An article by New Fortune, "the Reaper: the 20 trillion Biosphere of Tencent and BABA" points out:

Many people feel that Internet giants have brought a lot of convenience to their lives, but they are also worried about their market dominance and the wealth concentration effect they cause. For example, the big data of the platform is familiar, the rule of "choose one of the two", and so on.

In Europe and the United States, anti-monopoly investigation is like the sword of Damocles hanging over Facebook Inc and Alphabet Inc-CL C. Will Tencent and BABA face similar supervision and investigation?

Antitrust has always been a very controversial topic. Administrative monopoly has long reached a consensus in the field of economics, and there is no need to discuss it. But economists are divided on the investigation of natural monopolies.

How to define monopoly? What is the standard of antitrust? Is it true that "greatness is the original sin"? Does antitrust support innovators or hit innovators? Does the market concentration created by giants such as Facebook Inc, Alphabet Inc-CL C, Tencent and BABA improve economic efficiency or damage social welfare?

Antitrust is not only a legal issue, but also a complex economic issue. From the point of view of the brief history of anti-monopoly, this paper analyzes the natural monopoly and anti-monopoly law with the principle of economics.

01. Muddle-headed antitrust

In 1890, the antitrust law, the first antitrust law in the world, was born. This law, known as the "Economic Constitution", is the product of political struggle.

In the last 20 years of the 19th century, the American consortium invented the trust organization to unite with similar large enterprises to dominate the market and control prices. This leads to a serious dual economy [2]. The core is the economic circle of trust and large enterprises, and the periphery is surrounded by a large number of fiercely competitive small enterprises and poor bottom workers.

In 1904, the total capital held by trust organizations in various sectors of the American economy was as high as 20.4 billion US dollars, of which the capital of one big trust was in the hands of seven big trusts. In 1910, the proportion of trust in some industrial sectors of the United States was as follows: 50% in the textile industry, 54% in the glass manufacturing industry, 60% in the cotton printing and dyeing industry, 60% in the food manufacturing industry, 72% in the wine industry, 77% in the metal industry (excluding iron and steel), 81% in the chemical industry, and 84% in the iron and steel industry.

On the periphery, a large number of small and medium-sized business owners, farmers and the working class have been squeezed by the trust and are on the verge of being eliminated by the society. Farmers at the bottom, small business owners, antitrust parties and United Labor Party broke out vigorous antitrust movements, such as the Grange Movement, the Green-backed banknote Movement and the anarchist Movement, trying to break the dreary political atmosphere of the gilded era.

Therefore, this law, which is born in response to political demands, lacks sufficient legal argument and appears to be "crude". Article 2 of the law prohibits "monopoly" and conspiracy intended to monopolize. However, neither the text nor the annex to the Act gives the exact meaning of "monopoly" or indicates which acts are prohibited article by article.

Legislator Sherman believes that specific criteria should be judged by judges:

"it is difficult for us to draw a precise line between legitimate and illegal business associations through the definition of legal terms. In each case, it must be left to the court to decide whether it is legal or not. "

Of course, this is the practice of American case law. But Sherman also admitted that the antitrust law:

"instead of announcing a new legal principle, it simply conferred on our complex state and federal judiciary those old and well-known common law principles. "

The law seemed to be introduced only to quell public anger, so much so that it became almost a piece of paper for more than a decade. At that time, someone said of the law: "the bill itself did nothing but quell the call for antitrust litigation-- any lawsuit-- and nothing was solved. "

Ironically, trust organizations have sprung up rapidly after the introduction of the antitrust law. There were 318 trusts in the United States in 1904, 93% of which were created after the enactment of the Act of 1890.

At the same time, there have been some bizarre judgments. In 1895, the first antitrust case was the famous United States Federal Government v. Knight Company. At the time, American refined sugar companies tried to integrate four large companies, including Knight, in an exchange of shares, which controlled 98% of the American refined sugar industry. The federal government of the United States took Knight and other companies to court and took the case to the Supreme Court.

The Chief Justice held that the four companies controlled absolute market share, which constituted a monopoly. But the key issue is that the antitrust law applies only to trade and commerce, not to production.

The full name of the law is the Protection of Trade and Commerce from illegal restrictions and monopolies Act, which does not cover production, manufacturing or industry. In the end, the judge ruled against the government at 8:1.

After the verdict, all trust organizations in the manufacturing field were exempted from the Anti-Trust Act. On the contrary, trade union organizations and workers' strikes have become the target of antitrust. At that time, workers joined together to strike and demand higher wages, which was regarded as a kind of monopoly behavior, and trade union organizations were regarded as monopoly organizations.

In 1894, the Pullman strike refused to transport mail, and the federal government sued strike leader Eugene Debus to the Supreme Court for "trade restriction." As a result, the Chief Justice found Debus guilty under antitrust law.

From 1890 to 1897, 12 of the first 13 cases found to be in violation of the Antitrust Act were directed against ILO. None of the 18 antitrust cases from 1890 to 1900 has been dissolved.

In this way, this law, which is driven by political factors, has become a tool of political struggle, which in turn leads to more encouraging social confrontation.

In those turbulent years, President William McKinley created economic prosperity and was known as the "prosperous president". However, it is generally believed that President McKinley is a puppet of the capitalists and has been nicknamed "Hannah's Child". At that time, there was a famous industrialist named Mark Hannah, who worked in mining, iron making and shipbuilding in the Lake Erie area and was famous for rigging elections. he was nicknamed "political boss". Hannah single-handedly supported McKinley as governor and then successfully ran for president.

In 1901, President McKinley was assassinated by anarchists and Vice President Theodore Roosevelt succeeded him as president. The assassination of McKinley made Roosevelt deeply feel the surging undercurrent and crisis in American society. As a reformist of the Republican Party, Roosevelt slashed at the trust as soon as he came to power. He tried to make a "beheading operation" to rectify the situation, instructing the Federal Department of Justice to initiate an antitrust lawsuit against Northern Securities.

What is the origin of Northern Securities? Northern Securities controls the world's largest railway network, including the North Atlantic Railway, the Quincy Railway and the Chicago Railway. The backers are Wall Street moguls Morgan and Rockefeller.

Old Morgan was furious when he heard the bad news in his apartment. Old Morgan had no idea that the young politician, who had been supported and funded by him, had operated on himself in his second year in office.

The elder Morgan hired a first-class team of American lawyers to fight Roosevelt to the end, and the lawsuit ended up in the Supreme Court. In 1903, Supreme Court justices ruled by 5:4 that the company violated the Antitrust Act.

The case, known as "the first shot of antitrust monopoly in the United States in the 20th century," greatly reversed the Supreme Court's attitude towards trust. Since then, Roosevelt launched 44 lawsuits against large companies, of which 25 won, successfully dissolving beef trusts, oil trusts and so on. As a result, Roosevelt was called the "trust trainer".

After Roosevelt, President Wilson, a Democrat, signed the Federal Trade Commission Act and the Clayton Act, which improved the antitrust legal system of the United States.

In 1918, the federal government accused the Chicago Trade Association of fixed price behavior suspected of monopoly. In the end, instead of ruling the defendant against the law, the district court allowed the federal government to reach a settlement with the trade association. Justice Brandeis used reasonable rules in this case at the time. The so-called reasonable rule is to judge whether a restriction is illegal or not, taking into account all the facts of the act, not just the scale. Later, many judges cited this case and reasonable rules to decide.

So far, the American anti-monopoly law mainly fights against unfair competition behaviors such as fixed price, exclusive behavior and competition restriction. However, due to the lack of a rigorous definition of monopoly in the legal circle, judges can not fully follow reasonable rules in specific decisions, and sometimes fall into the habitual thinking of "inference of guilt in large enterprises".

In 1937, the federal government filed antitrust lawsuits against Alcoa, Alcan and 64 of their related shareholder executives, alleging 140 acts. Renee hand, a famous judge of the second Circuit Court of Appeals, found the defendant guilty in a very simple way, that is, the defendant's market share was more than 90%.

He pointed out:

"90% of the market share is enough to constitute a monopoly; it is doubtful whether 60-64% of the market share constitutes a monopoly; and 33% of the market share is definitely not. "

"Great is the original sin"?The legal circle has a great deal of controversy and knows nothing about it. Monopoly work urgently needs the professional support of economists.

02. The academic battle of the duel

In 1936, the Federal Antitrust Agency hired the first economist in history. However, the role of economists in antitrust cases is limited to data collection and litigation support. Judge Posner described it in 1971: "Today, economists in the Department of Justice's antitrust bureau are the maids of lawyers and have been ignored."

Until the late 1960s, Harvard economists (Harvard School) began to pay attention to the field of antitrust, and quickly established influence and authority in antitrust work.

Professor Mason of Harvard University and his disciple Bain absorbed the monopoly competition theory of Chamberlain and Mrs. Robinson and put forward the famous industrial organization theory-structuralism. According to this theory, market structure determines market performance. Bain examined 42 American manufacturing samples from 1936 to 1940 and concluded that there was a positive correlation between concentration and corporate performance. Bain also examined the relationship between barriers to entry and profits in 20 American manufacturing industries. Results the average rate of return under the condition of high barrier is significantly higher than that of low barrier.

The research of the Harvard School is equivalent to demonstrating that "big is the original sin", pointing out that large enterprises take advantage of high barriers and market concentration to obtain excess profits, hinder technological progress, and reduce market efficiency; at the same time, tell the government and judges whether an enterprise is suspected of monopoly only depends on the market structure-- the level of market concentration, the number and size of enterprises.

The structuralism of the Harvard School is very much in line with the taste of the American judiciary and is known as "the first salute of the economic revolution of antitrust law". This theory has wantonly penetrated into anti-monopoly legislation and judicial adjudication.

In 1965, Professor Donald Turner of the Harvard School became an assistant attorney general. He attracted a group of young economists to join the antitrust work. Under his impetus, the Bureau of Justice issued the merger Guide in 1968-"developed by a group of economic and policy experts and professional lawyers from the antitrust Bureau of the Ministry of Justice, which contains an analytical framework for industrial organization".

In fact, the structuralism of Harvard School has serious defects. This theory lacks solid theoretical foundation and strict logical reasoning and mathematical argumentation. Will large enterprises reduce economic efficiency and hinder technological innovation?

Economist Thomas DiLorenzo once published an important article in the International Law and Economic Review. The article points out that throughout the 1880s, real GDP growth was 24 per cent, while the real growth rate of output in documented monopoly industries was 175 per cent.

Large enterprise organizations have also greatly reduced product prices. Carnegie Steel reduced the price of rail from $160 / ton in 1875 to $17 / ton nearly 25 years later; Rockefeller reduced the price of refined oil from more than 30 cents / gallon to 5.9 cents / gallon in 1897; Northern Securities's railway network has greatly expanded the sales market of factories in the Great Lakes, promoting the formation of a unified domestic market in the United States, and commodity prices have fallen sharply. In the 1920s, the old Ford invented the assembly line and reduced the price of the car to the civilian price in a short time. From then on, the car entered the homes of ordinary people.

Why are large enterprises efficient?

Classical economists have always believed that the free market is the only way to allocate resources efficiently. In 1931, Ronald Hallikos, who was also studying at the London School of Economics, won a scholarship to the United States to study industrial structure. Coase found that the internal economic efficiency of large American industrial enterprises is very high when they implement effective management (the Taylor Revolution). He is keenly aware that organizational planning within an enterprise is as efficient as a free market. He introduced transaction costs and wrote his view as the famous "the Nature of the Enterprise" (1937). Later, new institutional economists such as Williamson recognized the internal efficiency of enterprises and general economic organizations. This theory is equivalent to negating the structuralism of Harvard School.

Since the 1970s, with the stagflation crisis in the United States and the rise of neo-liberalism, the Chicago School's idea of "economic efficiency first" has become popular. The research of economists such as Stiegler, Demsetz and Posner told the federal government and judges that judging whether an enterprise is a monopoly is mainly based on economic efficiency, rather than the market share and concentration advocated by the Harvard School.

With the rise of the information industry, Chicago's performance doctrine set off a "second wave of antitrust revolution", which fiercely confronted the structuralism of Harvard School in the era of new technology. It is embodied in two well-known cases:

First, the federal government v. AT&T Inc in 1974.

The lawsuit is based on the company's practice of using monopoly profits from electronic devices to subsidize its network, preventing MCI or other operators from linking to local manufacturers and monopolizing the telecom equipment market by refusing to buy equipment from non-Bell suppliers.

The lawsuit lasted nearly a decade, and AT&T Inc agreed to accept the ruling of the Ministry of Justice in 1982. Two years later, the largest telephone and communications company in the United States was legally split into seven large regional telephone holding companies, leaving only the long-distance business as well as Bell Labs and Xidian, with 80% reduction in size and sales.

It is generally believed that the split of AT&T Inc has promoted competition and innovation in the field of communications. However, people quickly realized that the power to defeat monopoly is not antitrust, but technological innovation-the information revolution that is breaking out. After the disintegration of Bell system, the innovation of mobile communication system continues to weaken the natural monopoly of Bell system based on wired communication.

Samuelson wrote in his book Economics:

The disintegration of the Bell system clearly reveals to people such a truth: the rapid development of technological innovation does not need to rely on the power of monopoly. [4] "

The second case is the Federal Government v. IBM in 1969.

The grounds of action are monopolizing or attempting to monopolize the market for general digital computer systems, especially commercially designed computers, preventing competitors from entering the industry by reducing prices, introducing new products, reducing the attractiveness of products from other companies, and so on.

This is a protracted lawsuit, which has lasted for more than ten years. At that time, the influence of the Chicago School on antitrust judicial action was increasing, and the antitrust thinking of the Federal Department of Justice and the Supreme Court was in a period of transition.

IBM argues that the government is punishing winners, not anti-competitive behaviour. What the government is doing is to punish companies that foresee the great potential of the computer revolution and dominate the industry through their "superior technology, foresight and industry". IMB also pointed out that its share of revenue from the sale of electronic data program products and labor services in the United States does not occupy the market monopoly as the government claims. Its market share fell from 56.4% in 1961 to 54% in 1968 to 40.7% in 1972.

In 1982, William Baxter, head of the Reagan administration's antitrust bureau, decided to drop the lawsuit on the grounds that it was "unnecessary." His explanation is that, unlike the telecommunications industry, the computer industry is unregulated and is under strong pressure from market competition. He believes that the industry is competitive in nature and that the government's attempt to restructure the computer market may not promote but damage the efficiency of the economy.

Compared with AT&T Inc, IBM is lucky.

In the competition between "big is the original sin" and "efficiency first", the latter has won more support. Posner of the Chicago School, who was appointed by President Reagan as a judge of the Seventh Federal Court of Appeal, introduced his efficiency principle in "economic analysis of law" into antitrust cases. "if the losers are not out, the winners will be punished, and even if there are a sufficient number of enterprises competing in the market, the competition is only artificial and artificial," he said. [5] "

In 1992, the Guide to horizontal merger jointly issued by the Ministry of Justice and the Federal Trade Commission basically abandoned the idea of structuralism and took the economic efficiency before and after the merger as the basis for judgment.

The ascendant information technology revolution is defeating all monopolists. The Chicago School tells the world that there is no real monopoly, no permanent monopoly, only a continuous wave of technology.

03. Reapers in the algorithmic era

The organizational structure of the antitrust bureau after 1983 showed that economists were on an equal footing with lawyers. Since then, American antitrust work has entered a rational stage dominated by economists.

At this point, liberal economists' views on anti-monopoly law have changed. At first, they supported antitrust laws based on the Cournot model, but now many of them have turned to the opposite. Friedman, for example, believes that antitrust laws do more harm than good.

Coase also said:

"I'm sick and tired of antitrust laws. When the price goes up, the judge says it is a monopoly; when the price goes down, the judge says it is predatory pricing or dumping; when the price remains the same, the judge says it is a kind of price collusion. What does the judge want? "

As Judge Posner said:

"the real unilateral behavior of an enterprise to seek or maintain monopoly profits is to defraud the patent office or blow up the factories of competitors. Generally speaking, fraud and violence are fully punished by other regulations. [5] "

Under the influence of the Chicago School, more and more jurists and economists believe that the problem of monopoly should be left to free competition and technological innovation to solve monopoly. However, with the rise of Internet giants such as Facebook Inc and Alphabet Inc-CL C, some people are worried about their ability to dominate supermarkets.

Facebook Inc firmly occupies a leading position in the global social network, with two social leaders, Instagram and WhatsApp. Facebook Inc has 1.59 billion daily active users and 2.41 billion monthly active users, distributed in major countries around the world.

Alphabet Inc-CL C dominates the global search engine and mobile operating system. In the US, Alphabet Inc-CL C's search engine market share is as high as 86.4 per cent, while in Europe, it is 91.4 per cent. Alphabet Inc-CL C Android has an absolute share of 85.9% of the global smartphone market. The market dominance of Facebook Inc and Alphabet Inc-CL C may surpass the giants such as Northern Securities, Standard Oil, telephone and Telegraph in history.

At this time, the idea of "great is the original sin" became popular again. In early August 2020, two US senators tried to introduce a new bill called the Monopoly deterrence Act. If the bill is passed, tech giants such as Facebook Inc and Apple Inc could face severe penalties-a 15 per cent fine on US market revenues. Over the past decade or so, one of the most common antitrust charges against Internet giants in Europe and the United States is the abuse of market dominance. The charge seems to be a "inference of guilt".

In fact, the Chicago School also has some problems. They adopt utilitarianism, pursue efficiency excessively, and lack of research on the legitimacy of behavior. The utilitarianism of economics is not in terms of results, but not in expectations. For example, in the Microsoft Corp case, the most important thing is not to consider whether it is efficient from the result, but to judge whether the bundling is legitimate or not from the behavior itself.

Antitrust work should focus less on those specious "monopolies"-market possession, excess profits, predatory pricing, dumping, and shift the target more to the illegal competition of large enterprises and the illegitimacy of their behavior. such as bundling, restricting competition, big data killing, "choose one of the two" rules and so on. We usually say that the abuse of market dominance, the problem is not market dominance, but abuse. How to judge "abuse"? Lack of legitimacy in behavior.

For example, is the platform's "choose one of two" rule justified? One of the key indicators of legitimacy is whether the behavior produces externalities. If externalities arise, this kind of behavior lacks legitimacy and cannot be disguised with freedom. The simple understanding is that freedom is based on the premise that it does not interfere with the freedom of others, and such a free act is justified. The rule of "choose one of two" hinders the free choice of others and is not justified. This is the key to antitrust.

Let's see, is it legitimate for big data to kill acquaintance? Big data is ripe, which is essentially a kind of discriminatory pricing, which is the pricing behavior of the platform. However, this kind of behavior lacks legitimacy. Why? Because it is improper for the platform to control, encroach on and abuse private data.

Data is originally a private resource of users, and data ownership is also a private right. However, Internet giants do not adopt distributed systems, and private data is monopolized by centralized databases. Therefore, the market dominance of Internet giants is actually the dominance of private data. In the age of algorithms, private data is likely to be abused by giants in the name of "big data".

In recent years, Facebook Inc has been repeatedly investigated by Congress. Facebook Inc has been embroiled in a data abuse scandal after Cambridge Analytics, a British company, was revealed to have improperly obtained 87 million Facebook user data. The Federal Trade Commission then launched an investigation into Facebook.

At the hearing, a congressman questioned founder Zuckerberg: "is Facebook Inc eavesdropping on what users say?" Zuckerberg replied politely: "We allow users to upload and share their own videos, these videos do have sounds, and we do record those sounds and analyze them to provide better service to users." "

Zuckerberg can't really argue. Facebook Inc keeps the user's private data and matches the corresponding information according to the personal data. This involves two major problems: one is to secretly record the user's private information; the other is to control (match) the information in an algorithmic way. In the United States, this kind of behavior is suspected of invading personal privacy and controlling freedom of speech. During the general election, it may also be suspected of interfering with the election and threatening American democracy.

In the end, the Federal Trade Commission approved the settlement by a vote of 3 to 2. The price of the settlement was that Facebook Inc paid a fine of $5 billion-the largest fine imposed by the US government on a technology company.

Recently, Chinese officials have stressed that operators in the field of platform economy with a dominant market position shall not engage in illegal and illegal competitive acts such as abusing their dominant market position, slandering goodwill, or engaging in transactions, or "invisible" unfair competition based on algorithm recommendation, artificial intelligence and big data meta-analysis.

In 1920, the British economist Pigu's Welfare Economics is divided into primary price discrimination, secondary price discrimination and tertiary price discrimination according to the degree of price discrimination. Among them, first-class price discrimination, also known as complete price discrimination, the same commodity for each different buyer uses a different price.

The Robinson Patterman Act of 1936 in the United States is a law against price discrimination. The law stipulates that two conditions need to be met to determine the violation of price discrimination: one is that different prices of the same product are used for different consumers; and the other is that this behavior undermines competition or damages consumers. It can be seen that this law prohibits primary price discrimination.

Usually, enterprises are unable to achieve first-level price discrimination, and the existence of first-level price discrimination is often because the private data of all customers are manipulated gratis. Therefore, opposing primary price discrimination is not against price discrimination itself, but the illegal acts behind it, such as the abuse of private data behind big data's killing.

Amazon.Com Inc is the "initiator" of the killing of big data on the Internet. In 2000, Amazon.Com Inc implemented different price policies for the same DVD disc. The price seen by new users was $22.74, but if the algorithm determined that the old users were willing to buy, the price would be $26.24. If you delete Cookie, the price will fall again immediately. Soon the strategy was discovered and complained by users. Amazon.Com Inc CEO Bezos publicly apologized, saying it was just an experiment and promised not to discriminate against prices.

I analyzed big data's familiarity in the article "algorithm, that is, exploitation". Big data is familiar, that is, the Internet platform makes use of the dominant advantage of controlling private data and implements "first-level price discrimination" on each user with the help of algorithms to extract the "consumer surplus" of each user to the maximum extent.

Let's look at the problem of ants. Jack Ma ridiculed the Basel Accord as a club for the elderly. But the leverage ratio of ants far exceeds the regulatory requirements of the Basel Accord. Perhaps, Jack Ma believes that the big data risk control of ants can break through the leverage ratio of this supervision than the statistical risk control of banks.

However, Jack Ma overlooked the fact that ants have the algorithmic advantage of big data Bank because they control the private data of hundreds of millions of users for free and dominate private data. Ants can become "giant elephants" by using algorithms to dominate private data. In theory, ants can use the algorithm to implement complete price discrimination and maximize the "transaction surplus" of each user. When each user's wealth scale tilts towards ants, the default rate is bound to rise, and the moat built by ants is swallowed by the algorithm, causing systemic financial risks.

This is the threat posed by price discrimination in the algorithmic era to the financial system.

Pigou established the condition of market optimal efficiency in Welfare Economics, that is, private marginal income = social marginal income. What does it mean? This equation means that no one can take advantage of others. When a country establishes such a fair law (the system is an endogenous variable), the economy is optimal and there is no externality in theory.

In the era of big data, Internet giants took possession of private data for free, which means private marginal income > social marginal income, that is, Internet giants take advantage of private data. This will certainly lead to externalities and damage economic efficiency and social welfare. If private data cannot be privatized by technological means in a short period of time, then the Internet giants must be put in the spotlight. This is the function of anti-monopoly law.

Today, the "antitrust law" is compared by economists to "traffic police". As Samuelson said, the only significance of anti-monopoly law today may be to use a simple law to deter these large enterprises and remind people to pay attention to and supervise the every move of these large enterprises and star enterprises. However, attention should be paid to the legitimacy of behavior to prevent abuse.