Putting antitrust into high definition

There is an interesting article in The Economist this week discussing antitrust and competition regulation in Europe. Occasioned by a changing of the guard at the European Union’s competition commission, where Joaquín Almunia is replacing Neelie Kroes, the article makes some strong recommendations concerning the direction of EU antitrust. After lauding the commission for its active and robust enforcement, it then suggests that the EU should reconfigure its process for prosecuting price fixing, cartelization, monopolization, and the like. The biggest complaint stems from the concentration of authority – “prosecutor, judge and jury,” The Economist calls it – within the case teams that spearhead enforcement actions. The newspaper feels greater justice would be served by having enforcement teams make their cases before judges in open court, as we do in the United States.

It seems slightly disingenuous to laud the EU for its antitrust enforcement on the one hand, and then urge it to be more like the U.S. on the other, but luckily for the EU, it could probably introduce much of what The Economist suggests without compromising the vigor of its antitrust enforcement. That’s because, at least to date, the EU has invested the commission with real power and a certain independence. These are qualities that wax and wane in U.S. antitrust enforcement, depending upon the priorities and ideology of the president.

Personally, I admire the commission’s chutzpah in bringing big, commercially important enforcement actions against market leaders, something rarely seen in the U.S., and I think it would be a shame to have a convergence of the two systems. Much like state-level laws and regulations in the U.S., competition and variety among regulators is a positive thing. It is often remarked how the individual states act as laboratories for policy in the U.S., and I see the quirks of EU competition policy in much the same light. It doesn’t hurt to have a slightly different system in place policing the global market, even though that system seems to disproportionately prosecute big American technology firms.

Often times, the big American tech firms deserve the scrutiny.

For instance, I was recently made aware of a rather silly problem a friend of mine encountered when trying to display high-definition content that he bought online. My friend just purchased a new MacBook Pro and visited the iTunes Store to buy some HD movies and TV shows. The MacBook has a very nice display, but my friend wanted to view the content on his television, so he connected his Mac to his large TV, such that the TV would function as a secondary monitor. It worked fine…except for when he went to view the HD content, whereupon he received an error message that read “This movie cannot be displayed because a display that is not authorized to play protected movies is connected.” The standard-definition content played fine, only the HD stuff caused the error.

At first, we thought it was a lame attempt by Apple to force people to buy Apple TV or Apple’s home theater system, both of which display the HD content without a problem. Not so. It appears the culprit here is the content owners – movie studios, television studios, and the like – which have flagged their online HD video content using something called high-bandwidth digital content protection (HDCP). Devised by Intel, HDCP basically prevents the viewing of HD video content by encrypting video and audio as it travels across peripheral connections (i.e., monitor cables and ports). I’m not alleging anti-competitive behavior by relating this story, but instead, merely want to point out how easy it would be to form cartels in consumer electronics and technology, industries that rely on technical standards and harmonization in order to commercialize their products. Given the plethora of new technologies out there – and the speed at which they proliferate – the opportunity for mischief is quite high.

This argues for greater antitrust regulation and consumer protection, not less. When the Obama administration arrived on the scene, people assumed that heightened antitrust regulation would accompany it. And it has, of a sort. But as I noted late last year, if greater antitrust vigilance is going to ramp up regulation on trifling matters – like pretzels – and exclude enforcement actions against companies and industries that really matter – like high technology, consumer electronics, and telecommunications – then that’s something I can’t support. As the foregoing example demonstrates, we need strong antitrust enforcement, but the regulators also need the independence and funding to go after the biggest companies, something they already do in Europe, sometimes for less than saintly reasons, but at least the current EU competition regime has shown that it is stronger than the corporate interests it is supposed to be policing.