Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Tuesday, November 6, 2018

CPI Interviews Hal Varian

The inaugural conference "Challenges to Antitrust in a Changing Economy", co-organized by CPI & CCIA, at Harvard Law School is next Friday, November 9th. CPI’s Editor in Chief Sam Sadden has interviewed UC Berkeley Emeritus Professor and Google's Chief Economist, Hal Varian.

 

In this audio interview,  Professor Varian explains his point of view on topics such as monopoly, market definition, and platform technologies. These issues will be further analyzed during the panel discussion on "Is monopoly power rising?". The panel will be moderated by professor and economist David Evans (Global Economics Group). Other speakers include professors Jim Bessen (Boston University School of Law), Esteban Rossi-Hansberg(Department of Economics and Woodrow Wilson School, Princetown University) and Marc Rysman (Department of Economics, Boston University). 

 

This conference is co-organized by CPI and CCIA.

See the full program of the conference and register free here

 

 

Listen to the full interview here

 

 

Interview Transcript

External speaker: Competition Policy International presents CPI Talks with Professor Hal Varian.

 

Sadden: CPI is really pleased to have the opportunity to speak with UC Berkeley Professor Emeritus of Business, Economics, and Information Management and Chief Economist at Google, Hal Varian. We look forward to the CPI and CCIA Conference at Harvard Law School on November 9th entitled "Challenges to Antitrust in a Changing Economy." Professor Varian, thanks for taking the time to sit down and talk with CPI today, so let's jump right in. The panel that you will be a part of asked the question "In Monopoly Power Rising?" So, how do you define monopoly or is it defined generally, and how should it be defined today? 

Varian: Well, I went back and looked at my undergraduate textbook to see how I defined monopoly when I did that, and I said it was a situation where a market is dominated by a single seller of a product. Now, the issue about that is everything hinges on what you consider a market. Coca-Cola is the only firm that can sell Coca-Cola, but there's lots of firms that can sell cola drinks, and there's lots of firms that can sell beverages, in general, so this market definition is the key issue particularly when there are new products on the market and the market is evolving in ways that are not necessarily anticipated by the protagonist.

 

Sadden: When a possible monopolist moves into new lines of business, what are some ways it improves product quality, and what are some clear examples of the contrary, i.e., a reduction in product quality?

Varian: Well, when a company’s moving into a new market, they have to think that they have some competitive edge. Maybe they can produce existing products more inexpensively or maybe they can produce products that are of higher quality. In general, if they move into a market and quality goes down, they’ve made a mistake, right? You only go to those places where you think you have a chance of beating the incumbent, and that would require the expectation that you would be able to compete effectively with the existing players.

 

Sadden: Yeah, that makes sense. How should we think about the application of antitrust to platform technologies, and should we expect to see ... I know you don't have a crystal ball, but should we expect to see greater convergence on both sides of the Atlantic in the near future or more of a sense of divergence on approaches to regulation and enforcement?

Varian: The term platform seems to mean different things to different people. The original definition of platform was it was something where you could build on top of, so an operating system would be the clearest example. If you think of Windows or you think of Android, that would be a platform because lots of other people could create applications on top of that particular platform.

Nowadays, the meaning of the term seems to have broadened to refer to almost any kind of online business, but particularly those businesses where there's some two-sided matching going on. People are seeking information. People are providing information. People are seeking news, and people are providing news. People are seeking products, and someone’s providing products, and so on. That’s what I would normally call a two-sided market or a K-sided market more generally. When you’re talking to somebody about platforms, the first thing you have to do is agree on what terms you’re going to use.

Oh, and I didn’t answer the final question do I think the gap is narrowing in the understanding of platforms? I don't see any signs of that. In fact, I see more confusion because of this proliferation of these different definitions of what a platform is. Right now, it seems there’s a lot of different views on that particular question.

 

Sadden: It may be useful to come to, at some point, as much of a general consensus internationally on the definitions of platforms and the markets, two-sided markets, what those are and what they are not, something along those lines.

Varian: Absolutely. Same thing with network effects, and economies of scale, and so on. People seem to have different ideas of these concepts, so when you start a conversation, agree on your terms to begin with.

 

Sadden: Right. Lastly, discussions on suppression of innovation are in the air and gaining traction. Where do you think things stand today, and what’s likely to, or may, happen moving forward?

Varian: Well, let me give you my personal view on this. I think you can’t put the “technology genie” back in the bottle. There are a lot of services, capabilities, and so on which were once quite difficult and now become very easy to do. My favorite example is facial recognition. There’s lots of talk about regulation facial recognition, but anybody with a little bit of expertise and access to some computing power can create their own facial recognition system now without a great deal of difficulty, so it’s going to be very, very hard to regulate something that could be created in anybody’s bedroom.

 

Sadden: Well, thank you very much, Professor Varian. I really appreciate you sitting down to take time and answer some of these questions. We look forward to seeing you at Harvard Law School on November 9th at the conference “Challenges to Antitrust in a Changing Economy.” We hope to see many of our listeners there as well. Thank you once again. I really appreciate it.

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