as responsible stewards of the power that they do have?
- [05:07]
B
Well, you have to. Companies are stewards of their shareholders and that's fine. I'm not here to say that that's a problem. If anything, I think that should be our expectation. Companies have obligations, fiduciary obligations to their shareholders and they're going to maximize that share value. And that is just how they behave. I don't. We should or can rely on private companies to preserve the public interest. So something like privacy. If tech companies live and breathe and thrive on consumer data, they have a massive conflict of interest when it comes to setting privacy rules. And yes, at some point some reputational issues might constrain what they are or not willing to do, but they're going to push the envelope as far as they can within the boundaries of the law in order to maximize their shareholder value. And it's one of the reasons why in areas like that, we do need the government to step in, in my view, and create some basic rules of the road. Doesn't mean we have to regulate companies to the hilts, but it means that we should not necessarily rely on self regulation as serving the public interest because those self regulating have a very different interest that is not necessarily fully aligned with the public.
- [06:21]
C
Yeah, but it's not quite the case. That view may tip over into someone hearing you saying, well, well, let's not have self regulation in these spaces at all. And I don't think that's quite the answer either. They're going to have to coexist. Which takes us all the way back to are they complements or substitutes?
- [06:36]
A
Yeah. So let's walk through some examples like realtors and commission disclosures or dental boards excluding competition. Right. These are some cases that have come up. Jonathan, can you take one of those and just describe what's going on and how you see it from your regulatory perspective?
- [06:56]
B
Yeah. So you have a situation where, you know, and there's been a lot of discussion in the realtor space where realtors come together and they compete with each other and then they agree on where they're gonna, how they're gonna set the commissions and how they're gonna go to market. And you know, for many decades they've been embroiled in antitrust fights both with the government and with private lawsuits. Because it's relatively benign. If people in the industry want to come together and maybe come up with some certain kinds of ethical standards or other sorts of industry wide initiatives that might benefit the industry as a whole, things start to get really sketchy when competitors are sitting around and imposing rules that affect the commercial terms upon which they compete with one another. And that is often when we see joint rule setting or standard setting turn into antitrust violations.
- [07:52]
A
Dental boards is another case.
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C
The thing that was interesting about the dental board, so there's a case in North Carolina, it was about whether hygienists could enter the market for teeth whitening services. And you might think that that would be fine given that I can go into the store and buy a teeth whitening product and apply it to myself. But sort of the trade association got involved and came to the decision that that wasn't going to be allowed. Often the pretext for that kind of thing is safety in the medical space. In the tech space, the pretext might be privacy. But there's usually some sort of explanation given for why it's not a good idea for entry to happen, which might lead to future competition for the group making the rules. Those are pretty clear examples of where something like what looks like a regulatory, self regulatory process that might have legitimate aims tips over into collusion.
- [08:47]
A
Yeah. And Jonathan, there was also o' Bannon versus the ncaa, which was a case that shows that how even nonprofit or mission driven organizations can use self regulation to entrench power in this case by restricting athlete compensation. Did that happen under your watch?
- [09:04]
B
The o' Bannon case predated my arrival, but the antitrust division, prior to my arrival submitted a very forceful brief to the Supreme Court, which I'm pleased to say was partly, if not extremely successful in convincing the Supreme Court to give college students the ability to negotiate. And so yeah, I mean, I think when you have kind of going back to the beginning of our conversation, the starting point is that competitors ought to compete. And when competitors are going to market, they should go to market separately and they should do everything they can to try to win within the, the confines of the law. When folks start to come together again, doesn't always violate the antitrust laws, but it can very quickly once the competitors are making decisions that affect commercial terms. And those commercial terms might be how much you charge for a product, it might be whether you can transfer a prescription for contact lenses, or whether you know what might be the standards for being a dental hygienist. All of those things determine who can compete and who can't and how much they can charge and so forth. Those are the kinds of things that start to spill over into an antitrust violation. And kind of apropos of the comment I was making at the outset, when there are conflicts of interest, you're more likely to see a problem. And so if the companies or the organizations that are setting the rules benefit from those rules, clearly they're going to have an incentive in many instances to massage those rules so that they benefit and others don't, whether it's keeping people out of the market or keeping prices high. And as somebody who's been practicing antitrust now for over 25 years and was a former enforcer, when you start to see those conflicts of interest, it raises very significant red flags.
- [10:58]
A
What I think is really interesting is that we're entering a climate of deregulation. Right. And more self regulation. But you're describing a system where if the government isn't paying attention, those incumbents can hang onto market power and really be anti competitive and regulate them. Be kind of, you know, regulators in disguise for themselves.
- [11:21]
B
Exactly. They assume the role of regulator with a very significant Conflict of interest. And so I think private regulation, in my view, I prefer competition to regulation. You know, whether that's government regulation or frankly private regulation. And a lot of the cases that we've dealt with in the antitrust world over the last decade, the big ones certainly deal with private regulatory regimes imposed by monopolists. But also, to take it from a different perspective, I think the premise of the question is that, okay, in the absence of government regulation, we should defer to private companies to step in and protect the public interest through industry self regulation. And I just think that is a fiction for the most part. The idea that we can rely on industry to protect the public interest, whether it's on something like privacy or security, safety, children using social media, things like that. Industry self regulation is a fiction.
- [12:15]
A
Consumer pressure not enough.
- [12:18]
B
Not unless there's a heck of a lot of competition so that people can vote with their feet. But in most of these instances you have winner take most markets. And so that results in kind of the worst of all worlds, which is you have no government regulation over basic things like safety and security, while at the same time you have a company with a massive amount of power who can impose its will on the broader public.
- [12:42]
C
I mean, I'm a little less interestingly sanguine than Jonathan about competition being the solution to some of these problems. I mean, I think the deregulatory environment that we're living in is going to cause problems. Sort of just take environmental issues as an example. Right. It's not obvious to me that we're going to have competition that leads to firms cleaning up the natural environment that they operate in if they can get away with imposing those costs on someone else. And so you end up stuck with this. If we pull back on government regulating, how much can we rely on industry? Because I don't think we're just going to sort of see some of the biggest pollution problems we have are in very, very competitive or classically kinds of competitive environments.
- [13:28]
B
Tim, that's a fair point and which one that I don't necessarily disagree with. I think there are a lot of ways in which competition. My view, I guess, is that on commercial issues, competition can mitigate in some instances the need for invasive regulation if consumers can discipline industry with their preferences. But there are other things that go to, you know, again, safety, security, you know, the broader public interest of a country or society, like the, like environmental issues that while we certainly don't want to promote monopolies, we may need additional regulation in order to address.
- [14:05]
A
And what would that be Jonathan, like what kinds of guardrails reforms are needed right. Right now?
- [14:12]
B
Well, I think I look at tech and we basically have nothing. I mean, we're starting from scratch. You know, it's the year 2025 and you know, we've been dealing with data collection issues now for roughly 25 years in a meaningful way. And we still have no movement at the federal level on privacy regulation or privacy laws. And we're largely, entirely, but largely dependent on the FTC act, which was written in 1914 thereabouts, to enforce privacy for the entire.
- [14:43]
A
And now we have A.I.
- [14:45]
B
Yeah. And we've failed. And so when I think about. Because people have painted regulation as bad, I think about when we had automobiles and we needed traffic lights and stop signs and lines on the road so that people wouldn't die in car crashes and they would know which side of the road to drive on and they can get to and from someplace. And that wasn't just good for safety and security and in the health of drivers and passengers and pedestrians, but it was also good for business because now people can drive to and from work and they can deliver things. And because you have a system that works in tech, right now we don't have lines on the road, we don't have traffic lights, we don't have the basic infrastructure for how people should behave. And as a result, we're kind of living in the Wild west and we have been for quite a while. And sad to say, I don't know that we're going to get out of that anytime soon because we have a system in Congress that makes it very difficult to pass new laws even when there is overwhelming support from the public and bipartisan support from Congress itself, because our political processes essentially has grinded to a halt.
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A
And I'm just curious, when you were a regulator then, what was your formula for success within that context of not having the legislation that you think you wanted, political concerns too?
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B
Yeah, I mean, our formula was to use the laws we had as effectively as we could for their intended purpose. And so we focused on market realities, we focused on the problems that we viewed as being most important to society. And we prioritized the cases that we thought would have a significant impact and benefit the public interest. And we were clear eyed that we weren't going to solve the entire world's or economy's problems and that we weren't going to fix every privacy or data issue. But we tried to take on as many issues as we could as quickly as we could for the benefit of the public. Recognizing that there probably was no Calvary coming, even though there are a lot of really good noble efforts underway. People like Senator Klobuchar and others have for years been working on legislation that is wildly popular both with the public and in Congress. You'd have a situation where some of these bills would get voted out of Congress, out of committee rather, with overwhelming bipartisan support, which in this day and age is extremely rare, only to find that the bills kind of held up from getting a floor vote because of political interference. And so we are in a situation where the system is not really working and we are stuck with cars that are increasingly faster, but to use the metaphor from earlier, but no traffic lights.
- [17:35]
C
We're running on one set of rails right now with this kind of tech regulatory process. And Europe is on another, having passed the Digital Markets act for the foreseeable future for the political reasons that Jonathan just explained. We are in a system where it's going to be antitrust through the courts, whereas Europe has set up the beginnings of a regulatory regime to address exactly the same set of problems. And there's going to be things that we can possibly learn from watching how it unfolds.
- [18:06]
A
Jonathan, what was one signature win or achievement that you look back on and you feel proud of?
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B
Yeah, there were a couple of cases against Google that were very high profile and really tested the applicability of antitrust in a modern economy involving big tech companies. And coming into office there were real questions about whether we can bring those cases and win those cases. And in the course of a year, we tried two major antitrust cases against Google in two different courthouses on two different issues. One relating to search, the other relating to kind of advertising, technology and infrastructure. And we won both of those cases in decisive victories. And so that was a really exciting moment for the DOJ and for our team because not just because we took on a formidable opponent and we one in court decisively, but because we established or addressed questions about whether antitrust can work for a modern economy. The answer to that question is yes.
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A
Gosh, that gets back to Tim, what you were saying about the US track versus the Europe track. Tim, do you see that as a success where public oversight has been able to rein in self regulation?
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C
I see those two cases as exactly what Jonathan said. They were a success in showing that antitrust can be applied in the digital economy like in the modern era to deal with conduct by firms that is anti competitive. But it's important to understand how these cases progress. The victories that Jonathan was talking about aren't the end of the road, they've proved liability. The government showed that Google broke the antitrust laws. Now the question is what to do? What remedies will courts impose to make competition work better in these kinds of markets? A broad class that is part of the Digital Markets act in Europe, they're doing this in a regulatory manner. Here, we're doing it through courts, is to impose rules so that the products and services that these large digital intermediaries market, they work with other kinds of products and services. I mean, there's interoperability rules or rules that allow products to work together well so that there's more competition amongst providers of these intermediary services. But those kinds of interoperability rules are technology. And so there's going to have to be some kind of way of getting to an industry standard. The court is not going to say itself what the specification for providing put.
- [21:03]
A
That in front of a jury.
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C
Search access to individual user search histories or whatever the application may be. And that kind of stuff is often done through something like an industry standards body. You get back into this kind of question about like, well, all the big.
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A
Players are in the room.
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C
It looks like, you know, maybe we could rely on self regulation. But how do you organize that political process in a way such that it's not simply dominated by Google and we're back in the world that we had to go to court to get out of?
- [21:35]
A
We've talked about this implicitly, but I think we should say it explicitly, like what is at stake for ordinary people when this balance is not struck?
- [21:45]
B
Yeah, it's freedom. I mean, not to be overly dramatic, but it's true. I mean, when monopolies run the economy, they impose rules on how we live our lives. They might control what we see, hear and listen to. We'll have outsized power in terms of influencing the government. I think we can see some of those things happening in our daily lives and in our political lives today. And so, you know, again, it's not to suggest that antitrust enforcement is the solution to every problem. Not naive. I get that. You know, there are other issues relating to rule of law and regulation that are going to be important. But when we have a centralized economy of very powerful players, it affects how much you pay, it affects what you read in the news, it affects what shows up in your algorithms and your feeds as a public, we are turning more of that decision making and more of that control over a small number of players who have very specific interests. And it is why I think that private regulation should Anybody who cares about power and regulation in the public sphere should care about power and regulation in the private sphere as well.
- [23:01]
A
So from your experience, what are the key lessons for the public here as consumers, as workers, as citizens? What should we be demanding from the government and business when it comes to shaping fair, functional markets?
- [23:15]
B
My view is that first, competition and a competitive economy is not a switch that you can flip on and off as you need it. You can't just go back to a competitive environment. It takes a lot of care and feeding and can often needs to occur over decades. And so if we are asleep at the switch in terms of things like antitrust enforcement, effective competition policy, or in other parts of the related regulatory sphere like privacy and safety and security, we're going to be left with a regime or an economy that's going to be very difficult to fix quickly.
- [23:52]
A
These are systems you have to undo systems.
- [23:55]
B
They're big systems, and the bigger they get, the harder they become to unseed and undo. So, yeah, that's the starting point and two is that this stuff matters not just in terms of how much you pay at the grocery store, for example. It does matter a lot, right, in terms of the cost of living and the cost of prices of products and services. But it also matters, and again, I think we're seeing it now where if the administration, for example, coerces a media company to restrain what they show on their feeds, the more you have an economy of monopolies, the more effective that censorship becomes. And so as society, I think we need to demand decentralization of power, whether that is political power or corporate power.
- [24:37]
C
I think somehow the term regulation got turned into a bad word. I don't know, maybe it goes back to Reagan.
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A
I'm the government and I'm here to help.
- [24:47]
C
It's the government and sort of they were usurping power and taking away your freedom to act. And I think that that framing is fundamentally misleading, but still exerts a tremendous amount of influence. Part of what we've talked about today is that there is private activity that looks like regulation. So obviously it's not simply the government that does these kinds of things. The fact of the matter is you need to have some rules to organize the kind of competition to deliver the sorts of benefits that Jonathan is talking about. And there are really strong reasons to sometimes have the government be engaged in or be the manager of that process, because it can get hijacked by private parties that have vested interests in setting the rules to advantage themselves. I'm really concerned that in the last couple of years we've sort of pulled the plug on our ability to sort of commit to professional long term regulatory processes managed by experts who have careers in those fields. And I hope that my fears aren't borne out. But I think it's going to be harder for a while to do good regulation as a consequence of the way that the problem has gotten framed.
- [26:00]
A
Jonathan, what's the biggest misunderstanding about this issue that you want to clear up?
- [26:05]
B
I would say that antitrust enforcement is regulation. Antitrust enforcement is not regulation. Antitrust enforcement is about preserving a competitive economy, hopefully so that we don't need as much regulation. And it's about letting markets work. You can't have competition without competitors. You can't have healthy markets without competitors and competition. And if we really want a fair and economy that where people have the chance to succeed on the merits of their own hard work innovations and that really preserves the American dream, we can't confine the opportunity to build and grow and develop a new business to a small number of incumbents. And so if we want to have a free market system, we have to invest in free competitive markets or else we'd be left with something that really feels like a private regulatory regime without the kinds of due process protections that you typically would have in a government regulatory regime. And that is fundamentally at odds with our system and our concepts of freedom.
- [27:10]
A
Really well said. Thank you. Jonathan, thanks so much for bringing your expertise and perspective to the show.
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B
It's my pleasure. It's delightful to be with you both and thank you for having me.
- [27:20]
A
Tim, thank you. It's been great.
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C
Thank you so much.
- [27:29]
A
That's Jonathan Kantor and Tim Simcoe. Next week we explore self regulation in the fashion and restaurant industries. It's a story of collaboration, innovation and sustaining trust without formal regulation. That's next week. To get that episode and more, please follow the show on Apple Podcasts, Spotify or wherever you listen. Thank you for listening to Is Business Broken American? I'm Kurt Nickish.