The DOJ won their case against Google Search. Now what?

This important RCT on Google Search users gives some clue into the possible outcomes. My reading is that it's not good for feasible remedies.

Let me explain.

https://twitter.com/nberpubs/status/1886807073146417288

First, everyone's favorite remedy: choice screens. Let's assume its not even mandated to avoid the legal issues.

The study shows making users actively choose between search engines only increases Bing's share by 1.1 percentage points.

Not promising!

This oped from Lina Khan is completely wrong on competition in general.

Somehow, its even worse on the unique AI aspects.

The story isn't about lack of competition - it's about how competition in tech markets actually works. Khan sees DeepSeek as evidence that big tech is failing to innovate.

But the newsworthy thing about DeepSeek is how it shows that even massive incumbents can't rest on their laurels in AI. It made news when it destroyed Nvidia's stock. nytimes.com/2025/02/04/opi…

Last week, I was able to chat with Oliver Hart at our @LawEconCenter event, "Substance over Slogans."

The focus was on contracts, the nature of the firm, and what his research means for antitrust. I was especially excited about his more recent work.

Here's what I learned: Hart's Nobel-winning research started with a basic but profound question:

Why would one firm buy another rather than just contract with them?

It's abstract but at the core of how we think about antitrust policy. If contracting works well, why do we see mergers?

The FTC's mad dash to file cases before the administration change continues.

This time it's Pepsi for... *checks notes*... giving volume discounts to big retailers? 🤔

The Robinson-Patman lunacy continues... A 3-2 Commission vote, rushed through in the final days, with both Republican commissioners dissenting. Not exactly a model of careful enforcement.

For context, this is the FTC's second RPA case in a month after a hiatus.

https://x.com/BrianCAlbrecht/status/1867310150953881919

California is burning. The tragedy of the destruction is unfathomable.

On top of that, many homes don’t have insurance. Why?

This is because of price controls. But CA's Prop 103 system goes way beyond normal insurance price controls into total dysfunction 🧵 Let's first talk rate suppression.

If an insurer shows they need a 40% increase to cover expected costs and get a fair return, but regulators only approve 15%, that's a 25% rate suppression.

When you buy a product, you pay twice:

1. Money to the company
2. Time to actually use it

Most economics ignores #2.

With Tom Phelan and @nickpretnar, we show how this consumer time use changes markups, firm entry, and efficiency. 🧵 The standard model says firms need constant markups for efficiency.

Once you add consumer time use, variables markups can be efficient and constant markups can be inefficient.

As we close out 2024, here are the top Economic Forces newsletters ICYMI. From me:

#1 Econ 101 is wrong about tariffs

economicforces.xyz/p/econ-101-is-… I tried a ton of newspapers for this and no one wanted it so I used it last second before the election.

It's the first piece I've converted from an oped to a newsletter. Maybe there's a lesson in there...

The FTC just filed its first Robinson-Patman case in ~25 years.

And while price discrimination can be concerning, I have some questions about this one... Who exactly is it going to help? Consumers? The case is about possible "price discrimination" between big chains and small retailers. The core claim is that Southern charges higher prices to mom & pop stores vs chains.

People were quite interested in the paper on Prospect Theory. Here is another one by Oprea you should know.

Behavioral anomalies we attribute to risk (probability weighting, loss aversion) look like responses to complexity, not risk.

Forget all the talk about lotteries. Paper, Forthcoming AER:

Key evidence: When people evaluate "mirrors" - deterministic versions of lotteries paying expected value - they show the same biases. drive.google.com/file/d/10EEvCP…

Prospect theory is wrong as a theory of choice between lotteries.

And we've already had the evidence for decades!

A new paper by Bouchouicha, Oprea, Vieider, and Wu shows how 🧵 dropbox.com/scl/fi/y0spy1g… Prospect Theory's "most distinctive implication" is called the "fourfold pattern".

When faced with risky choices, people were supposed to be:

- Risk-seeking for low probability gains
- Risk-averse for high probability gains
- The opposite for losses

Useful summary of the market power literature from Chad Syverson, especially helpful at the conceptual level.

- Why can we not usually identify just markups?
- Why do we need physical quantities, not just prices?
- Does any of this relate to inflation? nber.org/papers/w32871 Parts I liked: simple derivation of the Bond et al result that DEU markups equal 1.

🚨 DOJ v. Google 🚨

- Court finds that Google has monopoly power in two relevant markets

- Distribution agreements found to be anticompetitive and in violation of Section 2 of the Sherman Act

- Remedies to come
storage.courtlistener.com/recap/gov.usco… Lots of initial reactions. I'll drop them here.

First, sooo many references to behavioral economics ideas. Unfortunately, there is no discussion of how this interacts with the competition.

Odd Lots + price discrimination = I had to listen right away.

As the episode makes clear, a lot of this is experimental. We are in a new era of pricing. Absolutely.

Let me give some reasons for a little less doom and gloom out of that experimentation.

https://twitter.com/TheStalwart/status/1797542843470508220

Price discrimination works by decreasing the price of the marginal units.

Think of a coupon that convinces you to buy an extra unit or buy a product you wouldn't otherwise buy.

This can mean (and generally does) that the price for the non-coupon users can be raised.

Did you know DOJ is suing Apple? You did? Okay.

Well, there's a lot of talk comparing the Apple antitrust case to Microsoft back in the day.

What were the effects of the Microsoft lawsuit? There's an important paper you should know 🧵 Thatchenkery & Katila (2023) ran a super interesting analysis on the actual effects of the Microsoft case.

They used a nifty empirical approach that could tell us a lot about what might go down with Apple.

Published paper:
WP: onlinelibrary.wiley.com/doi/abs/10.100…
mackinstitute.wharton.upenn.edu/wp-content/upl…

Two major macro trends over 40 years:

1. Rising markups 📈
2. Falling business dynamism 📉

Are these related? Many economists say so.

@UpdatedPriors and I have a new @federalreserve FEDS Note where we look sector by sector.

What do we find? 🧵
While aggregate trends show rising markups coinciding with declining dynamism, industry-level patterns go in the opposite direction.

More markup growth correlates with a smaller fall in dynamism. Opposite the time series!

It's hard to imagine capitalism without competition, so I guess I agree?

Luckily, the US has the most competitive markets in the world and has for decades!

It holds across Democratic and Republican administrations. All their policy differences are peanuts.

What do I mean? 🧵

https://twitter.com/POTUS46Archive/status/1765361689262760441

How do we measure competition?

Unfortunately, there is no universal measure of competition. It is highly model-dependent.

For example, in a Cournot model, more sellers are seen as the meaning of more competition.

"[Neoliberalism] brought back fairies and all these pre-Enlightenment beliefs in the form of "magical markets" and "market forces." These are not things that exist in the real world."- Barry Lynn

As someone who writes Economic Forces, let me clarify 👇
1. If it wasn't clear when economists say economic forces, we don't think they are actual forces. It's an analogy, just like "power".

2. Are markets magical? I don't think I've used that term, but I could see it. Technology is magical, too, for many people. Again, an analogy.

FINAL MERGER GUIDELINES ARE HERE!

Quick thread on some of what has changed.

I'll keep editorializing til the end or another thread. Here's the press release.

First, can I say that my birthday is a very not cool day to drop this?
ftc.gov/news-events/ne…

In 1984, F.A. Hayek was asked who his favorite economist was. He named two.

The first was Nobel Prize winner George Stigler. The second, sadly, never got the recognition he deserved.

Here are 5 papers by the 🐐, Armen Alchian, and why you should read them today 👇 Most grad students today never hear the name Alchian. That's a shame!

He made foundational contributions to so many fields like property rights economics, the theory of the firm and monetary economics.

That's why he's the GOAT. economicforces.xyz/p/why-armen-al…

To no one's surprise, the Nobel Prize goes to Claudia Goldin

Here are 3 things from her to start your dive into her work: One of the things that makes it difficult to jump into Claudia's work is that there really isn't ONE paper. It's a body of work built over decades.

Contrast this with last year's prize, which was literally for one model of bank runs.

Firm A has a low markup. Firm B has a high markup. Is that efficient?

The conventional wisdom is that higher markup dispersion means lower welfare. Is that always true?

We investigate that question in a new paper with Tom Phelan and Nick Pretnar. Short 🧵 We take a benchmark monopolistic competition model (Dixit-Stiglitz) but incorporate the idea that consumption takes time (Becker).

Baseline Dixit-Stiglitz generates constant markups.

This micro-founded idea of time use generates markup dispersion, as we see in the data.