Archive for February, 2011

FTC Privacy Report: In Search of Data

Thursday, February 17th, 2011

I filed comments today on the FTC staff report on privacy, which sadly is another in a long line of privacy policy proposals without any supporting data or empirical analysis.  So much for data-driven policy.

Although the report asserts that “industry must do better,” it contains no systematic data on what industry is doing now.  So, how can we know that industry needs to do better?  Policymakers can’t make informed decisions without understanding what the baseline is – what’s going on now in the marketplace.  The last systematic study of privacy practices of commercial web sites appears to be a 2001 survey (one that I was involved with) undertaken by The Progress & Freedom Foundation and Ernst & Young.

The FTC staff proposal is based on “the major themes and concepts” developed through their roundtables.  Themes and concepts are interesting, but they are not a substitute for data and analysis.  Without an analysis of benefits and costs there is no way to know whether the proposal or any of its elements would improve consumer welfare.  The staff acknowledges the need to assess the costs and benefits of its most prominent proposal, a Do-Not-Track mechanism, but then endorses the proposal without having done such an assessment.  This violates the spirit, if not the letter of President Obama’s recent executive order on regulation, which stresses the need to evaluate both benefits and costs.

The commercial use of information online is a critical part of the Internet, supporting a wide array of content and producing other benefits.  The FTC is the expert agency on privacy issues, yet its staff has proposed a major new regulatory framework for this sector without any data.  We need much more to inform the policy discussion.

We’re Number 13!

Thursday, February 17th, 2011

The Global Think Tanks Index, compiled by the Think Tanks and Civil Societies Program at the University of Pennsylvania, has ranked TPI as one of the top science and technology think tank in the world.  Of the top 25 (table 18), we are very pleased to be number 13!

The rankings were determined by a large group of experts and peer institutions, including journalists, donors, intergovernmental organizations, academic institutions, and think tank leaders.  The full report in available at www.gotothinktank.com.  

And, congrats to ITIF for making the list, too!

The Google-ITA Merger Review Approaches the Finish Line

Monday, February 7th, 2011

The Department of Justice appears to be in the final stages of its review of Google’s acquisition of ITA Software.  Several travel sites, some (but not all) of which use ITA, oppose the deal.

Google is reportedly willing to honor ITA’s existing contracts with customers and to renew them.  Some of those customers who oppose the deal now want Google also to make available upgrades to the ITA software.  DOJ is reportedly considering challenging the deal if Google does not make such a commitment even though 6 other companies produce and market travel software.  In fact, the three biggest travel sites—Expedia, Travelocity, and Priceline—do not use ITA software.

Former DOJ chief economist Bruce Owen, in a recent paper, “Antitrust and Vertical Integration in ‘New Economy’ Industries,” prepared for a TPI conference, “Antitrust and the Dynamics of Competition in High Tech Industries,” found that the empirical evidence shows that vertical integration is generally welfare enhancing, even when market power is present.  This suggests there is a high bar for blocking an acquisition such as Google’s acquisition of ITA.

Owen made a more general observation that is perhaps even more noteworthy.  Merger reviews focus on the specific transaction under review, but the more important effect may be the signals that the authorities send about how they will view future transactions.  These signals are incorporated into the risk assessments and investment decisions of potential acquirers (e.g., Google) and acquirees (e.g., ITA).

By making it difficult for Google to improve its search engine product by incorporating better travel search features the government is sending a signal to large companies, particularly in the tech sector, that it is going to make it difficult for them to improve their products, at least by acquisition.  Other things equal, this reduces the potential acquirer’s value.

The signal sent to ITA and other potential acquirees is that it is going to be more difficult for them to be acquired.  Making a major exit strategy more difficult reduces the expected payoff to venture capitalists and other investors and, hence, their willingness to risk their capital.  Requiring Google to make its upgrades available to competitors would certainly diminish the value of ITA to Google.  Google might walk away from the deal altogether or go through with it and let DOJ sue.

Even if Google accepted the condition and closed the deal, being required to make software upgrades available to competitors would presumable reduce the incentives to upgrade.  Such a condition also raises the question of how the upgrades would be priced and whether the Justice Department would become involved in pricing decisions.  (This pricing issue arises even if Google commits only to make the existing product available.)

Some improvements might be Google-specific.  Would Google have to make those improvements available, possibly compromising proprietary information?  Would a court decide which improvements were specific to Google and which were more generally applicable?  Such determinations could easily turn into quite a mess.

The most important consideration for the antitrust authorities is the effect on consumers.  Enhanced travel search capabilities that are part of the Google search engine have the potential to produce significant benefits for consumers.  Those benefits, and broader benefits that could result from other tech acquisitions down the road, may be lost if DOJ kills the Google-ITA deal by putting too many conditions on it.