This is an interview that I actually did for our Broadband Bits podcast, but we didn’t really get into the community broadband aspect, we really talked more generally about antitrust. We thought this would be a really good episode for people who are concerned about communities and the role that growing consolidation has on all aspects of markets and how it’s impacting our communities. So, I hope you enjoy it, and I definitely recommend you check out Gary’s book Free the Market! It’s a terrific book about antitrust.

As always, please review the show, rate it, wherever you find it, iTunes, Stitcher, or wherever. We really want to make sure that this show grows and that more people hear about it to make sure that we can still keep putting out great episodes and talking to great guests. Enjoy the interview.

Today, I’m speaking with Gary Reback, a well-known Silicon Valley lawyer. Welcome to the show, Gary.

That creates what called a network effect or a network externality. Those kinds of conditions make the efficient operation of markets more challenging. Markets can still operate efficiently but in those kinds of markets, we have to have good government oversight and appropriate intervention when bad things occur in order to maintain competition and to get the right allocation of resources.

Antitrust works on a different principle. The principle is this, the government sets the basic rules of competition. Then the government steps back and it lets the competitors in the market duke it out under those rules of competition as long as everybody obeys those rules, the government really doesn’t have much of a role to play but if somebody breaks the rules, the government doesn’t try to regulate them, the government sues them and they bring them before a court and they present evidence and the judge makes a decision just as a judge would in any other prosecution of one kind or another.

We find over the years that in most cases, that works the best. Now, there are some cases where the market won’t support more than one company like the municipal water and sewage facility or something like that and there you do need regulation. You want to make sure that pharmaceuticals are safe and so you need regulation there and air traffic controllers for example. But in a lot of other industries, antitrust enforcement and free market competition would work a lot better than regulation would.

It’s a bigger push though to get a conservative administration to take action in the vertical arena because generally speaking they don’t quite understand how the market mechanisms are being affected because if it’s a vertical acquisition, you’re affecting several different markets in the same supply chain and the analysis becomes more complicated. Nevertheless, I think these days, that these people on the cutting edge of antitrust would say we haven’t paid nearly enough attention to vertical mergers.

So for the first time in a long time, I think we have some consensus at least among people who are looking at this area that maybe the lack of antitrust enforcement has been going on too long and we’re beginning to have some problems that need to be addressed.

Now, the consequence of that is of course higher prices in terms of all the fees they can impose but a bigger consequence is that you can’t get a seat on a flight when you need it anymore. This has particularly affected small to mid-sized cities across the country and certainly on the West Coast, we have this problem in spades. In order to keep the high prices, the few companies in the market simply restrict the availability of their service. So that to me is a bigger problem than the fact that you may have to pay more. You just can’t get it at all. So that’s one problem. We’ll call that output.

The second problem is that the effect of monopoly on innovation. We all benefit from lower prices but we benefit a lot more when there’s some breakthrough innovation in high tech or in pharmaceuticals or something like that. So our antitrust policy really ought to be directed at protecting innovation. Now, the problem is the monopolists would use some of its market power to maintain its monopoly, to keep itself from being displaced by some new technology. It would do things to try to restrict a challenger’s ability to get to market by engaging in exclusive contracts or by denying access in one way or another. So the net result of all that is that we’re denied the new technology that the challenger would bring to the market.

Let me give you a couple of examples, so back a couple of decades ago, Microsoft used anti-competitive practices against the company called Netscape that had invented the browser and actually ended up putting Netscape out of business. So that’s an example where they tried not just to hurt the competitor but to coop the technology so that they would own the browser market.

Of course, no one would have gone there and they would have killed Google in the cradle. They would have suppressed search technology which all of used everyday, why didn’t they do that? They were already being fined billions of dollars by the European Commission. They ran the risk of reigniting the antitrust scrutiny in the United States so they didn’t do it. As a result, we all benefited by this new technology.

Modern monopolies in the high tech area take all your data and prepare dossiers on you which are, I don’t know, from my perspective very troublesome. I mean, I think most people understand that when they buy something online, whoever they’re buying from has a record and will use that record to help them find other things and that’s I think most people would accept that. But when you have a search engine that keeps track of your searches for many, many years and combines that information with what you buy and so forth, they get begin to get at what your political orientation is, where you live on the street, what your religion is, all kinds of things that becomes very, very problematic. We have a problem with privacy in the United States largely because we have several big companies that collect data across the board and that’s a problem that Europe is beginning to address but in the United States, really not so much.

Finally, Chris, just let me say, one of the other things we have found historically that industry concentration and monopoly does is it puts political power into the hands of monopolists because they can make political contributions and under our law there’s a case citizens united, the supreme court case from seven or eight years ago that gives big corporations the right to make unlimited political contributions. So some of the things that big tech companies want to lobby for are more or less okay by me. But other things they want to lobby for bother me a whole lot like the lack of privacy protection. So using monopoly to further political power is something that’s also very concerning.

But they might well be able to go after specific anti-competitive practices. So they wouldn’t have the wherewithal to do a 10-year case and break up one of these companies but they might be able to go into court and stop one of the big companies from doing something that’s anti-competitive that squelches new technology or that hurts consumers. Certainly, a lot of people are looking at that now because we don’t think we’re going to get much in the way of antitrust enforcement over the next few years.