Interview With FTC Chair Lina Khan – CNBC

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Interview With FTC Chair Lina Khan – CNBC
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Following is the unofficial transcript of a CNBC and New York Times interview with Federal Trade Commission Chair Lina Khan. She was interviewed by Andrew Ross Sorkin, CNBC Anchor and New York Times columnist and DealBook Founder and Editor-at-Large, and Kara Swisher, host of The New York Times “Sway” podcast and a CNBC Contributor. The interview took place today during a special edition of CNBC’s “Capital Exchange” and the conversation with Khan will be featured on The New York Times “Sway” podcast.

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Lina Khan: Big Tech, Big Deals And A New Era Of Antitrust

ANDREW ROSS SORKIN: Hello and welcome to this special edition of “Capital Exchange” right here on CNBC. I'm Andrew Ross Sorkin along with Kara Swisher, my good friend, and doing this together in person. Hi there. It's nice to see you.

KARA SWISHER: Nice to see you.

SORKIN: We're hosting this live stream together CNBC and the New York Times’ Sway Kara’s, of course, twice weekly podcast. And we've got so much to talk about, because we have a huge news making interview right here from Washington, as we've mentioned in person, all about the world of mergers and where things are headed in terms of regulating technology and big companies. We're here today with arguably one of the most influential and important regulators in America, Lina Khan, the Chair of the Federal Trade Commission, it's her first on camera interview since taking the job and so much is on her agenda right now how to modernize the rules the road for mergers and acquisitions, a very tall task after a record setting year of deals plus, taking on big tech, the agency's ongoing battle with Facebook and the looming fight over the metaverse, section 230, and so much more. And then later, we're going to dive into how the FTC and the Department of Justice want to redefine and rewrite what constitutes antitrust. And we're going to get to all that including some voices of her critics. We want to welcome chair Khan, for being here. So thank you so much.

LINA KHAN: Thank you both.

SORKIN: We've been wanting to there's a million questions we have. But here's where we want to start, which is that this conversation is going to focus on your agency and the Department of Justice starting to rewrite this process of guidelines for mergers. And as we just mentioned, last year was such a big one for deals, you know, nearly $6 trillion for the first time ever. And just yesterday, hours before you held a press conference to talk about all this Microsoft Corporation (NASDAQ:MSFT) announced a massive transaction to acquire Activision Blizzard, Inc. (NASDAQ:ATVI) for nearly $70 billion and Activision CEO Bobby Kotick addressed the issue of competition and tie ups on CNBC yesterday, just want you to listen to this.

SOUND BITE FROM BOBBY KOTICK INTERVIVEW ON CNBC’S “SQUAWK BOX” YESTERDAY

BOBBY KOTICK: One of the motivations that we had for a partnership with Microsoft is the recognition of it's a, it's a big market, but there's enormous amount of competition, whether it's Tencent that has resources that are extraordinary, and a global footprint, or Sony, or Facebook, or Amazon, or Apple or Google or Netflix or Disney. When you think about the race for the metaverse, and for more influence in gaming in the gaming ecosystem, we've now seen more competition than ever before.

SORKIN: I want to start there. And I know you can speak directly to this deal. But what's so interesting about this deal, and rethinking antitrust is here you have a big technology company in Microsoft, going into an industry that's pretty fractured, and traditionally probably wouldn't get looked at by antitrust regulators in the way that two big companies coming together might given the scale, but you're rethinking how all this works. And so I, again, without necessarily speaking to this deal itself, how you think about a big tech company, maybe go after a smaller company, where you might not have monopoly power in the traditional sense, but maybe under some of the new metrics. You could?

KHAN: Yeah, this is a phenomenally important issue and one that both agencies have been studying important because it's not new, right? It's something that we've seen for the last two decades where the top five tech firms have made hundreds of acquisitions, many of which fell beneath the radar. The FTC under my predecessor initiated a study of these acquisitions. They're trying to understand what did we miss? And what can we be learning to make sure that we're identifying accurately what types of deals may be illegal, even if they're not mapping on to the traditional way that we might have been looking at this. And that's really what our process to potentially revise the merger guidelines in tandem with DOJ is all about the laws on the books Congress in 1914 said mergers that may substantially lessen competition or attempt to create a monopoly are illegal, what that means in practice is going to change depending on the economic economy, the market conditions. And as we've seen the growth of new technologies, the market dynamics have changed. And so we need to make sure that the tools we're using the frameworks we're using, the questions that we're asking, are actually still mapping on to the reality that we're seeing in these markets. And that's what our process is.

SWISHER: Started with 1914, which was a long time ago, if I can do my math correctly, and the changes and how this shows that a lot of these companies have been providing things that are free to people if you noticed, Bobby Kotick just said the word competition several times he threw in metaverse for good measure. When I was talking to people about this deal yesterday they kept seeing distant third competitive. Often they'd say things like China, they mentioned China several times. A global environment, when you're thinking about these merger guidelines, are you thinking about this big tech expanding its tentacles to maintain dominance? Because they can do that as they shift and move, you know, almost like a board to wherever they want to go.

KHAN: It's a big question. And it's also not a new question, right? The Justice Department's antitrust landmark antitrust case against Microsoft is about this exact same dynamic, right? Microsoft had captured control over the operating system. And the reason it was able to maintain that dominance is because there was this what was known as the applications barrier to entry, right operating systems in order to be desirable to consumers needed to have a base level of applications. So there was a chicken and egg problem here come along Java, Netscape, that threatened to loosen that dominance because they provided an alternative platform on which you could have apps. And that's why Microsoft was threatened. So the Justice Department's case was alleging that the moves that Microsoft made, were really designed to maintain its monopoly in the operating system through kind of stifling these rivals. And so I think those are the same kinds of questions we need to be asking today, especially as we see the advent of new technologies of potentially alternative platforms. I think whenever you see potential moments of transition, that's when enforcers need to be especially vigilant because that's when incumbents often panic and realize that to stay relevant to stay dominant, you know, they may have to engage in tactics that ultimately end up being illegal

SORKIN: when you jump in. And I think part of it, and you can look at Facebook, now meta in a way when they made the Instagram acquisition. Now, they clearly were big in one space didn’t necessarily have a foothold in this other space. There were some people who thought that was going to be a failure of a merger in the end. And yet, obviously, today, you look back with hindsight, and they had great success, arguably, in certain cases, maybe too much success. And so the question is, when is the regulator supposed to say, this could work? And if it works, it's going to work too well?

KHAN: It's an interesting question. And I think, you know, for reinforces that the real question is, is this a deal that could lessen competition, and in hindsight,

SORKIN: Don’t all deals to some degree lessen competition?

KHAN: substantially lessen competition or tend to create a monopoly. And there's also indication that Congress wanted enforcers not just to act when you know, the third and fourth companies are merging or the first and second, but actually in the incipiency, when you said see trends towards concentration that those can also be important moments for enforcers to jump in. We the FTC, has a lawsuit currently against Facebook, in part alleging that the Instagram and WhatsApp acquisitions were unlawful, that those also were designed to maintain its monopoly? In part because as the lawsuit alleges, there was this moment of transition to mobile, right. And Facebook saw that it wasn't up to the task, and it really needed to make this acquisition to survive that transition. In hindsight, I think looking back looking at the documents, looking at the evidence that was available. Now the agency was able to determine that was an illegal transaction. But I think part of this process of revising the merger guidelines with doing these studies to understand what did we miss? The goal of that is to help us answer precisely that question and –

SWISHER: Talk about what you announced yesterday is what you miss. One of the things you mentioned was the study around I think they're called killer acquisitions in terms of getting rid of competition, before they became competitive, Instagram could be looked at like that. There's a whole bunch of different things. And then there's copying other people's things, which is a whole other issue. I call it shoplifting. But when you or plagiarism, I guess, when you're thinking about how to revise them talk a little bit about what's different here. Because this is kind of a moving target. And the case of Microsoft, there was one company that sat over all the others. This is a half a dozen companies that have advantages in each area, whether it's apple, whether it's Microsoft, whether it's Google, whether it's meta to talk a little bit about how we're thinking about revising the guidelines, because it's a moving target.

KHAN: Yeah, then the project to potentially revise the guidelines is to basically identify what are the blind spots right now, you know, what are the questions that we haven't been asking that we should be asking? Some of those are in the tech context, but others are relating to, you know, what's known as monopsony or labor effects. So this is a holistic project that's going to involve tech, but also, you know, beyond Tech, I think in the context of these digital markets, you know, there are a few key questions. So one is, how do we how do we make sure that we're understanding instances in which acquisitions are being made with an eye to moat building right many of these firms, historically have pursued some of their deal making with an eye to building and establishing and protecting that moat? And so I think that's a key question. Another question is, what is the role of data we've seen throughout the ways in which data aggregation and access to commercially sensitive data sometimes of other firms can also affirms a particular edge and ensure that they survive some of these transitions. And then we're going to continue to look at, you know, network externalities. What are the ways in which firms are using some of what's unique about digital markets to their advantage?

SORKIN: You mentioned the word labor. And it's an interesting word, because it's a new metric that your department seems to be looking at, potentially, in the context of transactions and just scale and size. And so speak to that if you can about what that really means. How that how you think about labor? And is it the job of the business or industry simply to employ people for the purpose of employing them? It's an interesting, almost philosophical thought

SWISHER: especially at a moment of, you know, low unemployment here that consolidation affects employment. But this is the first time you're talking about the impact of consolidation on jobs.

KHAN: So over the last decade, there's been a phenomenal set of research that has been trying to understand what is the state of labor markets from a competition perspective, and some of this research has showed that labor markets are significantly concentrated. And it's led to, you know, additional thinking at the policy level of how this should be affecting what antitrust enforcers are doing. So the Justice Department, including in the last administration, started looking at no poach agreements, more closely instances in which employers may be colluding to suppress wages. Both agencies have been looking at the ways in which mergers in particular may lessen competition for labor and have downstream effects on workers in ways that are harmful. And that also needs to be on our radar. So I think this is an ongoing conversation. But increasingly, the question is, you know, how we implement some of these priorities and not you know, whether they're important,

SWISHER: but this is the first time you've included labor. This is something labor's wanted for a long time, the idea of looking at antitrust through the lens of unemployment, essentially.

KHAN: Yeah, there's an interesting history here. I mean, you know, there were cases in which, you know, unions were supporting our transactions, because they thought they would lead to more downstream benefits. But I think we started to see through retrospective studies, instances in which, you know, mergers actually ended up having a harmful effect. And so I think that is what's significantly contributing to this reassessment.

SORKIN: I was going to say it is a philosophical question, again, goes maybe to this idea of when do you jump in as the regulator, do you do it with hindsight after the fact you do it beforehand? I want to show you if I can, and I don't know if we have a graphic of it, the top 10 companies by market cap in 2022. And if you look at that list, it's Apple, Microsoft, Saudi Aramco alphabet, Amazon, Tesla, Meta, Taiwan, semiconductor Berkshire Hathaway in the video, but then if you go back just a decade, that list flips around. Now, there are some companies that are still on it, about half, if you go back another decade, the list almost rotates entirely. So the question is, is the marketplace doing that itself? Should regulators be jumping in and what and when do you do it? I think there's a timing issue in all of this.

KHAN: yeh So the key task for antitrust enforcers is to ensure that we have a marketplace where firms can compete on the merits. If you're an entrepreneur business, and you have an idea for particular good or service and you bring it to market and consumers like it, it's successful. Can you compete in a fair way? And so really, the goal of the enforcers is to create a marketplace that's competitive, that's open, that's fair. It's not the job of the enforcers, to pick winners and losers, but to ensure that firms are playing fairly and you know, competing, rather than

SORKIN: when you jump in front of the bus, and when you try to pull the bus back after the fact,

KHAN: It's a good question, and certainly one that enforcers are grappling with, you know, the FTC ended up bringing this enforcement action against Facebook significantly after the fact because we thought it was important to ensure that, you know, the marketplace knew that these types of deals are not going to be immunized.

SWISHER: So one of the things that Facebook has put let’s call it Meta I guess, let Mark call it whatever he wants. They bring up the idea of one of China that theret's a global competition that other companies same thing in this Microsoft acquisition, I think their defense will be Tencent, which owns everything, including some US companies and are not regulated in any way. Epic for example, Supercell they have, they have a lot. They have a lot and then you have Alibaba, you have Sony, you have others. They're going to use that competition. And I think Facebook often talks about Tic Toc constantly and then says China right after that, which is Chinese investors are in that company. How do you meet with the idea that their argument is competition will take care of it and ultimately, it sort of took care of Microsoft in that way is that people shifted to other things. Now of course, Microsoft one of the most valuable companies on the planet, I think after Apple, but how do you when you when they're saying competition will take care of it, the market will take care of it?

KHAN: Well, there was a major antitrust lawsuit against Microsoft. Yes. There was a question as to whether the growth and success of this, you know, next generation internet company companies if the Department of Justice hadn't taken the action,

SWISHER:  right I would agree.

KHAN: So I think in that case, enforcement was critical to oxygenate the market and make sure that those opportunities were there. I think, you know, the kind of national champion arguments have been made for decades. It's not something that's new. Definitely a question that the US face, you know, mid-century, where other countries were doubling down on the national champion model. And at that moment, the US decided to continue to move forward with competition, right, there was a major lawsuit against AT&T, AT&T was broken up. And in hindsight, it was clear that the US model which focus on competition ended up being the key way to generate innovation and ensure that we stayed ahead and so I think historically, we've confronted this choice before and you know, double down on competition

SWISHER: China presents a unique situation where the government is actually pressing them to invest in US companies pressing them to be here. One of the people involved in the in the Microsoft Activision deal told me China has more consumer data, and microphones and cameras stuck in the face of US citizens than any US company could ever and I don't think he meant to say this hope to which I was like you hope to and so they and they don't get regulated at all.

KHAN: Yeah, it's an important issue and I think you know, one that enforcers have thought about time in terms of how do you design a regime when different jurisdictions may have different rules of the road in antitrust I think what we've seen is that for the last decade or so, other jurisdictions have gotten harder. Right. The European Commission has gone harder. I think it's been interesting to see China take a series of actions over the last year. That actually suggested they’re robustly going to be enforcing the antitrust and their anti-monopoly laws to right. So we're not actually seeing the type of kind of free for all that was predicted. And so I think it'll be interesting to see

SORKIN: What was your impression? Or is your impression of China's regulatory crackdown on its own tech? And does it make it harder for American technology companies to go to you and say, look over there, these guys are kind of come eat our lunch, if we don't have the opportunity to have size and scale.

KHAN: I think it's certainly true that those arguments, you know, lose some of their force given that we've seen

SORKIN: are you surprised though in terms of both from a national security perspective and this national champion issue, China doing what it seems to be doing. What do you think is driving that?

KHAN: It's a really interesting question and we don't know. But I think, you know, there's historically been various moments in which there's been a recognition across jurisdictions that if you allow unfettered monopoly power to concentrate, its power can rival that of the state. Right and historically, the antitrust laws have a rich tradition and rich history and a key goal was to ensure that our commercial sphere was characterized by the same types of checks and balances and protections against concentration of economic power that we have set up in our political and governance sphere. And so the desire to kind of check those types of concentrations of power I think is deep in the American tradition, and also one that leaves—

SWISHER: Do you think they have the power of governments, these companies at this point, is that in your worldview as a regulator?

KHAN: I think it's certainly an interesting question. And it's certainly true that the types of capabilities that we've seen some of these firms develop really pose difficult questions about, I think, in particular, the types of information that they have access to. And that implicates all sorts of data privacy and security questions in addition to competition questions. So I certainly think that it's a question that needs to be top of mind for all of us.

SWISHER: Okay, an interesting question but what's the interesting answer? Are they too powerful?

KHAN: Well, I think for the, for antitrust enforcers, we really view this issue through the prism of competition whether firms are using their market power in unlawful anti-competitive exclusionary ways. And so that's the way that we get at this, but obviously, there's a much bigger national conversation, lawmakers are thinking about these issues and in as much as there are a whole series of legislative bills that are designed to address some of these problems. I think, you know, that'll be the right venue for those decisions.

SWISHER: Alright, let's move to resources then. A lot of people, this tidal wave of mergers as you said, both the DOJ and the FTC have pleaded with Congress for more money. There's a five, there was supposed to be a $500 million boost for each agency, it died in one of the recent bills. There's a bill by Senator Klobuchar and Senator Grassley a bipartisan bill to increase money the agency's received from merger filings, which just passed the Senate, but the House has yet to act on it. Are you under resourced compared to these? I think you must be. I think there's about at least 14 PR people just for Andrew and I so I can't imagine they don't have hundreds on you.

KHAN: We are severely under resourced. You know, the we have around 1,100 folks at the FTC, that headcount is around two-thirds of what it was in around the 1980s. And our resources have stayed, you know, more or less stable. In real terms, they've actually declined at various points over the last decade. And so when you have like we did over the last year, a doubling of in terms of deal volume, our resources stayed the same. So we have the same number of people responsible for investigating these transactions, the number of transactions has dramatically increased, that creates significant strain. And we have to make very difficult choices about which billion dollar deals we're going to, you know, ensure we're closely investigating, but they're very real tradeoffs in terms of what that work is going to come at the expense of.

SORKIN: Can you speak to those tradeoffs? Meaning there's a lot of business leaders who are watching you and listening to your words right now. When you sit in the room and have to decide which, you know, we're going to go after this company but actually, we really did go to this company, we want to do this because maybe there's going to be a deterrent effect and that will have a greater impact on creating the marketplace that you want and maybe from an efficiency perspective, given the resources you have you have to think about, I don't know. But take us inside that room, if you could.

KHAN: It's a very difficult question and one that definitely weighs on me. I think you mentioned deterrence, I think deterrence here is key. I think what we've seen over the last few decades is that there have been, you know, mergers that have made it out of the boardroom that have seemed to be facially anti-competitive, facially illegal. And I think what this suggests is that firms have not been deterred because the consequences of proposing those deals have not been significant. Many of them have flown under the radar and enforcers were not able to take action and even when they did take action, you know, you spend some money, fight the case in court, but the kind of deterrence that we need to see in order to change the game we're not seeing so I think it's certainly true that that's something we think about. We also think about, you know, what are instances and this is true in the merger context but across our enforcement work, what are instances in which certain types of actions can have a market wide impact, if we are able to obtain a particular settlement or consent decree or get a good outcome in court, what are instances in which that could really change the dynamic in the entire market rather than just, you know, here or there. Another thing that we think about is what are instances in which certain types of unlawful business practices have an upstream source. So certain types of intermediaries or companies that may be facilitating bad practices, going upstream and really try to nip it at the source can also be one way we try to, you know, channel our resources in ways that can be more efficient.

SWISHER: So when you feel constrained, I'm thinking of the Facebook settlement, the consent decree that then they violated and then they had a fine for then it was $5 billion. And yet one called it a parking ticket, they don't care. And I was like, add a zero to it, and perhaps it'll get interesting. What it feels like there's a reticence on the behalf of regulators or is it just we can't beat them. Like it's it feels like a movie like they've got too many lawyers. They're arrayed across against us too many PR people, too many lobbyists, that $5 billion figure seems small. Although it was explained to me, it's the best we could get, which seems somewhat pathetic from the US government, I have to say. I was like, that's not good enough from what is arguably the most powerful government on the face of the planet.

KHAN: So that took place before I arrived.

SWISHER: Yes, I did. Yes.

KHAN: But no, look, I think it takes courage. These are enormously well-resourced companies, they are not shy about deploying those resources. And I think in these moments, it's important to kind of ensure where we're really showing these companies but also showing the country that enforcers are not going to back down because of, you know, these companies flexing some muscle or kind of trying to intimidate us. And so I think those are the types of lessons that we're trying to learn looking back over the last decade.

SWISHER: So you’re not scared of losing necessarily is that's got to be a calculus as we can't win this or we we've got to be cautious because if we lose too many, we'll lose what.

KHAN: It's a hard assessment to make. But I think it's certainly true that deciding when moving forward and taking action is still worth it. Even if it's not a slam dunk case, even if there is a risk you might lose, there can be enormously, they can be enormous benefits from taking that risk. You might win, right, you lose all the shots you don't take. But I think what we can see is that inaction after inaction after inaction can have severe costs. And that's what we're really trying to reverse.

SWISHER: So, go ahead Andrew.

SORKIN: I was going to say, do you need help from Congress? That's what, that's what I really wanted to understand in terms of, you know, you can go to court on one side and see what the courts do. Or potentially you can have laws rewritten.

KHAN: So, our job is as enforcers is to enforce the laws as they're written. But look, in as much as Congress determines that there are gaps, that there are instances in which the laws need to be strengthened, there are instances in which courts delivered an opinion that really isn't meeting the reality of what we're seeing and how these markets are functioning, how these firms are actually exercising their market power. I think that's certainly within you know Congress' purview and strengthen the laws in that way—

SORKIN: But do you want them to? Are you spending time with Congress right now on those on those issues?

KHAN: So you know, lawmakers will ask the antitrust agencies for technical assistance, for guidance and so those processes take place. Look, I think it's no secret that it's become much more difficult to bring some of the big antitrust cases over the last few decades. And so, I think in as much as Congress wants to change that, to make it easier for enforcers to act quickly, to act in a timely way, to kind of be able to pursue some of the worst violations that we're seeing, without having to, you know, face the potential of losing significantly. I think that's definitely something—

SWISHER: What is the most important thing you need besides more money and more staff from Congress? What would be the bill that would be there's all kinds of bills, there's about half a dozen different bills, privacy bills, nondiscrimination bills, etc.

KHAN: So I can't overstate just how important the money and resources component of that is. Beyond that, look, I think there are a whole set of ways in which court decisions have made it tougher for agencies to, you know, act in a swift way. And so, I think, a set of changes that are being considered is really encouraging. I think it's especially great to see how there's so much bipartisan interest and concern and I think that really speaks to the degree to which there's a growing recognition that there's just a deep problem.

SWISHER: And then when you think about where it's going, one of the things that's important to imagine is how you, what case you decide now, you just won a forward motion in the Meta case. They had, the judge had said go back and do better homework. I think that's what it essentially said. How do you feel what does that do to this case right now? I know you can't talk specifically but there's been a lot of the judges has ruled. How do you look at that happening for the FTC that it's allowed to move forward?

KHAN: It's a terrific outcome and really allows us to now proceed with the actual case, right, and kind of past the key threshold point. And our staff brought, you know, a terrific complaint, really buffed it up. And the judge actually said, in his opinion, the FTC did its homework, right. So, it's an important step forward and there were really some important there was an important discussion in that opinion also around the ways in which the courts can understand non-price harms so the fact that certain types of quality degradation, certain types of harms to privacy, that those could be recognized as harms, even if you're not seeing an increase in the dollar price that people are, are paying.

SORKIN: How do you weigh those harms? That to me is such a central question, which is if you have lower prices on one side, but you lose—

SWISHER: For free.

SORKIN: For free, but you but you either lose privacy or something else. Who's to balance that? Is that for regulators to balance, is that for the public to balance? Is that up to the marketplace to balance?

KHAN: So the antitrust laws and the case law say that if there's harm to competition from a transaction, it's unlawful. The courts expressly say that we don't want to place the antitrust agencies in the position of having to do this balancing across these different markets of kind of, weighing well there’s harm to these entities but benefits of these entities. And so that's been the traditional approach. But these are exactly some of the types of questions that we are undertaking as part of our potential revision of the merger guidelines. Asking people, you know, how should we be thinking about indices of market power? How should we be measuring some of these potential quality degradations? Because I think, you know, further research and empirical work on that could further boost us.

SWISHER: Is there an area you think is most important in that regard? Because it's not price anymore, because this is all free, you know, and one of the things I've always thought about is how much of a cheap date we are for these internet companies, they get all the information and the money, we give them our information, we get a map, or a dating service, or whatever, an email or whatever. What do you think is most degradating? Is that a word? I don't even know. What do you think is the biggest problem when you have this system where you get everything for free, the public likes these services, they've never depended on them more during the pandemic so they're necessary and useful. What do you think is the most important thing to look at when you're looking at all the various harms that could come to consumers?

KHAN: Yes, a good question and certainly one thing that we're especially interested in this revision period is, is how can we muscle up our ability to show that companies have market power or monopoly power, even when they're not charging prices, right. Right now, oftentimes, enforcers have to jump through these hoops to define a particular market, engage in this deep, you know, market definition exercise in order to be able to show well, you know, these are the price type metrics that are leading us to say this, but there's another approach of just showing direct evidence or direct effects of market power, of harm. They're going to be looking at things like privacy degradation, basically, the ways in which the companies are able to use their power, even if it's not just resulting in an increase in price. And so, I think, you know, especially in digital markets, there's a deep conversation right now and one that also falls in the FTC’s wheelhouse around data privacy and security, instances in which firms were able to renege on their commitments. And so, you know, entered the market or made certain acquisitions of firms that were a bit more privacy protective, and then ended up reneging. And so, all of a sudden firms or companies, consumers are locked in and suddenly have to surrender even more data or surrender to be on a greater set of websites. And so, I think those types of moments really underscore the point that in many instances, users are not exercising free choice and are not consenting to these practices, but really feel locked in or coerced.

SORKIN: I want to ask you about this price issue. And I want to read from your very, very famous paper that you wrote at Yale. This was a paper you wrote called Amazon's Antitrust Paradox. And you wrote, “it is as if Bezos charted the company's growth by first drawing a map of antitrust laws and then devising routes to smoothly bypass them.” This goes to the pricing issue, I think. “With its missionary zeal for consumers, Amazon has marched towards monopoly by singing the tune of contemporary antitrust.” Your critics will say that you have made up your mind about this, and some will go so far as to suggest that you have almost an activist approach to this role. And I'm hoping you can speak to that, in this context, if you could.

KHAN: So look, my goal has always been to understand what's really going on in these markets. I got my start as a journalist, talking to actual market participants. You know, you would read in the headlines, hey, this big agriculture merger happened, It's great for consumers. And then you would go, you know, dig beneath the surface and see, well actually seed prices increased and farmers got hurt. So really digging beneath the surface to understand what's really going on here. And I think what we see is that some of the metrics that have been used over the last decades have not really captured in full, the full architecture of market power that we're seeing and how it's being exercised. And so for me, the key question is really how do we make sure that our tools and our frameworks and the ways that we're enforcing the law are matching the world that we're living in? And are not just you know, theory here and evidence here, but our theory and our tools are evolving to meet the evolving marketplace.

SWISHER: But they've targeted you in particular. They’ve also targeted John Kanter. Senator Warren is anti tech. There was an attempt to get you to be recused, which you won on. The judge said specifically, “it is natural for the President to select a candidate based on her past experiences and views, including the topics that are likely to come before the Commission. During her tenure, courts must tread carefully when reviewing cases in this area.” That hasn't stopped them from trying to focus on you as an activist. What is your answer to them when they say that? That she doesn't – she’s anti tech. Or John Kanter who is the Assistant Attorney for antitrust. They're anti tech, they're out to get us. What is your answer to them?

KHAN: Look as enforcers we are charged with applying the law evenly to big companies. You know, and so it's really a question of, can we be even handed in applying the law? And the fact that you know, some of these firms have gotten maybe lighter touch treatment in the past, I think we're now seeing them respond to some of the cases and the enforcement actions pile up. But look, it was really terrific to see the judge come out in favor of the FTC on this recusal argument, noting that I have none of personal ties or financial conflicts that are the basis for these types of conflicts of interest or recusal. So we're here to apply the law in an even handed fashion and really ensure that we have a robust, thriving, open, competitive marketplace. And if there are companies, monopolies that are engaging in illegal conduct, we're going to apply the law.

SWISHER: So you wouldn't call yourself an activist or would you? An activist regulator?

KHAN: I'm an enforcer. I have the honor of serving in this role. And our job is to really enforce the law in an even handed way.

SORKIN: As you know, the Biden ministration has argued that antitrust, or maybe the lack of antitrust regulation, has played a role in the inflation that we're seeing in the country. Others who blame the Federal Reserve and the like. Where do you stand on that? Do you believe that the inflation we're seeing today is in large part a result of a lack of antitrust regulation?

KHAN: Look, I think there's wide agreement that the inflation that we've been seeing has a variety of sources, many of which relate to the Covid pandemic and the various disruptions that have been created through that. On this question of, you know, the role of market power, I think there are a couple of instances in which we can imagine market power could play a contributing role, right? I think one that comes to mind is instances in which an inflationary environment can give cover to companies with market power or monopoly power to exploit that power, right. If prices are kind of rising around them, then they can either unilaterally, in a coordinated way, raise prices in ways that might not be as easily detectable. And that's just a pure exploitation of their monopoly power. I think another instance in which we might imagine seeing it is certain types of mergers and acquisitions over the last few decades have left our supply chains much more brittle, right? Capacity has been thinned out. And as a result of that the system as a whole might be less resilient so that when you have certain types of shocks, certain types of disruptions be it natural disasters or a global pandemic, we're not able to respond as quickly and that can lead to certain types of price increases, too. So I think those are two instances in which monopoly or market power can contribute.

SORKIN: Can I read you something? This is Larry Summers on this very issue. And it's an interesting critique. He says, “the emerging claim that antitrust and combat inflation reflects ‘science denial.’ There are many areas like transitory inflation, where serious economists differ, serious economists differ. Antitrust as an anti-inflation strategy is not one of them.” “Hipster, Brandesian antitrust, with which the administration and its appointees flirt –” and I think this is a criticism they're sending your way, “is more likely to raise than lower prices.” What do you think of that?

KHAN: Look, I think it's hard to make statements of generality on this. It's really a market by market and case by case assessment. I think some of the work that the White House has been doing, looking at how agricultural markets have been functioning, is really interesting, where we've seen a spread increase, right, between the price and the cost. I think, you know, they're interesting analyst reports where people are saying this out loud, in some instances. That the inflationary environment could give cover for companies to raise prices that are not going to come down as quickly. So I think it's a really interesting area of study. It's an area that the government previously did study at a more micro level, where Congress or agencies like the FTC, would collect data in a more ongoing way to allow us to have more insight and in these types of issues.

SWISHER: So when you're – we have just a few more minutes. A couple more questions around this. And some of the people that sent me – I talked to a lot of tech people as you know. And they get angry, especially that they're being targeted, particularly by the FTC or the Justice Department. And one of them said to me, “and the fact that the FTC skips all monopolies, oligopolies, that actually affect normal people to go after the platform for speech from their political enemies, it stinks. We can't be okay with creeping control from Democrats and only care when Trump wins.” So how do you, when you think about the criticism of tech around speech right now – and it's not speech, it's misinformation, really, I think it's been cloaked in a free speech argument, when in fact, it's something else. When you think about these actions and pulling back tech, do you think about the political implications around misinformation? We're right near – we're looking at the Capitol right now – around their impact? Obviously, they've been called up and subpoenaed by the committee, nothing to do with you, the January 6 committee. When you think about operating in an environment like that, how do you – do you have to tread more carefully?

KHAN: Look, we think about the antitrust issues at play, which I think are slightly separate from the types of issues that you're mentioning. I should note though, you know, the kind of implication in that criticism is that the FTC is squarely focused on this industry at the expense of others. We have a broad ambit. I mean, Congress gave us a huge, huge job that covers the entirety of the U.S. economy. We're bringing merger challenges. We're bringing challenges to hospital mergers, right? We just – Nvidia/Arm, it's a major challenge to a semiconductor trip transaction. So it's really across the board. Historically, the FTC has brought cases in the retail sector, the grocery sector. So the idea that this is somehow tech's focus, I think, really misses the broader picture, which is that we've seen consolidation in a more systemic way across the economy, and both the DOJ and FTC, are taking on, you know, this in a holistic way.

SWISHER: So it's not just that. I mean, it begs the question, should there be a separate agency for that? I mean, you worked in Congress on some of the reports with David Cicilline, you were critical to that around these companies. Should there be a separate agency? There is one for Wall Street, there's one for agriculture. There's all kinds of other industries are regulated by specific agencies. Does their need – does the FTC need to break off the information part?

KHAN: It seems to be a conversation that lawmakers are having. There was a proposal to potentially have the FTC create a separate privacy bureau. So look, it's ultimately a decision for Congress to make. But we see our job as doing everything we can with the tools that we currently have to make sure we're going after the unlawful practices.

SWISHER: Do you have a point of view on this?

KHAN: On whether there –

SWISHER: Should be.

SORKIN: Different agencies.

KHAN: Look, I think the FTC has developed significant expertise on these issues, and especially if we are able to get the additional resources and the additional money, I think, you know, we have an opportunity to really go hard here. I think, you know, standing up new agencies can take a lot of work. I think there could be frictions there that are important to think about, too.

SORKIN: We had a lot of questions come in  and I wanted to read one of them. This goes to the issue of copying. And Bill Gurley, the venture capitalist, wrote in replying to one of Kara’s tweets about this upcoming interview with you said that he wants to know whether large platform players with network effects that are blatantly copying rivals products and adding them for free to a different platform, think of an Instagram stories or a Microsoft Teams. How would you go about blocking these moves in the future? Or would you?

SWISHER: Is that your job?

SORKIN: Is there an element of innovation in that?

KHAN: You know, these are all very, you know, facts specific inquiries. But I think at a general level, you want to be thinking about whether a firm that has monopoly power or market power is acting in an exclusionary way or anti-competitive way. I think, one, you know, one reason why some of those types of dynamics have raised broader concerns is because it could potentially sap innovation and investment, right? If you're an entrepreneur, and you're going to bring a product or service to market, but you're not going to be able to reap the rewards of that investment, because somebody is going to swoop in and appropriate it and, you know, bundle it or bolt it on, I think that can raise broader questions, you know, whether it's an antitrust violation is just going to require a little bit more looking at the specific details of that.

SWISHER: And is that within the purview of the FTC? I think that's what Bill was asking.

KHAN: I think certainly, those types of dynamics in as much as they can help firms, you know, solidify or protect their monopoly power is something that enforcers you know, look at and think about.

SWISHER: So when you look at those numbers when you have Google above 90%, Facebook and Google controlling, I don't know, 60 to 80% of the digital ad market, what figures do you think are the most important to look at? Because in this case, when I talk to venture capitalists, they're not investing in social media, they will not invest in search. Are you kidding, kind of thing. Last time a social media company was founded was Snapchat, which spends all its time fobbing off Facebook's copying. There's not been a search, there has been – Neva just started, but very small amounts. Do you -- where does the government play in that area to protect those companies?

KHAN: Yeah, I think you're referencing some of these kills zones that have been described where, you know, investment dries up, because there's a sense that if you enter, you know, you won't be able to compete on a level playing field. So that's definitely something that we have to be vigilant about to make sure that incumbents are not, you know, engaging in anti-competitive tactics. I think, as I mentioned earlier, I think this is a huge issue, as we see the introduction of some of these next generation platforms, right? As we see voice, cloud, virtual reality, we have to make sure that we're fully learning the lessons of the last two decades –

SWISHER: Surveillance.

KHAN: And applying them in these markets so that we're not allowing the incumbents who just extend and protect their monopolies in ways that are just squashing rivals and engaging in unlawful conduct.

SWISHER: Okay, I have one final question. Okay. And then Andrew will have one. I'm curious about the role of public opinion in how you think about this. Obviously, you're an interesting regulator, I think compared to most regulators. One of the things that was also interesting was when Francis Haugen made the whistleblower revelations. How did you and the FTC think about it as these revelations were coming out? Does that matter at all to you? Or does this public opinion matter to you? As it definitely shifted questions about Facebook and Meta’s role. And the same thing with other tech companies. People are worried about – public opinion polls are showing that as much as we use them, they're wary of them. It doesn't seem to stop them in any way. So how do you think about public opinion as a regulator and a high profile one?

KHAN: Yeah, I mean, I think in as much as there's, you know, data showing that people are using some of these services but not necessarily out of choice or are doing so you know, because they feel like they have to, I think that's always relevant to us as we try to understand what's really going on here and whether you know, the type of notice and consent regime that is covering how we think about, say privacy, is really still adequate. We at the FTC have been doing a lot to try to ensure that we are actually hearing directly from the public. So we started doing these monthly open meetings –

SWISHER: First time.

KHAN: Where people can come and do come and share what they're seeing if there are particular problems in the market that they think need to be on our radar. We want to be able to hear directly from people. I think in DC, it's easy to kind of get disconnected from the problems that people are facing in their day to day lives. And so being able to have that direct channel is important.

SWISHER: Do you have a direct channel to tech CEOs? Do you talk to them? Or not? That’s a no.

KHAN: You know, if as part of our enforcement work, if that comes up, you know, that might be something that happens, but we really try to make sure we're going through regular channels.

SORKIN: I just want to ask you about marketplaces, because it feels like marketplaces, in the digital realm and in the physical realm are increasing in all different kinds of ways. And you're having companies like the Amazons of the world that have used their marketplace to produce their own products, but also to sell other people's products. And I think we're going to see this –

SWISHER: Apple.

SORKIN: In Apple, and I think we're going to see this in a major way when it comes to the digital metaverse. If you believe the metaverse is a promise to bring this all back to the beginning of where we started. And how you think the player – what the rules of the road should really be. Should you either be a marketplace and that is the business or should you be able to produce effectively games, TV shows, apps or other things within the control of your marketplace?

KHAN: I think it's a phenomenally important question and one that lawmakers are grappling with across the world. And historically, there have been sectors where Congress set those rules, right. There's this long standing separation between banking and commerce where lawmakers recognize that because banks are playing such a critical role in providing credit to the whole economy we don't want them to compete directly with the merchants that are going to be depending on them. And so figuring out whether those types of conflicts of interest, or other types of problematic dynamics could emerge are ones that we want to clearly prevent in these markets I think is going to be really important to think about.

SWISHER: I do have one last question. You only have a few years, right. This is where – you’re one year into the Biden administration. There could be a change of power at the midterm elections. How do you look at your timeframe here to get something done? You still don't have – I don't think he's been approved – the fifth member, right. The Commissioner. You don't have a lot of time, correct? How do you look at the pressure that you're under?

KHAN: With a fierce sense of urgency.

SWISHER: Okay.

KHAN: Yeah I mean I think look, that’s absolutely true and you know with some of these enforcement actions in particular, it can take a long time to put together the investigation even once you then file the complaint, it takes a while to work its way through court. So I think that really just adds a lot of pressure for us to be acting quickly every day to do what we can to drive things forward.

SWISHER: I have heard them say they're going to wait you out. Do you think they can do that?

KHAN: We're going to do everything we can to enforce the law, in an even handed way. And look, I think for us, it's a big moment. I think there's an opportunity here to really change and learn from the mistakes of the past and that's what we're going to try to do.

SORKIN: We're going to leave the conversation there. We want to thank you for having this conversation with both of us and with our viewers and with our listeners from the Sway podcast. I'm Andrew Ross Sorkin want to thank you again, Chair Khan. I want to thank my friend Kara Swisher.

SWISHER: Thank you.

SORKIN: I want to thank all of you for joining this very special “Capital Exchange” livestream. And be sure to check out Kara's New York Times podcast for a deeper dive into today's conversation. I’ll be on CNBC’s “TechCheck” in the next hour and as always I'll see you on “Squawk Box” bright and early tomorrow morning.

 

 

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Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver
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