WEBVTT 00:00:00.000 --> 00:00:00.996 align:middle line:90% 00:00:00.996 --> 00:00:01.992 align:middle line:90% [SQUEAKING] 00:00:01.992 --> 00:00:03.486 align:middle line:90% [RUSTLING] 00:00:03.486 --> 00:00:04.482 align:middle line:90% 00:00:04.482 --> 00:00:06.972 align:middle line:90% [CLICKING] 00:00:06.972 --> 00:00:11.760 align:middle line:90% 00:00:11.760 --> 00:00:13.110 align:middle line:90% PROFESSOR: OK, good morning. 00:00:13.110 --> 00:00:15.820 align:middle line:84% Thanks for being here this morning. 00:00:15.820 --> 00:00:18.840 align:middle line:84% So I'm a gross substitute for Glenn. 00:00:18.840 --> 00:00:24.390 align:middle line:84% And I'm going to do two classes this week. 00:00:24.390 --> 00:00:29.340 align:middle line:84% One on the morality of markets and one, which is more standard 00:00:29.340 --> 00:00:32.860 align:middle line:84% IO on regulating the tech giants. 00:00:32.860 --> 00:00:35.670 align:middle line:84% So we are going to go through that. 00:00:35.670 --> 00:00:38.250 align:middle line:84% And I'm going to motivate a little bit. 00:00:38.250 --> 00:00:42.180 align:middle line:84% Oh, by the way, ask as many questions as you want. 00:00:42.180 --> 00:00:45.240 align:middle line:90% It makes it more fun for me. 00:00:45.240 --> 00:00:51.960 align:middle line:84% So when I was here, actually in those rooms a few years ago when 00:00:51.960 --> 00:00:53.970 align:middle line:84% I was a student, a PhD student here, 00:00:53.970 --> 00:00:57.120 align:middle line:84% that was very simple because you took [14.]271. 00:00:57.120 --> 00:01:00.030 align:middle line:84% And [14.]271 was basically antitrust. 00:01:00.030 --> 00:01:04.769 align:middle line:84% And then you took [14.]272, and that was regulation of telecoms, 00:01:04.769 --> 00:01:06.940 align:middle line:84% electricity, railroads, and so on. 00:01:06.940 --> 00:01:11.020 align:middle line:84% And then industrial policy, you will not talk about. 00:01:11.020 --> 00:01:14.400 align:middle line:84% That was a shame, a source of shame. 00:01:14.400 --> 00:01:16.050 align:middle line:84% Now, things have changed a little bit 00:01:16.050 --> 00:01:20.910 align:middle line:84% in the last few years, partly because one 00:01:20.910 --> 00:01:24.070 align:middle line:84% neglected some research topics, which are very important. 00:01:24.070 --> 00:01:27.690 align:middle line:84% You know, there are lots of neglected topics in IO, 00:01:27.690 --> 00:01:30.570 align:middle line:90% like any field actually. 00:01:30.570 --> 00:01:33.010 align:middle line:84% So that was challenging our research. 00:01:33.010 --> 00:01:38.130 align:middle line:84% But also, we have a comeback of industrial policy, which 00:01:38.130 --> 00:01:42.900 align:middle line:84% I'll be happy to discuss, but I'm not planning to [INAUDIBLE]. 00:01:42.900 --> 00:01:45.060 align:middle line:84% So there are a number of issues which 00:01:45.060 --> 00:01:50.460 align:middle line:84% have to do with the challenges faced by too much cooperation. 00:01:50.460 --> 00:01:52.440 align:middle line:84% So basically, you have competitors 00:01:52.440 --> 00:01:55.230 align:middle line:84% or potential competitors who actually 00:01:55.230 --> 00:01:59.880 align:middle line:84% might agree on certain things that might be legitimate, 00:01:59.880 --> 00:02:03.690 align:middle line:84% but that might also facilitate collusion between the firms. 00:02:03.690 --> 00:02:07.680 align:middle line:84% So one of the things that we worked on in the last 20 years 00:02:07.680 --> 00:02:12.820 align:middle line:84% is intellectual property, the sharing of property, 00:02:12.820 --> 00:02:14.740 align:middle line:84% and maybe we'll discuss that in [14.]272. 00:02:14.740 --> 00:02:15.970 align:middle line:90% I don't know. 00:02:15.970 --> 00:02:21.280 align:middle line:84% Patent pool, cross-licensing, open source, and the like. 00:02:21.280 --> 00:02:26.620 align:middle line:84% But then, of course, there are R&D joint ventures. 00:02:26.620 --> 00:02:30.370 align:middle line:84% The standard setting, which is very important, especially 00:02:30.370 --> 00:02:32.950 align:middle line:90% with the digital economy. 00:02:32.950 --> 00:02:35.170 align:middle line:84% Now, we have the issue of data pools. 00:02:35.170 --> 00:02:38.620 align:middle line:84% So we want the data, and can you have pools of data? 00:02:38.620 --> 00:02:40.570 align:middle line:90% Collective negotiations. 00:02:40.570 --> 00:02:42.880 align:middle line:84% So you know that collective negotiations 00:02:42.880 --> 00:02:45.790 align:middle line:84% are prohibited by the Sherman Act, 00:02:45.790 --> 00:02:48.400 align:middle line:90% by many other acts after that. 00:02:48.400 --> 00:02:52.180 align:middle line:84% Because, of course, it's a kind of monopsony situation. 00:02:52.180 --> 00:02:56.770 align:middle line:84% But nowadays, we get wallet providers, like Apple, 00:02:56.770 --> 00:03:01.720 align:middle line:84% for example, they control the near field control. 00:03:01.720 --> 00:03:03.880 align:middle line:90% And that creates problem. 00:03:03.880 --> 00:03:06.080 align:middle line:84% Should you allow collective negotiations? 00:03:06.080 --> 00:03:10.340 align:middle line:84% Some countries do it, but you don't want boycotts either. 00:03:10.340 --> 00:03:11.750 align:middle line:90% So it's complicated. 00:03:11.750 --> 00:03:14.050 align:middle line:84% You have the issues of common ownership-- 00:03:14.050 --> 00:03:20.860 align:middle line:84% that's a bit different-- by multiple investors, 00:03:20.860 --> 00:03:23.600 align:middle line:90% like the big mutual funds. 00:03:23.600 --> 00:03:25.210 align:middle line:90% You have algorithmic collusion. 00:03:25.210 --> 00:03:27.910 align:middle line:84% So there are lots of new issues and there 00:03:27.910 --> 00:03:32.145 align:middle line:84% are others, lots of new issues that we have to study. 00:03:32.145 --> 00:03:33.520 align:middle line:84% At the same time, and that's what 00:03:33.520 --> 00:03:37.180 align:middle line:84% I'm going to focus on today, there 00:03:37.180 --> 00:03:40.070 align:middle line:84% is the issue of too little cooperation. 00:03:40.070 --> 00:03:45.620 align:middle line:84% So this is a diagram that you have to remember in a sense. 00:03:45.620 --> 00:03:51.710 align:middle line:84% So what I'm going to do is to look at some platform. 00:03:51.710 --> 00:03:53.350 align:middle line:90% It has different names. 00:03:53.350 --> 00:03:57.430 align:middle line:90% In Europe, it's called the core. 00:03:57.430 --> 00:04:00.580 align:middle line:84% In antitrust parlance, you will call 00:04:00.580 --> 00:04:04.970 align:middle line:84% that an essential facility in the past, whatever. 00:04:04.970 --> 00:04:07.490 align:middle line:84% And it will be a two-sided market. 00:04:07.490 --> 00:04:10.900 align:middle line:84% So on one side, you will have the consumers, you and me. 00:04:10.900 --> 00:04:13.660 align:middle line:84% And on the other side, there will be merchants, 00:04:13.660 --> 00:04:16.300 align:middle line:90% applications, whatnot. 00:04:16.300 --> 00:04:21.500 align:middle line:84% Some of them will be like Amazon Basics or whatever. 00:04:21.500 --> 00:04:22.840 align:middle line:90% They will be in-house. 00:04:22.840 --> 00:04:27.160 align:middle line:84% And some others will be basically third party. 00:04:27.160 --> 00:04:27.860 align:middle line:90% OK? 00:04:27.860 --> 00:04:30.520 align:middle line:84% And there might be some competition between the two 00:04:30.520 --> 00:04:33.250 align:middle line:90% in each submarket. 00:04:33.250 --> 00:04:36.110 align:middle line:90% And there are lots of concerns. 00:04:36.110 --> 00:04:39.550 align:middle line:90% So the concerns are in red. 00:04:39.550 --> 00:04:42.850 align:middle line:84% So for consumers, you have the concern 00:04:42.850 --> 00:04:48.460 align:middle line:84% that there might actually be some behavioral manipulations 00:04:48.460 --> 00:04:52.630 align:middle line:90% or some wrong recommendations. 00:04:52.630 --> 00:04:57.400 align:middle line:84% For example, when the platform recommends like Amazon does, 00:04:57.400 --> 00:05:00.160 align:middle line:84% for example, recommends a merchant, 00:05:00.160 --> 00:05:03.610 align:middle line:84% there might be some kind of self-preferencing 00:05:03.610 --> 00:05:11.000 align:middle line:84% and recommending a merchant within the house. 00:05:11.000 --> 00:05:13.880 align:middle line:84% But also, you might-- even for third-party merchants, 00:05:13.880 --> 00:05:16.580 align:middle line:84% you might recommend the merchant which gives the highest 00:05:16.580 --> 00:05:18.760 align:middle line:90% commission to the platform. 00:05:18.760 --> 00:05:23.499 align:middle line:90% 00:05:23.499 --> 00:05:25.550 align:middle line:84% Behavioral manipulation, of course, 00:05:25.550 --> 00:05:29.630 align:middle line:84% all kinds of things that were they exploit our weaknesses, 00:05:29.630 --> 00:05:34.310 align:middle line:84% like our propensity to want to consume right away. 00:05:34.310 --> 00:05:37.790 align:middle line:84% And then, there is the issue of contestability, 00:05:37.790 --> 00:05:42.440 align:middle line:84% which can the new Facebook or the new Google or the new 00:05:42.440 --> 00:05:47.180 align:middle line:84% Amazon come in and replace the incumbent? 00:05:47.180 --> 00:05:49.190 align:middle line:84% And then, there is the issue of access 00:05:49.190 --> 00:05:53.420 align:middle line:84% and fair compensation, which is, do the apps and the merchant, 00:05:53.420 --> 00:05:56.570 align:middle line:84% do they get their fair share of the deal of the value they 00:05:56.570 --> 00:05:58.730 align:middle line:90% create for the ecosystem? 00:05:58.730 --> 00:06:06.140 align:middle line:84% Now, each of those things have to have some kind of translation 00:06:06.140 --> 00:06:08.150 align:middle line:90% in current law. 00:06:08.150 --> 00:06:11.140 align:middle line:84% Europe has been a bit in advance compared to the US. 00:06:11.140 --> 00:06:14.220 align:middle line:84% Also, the US is moving there as well. 00:06:14.220 --> 00:06:17.020 align:middle line:84% So for example, selection of recommendation. 00:06:17.020 --> 00:06:20.940 align:middle line:84% There was a P2B regulation in Europe, behavioral, 00:06:20.940 --> 00:06:24.180 align:middle line:90% the Artificial Intelligence Act. 00:06:24.180 --> 00:06:27.390 align:middle line:84% On content curation, there is a whole law 00:06:27.390 --> 00:06:30.600 align:middle line:84% called the Digital Services Act, which 00:06:30.600 --> 00:06:34.830 align:middle line:84% talks about the obligations for the platform to curate 00:06:34.830 --> 00:06:37.170 align:middle line:90% the content for the consumers. 00:06:37.170 --> 00:06:40.260 align:middle line:84% Since 1996, in the US, basically, there 00:06:40.260 --> 00:06:41.820 align:middle line:90% was no obligation. 00:06:41.820 --> 00:06:43.710 align:middle line:84% But now, people feel there should 00:06:43.710 --> 00:06:46.020 align:middle line:84% be obligation on the platforms actually to curate 00:06:46.020 --> 00:06:47.280 align:middle line:90% a little bit of content. 00:06:47.280 --> 00:06:49.590 align:middle line:84% And that's actually very interesting to study, 00:06:49.590 --> 00:06:52.690 align:middle line:84% but we are not going to be discussing that today. 00:06:52.690 --> 00:06:56.070 align:middle line:84% We are going to focus on contestability and especially 00:06:56.070 --> 00:07:00.818 align:middle line:90% for access for compensation, OK? 00:07:00.818 --> 00:07:03.673 align:middle line:90% And this is an old issue. 00:07:03.673 --> 00:07:05.590 align:middle line:84% I mean, this is a two-sided market, of course. 00:07:05.590 --> 00:07:09.420 align:middle line:84% And before that, people were worried about the same issues 00:07:09.420 --> 00:07:11.050 align:middle line:90% in one-sided markets. 00:07:11.050 --> 00:07:19.740 align:middle line:84% But Chicago School was saying already in the '80s or '70s that 00:07:19.740 --> 00:07:21.900 align:middle line:84% you should not be worried about, for example, 00:07:21.900 --> 00:07:25.560 align:middle line:84% self-preferencing or foreclosure or exclusion, 00:07:25.560 --> 00:07:27.900 align:middle line:90% or whatever you want to call it. 00:07:27.900 --> 00:07:31.110 align:middle line:84% So the third-party apps or merchants 00:07:31.110 --> 00:07:34.050 align:middle line:84% will not get a fair access to the platform, 00:07:34.050 --> 00:07:39.480 align:middle line:84% because in the end, the platform can make money out 00:07:39.480 --> 00:07:41.640 align:middle line:90% of consumers, OK? 00:07:41.640 --> 00:07:46.830 align:middle line:84% Can make money out of consumers if you offer a rich ecosystem 00:07:46.830 --> 00:07:48.270 align:middle line:90% on the other side. 00:07:48.270 --> 00:07:52.050 align:middle line:84% So if you offer the consumers lots of competitive apps 00:07:52.050 --> 00:07:55.920 align:middle line:84% or merchants, then your service has a lot 00:07:55.920 --> 00:07:57.780 align:middle line:90% of benefit for the consumers. 00:07:57.780 --> 00:08:01.930 align:middle line:84% And you can charge the consumers for that particular service. 00:08:01.930 --> 00:08:06.960 align:middle line:84% So basically, the Chicago School, like 50 years ago, 00:08:06.960 --> 00:08:12.100 align:middle line:84% came up with the idea that there is 00:08:12.100 --> 00:08:16.330 align:middle line:84% nothing to be looked at because in the end, 00:08:16.330 --> 00:08:18.850 align:middle line:84% it's in the interest of a platform. 00:08:18.850 --> 00:08:20.350 align:middle line:84% Those were not two-sided markets. 00:08:20.350 --> 00:08:21.808 align:middle line:84% We were not calling that platforms. 00:08:21.808 --> 00:08:25.240 align:middle line:84% But that's the end of the gatekeeper, actually, 00:08:25.240 --> 00:08:28.300 align:middle line:84% that in the benefit of the gatekeeper 00:08:28.300 --> 00:08:30.340 align:middle line:84% actually to offer a rich ecosystem. 00:08:30.340 --> 00:08:33.669 align:middle line:84% So it doesn't want to discriminate here 00:08:33.669 --> 00:08:36.460 align:middle line:84% because you can always raise the price to the consumer. 00:08:36.460 --> 00:08:39.429 align:middle line:84% You offer a better service, higher surplus, 00:08:39.429 --> 00:08:43.606 align:middle line:84% you raise the price to the consumer, OK? 00:08:43.606 --> 00:08:45.820 align:middle line:84% So we are going to focus mainly on this, 00:08:45.820 --> 00:08:51.190 align:middle line:84% but I will say a few things about contestability as well. 00:08:51.190 --> 00:08:54.400 align:middle line:90% Do you have questions? 00:08:54.400 --> 00:08:58.250 align:middle line:84% OK, so what's wrong with the Chicago School argument? 00:08:58.250 --> 00:08:58.830 align:middle line:90% Three things. 00:08:58.830 --> 00:09:01.900 align:middle line:90% 00:09:01.900 --> 00:09:04.330 align:middle line:90% OK, let's go back to this. 00:09:04.330 --> 00:09:08.300 align:middle line:84% I told you, if you offer a rich ecosystem, 00:09:08.300 --> 00:09:12.170 align:middle line:84% then you can always raise a price to consumers. 00:09:12.170 --> 00:09:14.450 align:middle line:84% But for that to be the case, it must be the case 00:09:14.450 --> 00:09:19.310 align:middle line:84% that, first, you can raise it, and you want to raise it, 00:09:19.310 --> 00:09:21.770 align:middle line:90% which are two different things. 00:09:21.770 --> 00:09:26.390 align:middle line:84% Now, if you are-- and that was the case in regulation-- 00:09:26.390 --> 00:09:30.500 align:middle line:84% if your price to the consumers is regulated, 00:09:30.500 --> 00:09:33.710 align:middle line:84% then you cannot raise a price to consumers because the regulator 00:09:33.710 --> 00:09:36.570 align:middle line:90% is controlling that. 00:09:36.570 --> 00:09:39.150 align:middle line:84% So if you cannot make more money here, 00:09:39.150 --> 00:09:44.680 align:middle line:84% you may want to make more money there, right? 00:09:44.680 --> 00:09:48.350 align:middle line:84% So that was the old style theory, 00:09:48.350 --> 00:09:52.990 align:middle line:84% which was applied to public utilities. 00:09:52.990 --> 00:09:56.530 align:middle line:84% Now, in two-sided markets, it's a bit different. 00:09:56.530 --> 00:09:59.290 align:middle line:84% You can always raise the price to consumers. 00:09:59.290 --> 00:10:05.230 align:middle line:84% You can always charge a yearly fee or whatever or monthly fee. 00:10:05.230 --> 00:10:07.000 align:middle line:90% But you may not want to. 00:10:07.000 --> 00:10:10.420 align:middle line:84% And that's very specific to the digital economy 00:10:10.420 --> 00:10:17.510 align:middle line:84% or mostly specific to that because if your optimal price 00:10:17.510 --> 00:10:21.770 align:middle line:84% to the consumer is negative, which is often 00:10:21.770 --> 00:10:26.120 align:middle line:84% the case when your opportunity cost is negative, 00:10:26.120 --> 00:10:28.010 align:middle line:90% then you want to charge-- 00:10:28.010 --> 00:10:31.970 align:middle line:84% you want to subsidize the consumer to use the platform. 00:10:31.970 --> 00:10:34.430 align:middle line:84% Actually, most of the services you use, 00:10:34.430 --> 00:10:38.120 align:middle line:84% when you use Google or Amazon or whatever, Facebook, 00:10:38.120 --> 00:10:39.890 align:middle line:90% you're not paying anything. 00:10:39.890 --> 00:10:41.930 align:middle line:90% The price is zero. 00:10:41.930 --> 00:10:44.720 align:middle line:84% If the price is zero, that means that the optimal price 00:10:44.720 --> 00:10:46.830 align:middle line:90% for those platform is negative. 00:10:46.830 --> 00:10:48.840 align:middle line:90% Now, why is that negative? 00:10:48.840 --> 00:10:53.190 align:middle line:84% Simply because the opportunity cost is highly negative. 00:10:53.190 --> 00:10:56.970 align:middle line:84% Because whenever you use the platform, 00:10:56.970 --> 00:11:02.000 align:middle line:84% the platform is going to make a lot of money on this side, 00:11:02.000 --> 00:11:05.240 align:middle line:84% like merchant fees, for example, or whatever. 00:11:05.240 --> 00:11:11.730 align:middle line:84% So what's happening is that if you enlist the consumer, 00:11:11.730 --> 00:11:15.510 align:middle line:84% then you are going to make a lot of money on that consumer 00:11:15.510 --> 00:11:19.410 align:middle line:90% from the merchants or the apps. 00:11:19.410 --> 00:11:23.250 align:middle line:84% So that means that your marginal cost of serving the consumer 00:11:23.250 --> 00:11:26.230 align:middle line:84% is actually negative, actually highly negative. 00:11:26.230 --> 00:11:31.680 align:middle line:84% And that's why we all pay zero on many services, 00:11:31.680 --> 00:11:35.430 align:middle line:84% and fantastic services, and you still pay zero. 00:11:35.430 --> 00:11:37.560 align:middle line:84% That means that the optimal price is negative. 00:11:37.560 --> 00:11:42.490 align:middle line:84% But you cannot charge a negative price because otherwise, 00:11:42.490 --> 00:11:46.050 align:middle line:84% if you charge a negative price, there will be arbitrage. 00:11:46.050 --> 00:11:51.270 align:middle line:84% They will be using bots, fake consumers so as 00:11:51.270 --> 00:11:52.530 align:middle line:90% to collect the money. 00:11:52.530 --> 00:11:57.750 align:middle line:84% And those fake consumers are of no interest to the platform 00:11:57.750 --> 00:12:00.540 align:middle line:84% because they are not going to buy goods and services 00:12:00.540 --> 00:12:02.050 align:middle line:90% from the merchants. 00:12:02.050 --> 00:12:04.710 align:middle line:90% 00:12:04.710 --> 00:12:06.810 align:middle line:84% And the other way of making money, for example, 00:12:06.810 --> 00:12:09.780 align:middle line:84% is to have advertising, like Google or Facebook. 00:12:09.780 --> 00:12:12.060 align:middle line:84% But of course, advertising to bots 00:12:12.060 --> 00:12:15.780 align:middle line:90% is not very exciting and so on. 00:12:15.780 --> 00:12:17.100 align:middle line:90% Or you could collect data. 00:12:17.100 --> 00:12:21.100 align:middle line:84% But again, the data you collect from bots is completely useless. 00:12:21.100 --> 00:12:23.790 align:middle line:84% So the point is that you cannot charge negative prices 00:12:23.790 --> 00:12:25.390 align:middle line:90% because of arbitrage. 00:12:25.390 --> 00:12:28.284 align:middle line:90% 00:12:28.284 --> 00:12:32.030 align:middle line:84% And therefore, you're constrained to actually charge 00:12:32.030 --> 00:12:33.630 align:middle line:90% a price which is equal to zero. 00:12:33.630 --> 00:12:35.960 align:middle line:84% You like to charge a negative price so as 00:12:35.960 --> 00:12:37.650 align:middle line:90% to attract more consumers. 00:12:37.650 --> 00:12:40.880 align:middle line:84% They are very profitable because of the money you make on this 00:12:40.880 --> 00:12:43.830 align:middle line:90% side, but you cannot do that. 00:12:43.830 --> 00:12:48.480 align:middle line:84% So you are at, what I will be calling the zero lower bound. 00:12:48.480 --> 00:12:51.590 align:middle line:84% Just like in macro, there will be a zero lower bound. 00:12:51.590 --> 00:12:55.100 align:middle line:84% And you will be at the zero lower bound here. 00:12:55.100 --> 00:12:57.980 align:middle line:84% And you immediately see that the Chicago School argument 00:12:57.980 --> 00:13:04.460 align:middle line:84% doesn't hold anymore because the price at zero 00:13:04.460 --> 00:13:05.460 align:middle line:90% is already too high. 00:13:05.460 --> 00:13:07.110 align:middle line:84% So you don't want to raise it further. 00:13:07.110 --> 00:13:09.798 align:middle line:90% 00:13:09.798 --> 00:13:15.470 align:middle line:84% That's the first reason why actually the Chicago School 00:13:15.470 --> 00:13:18.020 align:middle line:90% argument doesn't work. 00:13:18.020 --> 00:13:22.050 align:middle line:84% Second argument-- I'm just giving you the list, right-- 00:13:22.050 --> 00:13:25.060 align:middle line:84% is the contestability of the core segment. 00:13:25.060 --> 00:13:28.250 align:middle line:84% And there are several theories on this. 00:13:28.250 --> 00:13:36.560 align:middle line:84% The first is imagine that you favor your in-house apps. 00:13:36.560 --> 00:13:40.070 align:middle line:84% Maybe the competitive apps, the third-party apps, 00:13:40.070 --> 00:13:42.223 align:middle line:90% will actually exit the market. 00:13:42.223 --> 00:13:45.050 align:middle line:90% 00:13:45.050 --> 00:13:48.380 align:middle line:84% Now, that's going to hurt you because you offer an ecosystem 00:13:48.380 --> 00:13:50.170 align:middle line:90% which is not as nice. 00:13:50.170 --> 00:13:53.480 align:middle line:84% There's less diversity and less competition. 00:13:53.480 --> 00:13:57.110 align:middle line:84% But maybe those third-party apps will-- 00:13:57.110 --> 00:14:00.470 align:middle line:84% because they don't get consumers anymore, 00:14:00.470 --> 00:14:03.020 align:middle line:84% they are going to exit the market. 00:14:03.020 --> 00:14:08.000 align:middle line:84% And next time, the next Google or Facebook or whatever 00:14:08.000 --> 00:14:12.390 align:middle line:84% comes in, there won't be apps for this new competitor 00:14:12.390 --> 00:14:16.750 align:middle line:84% because you will be controlling most of the apps. 00:14:16.750 --> 00:14:20.440 align:middle line:84% So one way of seeing that is that you could have 00:14:20.440 --> 00:14:23.500 align:middle line:90% an application bias to entry. 00:14:23.500 --> 00:14:30.200 align:middle line:84% So if you prey on third-party apps, and they exit the market, 00:14:30.200 --> 00:14:33.260 align:middle line:84% then you protect your core facility. 00:14:33.260 --> 00:14:35.740 align:middle line:84% It's like an investment because in the short run 00:14:35.740 --> 00:14:37.210 align:middle line:90% you are losing money. 00:14:37.210 --> 00:14:40.720 align:middle line:84% You're offering an ecosystem which is not as rich, 00:14:40.720 --> 00:14:43.870 align:middle line:84% but in the long run, you may prevent entry 00:14:43.870 --> 00:14:46.446 align:middle line:90% by rival platforms. 00:14:46.446 --> 00:14:49.830 align:middle line:90% 00:14:49.830 --> 00:14:54.300 align:middle line:84% The other possibility is that you 00:14:54.300 --> 00:14:58.500 align:middle line:84% might want to avoid that those third-party apps actually become 00:14:58.500 --> 00:15:00.330 align:middle line:90% core essential facilities. 00:15:00.330 --> 00:15:05.610 align:middle line:84% And that was the case for Microsoft in the old Microsoft 00:15:05.610 --> 00:15:11.790 align:middle line:84% trial, where you remember the browser case in the '90s. 00:15:11.790 --> 00:15:14.160 align:middle line:84% The browser case, there was Netscape, 00:15:14.160 --> 00:15:17.490 align:middle line:84% which was a third-party app, which was a browser. 00:15:17.490 --> 00:15:22.020 align:middle line:84% And there was Internet Explorer for Microsoft. 00:15:22.020 --> 00:15:27.600 align:middle line:84% And what happened is that Netscape-- 00:15:27.600 --> 00:15:29.700 align:middle line:90% that was a claim. 00:15:29.700 --> 00:15:32.310 align:middle line:84% Netscape said we are discriminated 00:15:32.310 --> 00:15:40.290 align:middle line:84% against by Microsoft Windows, which was close to a monopoly. 00:15:40.290 --> 00:15:43.640 align:middle line:90% 00:15:43.640 --> 00:15:46.730 align:middle line:84% And the concern of Microsoft seems 00:15:46.730 --> 00:15:50.120 align:middle line:84% to have been that this app could have 00:15:50.120 --> 00:15:53.810 align:middle line:90% become a core segment itself. 00:15:53.810 --> 00:15:57.580 align:middle line:84% By adding lines of code, the browser 00:15:57.580 --> 00:16:01.030 align:middle line:84% could have become an operating system. 00:16:01.030 --> 00:16:02.268 align:middle line:90% Whether it's right or wrong. 00:16:02.268 --> 00:16:02.810 align:middle line:90% I don't know. 00:16:02.810 --> 00:16:06.100 align:middle line:84% But the story is correct, at least. 00:16:06.100 --> 00:16:10.750 align:middle line:90% And that was a possibility. 00:16:10.750 --> 00:16:14.920 align:middle line:84% So in that case, the idea, when you discriminate 00:16:14.920 --> 00:16:19.660 align:middle line:84% among those apps, is really to protect your core segment, 00:16:19.660 --> 00:16:22.150 align:middle line:90% indirectly, if you want. 00:16:22.150 --> 00:16:29.920 align:middle line:84% And finally, this third reason why the Chicago School argument 00:16:29.920 --> 00:16:34.160 align:middle line:84% is incorrect, I mean, it's like all those benchmarks in a sense. 00:16:34.160 --> 00:16:36.770 align:middle line:84% I mean, if you take Modigliani-Miller 00:16:36.770 --> 00:16:41.440 align:middle line:84% or Atkinson-Stiglitz or all what you learn here, 00:16:41.440 --> 00:16:43.250 align:middle line:90% you don't really believe in it. 00:16:43.250 --> 00:16:46.630 align:middle line:84% But somehow, it's very important for structuring the ideas 00:16:46.630 --> 00:16:48.850 align:middle line:84% because it gives you a benchmark. 00:16:48.850 --> 00:16:53.500 align:middle line:84% And if you don't believe in it, you have to ask yourself-- 00:16:53.500 --> 00:16:56.190 align:middle line:84% it's perfectly correct in terms of logic. 00:16:56.190 --> 00:16:58.080 align:middle line:84% And you have to ask yourself, why 00:16:58.080 --> 00:17:00.480 align:middle line:90% is that I don't believe in it? 00:17:00.480 --> 00:17:04.859 align:middle line:84% And then, that's the thing is that forces 00:17:04.859 --> 00:17:07.740 align:middle line:84% you to think more and structure your thought 00:17:07.740 --> 00:17:08.936 align:middle line:90% around this benchmark. 00:17:08.936 --> 00:17:11.579 align:middle line:90% 00:17:11.579 --> 00:17:16.980 align:middle line:84% So the third-- and this is going to be more obscure, 00:17:16.980 --> 00:17:19.440 align:middle line:84% but we are going to go through that in detail-- 00:17:19.440 --> 00:17:25.690 align:middle line:84% is that you have to zero lower bounds in those markets. 00:17:25.690 --> 00:17:31.230 align:middle line:84% You have the zero lower bound on the consumers, 00:17:31.230 --> 00:17:36.900 align:middle line:84% but you could have a zero lower bound by apps and merchant 00:17:36.900 --> 00:17:39.480 align:middle line:84% when they deal with third-party, like advertisers 00:17:39.480 --> 00:17:42.120 align:middle line:90% or their own merchants. 00:17:42.120 --> 00:17:45.270 align:middle line:84% And there you have a second zero lower bound. 00:17:45.270 --> 00:17:51.720 align:middle line:84% And that's going to mean that those apps actually 00:17:51.720 --> 00:17:54.060 align:middle line:84% make supranormal profits, profits 00:17:54.060 --> 00:17:56.700 align:middle line:84% which are too high because of zero lower bound. 00:17:56.700 --> 00:17:59.670 align:middle line:84% I will come back to that in detail. 00:17:59.670 --> 00:18:02.040 align:middle line:90% OK? 00:18:02.040 --> 00:18:06.320 align:middle line:90% OK, so do you have questions? 00:18:06.320 --> 00:18:07.370 align:middle line:90% No? 00:18:07.370 --> 00:18:10.440 align:middle line:90% OK, so limits to regulation. 00:18:10.440 --> 00:18:14.630 align:middle line:84% So I'm going to go very fast through that. 00:18:14.630 --> 00:18:16.820 align:middle line:84% Those platforms, they look very much 00:18:16.820 --> 00:18:18.586 align:middle line:90% like the old public utilities. 00:18:18.586 --> 00:18:21.420 align:middle line:90% 00:18:21.420 --> 00:18:24.270 align:middle line:90% They benefit from network sites. 00:18:24.270 --> 00:18:28.800 align:middle line:84% They have extremely low marginal costs, often zero. 00:18:28.800 --> 00:18:33.180 align:middle line:84% So they are public utilities with a vengeance. 00:18:33.180 --> 00:18:39.360 align:middle line:84% Now, in the early 20th century, it was decided to regulate 00:18:39.360 --> 00:18:41.220 align:middle line:84% the telecom industry, the railroads, 00:18:41.220 --> 00:18:48.760 align:middle line:84% the electricity industry, and so on, basically, on those grounds, 00:18:48.760 --> 00:18:53.380 align:middle line:84% the idea that you will have too much market power or monopoly 00:18:53.380 --> 00:18:58.120 align:middle line:84% power because of high fixed costs, low marginal costs, 00:18:58.120 --> 00:19:00.670 align:middle line:84% network externalities, and the like, OK? 00:19:00.670 --> 00:19:05.980 align:middle line:84% Now, does it mean that we should be regulating the platforms 00:19:05.980 --> 00:19:07.560 align:middle line:90% like public utilities? 00:19:07.560 --> 00:19:09.600 align:middle line:90% The answer is no. 00:19:09.600 --> 00:19:13.560 align:middle line:84% Because there are two big differences, 00:19:13.560 --> 00:19:19.050 align:middle line:84% at least two big differences, between utilities and platforms. 00:19:19.050 --> 00:19:23.220 align:middle line:84% Even so, the technology looks the same. 00:19:23.220 --> 00:19:26.550 align:middle line:84% The first is that Microsoft and Apple and Google 00:19:26.550 --> 00:19:30.490 align:middle line:90% and so on are just global firms. 00:19:30.490 --> 00:19:34.300 align:middle line:84% All the public utilities in the past in every country 00:19:34.300 --> 00:19:37.700 align:middle line:90% were national or even regional. 00:19:37.700 --> 00:19:41.050 align:middle line:84% But they were not multinationals. 00:19:41.050 --> 00:19:45.160 align:middle line:84% So your telecom companies in the past or your electricity company 00:19:45.160 --> 00:19:47.470 align:middle line:84% was a local company, and there was 00:19:47.470 --> 00:19:54.760 align:middle line:84% one regulator who had oversight of the entire firm. 00:19:54.760 --> 00:20:00.220 align:middle line:84% But then, imagine you wanted to regulate Apple or Google, which 00:20:00.220 --> 00:20:05.000 align:middle line:84% are in somewhere between 100 and 200 countries, 00:20:05.000 --> 00:20:07.070 align:middle line:84% it will be very difficult, actually, 00:20:07.070 --> 00:20:12.090 align:middle line:84% to regulate because you will not have the information. 00:20:12.090 --> 00:20:15.000 align:middle line:84% Cross countries, transfer prices, 00:20:15.000 --> 00:20:17.910 align:middle line:84% you don't have a clue about whether they make sense. 00:20:17.910 --> 00:20:19.770 align:middle line:84% And then, the other question is, who 00:20:19.770 --> 00:20:23.610 align:middle line:84% is going to ensure a fair rate of return to the shareholders? 00:20:23.610 --> 00:20:28.770 align:middle line:84% Given that you have many countries, it's impossible. 00:20:28.770 --> 00:20:36.440 align:middle line:84% The other big thing is that things change very fast. 00:20:36.440 --> 00:20:43.070 align:middle line:84% And you get huge profits, but the industrial landscape 00:20:43.070 --> 00:20:44.130 align:middle line:90% changes very fast. 00:20:44.130 --> 00:20:48.290 align:middle line:84% So if you think about railroads, the technology 00:20:48.290 --> 00:20:52.250 align:middle line:84% hasn't changed for 150 years or more. 00:20:52.250 --> 00:20:53.700 align:middle line:90% I mean, I'm exaggerating. 00:20:53.700 --> 00:20:55.020 align:middle line:90% Those are not the same trains. 00:20:55.020 --> 00:20:58.640 align:middle line:84% But by and large, it's the same story 00:20:58.640 --> 00:21:02.880 align:middle line:90% since the creation of railroads. 00:21:02.880 --> 00:21:06.060 align:middle line:84% And telecoms, until the '90s, where basically the same 00:21:06.060 --> 00:21:11.830 align:middle line:90% as in the early 20th century. 00:21:11.830 --> 00:21:13.930 align:middle line:90% Electricity is the same. 00:21:13.930 --> 00:21:17.806 align:middle line:84% Kirchhoff's law is still Kirchhoff's law. 00:21:17.806 --> 00:21:21.010 align:middle line:90% It's not that new. 00:21:21.010 --> 00:21:24.770 align:middle line:84% Whereas here, the segments change all the time. 00:21:24.770 --> 00:21:26.980 align:middle line:84% And actually, you don't even follow the firms 00:21:26.980 --> 00:21:30.360 align:middle line:90% along their life cycle. 00:21:30.360 --> 00:21:34.470 align:middle line:84% So, for example, if you wanted to regulate Google 00:21:34.470 --> 00:21:40.040 align:middle line:84% and do it right, even if Google were just in one country, 00:21:40.040 --> 00:21:43.970 align:middle line:84% you would have to ask yourself, what is a fair rate of return 00:21:43.970 --> 00:21:46.480 align:middle line:90% for Google? 00:21:46.480 --> 00:21:49.330 align:middle line:84% So you will have to understand what the investment of Google 00:21:49.330 --> 00:21:53.810 align:middle line:84% was, except that you didn't follow Google along the life 00:21:53.810 --> 00:21:54.830 align:middle line:90% cycle. 00:21:54.830 --> 00:22:01.130 align:middle line:84% You'll be starting following Google now, not 20 years ago. 00:22:01.130 --> 00:22:01.680 align:middle line:90% I don't know. 00:22:01.680 --> 00:22:06.920 align:middle line:84% Google started even earlier, but so that 00:22:06.920 --> 00:22:08.450 align:middle line:90% would be an issue, right? 00:22:08.450 --> 00:22:10.250 align:middle line:84% And then, you have to ask yourself, 00:22:10.250 --> 00:22:13.860 align:middle line:84% which it's like for drugs in a sense. 00:22:13.860 --> 00:22:15.990 align:middle line:84% You know that the price for developing 00:22:15.990 --> 00:22:19.500 align:middle line:84% a new drug or antibiotic is, people say 00:22:19.500 --> 00:22:22.150 align:middle line:90% it's $1 billion or $2 billion. 00:22:22.150 --> 00:22:24.510 align:middle line:90% Who knows. 00:22:24.510 --> 00:22:26.030 align:middle line:90% How do you get to such numbers? 00:22:26.030 --> 00:22:29.190 align:middle line:84% Well, the answer is simple, is that the probability of success 00:22:29.190 --> 00:22:32.090 align:middle line:90% is incredibly small. 00:22:32.090 --> 00:22:34.200 align:middle line:90% But is that 1%? 00:22:34.200 --> 00:22:35.610 align:middle line:90% Is that 3%? 00:22:35.610 --> 00:22:37.910 align:middle line:84% It makes a huge difference in terms 00:22:37.910 --> 00:22:40.646 align:middle line:84% of the reward you should be giving. 00:22:40.646 --> 00:22:44.660 align:middle line:84% And it depends on the exact drug and so on. 00:22:44.660 --> 00:22:45.900 align:middle line:90% And the same thing here. 00:22:45.900 --> 00:22:48.340 align:middle line:84% What was the probability of success of Google 00:22:48.340 --> 00:22:49.820 align:middle line:90% when Google started? 00:22:49.820 --> 00:22:51.850 align:middle line:90% Does anyone know? 00:22:51.850 --> 00:22:54.050 align:middle line:84% The answer is, yeah, no, we don't. 00:22:54.050 --> 00:22:55.390 align:middle line:90% We just don't know. 00:22:55.390 --> 00:22:58.150 align:middle line:90% So that's very difficult. 00:22:58.150 --> 00:23:00.070 align:middle line:84% And related to that, there is the issue 00:23:00.070 --> 00:23:07.720 align:middle line:84% of changing products, which is it's very difficult to know. 00:23:07.720 --> 00:23:10.300 align:middle line:84% There are lots of proposals about breakups, 00:23:10.300 --> 00:23:15.490 align:middle line:84% so we should cut Google into pieces, for example. 00:23:15.490 --> 00:23:17.030 align:middle line:90% But what are the pieces? 00:23:17.030 --> 00:23:18.830 align:middle line:84% I mean, for railroads, it's very simple. 00:23:18.830 --> 00:23:23.920 align:middle line:84% The tracks and stations you know are natural monopolies. 00:23:23.920 --> 00:23:26.180 align:middle line:84% You're not going to have another track 00:23:26.180 --> 00:23:30.620 align:middle line:90% and stations in south station. 00:23:30.620 --> 00:23:36.250 align:middle line:84% You cannot replace the Amtrak railroad. 00:23:36.250 --> 00:23:40.360 align:middle line:84% So you can have competition on operating trains, 00:23:40.360 --> 00:23:45.670 align:middle line:84% but you cannot have competition on new lines, new tracks, 00:23:45.670 --> 00:23:48.460 align:middle line:84% and new stations in the city center. 00:23:48.460 --> 00:23:49.640 align:middle line:90% It's impossible. 00:23:49.640 --> 00:23:52.250 align:middle line:90% 00:23:52.250 --> 00:23:56.090 align:middle line:84% Whereas here, things change very fast. 00:23:56.090 --> 00:23:58.380 align:middle line:90% So how do you do it? 00:23:58.380 --> 00:23:59.490 align:middle line:90% What do you break up? 00:23:59.490 --> 00:24:01.890 align:middle line:90% OK, so let me. 00:24:01.890 --> 00:24:06.240 align:middle line:84% So we're going to talk a fair amount about the Digital Market 00:24:06.240 --> 00:24:11.130 align:middle line:84% Act, which this is one which is focused on regulating 00:24:11.130 --> 00:24:14.760 align:middle line:90% dominant platforms. 00:24:14.760 --> 00:24:16.320 align:middle line:90% And it has two big-- 00:24:16.320 --> 00:24:18.430 align:middle line:84% I already mentioned it has two big items. 00:24:18.430 --> 00:24:20.010 align:middle line:90% The first is on contestability. 00:24:20.010 --> 00:24:23.880 align:middle line:84% The second is on equity or fairness. 00:24:23.880 --> 00:24:28.050 align:middle line:84% So the contestability is about a more efficient entrant 00:24:28.050 --> 00:24:29.500 align:middle line:90% entering the core segment. 00:24:29.500 --> 00:24:34.560 align:middle line:84% The other one is about the merchants or the apps. 00:24:34.560 --> 00:24:37.320 align:middle line:84% There is a similar thing in the US, 00:24:37.320 --> 00:24:40.590 align:middle line:84% which is I don't know if there's been any new-- 00:24:40.590 --> 00:24:42.780 align:middle line:84% maybe you know, actually-- there's 00:24:42.780 --> 00:24:46.240 align:middle line:84% been a new law, which has been passed in the US. 00:24:46.240 --> 00:24:48.460 align:middle line:84% It's very much emulating the DMA. 00:24:48.460 --> 00:24:50.730 align:middle line:84% It's very similar to the DMA, so I'm not 00:24:50.730 --> 00:24:53.700 align:middle line:84% going to talk very much about it. 00:24:53.700 --> 00:24:59.180 align:middle line:84% So basically, the DMA is going to designate platforms. 00:24:59.180 --> 00:25:02.080 align:middle line:84% There will be a very strong competition among platforms 00:25:02.080 --> 00:25:07.240 align:middle line:84% not to be part of the designated platforms based 00:25:07.240 --> 00:25:10.870 align:middle line:84% on some core services, like search, for example, 00:25:10.870 --> 00:25:17.290 align:middle line:84% or social networks or a marketplace. 00:25:17.290 --> 00:25:20.030 align:middle line:84% There will be threshold for whatever they mean. 00:25:20.030 --> 00:25:25.600 align:middle line:84% So now, you can imagine that the lawyers are having a great time 00:25:25.600 --> 00:25:31.130 align:middle line:84% about if you think about, OK, is the threshold for 45 00:25:31.130 --> 00:25:35.680 align:middle line:90% million users that's in the EU. 00:25:35.680 --> 00:25:36.520 align:middle line:90% Are they active? 00:25:36.520 --> 00:25:37.280 align:middle line:90% How active? 00:25:37.280 --> 00:25:40.880 align:middle line:84% You can imagine spending years discussing that 00:25:40.880 --> 00:25:43.090 align:middle line:90% the number of business users. 00:25:43.090 --> 00:25:46.320 align:middle line:84% You can possibly appeal if you don't like it. 00:25:46.320 --> 00:25:49.190 align:middle line:90% 00:25:49.190 --> 00:25:54.890 align:middle line:84% And we know, by the way, the focus on big platforms. 00:25:54.890 --> 00:25:57.500 align:middle line:84% So really, the targets are clear-- 00:25:57.500 --> 00:26:01.010 align:middle line:84% Google, Facebook, Apple, and so on. 00:26:01.010 --> 00:26:06.230 align:middle line:84% But we know that actually platforms-- 00:26:06.230 --> 00:26:08.720 align:middle line:84% I don't know-- you haven't done two sided markets yet, 00:26:08.720 --> 00:26:13.210 align:middle line:84% but they can have actually quite a lot of market power, 00:26:13.210 --> 00:26:15.820 align:middle line:84% even if they are small, as long as they control access 00:26:15.820 --> 00:26:18.450 align:middle line:90% to the consumer. 00:26:18.450 --> 00:26:20.430 align:middle line:84% So you can be a small platform and have 00:26:20.430 --> 00:26:23.650 align:middle line:90% a lot of monopoly power. 00:26:23.650 --> 00:26:25.856 align:middle line:90% And then, there are obligations. 00:26:25.856 --> 00:26:28.810 align:middle line:90% 00:26:28.810 --> 00:26:31.690 align:middle line:84% So, for example, you have to be fair to the merchants who 00:26:31.690 --> 00:26:35.090 align:middle line:90% are third-party merchants. 00:26:35.090 --> 00:26:38.670 align:middle line:84% And lots of that is self-execution. 00:26:38.670 --> 00:26:42.980 align:middle line:84% So the European Union doesn't have the resources. 00:26:42.980 --> 00:26:47.630 align:middle line:84% I mean, they already have to do the entire antitrust and merger 00:26:47.630 --> 00:26:48.180 align:middle line:90% analysis. 00:26:48.180 --> 00:26:50.150 align:middle line:84% And then on top of that, they will 00:26:50.150 --> 00:26:57.550 align:middle line:90% have to monitor the platforms. 00:26:57.550 --> 00:27:00.550 align:middle line:84% So they become a regulator in a sense. 00:27:00.550 --> 00:27:05.740 align:middle line:84% And so they don't really have the resources to regulate. 00:27:05.740 --> 00:27:07.810 align:middle line:84% It's not like the FCC or whatever. 00:27:07.810 --> 00:27:10.510 align:middle line:90% 00:27:10.510 --> 00:27:12.490 align:middle line:84% I mean, they will hire a few staff, of course, 00:27:12.490 --> 00:27:14.290 align:middle line:90% but that won't be sufficient. 00:27:14.290 --> 00:27:16.580 align:middle line:84% So there is a lot of self-execution. 00:27:16.580 --> 00:27:20.290 align:middle line:84% So basically, the platform has to explain how it makes sure 00:27:20.290 --> 00:27:26.300 align:middle line:84% that there is no discrimination among merchants and the like. 00:27:26.300 --> 00:27:32.150 align:middle line:84% And same thing, by the way, for the content curation. 00:27:32.150 --> 00:27:37.160 align:middle line:84% And then, the question is where it's going to be located. 00:27:37.160 --> 00:27:38.900 align:middle line:84% Probably I will know more because I do 00:27:38.900 --> 00:27:42.980 align:middle line:90% a speech in Brussels next week. 00:27:42.980 --> 00:27:44.930 align:middle line:90% So probably, I will know. 00:27:44.930 --> 00:27:48.200 align:middle line:84% Last time I discussed with them, they were still unsure about 00:27:48.200 --> 00:27:51.530 align:middle line:84% whether it will be DG Comp, so the competition authority, 00:27:51.530 --> 00:27:55.316 align:middle line:84% or DG Connect, which will be like the telecom regulator. 00:27:55.316 --> 00:27:58.220 align:middle line:90% 00:27:58.220 --> 00:27:59.940 align:middle line:90% And there are pros and cons. 00:27:59.940 --> 00:28:01.580 align:middle line:84% I mean, I'm more in favor of DG Comp. 00:28:01.580 --> 00:28:05.870 align:middle line:84% But of course, you know, some of some of the expertise 00:28:05.870 --> 00:28:10.190 align:middle line:90% on those things are DG Connect. 00:28:10.190 --> 00:28:15.080 align:middle line:84% How to do interconnection, for example, or interoperability 00:28:15.080 --> 00:28:16.930 align:middle line:90% or the like. 00:28:16.930 --> 00:28:18.760 align:middle line:90% Big fines. 00:28:18.760 --> 00:28:21.070 align:middle line:90% Relatively big fines. 00:28:21.070 --> 00:28:22.840 align:middle line:84% So that's going to be interesting to see 00:28:22.840 --> 00:28:24.760 align:middle line:90% what's going to happen. 00:28:24.760 --> 00:28:29.730 align:middle line:84% There's a lot of public policy, which 00:28:29.730 --> 00:28:32.850 align:middle line:84% is going to be extremely interesting to look 00:28:32.850 --> 00:28:34.150 align:middle line:90% at in the next few years. 00:28:34.150 --> 00:28:37.050 align:middle line:84% So if you're interested in working on that, 00:28:37.050 --> 00:28:39.635 align:middle line:90% that's really worth doing. 00:28:39.635 --> 00:28:45.220 align:middle line:90% 00:28:45.220 --> 00:28:48.790 align:middle line:90% It's Monday morning, I see. 00:28:48.790 --> 00:28:51.340 align:middle line:90% You haven't warmed up yet. 00:28:51.340 --> 00:28:54.980 align:middle line:90% OK, so competition and fairness. 00:28:54.980 --> 00:28:56.880 align:middle line:90% You got the slides, right? 00:28:56.880 --> 00:28:59.290 align:middle line:90% I already sent them. 00:28:59.290 --> 00:29:01.930 align:middle line:90% So competition and fairness. 00:29:01.930 --> 00:29:05.960 align:middle line:84% So you have the economics of open ecosystem. 00:29:05.960 --> 00:29:12.210 align:middle line:84% So-- you have two [? prior ?] cases. 00:29:12.210 --> 00:29:13.650 align:middle line:90% I mean, one is the clearest. 00:29:13.650 --> 00:29:17.030 align:middle line:90% 00:29:17.030 --> 00:29:21.620 align:middle line:84% If you want to book an apartment on Airbnb, Airbnb 00:29:21.620 --> 00:29:24.170 align:middle line:84% is not going to have-- it's only going 00:29:24.170 --> 00:29:26.900 align:middle line:84% to have third-party merchants or apps 00:29:26.900 --> 00:29:30.530 align:middle line:84% or whatever you want to call them because it doesn't own 00:29:30.530 --> 00:29:34.610 align:middle line:90% any apartment, I believe so. 00:29:34.610 --> 00:29:40.175 align:middle line:84% Same thing, Bookings, Bookings doesn't own 00:29:40.175 --> 00:29:43.640 align:middle line:90% all the hotels in principle. 00:29:43.640 --> 00:29:48.710 align:middle line:84% Or you could have everything done in the same roof. 00:29:48.710 --> 00:29:51.590 align:middle line:84% So you could have vertical integration. 00:29:51.590 --> 00:29:55.910 align:middle line:84% Almost no platform nowadays is vertically integrated fully. 00:29:55.910 --> 00:29:58.230 align:middle line:84% It may have something in between. 00:29:58.230 --> 00:30:04.100 align:middle line:84% Actually, most of the action is here, where you have this mix. 00:30:04.100 --> 00:30:06.410 align:middle line:84% From the diagram, you have this mix 00:30:06.410 --> 00:30:10.440 align:middle line:84% of in-house apps and third-party apps. 00:30:10.440 --> 00:30:12.560 align:middle line:84% And it's pretty clear with Amazon marketplace 00:30:12.560 --> 00:30:16.370 align:middle line:84% because you have Whole Foods, you have Amazon Basics. 00:30:16.370 --> 00:30:18.980 align:middle line:84% But most of them, if you take Google, 00:30:18.980 --> 00:30:20.900 align:middle line:84% you take-- they all have some kind 00:30:20.900 --> 00:30:24.360 align:middle line:84% of mixture between in-house and third-party. 00:30:24.360 --> 00:30:25.980 align:middle line:90% OK? 00:30:25.980 --> 00:30:27.600 align:middle line:90% I think that model-- 00:30:27.600 --> 00:30:30.420 align:middle line:84% I mean, Apple, historically, has always 00:30:30.420 --> 00:30:33.180 align:middle line:84% been much more vertically integrated, 00:30:33.180 --> 00:30:34.550 align:middle line:90% including into hardware. 00:30:34.550 --> 00:30:37.740 align:middle line:90% 00:30:37.740 --> 00:30:42.780 align:middle line:84% But by and large, the platform economics 00:30:42.780 --> 00:30:45.600 align:middle line:90% is mostly in that thing. 00:30:45.600 --> 00:30:48.340 align:middle line:84% Of course, you have a few pure brokers as well. 00:30:48.340 --> 00:30:51.440 align:middle line:84% But you know, most of the action is here. 00:30:51.440 --> 00:30:56.420 align:middle line:84% Now, what some of the literature actually is asking the question, 00:30:56.420 --> 00:30:59.150 align:middle line:84% should we actually prohibit those platforms 00:30:59.150 --> 00:31:01.320 align:middle line:90% from having their own merchants? 00:31:01.320 --> 00:31:06.440 align:middle line:84% So should we impose a pure broker model? 00:31:06.440 --> 00:31:07.850 align:middle line:90% OK? 00:31:07.850 --> 00:31:10.160 align:middle line:90% That has some costs, of course. 00:31:10.160 --> 00:31:18.380 align:middle line:84% First because they may have their own innovation, after all. 00:31:18.380 --> 00:31:22.050 align:middle line:84% The platform, they can find new needs for the consumer. 00:31:22.050 --> 00:31:26.210 align:middle line:84% They can have new technology that might introduce. 00:31:26.210 --> 00:31:30.050 align:middle line:84% They might want to create some competition 00:31:30.050 --> 00:31:33.920 align:middle line:84% for the third-party apps if they are too monopolistic. 00:31:33.920 --> 00:31:36.800 align:middle line:84% Also, that's dangerous because something 00:31:36.800 --> 00:31:41.090 align:middle line:84% that makes people very angry at Amazon, for example, 00:31:41.090 --> 00:31:46.460 align:middle line:84% is that supposedly Amazon uses third-party apps 00:31:46.460 --> 00:31:52.220 align:middle line:84% data to actually mimic the services they offer. 00:31:52.220 --> 00:31:53.780 align:middle line:90% They see what is profitable. 00:31:53.780 --> 00:31:55.040 align:middle line:90% They have all the data. 00:31:55.040 --> 00:31:57.920 align:middle line:84% And then they can also see how it works. 00:31:57.920 --> 00:32:03.050 align:middle line:84% And they can mimic and try to basically substitute 00:32:03.050 --> 00:32:04.380 align:middle line:90% for the incumbent. 00:32:04.380 --> 00:32:09.650 align:middle line:90% 00:32:09.650 --> 00:32:15.220 align:middle line:84% So let's talk about contestability. 00:32:15.220 --> 00:32:21.370 align:middle line:84% So the DMA view in Europe, but basically the same in the US, 00:32:21.370 --> 00:32:27.880 align:middle line:84% is we want to basically encourage entry 00:32:27.880 --> 00:32:32.020 align:middle line:84% by more efficient entrants on the core market. 00:32:32.020 --> 00:32:35.000 align:middle line:84% One way to do it is to promote multihoming. 00:32:35.000 --> 00:32:39.580 align:middle line:84% So multihoming means that either the merchant or the consumer 00:32:39.580 --> 00:32:42.640 align:middle line:84% actually connects to multiple platforms. 00:32:42.640 --> 00:32:46.270 align:middle line:84% And just to give you an example, imagine that you're on Facebook. 00:32:46.270 --> 00:32:50.260 align:middle line:84% And then, there is a new Facebook Prime, 00:32:50.260 --> 00:32:54.640 align:middle line:84% perhaps a bit better than Facebook, wants to enter. 00:32:54.640 --> 00:32:58.330 align:middle line:84% Now, are you going to switch to Facebook Prime? 00:32:58.330 --> 00:33:02.590 align:middle line:84% And the answer is probably no, because, first, you have 00:33:02.590 --> 00:33:04.340 align:middle line:90% all your content on Facebook. 00:33:04.340 --> 00:33:07.060 align:middle line:84% You have the picture, the contacts, and whatever. 00:33:07.060 --> 00:33:09.080 align:middle line:84% And on top of that, you are not sure 00:33:09.080 --> 00:33:15.080 align:middle line:84% that the new social network is going to have your friends. 00:33:15.080 --> 00:33:19.580 align:middle line:84% So there is some kind of coordination issue in switching 00:33:19.580 --> 00:33:21.650 align:middle line:90% to the new network. 00:33:21.650 --> 00:33:25.720 align:middle line:84% But if you can multihome, you are much more 00:33:25.720 --> 00:33:30.130 align:middle line:84% eager to try the new platform, the new social network, 00:33:30.130 --> 00:33:33.946 align:middle line:84% because you still have access to Facebook. 00:33:33.946 --> 00:33:35.500 align:middle line:84% Of course, it's a pain if you have 00:33:35.500 --> 00:33:38.750 align:middle line:90% to post the same content twice. 00:33:38.750 --> 00:33:48.020 align:middle line:84% So that's why the law actually is asking for portability so 00:33:48.020 --> 00:33:53.390 align:middle line:84% that you can actually post the same content, for example, 00:33:53.390 --> 00:33:57.260 align:middle line:84% and have the same contacts on the two social networks 00:33:57.260 --> 00:34:01.150 align:middle line:84% so that you don't have to do the work twice. 00:34:01.150 --> 00:34:06.160 align:middle line:84% So they try to, basically, create some possibility 00:34:06.160 --> 00:34:08.230 align:middle line:90% of multihoming. 00:34:08.230 --> 00:34:13.870 align:middle line:84% And there are lots of variants of that. 00:34:13.870 --> 00:34:20.710 align:middle line:84% So for example, one in Europe, they were based on some cases, 00:34:20.710 --> 00:34:28.659 align:middle line:84% the idea is that the merchant can tell you are reaching me 00:34:28.659 --> 00:34:30.610 align:middle line:90% through Amazon, for example. 00:34:30.610 --> 00:34:34.120 align:middle line:84% But if you want to reach me directly, 00:34:34.120 --> 00:34:37.489 align:middle line:84% here is my website or something like that. 00:34:37.489 --> 00:34:40.850 align:middle line:84% And by the way, it will be a bit cheaper. 00:34:40.850 --> 00:34:44.900 align:middle line:84% So you can disintermediate the platform if you want. 00:34:44.900 --> 00:34:47.150 align:middle line:90% OK? 00:34:47.150 --> 00:34:49.860 align:middle line:84% Interoperability I already mentioned. 00:34:49.860 --> 00:34:53.280 align:middle line:90% 00:34:53.280 --> 00:34:56.670 align:middle line:84% And the other ones are a little bit more complicated. 00:34:56.670 --> 00:34:59.460 align:middle line:84% If you have never seen most favored nation clauses, 00:34:59.460 --> 00:35:01.380 align:middle line:84% probably I should not talk about it, 00:35:01.380 --> 00:35:04.860 align:middle line:84% but it's a very interesting issue. 00:35:04.860 --> 00:35:08.270 align:middle line:90% Contestability. 00:35:08.270 --> 00:35:11.330 align:middle line:84% So contestability, we are in an industry 00:35:11.330 --> 00:35:14.990 align:middle line:84% with very large fixed costs or very large network 00:35:14.990 --> 00:35:16.310 align:middle line:90% externalities. 00:35:16.310 --> 00:35:19.170 align:middle line:84% So we know we are not going to get perfect competition. 00:35:19.170 --> 00:35:20.850 align:middle line:90% There is no way. 00:35:20.850 --> 00:35:22.980 align:middle line:84% You know you'll have market power, 00:35:22.980 --> 00:35:28.430 align:middle line:84% if only because you really have to cover those fixed costs. 00:35:28.430 --> 00:35:35.560 align:middle line:84% So the general view is that those industries are 00:35:35.560 --> 00:35:37.630 align:middle line:84% going to be monopolistic, and therefore, you 00:35:37.630 --> 00:35:40.070 align:middle line:90% have to regulate them. 00:35:40.070 --> 00:35:43.790 align:middle line:84% Now, there was this book, very famous at the time by Baumol, 00:35:43.790 --> 00:35:47.600 align:middle line:84% Panzar, and Willig in the early '80s basically saying, no, no, 00:35:47.600 --> 00:35:50.000 align:middle line:84% no, no, you don't have to regulate them 00:35:50.000 --> 00:35:55.730 align:middle line:84% because if a monopolist were charging prices which are too 00:35:55.730 --> 00:36:02.060 align:middle line:84% high, then some entrant will come in an itinerant entry. 00:36:02.060 --> 00:36:05.720 align:middle line:84% So basically, cool invest rapidly and undercut 00:36:05.720 --> 00:36:08.390 align:middle line:84% and take all the market before the incumbent can 00:36:08.390 --> 00:36:09.650 align:middle line:90% adjust its price. 00:36:09.650 --> 00:36:16.605 align:middle line:84% So let me see if I have any chalk. 00:36:16.605 --> 00:36:19.750 align:middle line:90% 00:36:19.750 --> 00:36:24.010 align:middle line:84% So imagine that you have a cost function c of q 00:36:24.010 --> 00:36:26.920 align:middle line:90% equals f plus cq. 00:36:26.920 --> 00:36:31.210 align:middle line:84% So you have a big fixed cost, a marginal cost, which may be low, 00:36:31.210 --> 00:36:31.755 align:middle line:90% I don't know. 00:36:31.755 --> 00:36:35.270 align:middle line:90% 00:36:35.270 --> 00:36:35.770 align:middle line:90% OK? 00:36:35.770 --> 00:36:43.690 align:middle line:84% So your average cost is going to look like this, right? 00:36:43.690 --> 00:36:47.130 align:middle line:90% That's the average cost. 00:36:47.130 --> 00:36:49.470 align:middle line:90% Actually, yeah, it should be. 00:36:49.470 --> 00:36:53.370 align:middle line:90% It's going to be seen. 00:36:53.370 --> 00:36:57.330 align:middle line:84% OK, so you have an average cost like this, right? 00:36:57.330 --> 00:37:01.925 align:middle line:84% Now, here you have your minimum average cost. 00:37:01.925 --> 00:37:06.030 align:middle line:90% 00:37:06.030 --> 00:37:09.540 align:middle line:84% So if you want to break even, then you 00:37:09.540 --> 00:37:14.972 align:middle line:84% must have p times q minus c of q equals 0. 00:37:14.972 --> 00:37:18.380 align:middle line:90% So p is equal to c of q over q. 00:37:18.380 --> 00:37:20.680 align:middle line:84% So the price has to be equal to average cost. 00:37:20.680 --> 00:37:23.380 align:middle line:90% 00:37:23.380 --> 00:37:32.430 align:middle line:84% So you could have a quantity, the Ramsey quantity. 00:37:32.430 --> 00:37:35.200 align:middle line:84% By the way, this also works with multiple goods. 00:37:35.200 --> 00:37:38.280 align:middle line:84% I mean, that's why I'm thinking about it right now, 00:37:38.280 --> 00:37:39.963 align:middle line:84% because it's called the Ramsey pricing. 00:37:39.963 --> 00:37:41.630 align:middle line:84% And you can do that with multiple goods. 00:37:41.630 --> 00:37:44.550 align:middle line:90% 00:37:44.550 --> 00:37:47.430 align:middle line:84% So this is the lowest price you can charge 00:37:47.430 --> 00:37:49.110 align:middle line:90% while still breaking even. 00:37:49.110 --> 00:37:53.320 align:middle line:84% And Baumol, Panzar, and Willig's book is about yeah, 00:37:53.320 --> 00:37:54.930 align:middle line:90% you're going to end up here. 00:37:54.930 --> 00:37:57.990 align:middle line:90% Even so, you have a monopolist. 00:37:57.990 --> 00:38:01.470 align:middle line:84% So you get a monopolist, but this monopolist 00:38:01.470 --> 00:38:02.890 align:middle line:90% makes zero profit. 00:38:02.890 --> 00:38:06.990 align:middle line:84% And the reasoning is that if you charge a higher price, 00:38:06.990 --> 00:38:11.670 align:middle line:84% then some entrant could say, no, I'm investing right away. 00:38:11.670 --> 00:38:15.360 align:middle line:84% And I'm charging this Ramsey price or a bit above the Ramsey 00:38:15.360 --> 00:38:15.930 align:middle line:90% price. 00:38:15.930 --> 00:38:17.970 align:middle line:84% And I'm taking the entire market if there 00:38:17.970 --> 00:38:19.650 align:middle line:90% are perfect substitutes. 00:38:19.650 --> 00:38:20.490 align:middle line:90% OK? 00:38:20.490 --> 00:38:21.970 align:middle line:90% That's the reasoning. 00:38:21.970 --> 00:38:24.580 align:middle line:84% It was more sophisticated, much more sophisticated than that, 00:38:24.580 --> 00:38:28.020 align:middle line:90% but the bottom line was that. 00:38:28.020 --> 00:38:30.510 align:middle line:90% And you might say but wait. 00:38:30.510 --> 00:38:33.240 align:middle line:84% It may take three years or 10 years 00:38:33.240 --> 00:38:36.710 align:middle line:90% to build this huge fixed cost. 00:38:36.710 --> 00:38:38.970 align:middle line:84% And the price you can change very quickly. 00:38:38.970 --> 00:38:41.950 align:middle line:84% So the timing is not the right timing somehow. 00:38:41.950 --> 00:38:46.842 align:middle line:84% And if someone enters, then there will be a price war. 00:38:46.842 --> 00:38:49.310 align:middle line:84% Because at that point, the marginal-- 00:38:49.310 --> 00:38:52.190 align:middle line:84% once the two firms are in the market, 00:38:52.190 --> 00:38:54.950 align:middle line:84% the fixed costs have been incurred. 00:38:54.950 --> 00:38:58.340 align:middle line:84% And you get just a lower marginal cost 00:38:58.340 --> 00:39:00.260 align:middle line:90% and very tough competition. 00:39:00.260 --> 00:39:05.730 align:middle line:84% So you might say, OK, if the incumbent can 00:39:05.730 --> 00:39:08.250 align:middle line:84% react to entry, which is very likely given 00:39:08.250 --> 00:39:11.880 align:middle line:84% that the fact that the investment takes 00:39:11.880 --> 00:39:15.840 align:middle line:84% much more time than changing the price, 00:39:15.840 --> 00:39:20.100 align:middle line:84% then you are going to end up with the entrant 00:39:20.100 --> 00:39:22.680 align:middle line:84% doesn't want to enter because the competition will 00:39:22.680 --> 00:39:23.770 align:middle line:90% be very tough. 00:39:23.770 --> 00:39:26.040 align:middle line:84% Now, you can improve a bit, the Baumol, Panzar, 00:39:26.040 --> 00:39:31.770 align:middle line:84% Willig story by having some kind of dynamic economy 00:39:31.770 --> 00:39:34.620 align:middle line:90% in which you have network sites. 00:39:34.620 --> 00:39:41.040 align:middle line:84% And those network sites are kind of sticky because consumers 00:39:41.040 --> 00:39:42.430 align:middle line:90% don't switch immediately. 00:39:42.430 --> 00:39:45.060 align:middle line:84% And consumers, like me, they tend to stay on the same network 00:39:45.060 --> 00:39:46.020 align:middle line:90% forever. 00:39:46.020 --> 00:39:50.130 align:middle line:84% And that means that once you have acquired a consumer, 00:39:50.130 --> 00:39:54.070 align:middle line:84% then you have an installed base of consumer like this. 00:39:54.070 --> 00:39:59.740 align:middle line:84% And therefore, it's a bit more complex. 00:39:59.740 --> 00:40:02.710 align:middle line:84% So we look at the model with Drew-- a long time ago, 00:40:02.710 --> 00:40:08.770 align:middle line:84% we looked at the model in which you have no interoperability. 00:40:08.770 --> 00:40:11.890 align:middle line:84% So basically, if you're on a network, 00:40:11.890 --> 00:40:13.930 align:middle line:84% you don't benefit from the network sites 00:40:13.930 --> 00:40:16.090 align:middle line:90% with the other network. 00:40:16.090 --> 00:40:21.980 align:middle line:84% And then, an entrant who is more efficient, 00:40:21.980 --> 00:40:25.720 align:middle line:84% it's a dynamic model with quality ladders if you want. 00:40:25.720 --> 00:40:27.760 align:middle line:90% So you can improve. 00:40:27.760 --> 00:40:30.310 align:middle line:84% And something which is more efficient than the entrant, 00:40:30.310 --> 00:40:33.850 align:middle line:84% but you can be replaced later on. 00:40:33.850 --> 00:40:39.207 align:middle line:90% Then, you look at the dynamic. 00:40:39.207 --> 00:40:40.540 align:middle line:90% Sometimes there will be entries. 00:40:40.540 --> 00:40:43.510 align:middle line:84% Sometimes the next Google will be replaced, 00:40:43.510 --> 00:40:47.770 align:middle line:84% will be coming in and replacing Google and so on. 00:40:47.770 --> 00:40:50.230 align:middle line:84% Now, the lack of interoperability, of course, 00:40:50.230 --> 00:40:53.650 align:middle line:84% makes entry more difficult, but it also 00:40:53.650 --> 00:40:57.820 align:middle line:84% has some social benefit because if consumers 00:40:57.820 --> 00:41:00.190 align:middle line:84% are sticky so they don't switch easily, 00:41:00.190 --> 00:41:02.920 align:middle line:90% they stay with incumbent. 00:41:02.920 --> 00:41:05.280 align:middle line:84% Then, whenever you have an entrant, 00:41:05.280 --> 00:41:08.340 align:middle line:84% that means that those consumers who are very sticky 00:41:08.340 --> 00:41:10.350 align:middle line:90% are going to be left stranded. 00:41:10.350 --> 00:41:13.920 align:middle line:84% They're going to be left in a small networks. 00:41:13.920 --> 00:41:18.030 align:middle line:84% So that means there won't be many applications and the like. 00:41:18.030 --> 00:41:21.270 align:middle line:84% So there are actually costs and benefits of entry in that model. 00:41:21.270 --> 00:41:23.910 align:middle line:90% 00:41:23.910 --> 00:41:26.440 align:middle line:90% So you can imagine-- 00:41:26.440 --> 00:41:28.350 align:middle line:84% I'll let you have a look, but you 00:41:28.350 --> 00:41:31.410 align:middle line:90% can imagine what kind of story. 00:41:31.410 --> 00:41:36.330 align:middle line:84% But that was a paper which was also 00:41:36.330 --> 00:41:38.590 align:middle line:84% pretty much in favor of contestability. 00:41:38.590 --> 00:41:41.880 align:middle line:84% Even so, we never quite believe in it 00:41:41.880 --> 00:41:47.340 align:middle line:84% because you need to be able to enter, and you must be able to-- 00:41:47.340 --> 00:41:50.070 align:middle line:84% and if you are able to enter, then there's 00:41:50.070 --> 00:41:51.293 align:middle line:90% an issue you might not enter. 00:41:51.293 --> 00:41:53.460 align:middle line:84% And that's a literature I'm not going to talk about, 00:41:53.460 --> 00:41:56.220 align:middle line:84% but which is interesting as well, 00:41:56.220 --> 00:42:03.070 align:middle line:84% which is sometimes you have entranta who enter for buyouts. 00:42:03.070 --> 00:42:05.600 align:middle line:84% So think about Instagram and WhatsApp. 00:42:05.600 --> 00:42:07.630 align:middle line:84% I'm not saying that's what has happened exactly, 00:42:07.630 --> 00:42:10.330 align:middle line:90% but that's a possible story. 00:42:10.330 --> 00:42:14.230 align:middle line:84% Instagram and WhatsApp are social networks. 00:42:14.230 --> 00:42:17.265 align:middle line:90% They sold out to Facebook. 00:42:17.265 --> 00:42:20.278 align:middle line:90% 00:42:20.278 --> 00:42:24.810 align:middle line:84% So you might say Facebook was willing to pay a lot of money 00:42:24.810 --> 00:42:29.640 align:middle line:84% in order to actually avoid competition. 00:42:29.640 --> 00:42:33.150 align:middle line:84% Now, what Instagram and WhatsApp were doing 00:42:33.150 --> 00:42:35.500 align:middle line:84% was not quite what Facebook was doing. 00:42:35.500 --> 00:42:37.260 align:middle line:90% It was differentiated. 00:42:37.260 --> 00:42:40.140 align:middle line:84% Nobody knows what the trajectory would have been, 00:42:40.140 --> 00:42:42.780 align:middle line:84% whether they would have tried to replace Facebook or not, 00:42:42.780 --> 00:42:44.310 align:middle line:90% nobody knows. 00:42:44.310 --> 00:42:48.690 align:middle line:84% But the story is that Facebook bought WhatsApp and Instagram 00:42:48.690 --> 00:42:52.800 align:middle line:90% in order to deter competition. 00:42:52.800 --> 00:42:55.470 align:middle line:84% And by the way, the same thing is 00:42:55.470 --> 00:42:57.960 align:middle line:84% happening in the pharma industry, 00:42:57.960 --> 00:43:00.960 align:middle line:90% where you have a new molecule. 00:43:00.960 --> 00:43:06.690 align:middle line:84% And the incumbent, which is threatened by this new molecule, 00:43:06.690 --> 00:43:10.336 align:middle line:90% is buying the startup. 00:43:10.336 --> 00:43:11.930 align:middle line:90% There's some evidence of that. 00:43:11.930 --> 00:43:13.750 align:middle line:84% Now, how important it is, we don't know, 00:43:13.750 --> 00:43:15.465 align:middle line:84% but there's clearly evidence of that. 00:43:15.465 --> 00:43:18.170 align:middle line:90% 00:43:18.170 --> 00:43:21.020 align:middle line:84% And then, entry is not very interesting 00:43:21.020 --> 00:43:27.200 align:middle line:84% because it's just a way of blackmailing the incumbent 00:43:27.200 --> 00:43:29.720 align:middle line:84% and sharing the profit of the incumbent. 00:43:29.720 --> 00:43:33.680 align:middle line:84% So because if you have a me too product, 00:43:33.680 --> 00:43:35.960 align:middle line:84% and you invent a me too product, and you 00:43:35.960 --> 00:43:37.680 align:middle line:90% spend the money to do that. 00:43:37.680 --> 00:43:39.950 align:middle line:84% And you go and see the incumbent, hey, 00:43:39.950 --> 00:43:43.690 align:middle line:84% buy me and surpress the competition. 00:43:43.690 --> 00:43:46.610 align:middle line:84% Then, the consumers haven't gained anything. 00:43:46.610 --> 00:43:48.820 align:middle line:84% And the only thing that is happening 00:43:48.820 --> 00:43:53.710 align:middle line:84% is a transfer of wealth between the incumbent and the entrant. 00:43:53.710 --> 00:43:58.830 align:middle line:84% Basically, you bribe the entrant to disappear, right? 00:43:58.830 --> 00:44:02.500 align:middle line:90% 00:44:02.500 --> 00:44:04.190 align:middle line:90% So that's a big issue nowadays. 00:44:04.190 --> 00:44:08.710 align:middle line:84% And there are lots of interesting antitrust questions 00:44:08.710 --> 00:44:10.390 align:middle line:90% linked to that. 00:44:10.390 --> 00:44:12.530 align:middle line:90% So let me move on. 00:44:12.530 --> 00:44:16.090 align:middle line:90% Let me move on to fairness. 00:44:16.090 --> 00:44:22.760 align:middle line:84% But a good time to stop to see if you have any questions. 00:44:22.760 --> 00:44:23.630 align:middle line:90% Yes? 00:44:23.630 --> 00:44:24.620 align:middle line:90% AUDIENCE: Sure. 00:44:24.620 --> 00:44:27.950 align:middle line:84% So since you bring up the Facebook Instagram example, 00:44:27.950 --> 00:44:31.820 align:middle line:84% if I recall correctly, when posting on either one, 00:44:31.820 --> 00:44:33.920 align:middle line:84% you could have it so that what you're posting gets 00:44:33.920 --> 00:44:36.080 align:middle line:90% posted on both now. 00:44:36.080 --> 00:44:39.050 align:middle line:84% So I guess going back to the multihoming example, 00:44:39.050 --> 00:44:42.680 align:middle line:84% I think you brought up how if you have a new platform that's 00:44:42.680 --> 00:44:45.380 align:middle line:84% similar to one that already exists in a way get it going 00:44:45.380 --> 00:44:48.050 align:middle line:84% is to make it so that if you post one and automatically posts 00:44:48.050 --> 00:44:48.990 align:middle line:90% on the second. 00:44:48.990 --> 00:44:52.970 align:middle line:84% But I mean, that's to me seems like an example where the bigger 00:44:52.970 --> 00:44:55.560 align:middle line:84% platform could already like bought in the smaller one. 00:44:55.560 --> 00:44:59.177 align:middle line:84% So I guess I can't really think of an example 00:44:59.177 --> 00:45:01.010 align:middle line:84% where the platform could still be separated, 00:45:01.010 --> 00:45:04.850 align:middle line:84% and you'd still be able to have that mechanism. 00:45:04.850 --> 00:45:06.710 align:middle line:84% PROFESSOR: Well, actually, that's 00:45:06.710 --> 00:45:12.740 align:middle line:84% a good question because, I mean, they're asking themselves now, 00:45:12.740 --> 00:45:14.750 align:middle line:84% if someone wants to replace Facebook, 00:45:14.750 --> 00:45:17.150 align:middle line:84% how are we going to promote that? 00:45:17.150 --> 00:45:21.220 align:middle line:84% And you need to have interoperability. 00:45:21.220 --> 00:45:24.360 align:middle line:84% And as you say, how do you make it happen? 00:45:24.360 --> 00:45:26.100 align:middle line:90% So you need APIs. 00:45:26.100 --> 00:45:29.040 align:middle line:84% You need the application programming interface 00:45:29.040 --> 00:45:34.170 align:middle line:84% and a standard of communication between Facebook and its rival. 00:45:34.170 --> 00:45:38.520 align:middle line:84% Now, if you ask Facebook to do it, it's not going to work. 00:45:38.520 --> 00:45:39.328 align:middle line:90% We know that. 00:45:39.328 --> 00:45:41.370 align:middle line:84% I mean, that has happened in the telecom industry 00:45:41.370 --> 00:45:44.400 align:middle line:90% a long time ago, 50 years ago. 00:45:44.400 --> 00:45:46.440 align:middle line:84% We know that it doesn't work because, of course, 00:45:46.440 --> 00:45:50.350 align:middle line:84% the incumbent doesn't want to help the other enter. 00:45:50.350 --> 00:45:54.370 align:middle line:84% So you need to have some kind of resolution of this issue. 00:45:54.370 --> 00:45:58.450 align:middle line:84% So is it the competition authority 00:45:58.450 --> 00:46:01.760 align:middle line:84% who is going to decide on the APIs? 00:46:01.760 --> 00:46:04.400 align:middle line:84% But probably they won't be very competent. 00:46:04.400 --> 00:46:06.740 align:middle line:90% They might be making mistakes. 00:46:06.740 --> 00:46:11.240 align:middle line:84% Is that a standardization effort? 00:46:11.240 --> 00:46:14.270 align:middle line:84% So you have-- but then, who does it exactly, 00:46:14.270 --> 00:46:16.520 align:middle line:84% which standard setting organization? 00:46:16.520 --> 00:46:20.770 align:middle line:84% All those things have been swept under the rug. 00:46:20.770 --> 00:46:23.660 align:middle line:84% So in the document, if I remember, 00:46:23.660 --> 00:46:26.730 align:middle line:84% well, you don't see how it's going to be done. 00:46:26.730 --> 00:46:30.830 align:middle line:84% Say, there should be some APIs so that you can actually 00:46:30.830 --> 00:46:35.490 align:middle line:84% have interoperability, but who's going to decide on them? 00:46:35.490 --> 00:46:37.753 align:middle line:90% I guess that's-- 00:46:37.753 --> 00:46:39.420 align:middle line:84% I don't have an answer to your question, 00:46:39.420 --> 00:46:41.420 align:middle line:84% but that's actually an interesting question. 00:46:41.420 --> 00:46:44.460 align:middle line:90% 00:46:44.460 --> 00:46:49.390 align:middle line:84% Let me say a few words about the traditional things. 00:46:49.390 --> 00:46:54.330 align:middle line:84% So the traditional way of looking at this-- 00:46:54.330 --> 00:46:57.120 align:middle line:90% and it's not a two-sided market. 00:46:57.120 --> 00:47:04.750 align:middle line:84% You basically have an upstream supplier 00:47:04.750 --> 00:47:09.940 align:middle line:84% who is supplying in-house and third parties, OK? 00:47:09.940 --> 00:47:14.650 align:middle line:84% So it's a language of regulation if you want upstream suppliers, 00:47:14.650 --> 00:47:16.360 align:middle line:90% downstream firms. 00:47:16.360 --> 00:47:20.990 align:middle line:84% And those downstream firms are supplying the consumers. 00:47:20.990 --> 00:47:23.920 align:middle line:84% It's not a two-sided platform because this 00:47:23.920 --> 00:47:26.500 align:middle line:84% will be the kind of a platform, but it doesn't have access 00:47:26.500 --> 00:47:27.730 align:middle line:90% to the consumer. 00:47:27.730 --> 00:47:32.680 align:middle line:84% Whereas in a two-sided platform, the platform 00:47:32.680 --> 00:47:34.700 align:middle line:84% is controlling the access to consumers, 00:47:34.700 --> 00:47:36.190 align:middle line:90% so it's a bit different. 00:47:36.190 --> 00:47:44.470 align:middle line:84% It's allowing the apps to actually sell to the consumers. 00:47:44.470 --> 00:47:48.910 align:middle line:84% But the apps, once they get the input from the upstream firm, 00:47:48.910 --> 00:47:50.330 align:middle line:90% can do whatever they want. 00:47:50.330 --> 00:47:54.130 align:middle line:84% They have direct contact with the consumers. 00:47:54.130 --> 00:48:01.670 align:middle line:84% So that was a framework we studied a couple of years ago. 00:48:01.670 --> 00:48:03.710 align:middle line:84% It's embarrassing to say how many years, 00:48:03.710 --> 00:48:07.280 align:middle line:84% but a number of years ago, that's basically 00:48:07.280 --> 00:48:09.430 align:middle line:90% the framework we studied. 00:48:09.430 --> 00:48:11.930 align:middle line:84% Something we learned at the time was, 00:48:11.930 --> 00:48:15.140 align:middle line:84% basically, you needed a regulation of access. 00:48:15.140 --> 00:48:19.070 align:middle line:84% You should not count on the incumbent to allow access. 00:48:19.070 --> 00:48:21.680 align:middle line:90% This is not going to work. 00:48:21.680 --> 00:48:27.140 align:middle line:84% The second thing was this ECPR stuff, 00:48:27.140 --> 00:48:33.040 align:middle line:84% which was something that almost every judge dealing 00:48:33.040 --> 00:48:36.400 align:middle line:84% with competition policy would know around the world. 00:48:36.400 --> 00:48:39.370 align:middle line:84% But a number of economists would not even know. 00:48:39.370 --> 00:48:42.040 align:middle line:84% Even so, it was invented by Baumol and Willig, 00:48:42.040 --> 00:48:45.820 align:middle line:84% the same people, by Baumol and Willig. 00:48:45.820 --> 00:48:48.430 align:middle line:84% Basically, which was putting a cap 00:48:48.430 --> 00:48:50.790 align:middle line:90% on what the excess charge was. 00:48:50.790 --> 00:48:54.260 align:middle line:84% So here, you have an internal transfer price. 00:48:54.260 --> 00:49:01.060 align:middle line:84% Think of this as being zero, or marginal cost more generally. 00:49:01.060 --> 00:49:04.900 align:middle line:84% So basically, this downstream unit 00:49:04.900 --> 00:49:12.700 align:middle line:84% was getting the essential input at a low price. 00:49:12.700 --> 00:49:15.490 align:middle line:84% But the question, what was the excess price 00:49:15.490 --> 00:49:19.630 align:middle line:84% for this third-party app or third-party merchant? 00:49:19.630 --> 00:49:23.640 align:middle line:90% And that had to be kept. 00:49:23.640 --> 00:49:26.370 align:middle line:84% So the ceiling on the access charge 00:49:26.370 --> 00:49:31.100 align:middle line:84% that Baumol and Willig found, and that just said-- 00:49:31.100 --> 00:49:34.400 align:middle line:84% that was used a lot in antitrust and also in regulation-- 00:49:34.400 --> 00:49:40.250 align:middle line:84% was basically that you will put a ceiling at how much money was 00:49:40.250 --> 00:49:46.818 align:middle line:84% lost by the incumbent when D2 takes a customer away 00:49:46.818 --> 00:49:47.610 align:middle line:90% from the incumbent. 00:49:47.610 --> 00:49:56.180 align:middle line:84% So it's basically saying, OK, if I take a consumer away from you, 00:49:56.180 --> 00:50:00.110 align:middle line:84% I'm going to compensate you for your loss on that consumer, 00:50:00.110 --> 00:50:03.570 align:middle line:84% assuming the access cost is the same. 00:50:03.570 --> 00:50:09.140 align:middle line:84% So it doesn't cost more to supply D2 than supplying D1. 00:50:09.140 --> 00:50:13.670 align:middle line:84% But basically, the idea was to compensate 00:50:13.670 --> 00:50:17.960 align:middle line:84% D1, UD1, for the loss profit, which 00:50:17.960 --> 00:50:21.620 align:middle line:84% is the margin on the downstream segment. 00:50:21.620 --> 00:50:23.960 align:middle line:84% So it was a price minus a marginal cost 00:50:23.960 --> 00:50:25.940 align:middle line:90% on the downstream segment. 00:50:25.940 --> 00:50:32.150 align:middle line:84% So that was used to basically find an upper bound 00:50:32.150 --> 00:50:34.100 align:middle line:90% on the access charge. 00:50:34.100 --> 00:50:37.400 align:middle line:84% You cannot charge more than what you lose when you lose 00:50:37.400 --> 00:50:40.070 align:middle line:90% a customer to your rival. 00:50:40.070 --> 00:50:41.500 align:middle line:90% It's a simple rule, right? 00:50:41.500 --> 00:50:44.300 align:middle line:90% 00:50:44.300 --> 00:50:47.150 align:middle line:84% And in the work I did with Jean-Jacques Laffont, 00:50:47.150 --> 00:50:50.270 align:middle line:84% we found that actually that was not such a bad rule, 00:50:50.270 --> 00:50:54.110 align:middle line:84% except it's a very incomplete rule because you notice that it 00:50:54.110 --> 00:50:56.390 align:middle line:90% just connects two prices-- 00:50:56.390 --> 00:51:01.910 align:middle line:84% the access charge to third-party merchants-- 00:51:01.910 --> 00:51:07.340 align:middle line:84% with the final price you charge in the consumer segment. 00:51:07.340 --> 00:51:10.430 align:middle line:84% But it doesn't tell you what A and P1 should be. 00:51:10.430 --> 00:51:13.556 align:middle line:90% It just connects the two. 00:51:13.556 --> 00:51:16.550 align:middle line:84% In particular, they could be quite high. 00:51:16.550 --> 00:51:22.580 align:middle line:84% But in terms of efficiency, actually, it's 00:51:22.580 --> 00:51:27.500 align:middle line:84% not bad because in a sense you have D2 internalize 00:51:27.500 --> 00:51:29.270 align:middle line:90% the externality on D1. 00:51:29.270 --> 00:51:33.380 align:middle line:84% And basically, the market allocation between D1 and D2 00:51:33.380 --> 00:51:35.000 align:middle line:90% is not going to be bad. 00:51:35.000 --> 00:51:37.520 align:middle line:84% And something I want to say, which is very important, 00:51:37.520 --> 00:51:42.030 align:middle line:84% is that this upstream firm, the bottleneck 00:51:42.030 --> 00:51:45.480 align:middle line:84% of the core segment, if you want, 00:51:45.480 --> 00:51:47.170 align:middle line:90% can make money in two ways. 00:51:47.170 --> 00:51:48.990 align:middle line:84% And that's very important to realize. 00:51:48.990 --> 00:51:53.070 align:middle line:84% Can make money either in the downstream market through P1, 00:51:53.070 --> 00:51:57.430 align:middle line:84% or it can make money by giving access. 00:51:57.430 --> 00:52:02.110 align:middle line:84% So you can do it retail, or you can do it wholesale. 00:52:02.110 --> 00:52:05.590 align:middle line:84% You can make money in one of two ways. 00:52:05.590 --> 00:52:07.437 align:middle line:84% And in a sense this, if you have equality, 00:52:07.437 --> 00:52:09.520 align:middle line:84% that means that you're indifferent between the two 00:52:09.520 --> 00:52:11.290 align:middle line:90% ways. 00:52:11.290 --> 00:52:13.960 align:middle line:90% OK? 00:52:13.960 --> 00:52:18.990 align:middle line:84% OK, now, that also tells you that-- 00:52:18.990 --> 00:52:21.240 align:middle line:84% let me move on to number four, and I will come back 00:52:21.240 --> 00:52:22.110 align:middle line:90% to number three-- 00:52:22.110 --> 00:52:29.660 align:middle line:84% that the marginal cost pricing of access 00:52:29.660 --> 00:52:33.620 align:middle line:84% may not be the right benchmark because if you 00:52:33.620 --> 00:52:36.440 align:middle line:84% charge a equals to 0, you're not going 00:52:36.440 --> 00:52:40.620 align:middle line:90% to make any profit on access. 00:52:40.620 --> 00:52:42.930 align:middle line:84% And then, there will be tough competition 00:52:42.930 --> 00:52:45.220 align:middle line:90% in the downstream market. 00:52:45.220 --> 00:52:48.010 align:middle line:84% And you may make no money at all. 00:52:48.010 --> 00:52:50.520 align:middle line:84% Even so, the reason why you are monopolies 00:52:50.520 --> 00:52:54.460 align:middle line:84% is that you have very high fixed costs of upstream. 00:52:54.460 --> 00:52:58.560 align:middle line:84% So that's something that was a concern. 00:52:58.560 --> 00:53:01.440 align:middle line:84% The way Laffont and I actually solved 00:53:01.440 --> 00:53:05.580 align:middle line:84% it was basically by inventing a global price cap in which you 00:53:05.580 --> 00:53:12.000 align:middle line:84% will be putting not only the retail price in the price cap, 00:53:12.000 --> 00:53:16.450 align:middle line:84% but you also put the wholesale prices. 00:53:16.450 --> 00:53:21.100 align:middle line:84% Now, the other thing that we are going to find again 00:53:21.100 --> 00:53:23.920 align:middle line:84% in what I'm going to tell you about in a few minutes, 00:53:23.920 --> 00:53:29.110 align:middle line:84% is that an excess markup, if you have a greater than C0, 00:53:29.110 --> 00:53:33.610 align:middle line:84% that doesn't necessarily mean that competitors 00:53:33.610 --> 00:53:34.990 align:middle line:90% are disadvantaged. 00:53:34.990 --> 00:53:38.560 align:middle line:84% Because if you look at the cost of each firm, 00:53:38.560 --> 00:53:41.560 align:middle line:84% each downstream firms, now, the cost 00:53:41.560 --> 00:53:44.680 align:middle line:84% here is equal to a, the access charge plus possibly 00:53:44.680 --> 00:53:47.260 align:middle line:90% a downstream cost. 00:53:47.260 --> 00:53:52.420 align:middle line:84% But here, the cost of D1 when charging P1 also 00:53:52.420 --> 00:53:56.890 align:middle line:84% has to include that if you take a consumer away from D2, 00:53:56.890 --> 00:54:05.050 align:middle line:84% you lose the difference between a and c0. 00:54:05.050 --> 00:54:09.910 align:middle line:84% So your opportunity cost, if you are the integrated firm, 00:54:09.910 --> 00:54:14.650 align:middle line:84% is c0 plus a markup you make an access. 00:54:14.650 --> 00:54:19.340 align:middle line:84% And that's the access charge, which is the same as the access 00:54:19.340 --> 00:54:23.440 align:middle line:90% price for the rival. 00:54:23.440 --> 00:54:25.820 align:middle line:84% So in a sense, they have the same marginal cost, 00:54:25.820 --> 00:54:30.430 align:middle line:84% if you think about marginal cost as being opportunity cost. 00:54:30.430 --> 00:54:32.945 align:middle line:84% That's a bit surprising the first time you see it. 00:54:32.945 --> 00:54:33.445 align:middle line:90% What? 00:54:33.445 --> 00:54:36.910 align:middle line:84% They are charging a markup on access, but at the same time, 00:54:36.910 --> 00:54:40.990 align:middle line:84% they face the same marginal cost. 00:54:40.990 --> 00:54:43.990 align:middle line:84% And the point is that you have to take into account 00:54:43.990 --> 00:54:49.840 align:middle line:84% that if you lose a consumer on the access market, 00:54:49.840 --> 00:54:52.110 align:middle line:90% you lose a minus c0. 00:54:52.110 --> 00:54:55.005 align:middle line:84% So actually, that you have to include in your cost. 00:54:55.005 --> 00:54:59.040 align:middle line:90% 00:54:59.040 --> 00:55:07.990 align:middle line:84% And then, we derive the optimal regulated access charges, 00:55:07.990 --> 00:55:10.510 align:middle line:90% which are by Ramsey principle. 00:55:10.510 --> 00:55:15.760 align:middle line:84% If you think about giving access in the end as being just 00:55:15.760 --> 00:55:17.750 align:middle line:90% providing a retail good. 00:55:17.750 --> 00:55:20.350 align:middle line:84% Even so, it's a wholesale good, but indirectly, it's 00:55:20.350 --> 00:55:21.020 align:middle line:90% a retail good. 00:55:21.020 --> 00:55:23.290 align:middle line:90% So let me skip that. 00:55:23.290 --> 00:55:27.610 align:middle line:84% OK, now, we are going to wonder what's happening 00:55:27.610 --> 00:55:30.220 align:middle line:90% with two-sided markets. 00:55:30.220 --> 00:55:33.220 align:middle line:90% So that I've already said. 00:55:33.220 --> 00:55:37.750 align:middle line:84% As a motivation, I'm going to go very fast through this. 00:55:37.750 --> 00:55:41.060 align:middle line:90% There are lots of concerns. 00:55:41.060 --> 00:55:47.450 align:middle line:84% There are lots of concerns about the charges to merchants. 00:55:47.450 --> 00:55:51.230 align:middle line:84% So if you think about the app store or Google Play, 00:55:51.230 --> 00:55:58.140 align:middle line:84% you get 30% commissions and so on and so forth. 00:55:58.140 --> 00:55:59.870 align:middle line:90% It's not new, by the way. 00:55:59.870 --> 00:56:01.700 align:middle line:84% There are lots of antitrust cases 00:56:01.700 --> 00:56:05.690 align:middle line:84% which had to do with credit cards and debit cards. 00:56:05.690 --> 00:56:09.050 align:middle line:84% They are not charging 30%, but they were-- 00:56:09.050 --> 00:56:12.110 align:middle line:84% if you think about American Express or PayPal and all 00:56:12.110 --> 00:56:17.540 align:middle line:84% those platforms, they charge 3% or Google Pay or Apple Pay. 00:56:17.540 --> 00:56:20.660 align:middle line:84% Visa, it's a bit less, but Visa, MasterCard is a bit less, 00:56:20.660 --> 00:56:24.140 align:middle line:84% but they charge some money as well. 00:56:24.140 --> 00:56:26.820 align:middle line:90% So it's a general issue. 00:56:26.820 --> 00:56:28.250 align:middle line:84% There are lots of concern about-- 00:56:28.250 --> 00:56:30.420 align:middle line:84% and that has to do with equity or fairness. 00:56:30.420 --> 00:56:33.132 align:middle line:90% 00:56:33.132 --> 00:56:35.930 align:middle line:90% And by the way, there is-- 00:56:35.930 --> 00:56:41.040 align:middle line:84% you probably have heard about this event where, 00:56:41.040 --> 00:56:46.110 align:middle line:84% basically, Apple removed the Fortnite 00:56:46.110 --> 00:56:50.130 align:middle line:84% game from the iPhone and the iPad 00:56:50.130 --> 00:56:56.070 align:middle line:84% because basically what Epic was doing 00:56:56.070 --> 00:57:01.980 align:middle line:84% was to offer another route to buying the subscription, 00:57:01.980 --> 00:57:03.760 align:middle line:90% so you could buy directly. 00:57:03.760 --> 00:57:06.150 align:middle line:84% And Apple was very upset and basically said, 00:57:06.150 --> 00:57:09.310 align:middle line:90% OK, you are out of my platform. 00:57:09.310 --> 00:57:13.050 align:middle line:84% You don't want to pay the 30%, you are dead. 00:57:13.050 --> 00:57:15.870 align:middle line:90% That was the idea. 00:57:15.870 --> 00:57:16.740 align:middle line:90% OK? 00:57:16.740 --> 00:57:18.580 align:middle line:84% I don't know actually about the last thing. 00:57:18.580 --> 00:57:21.270 align:middle line:84% So if any of you has information about that. 00:57:21.270 --> 00:57:25.500 align:middle line:84% I read once that the commission in China-- 00:57:25.500 --> 00:57:30.810 align:middle line:84% I mean, you know, the top 20 tech firms in the world 11, 00:57:30.810 --> 00:57:33.360 align:middle line:84% which are American and non-Chinese. 00:57:33.360 --> 00:57:36.438 align:middle line:84% So there are big tech firms in China as well. 00:57:36.438 --> 00:57:37.480 align:middle line:90% And you know their names. 00:57:37.480 --> 00:57:41.527 align:middle line:84% But I read that some of them are asking up to 50%. 00:57:41.527 --> 00:57:42.610 align:middle line:90% I don't know if it's true. 00:57:42.610 --> 00:57:45.455 align:middle line:84% If you know, I will be interested in knowing. 00:57:45.455 --> 00:57:48.690 align:middle line:90% 00:57:48.690 --> 00:57:50.620 align:middle line:90% OK. 00:57:50.620 --> 00:57:51.120 align:middle line:90% OK. 00:57:51.120 --> 00:57:55.200 align:middle line:84% So let me-- so there is a paper which 00:57:55.200 --> 00:58:00.720 align:middle line:84% was sent to you with a student of mine, Michele 00:58:00.720 --> 00:58:06.260 align:middle line:84% Bisceglia, which basically looks at the optimal access price. 00:58:06.260 --> 00:58:10.910 align:middle line:84% So 30 years later, we do access pricing 00:58:10.910 --> 00:58:15.380 align:middle line:84% for two-sided platforms, which is very important because all 00:58:15.380 --> 00:58:19.490 align:middle line:84% those regulations wants to keep those access prices low. 00:58:19.490 --> 00:58:21.590 align:middle line:90% But what does it mean low? 00:58:21.590 --> 00:58:25.130 align:middle line:84% I mean, when you sell on Amazon marketplace, 00:58:25.130 --> 00:58:30.800 align:middle line:90% should it be 13%, 15%, 3%? 00:58:30.800 --> 00:58:32.960 align:middle line:90% What's your view? 00:58:32.960 --> 00:58:41.510 align:middle line:84% When you sell an app on Google Play, should it be 30% or 10%? 00:58:41.510 --> 00:58:42.460 align:middle line:90% OK? 00:58:42.460 --> 00:58:44.180 align:middle line:84% That's very important because that's 00:58:44.180 --> 00:58:46.890 align:middle line:84% the business model of this platform which is at stake. 00:58:46.890 --> 00:58:49.110 align:middle line:84% So we know very little about that. 00:58:49.110 --> 00:58:55.560 align:middle line:84% So I'm going to give you some insights. 00:58:55.560 --> 00:58:59.030 align:middle line:84% But there is much more, both theoretically and empirically 00:58:59.030 --> 00:59:03.440 align:middle line:84% to be done because the regulations are 00:59:03.440 --> 00:59:08.390 align:middle line:84% in part going to be exactly on this access charge. 00:59:08.390 --> 00:59:15.060 align:middle line:84% And so this is the same diagram I told you earlier. 00:59:15.060 --> 00:59:16.830 align:middle line:90% I just put names on the prices. 00:59:16.830 --> 00:59:18.960 align:middle line:84% So imagine that you have a consumer. 00:59:18.960 --> 00:59:24.590 align:middle line:84% The consumer will pay P0 for access to the platform. 00:59:24.590 --> 00:59:29.570 align:middle line:84% Actually, the 0 lower bound will bind when p0 is equal to 0. 00:59:29.570 --> 00:59:32.790 align:middle line:84% I'm going to assume that p0 cannot be negative. 00:59:32.790 --> 00:59:35.760 align:middle line:90% 00:59:35.760 --> 00:59:38.400 align:middle line:90% Then, there is a core service. 00:59:38.400 --> 00:59:40.950 align:middle line:84% So think of that as being a search engine 00:59:40.950 --> 00:59:44.880 align:middle line:84% or a marketplace, which is going to lead you 00:59:44.880 --> 00:59:48.460 align:middle line:84% to an in-house app or a rival app. 00:59:48.460 --> 00:59:51.460 align:middle line:84% Let's assume that the service of this app or maybe 00:59:51.460 --> 00:59:53.320 align:middle line:84% the overall service will be theta. 00:59:53.320 --> 00:59:58.720 align:middle line:84% Theta may be a Trojan horse across consumers. 00:59:58.720 --> 01:00:01.390 align:middle line:90% The in-house app will charge P1. 01:00:01.390 --> 01:00:04.150 align:middle line:90% The rival app will charge P2. 01:00:04.150 --> 01:00:07.480 align:middle line:84% The interesting case, the only interesting case 01:00:07.480 --> 01:00:11.110 align:middle line:84% is actually when the rival app is more efficient. 01:00:11.110 --> 01:00:15.970 align:middle line:84% So basically, it adds a utility delta on top of theta 01:00:15.970 --> 01:00:18.720 align:middle line:90% compared to the in-house app. 01:00:18.720 --> 01:00:22.570 align:middle line:84% OK, so let's assume that the rival app, the third-party app 01:00:22.570 --> 01:00:28.080 align:middle line:84% is actually more efficient, delivers a better service. 01:00:28.080 --> 01:00:28.680 align:middle line:90% OK? 01:00:28.680 --> 01:00:31.740 align:middle line:84% Now, something which is going to be very important 01:00:31.740 --> 01:00:35.770 align:middle line:84% is that the app providers are going 01:00:35.770 --> 01:00:39.390 align:middle line:90% to have negative marginal cost. 01:00:39.390 --> 01:00:42.250 align:middle line:84% So there can be advertising revenues. 01:00:42.250 --> 01:00:47.520 align:middle line:84% So when a consumer reaches a rival app, for example, 01:00:47.520 --> 01:00:51.180 align:middle line:84% then you'll have advertising on the platform. 01:00:51.180 --> 01:00:53.640 align:middle line:84% Itself will be a platform, if you want. 01:00:53.640 --> 01:00:56.250 align:middle line:90% But it will have advertising. 01:00:56.250 --> 01:00:57.710 align:middle line:90% It will have merch. 01:00:57.710 --> 01:01:00.480 align:middle line:90% 01:01:00.480 --> 01:01:04.650 align:middle line:84% If it has its own merchant, it will have merchant fees. 01:01:04.650 --> 01:01:06.520 align:middle line:90% There might be data collection. 01:01:06.520 --> 01:01:08.460 align:middle line:84% So you are going to collect data about-- 01:01:08.460 --> 01:01:10.300 align:middle line:90% and those data are values. 01:01:10.300 --> 01:01:12.570 align:middle line:84% There can be repeat customers, too. 01:01:12.570 --> 01:01:16.350 align:middle line:84% So when you acquire a consumer, you're 01:01:16.350 --> 01:01:20.150 align:middle line:84% going to benefit because those consumers will come back to you. 01:01:20.150 --> 01:01:28.560 align:middle line:84% So think about, OK, I'm using a car-sharing, carpooling service. 01:01:28.560 --> 01:01:30.720 align:middle line:90% First time I use BlaBlaCar-- 01:01:30.720 --> 01:01:32.900 align:middle line:84% I know in the US BlaBlaCar doesn't exist, 01:01:32.900 --> 01:01:37.400 align:middle line:84% but it exists in most countries in the world. 01:01:37.400 --> 01:01:39.470 align:middle line:84% I'm using BlaBlaCar the first time. 01:01:39.470 --> 01:01:41.480 align:middle line:90% But now, I found you. 01:01:41.480 --> 01:01:43.550 align:middle line:84% And next time, I'm going to use you 01:01:43.550 --> 01:01:47.880 align:middle line:90% without having any intermediary. 01:01:47.880 --> 01:01:50.290 align:middle line:84% So all kinds of things like that. 01:01:50.290 --> 01:01:53.320 align:middle line:90% 01:01:53.320 --> 01:02:00.140 align:middle line:84% And I'm going to just assume that if an app has a consumer, 01:02:00.140 --> 01:02:04.820 align:middle line:84% then there will be an ancillary or side benefit be 01:02:04.820 --> 01:02:07.260 align:middle line:90% from that, which is positive. 01:02:07.260 --> 01:02:10.130 align:middle line:84% So given there is no marginal costs, 01:02:10.130 --> 01:02:16.550 align:middle line:84% it's a digital good, that means that your opportunity cost is 01:02:16.550 --> 01:02:19.260 align:middle line:90% minus b, so it's negative. 01:02:19.260 --> 01:02:20.760 align:middle line:84% That's going to be very important. 01:02:20.760 --> 01:02:23.330 align:middle line:84% It's often the case in those industries 01:02:23.330 --> 01:02:25.640 align:middle line:90% that you have negative costs. 01:02:25.640 --> 01:02:27.650 align:middle line:90% OK? 01:02:27.650 --> 01:02:30.590 align:middle line:84% Now, I will say, as I said, I will 01:02:30.590 --> 01:02:32.180 align:middle line:84% say that there is a 0 lower bound 01:02:32.180 --> 01:02:36.320 align:middle line:84% on the core product, a core 0 lower bound if P0 is equal to 0. 01:02:36.320 --> 01:02:42.170 align:middle line:84% And there will be an app 0 lower bound if P1 is equal to 0. 01:02:42.170 --> 01:02:45.590 align:middle line:84% And P1 will be less than P2 as you might imagine because it's 01:02:45.590 --> 01:02:47.160 align:middle line:90% an inferior product. 01:02:47.160 --> 01:02:52.640 align:middle line:84% But you will have a 0 lower bound if P1 is equal to 0. 01:02:52.640 --> 01:02:55.920 align:middle line:90% 01:02:55.920 --> 01:02:57.860 align:middle line:90% OK? 01:02:57.860 --> 01:03:00.300 align:middle line:84% OK, so an example of hybrid platforms, 01:03:00.300 --> 01:03:01.480 align:middle line:90% I already went through that. 01:03:01.480 --> 01:03:06.830 align:middle line:84% The third-party sellers are going to pay a unit access fee. 01:03:06.830 --> 01:03:08.760 align:middle line:84% It could be ad valorem, but I'm not going-- 01:03:08.760 --> 01:03:10.550 align:middle line:90% it doesn't change the results. 01:03:10.550 --> 01:03:13.795 align:middle line:84% It's just a fixed fee independent of price. 01:03:13.795 --> 01:03:17.200 align:middle line:90% 01:03:17.200 --> 01:03:17.840 align:middle line:90% OK? 01:03:17.840 --> 01:03:19.510 align:middle line:84% And the access fee for the moment 01:03:19.510 --> 01:03:22.030 align:middle line:84% could be set by the platform or the regulator. 01:03:22.030 --> 01:03:25.420 align:middle line:84% And of course, one of the things you would like to understand 01:03:25.420 --> 01:03:28.670 align:middle line:84% is whether a platform has an incentive 01:03:28.670 --> 01:03:32.270 align:middle line:84% to charge access prices which are too high. 01:03:32.270 --> 01:03:35.190 align:middle line:90% OK. 01:03:35.190 --> 01:03:36.660 align:middle line:90% OK? 01:03:36.660 --> 01:03:41.550 align:middle line:84% So as I said, the app 0 lower bound corresponds to P1 01:03:41.550 --> 01:03:48.780 align:middle line:84% equals 0, and the core lower bound is binding if P0 equals 0. 01:03:48.780 --> 01:03:50.020 align:middle line:90% Do you have questions? 01:03:50.020 --> 01:03:53.690 align:middle line:90% 01:03:53.690 --> 01:03:56.180 align:middle line:84% OK, the zero lower bound are realistic because there 01:03:56.180 --> 01:04:01.100 align:middle line:84% are lots of services and apps which are free. 01:04:01.100 --> 01:04:04.730 align:middle line:84% But in this model, as I'm going to show you, 01:04:04.730 --> 01:04:06.440 align:middle line:84% if you don't have zero lower bounds, 01:04:06.440 --> 01:04:10.240 align:middle line:84% actually things are pretty good for the Chicago argument. 01:04:10.240 --> 01:04:12.700 align:middle line:84% So actually, the Chicago School argument, 01:04:12.700 --> 01:04:18.310 align:middle line:84% if none of the zero lower bound is binding, it's going to hold. 01:04:18.310 --> 01:04:20.640 align:middle line:90% OK? 01:04:20.640 --> 01:04:23.690 align:middle line:84% There is no substantive issue in that case. 01:04:23.690 --> 01:04:26.360 align:middle line:90% 01:04:26.360 --> 01:04:30.350 align:middle line:84% But if you have the zero lower bound that primes. 01:04:30.350 --> 01:04:36.940 align:middle line:84% So that's why we introduce those two zero lower bounds, OK? 01:04:36.940 --> 01:04:38.860 align:middle line:90% OK, So let's flip it. 01:04:38.860 --> 01:04:47.210 align:middle line:84% So let's assume that there is a distribution F of theta 01:04:47.210 --> 01:04:53.190 align:middle line:84% on willingness is to pay for the consumer for the service offered 01:04:53.190 --> 01:04:54.930 align:middle line:90% by the platform. 01:04:54.930 --> 01:04:59.880 align:middle line:84% And you make the usual monotonous moderate condition, 01:04:59.880 --> 01:05:01.350 align:middle line:90% if you like. 01:05:01.350 --> 01:05:03.750 align:middle line:84% Actually, most of the time, I'm just 01:05:03.750 --> 01:05:05.860 align:middle line:84% going to assume theta is homogeneous. 01:05:05.860 --> 01:05:11.380 align:middle line:84% So theta will be the same for all consumers. 01:05:11.380 --> 01:05:17.090 align:middle line:84% The reason why we introduce a distribution in the paper 01:05:17.090 --> 01:05:18.440 align:middle line:90% is twofold. 01:05:18.440 --> 01:05:21.510 align:middle line:84% The first is that we want to see robustness 01:05:21.510 --> 01:05:24.710 align:middle line:84% when you have heterogeneity and a downward sloping 01:05:24.710 --> 01:05:27.260 align:middle line:90% demand for the platform. 01:05:27.260 --> 01:05:33.760 align:middle line:84% But also, if you have two complementary goods 01:05:33.760 --> 01:05:36.490 align:middle line:84% and you have homogeneity, in general, 01:05:36.490 --> 01:05:38.290 align:middle line:90% you have multiple equilibria. 01:05:38.290 --> 01:05:40.730 align:middle line:84% You have a continuum of equilibria. 01:05:40.730 --> 01:05:46.460 align:middle line:84% I mean, that's a standard Nash story, which is that, 01:05:46.460 --> 01:05:48.710 align:middle line:84% if you are willing to-- if you are-- 01:05:48.710 --> 01:05:51.230 align:middle line:90% OK, I'm offering a good. 01:05:51.230 --> 01:05:53.900 align:middle line:84% And you are offering a good, and the consumers 01:05:53.900 --> 01:05:56.060 align:middle line:90% are willing to pay 10. 01:05:56.060 --> 01:05:57.810 align:middle line:90% I can offer it at one. 01:05:57.810 --> 01:06:01.070 align:middle line:84% And there are two perfect complements. 01:06:01.070 --> 01:06:01.810 align:middle line:90% I can charge one. 01:06:01.810 --> 01:06:03.490 align:middle line:90% You can charge nine. 01:06:03.490 --> 01:06:06.520 align:middle line:84% Or I can charge seven, and you charge three. 01:06:06.520 --> 01:06:08.800 align:middle line:84% There are lots of lots of equilibria. 01:06:08.800 --> 01:06:13.720 align:middle line:84% That was realized over 70 years ago by John Nash. 01:06:13.720 --> 01:06:15.760 align:middle line:84% He said, no, there are multiple equilibria. 01:06:15.760 --> 01:06:17.890 align:middle line:84% Let's have a downward sloping demand, 01:06:17.890 --> 01:06:21.670 align:middle line:84% and let's take the limit when you converge 01:06:21.670 --> 01:06:24.010 align:middle line:90% toward homogeneous demand. 01:06:24.010 --> 01:06:26.470 align:middle line:84% And then the equilibria is unique. 01:06:26.470 --> 01:06:29.830 align:middle line:84% So if you want uniqueness, you use a Nash trick 01:06:29.830 --> 01:06:33.700 align:middle line:84% of introducing a little bit of randomness in the evaluation. 01:06:33.700 --> 01:06:36.130 align:middle line:84% And you get rid of this multiplicity. 01:06:36.130 --> 01:06:39.520 align:middle line:84% That's the other reason why we actually consider 01:06:39.520 --> 01:06:40.920 align:middle line:90% a downward sloping demand. 01:06:40.920 --> 01:06:43.540 align:middle line:84% Even so, most of the analysis is done 01:06:43.540 --> 01:06:46.540 align:middle line:90% with theta being the same for. 01:06:46.540 --> 01:06:51.220 align:middle line:84% So if x is equal to 1 when the buyer, 01:06:51.220 --> 01:06:55.180 align:middle line:84% the consumers buys the third-party app and 0 if they 01:06:55.180 --> 01:07:02.290 align:middle line:84% buy the in-house app, then the platform's profit will be-- 01:07:02.290 --> 01:07:03.850 align:middle line:90% OK, if the cut off-- 01:07:03.850 --> 01:07:07.040 align:middle line:84% of course, I theta people are going to buy. 01:07:07.040 --> 01:07:09.130 align:middle line:84% So the fraction of people buying, 01:07:09.130 --> 01:07:11.320 align:middle line:84% let's assume there is a mass 1 of consumer 01:07:11.320 --> 01:07:14.230 align:middle line:90% is 1 minus f of theta star. 01:07:14.230 --> 01:07:18.080 align:middle line:84% Now, what is the profit of a platform per customer? 01:07:18.080 --> 01:07:22.060 align:middle line:84% So it's going to be P0 for access, the consumer access 01:07:22.060 --> 01:07:24.230 align:middle line:90% to the platform. 01:07:24.230 --> 01:07:30.400 align:middle line:84% If, basically, the consumer buys from the rival, 01:07:30.400 --> 01:07:34.870 align:middle line:84% then the platform is going to get the access charge. 01:07:34.870 --> 01:07:38.970 align:middle line:84% But if it doesn't buy from the platform, 01:07:38.970 --> 01:07:43.240 align:middle line:84% then you'll get P1 minus a because you 01:07:43.240 --> 01:07:51.910 align:middle line:84% are losing the access charge if actually the in-house good is 01:07:51.910 --> 01:07:52.720 align:middle line:90% purchased. 01:07:52.720 --> 01:07:56.710 align:middle line:84% But then you get the benefit, the ancillary benefit 01:07:56.710 --> 01:08:02.840 align:middle line:84% from having access to the consumer on the app side. 01:08:02.840 --> 01:08:05.380 align:middle line:90% So you get the b. 01:08:05.380 --> 01:08:07.790 align:middle line:90% The third party app, same thing. 01:08:07.790 --> 01:08:11.500 align:middle line:84% You have a number of consumer joining the platform, which 01:08:11.500 --> 01:08:13.720 align:middle line:90% is 1 minus f of theta star. 01:08:13.720 --> 01:08:17.260 align:middle line:84% And when it equals 1, if they buy from the third-party app, 01:08:17.260 --> 01:08:22.310 align:middle line:84% then third-party app gets P2 plus b minus a. 01:08:22.310 --> 01:08:25.029 align:middle line:90% OK? 01:08:25.029 --> 01:08:28.620 align:middle line:84% Now, something you already notice here 01:08:28.620 --> 01:08:36.080 align:middle line:84% is that the marginal cost, when choosing the price P1, 01:08:36.080 --> 01:08:38.210 align:middle line:84% the marginal cost of the platform 01:08:38.210 --> 01:08:46.689 align:middle line:84% is a minus b, because if you acquire consumer for the app, 01:08:46.689 --> 01:08:51.189 align:middle line:84% a consumer buys your app, then you lose the access charge, 01:08:51.189 --> 01:08:54.300 align:middle line:84% but you get the ancillary benefit. 01:08:54.300 --> 01:08:55.210 align:middle line:90% Same thing. 01:08:55.210 --> 01:08:59.220 align:middle line:84% The marginal cost for the third-party app 01:08:59.220 --> 01:09:02.640 align:middle line:90% is the access charge minus b. 01:09:02.640 --> 01:09:04.549 align:middle line:84% So they're exactly the same marginal cost. 01:09:04.549 --> 01:09:10.880 align:middle line:90% 01:09:10.880 --> 01:09:15.850 align:middle line:84% So there will be an access charge, a, 01:09:15.850 --> 01:09:19.870 align:middle line:84% which is determined either by the platform or by regulation. 01:09:19.870 --> 01:09:23.410 align:middle line:84% The firms will set their prices simultaneously. 01:09:23.410 --> 01:09:25.910 align:middle line:90% The platform chooses P0 and P1. 01:09:25.910 --> 01:09:28.569 align:middle line:90% The third-party app chooses P2. 01:09:28.569 --> 01:09:33.550 align:middle line:84% And the consumer choose whether to join the platform. 01:09:33.550 --> 01:09:37.510 align:middle line:84% Now, there is a variant of that in which-- 01:09:37.510 --> 01:09:41.569 align:middle line:84% in the case there is no regulation. 01:09:41.569 --> 01:09:47.069 align:middle line:84% The platform can always foreclose access. 01:09:47.069 --> 01:09:50.430 align:middle line:84% And that's the whole issue about foreclosure foreclose 01:09:50.430 --> 01:09:55.130 align:middle line:90% access to the third-party app. 01:09:55.130 --> 01:10:01.900 align:middle line:84% For example, you can actually say, I'm not-- 01:10:01.900 --> 01:10:03.550 align:middle line:90% just like Apple did-- 01:10:03.550 --> 01:10:05.600 align:middle line:84% you are not on my platform anymore. 01:10:05.600 --> 01:10:07.060 align:middle line:90% That's a bit violent. 01:10:07.060 --> 01:10:11.890 align:middle line:84% You can do the same in a much softer way by saying, OK, 01:10:11.890 --> 01:10:15.730 align:middle line:90% you'll be on page 235. 01:10:15.730 --> 01:10:19.700 align:middle line:84% Web page 235, you are quite sure that nobody will buy from you. 01:10:19.700 --> 01:10:23.931 align:middle line:90% 01:10:23.931 --> 01:10:26.690 align:middle line:90% So that's the new. 01:10:26.690 --> 01:10:31.860 align:middle line:84% So what you can do is to choose a competitive advantage 01:10:31.860 --> 01:10:35.078 align:middle line:84% delta, which is less than capital Delta, 01:10:35.078 --> 01:10:36.620 align:middle line:84% actually, without loss of generality, 01:10:36.620 --> 01:10:39.030 align:middle line:84% you can assume it's even negative. 01:10:39.030 --> 01:10:41.725 align:middle line:90% 01:10:41.725 --> 01:10:45.140 align:middle line:84% Whereas if you are monitored by a regulator, 01:10:45.140 --> 01:10:46.910 align:middle line:84% then there is no such possibility. 01:10:46.910 --> 01:10:48.520 align:middle line:90% That's the assumption. 01:10:48.520 --> 01:10:50.740 align:middle line:84% So in that case, a competitive advantage 01:10:50.740 --> 01:10:51.915 align:middle line:90% has to be capital Delta. 01:10:51.915 --> 01:10:56.094 align:middle line:90% 01:10:56.094 --> 01:10:58.780 align:middle line:84% So you can consider the case with the possibility 01:10:58.780 --> 01:11:04.320 align:middle line:84% of foreclosure and without the possibility of foreclosure. 01:11:04.320 --> 01:11:06.240 align:middle line:84% OK, so that I've already told you. 01:11:06.240 --> 01:11:12.650 align:middle line:84% ECPR, remember, a less than P1 minus C1. 01:11:12.650 --> 01:11:17.660 align:middle line:84% Here, C1 is minus b, the marginal cost downstream. 01:11:17.660 --> 01:11:21.770 align:middle line:90% The marginal cost is negative. 01:11:21.770 --> 01:11:23.540 align:middle line:90% That's the expression of-- 01:11:23.540 --> 01:11:28.310 align:middle line:84% did I tell you what ECPR is, what it means? 01:11:28.310 --> 01:11:28.810 align:middle line:90% No. 01:11:28.810 --> 01:11:30.100 align:middle line:90% I'm sorry. 01:11:30.100 --> 01:11:31.610 align:middle line:90% You don't want to know anyway. 01:11:31.610 --> 01:11:35.180 align:middle line:84% It's called the efficient component pricing rule. 01:11:35.180 --> 01:11:35.720 align:middle line:90% OK? 01:11:35.720 --> 01:11:37.320 align:middle line:90% Everybody calls that ECPR. 01:11:37.320 --> 01:11:40.050 align:middle line:84% Nobody knows anymore what it means. 01:11:40.050 --> 01:11:41.230 align:middle line:90% But, yeah, it's ECPR. 01:11:41.230 --> 01:11:45.680 align:middle line:90% 01:11:45.680 --> 01:11:50.940 align:middle line:84% OK, so as I told you, I'm taking the case the limit 01:11:50.940 --> 01:11:55.620 align:middle line:84% when basically you converge to a homogeneous willingness to pay. 01:11:55.620 --> 01:11:58.790 align:middle line:84% As I told you, it's to do like John Nash did 01:11:58.790 --> 01:12:00.540 align:middle line:84% to select the [INAUDIBLE] [? equilibria ?] 01:12:00.540 --> 01:12:03.150 align:middle line:84% but also to see the robustness when you have a general demand 01:12:03.150 --> 01:12:04.380 align:middle line:90% function. 01:12:04.380 --> 01:12:08.810 align:middle line:84% OK, so let's assume you cannot foreclose. 01:12:08.810 --> 01:12:13.220 align:middle line:84% Then, the cut off theta star, which 01:12:13.220 --> 01:12:15.860 align:middle line:84% is going to be equal to theta, the common theta, 01:12:15.860 --> 01:12:25.600 align:middle line:84% is basically P0 plus either you by from in-house and then at P1, 01:12:25.600 --> 01:12:28.600 align:middle line:84% or you buy at price P2 from the rival. 01:12:28.600 --> 01:12:30.430 align:middle line:84% But of course, in terms of net price, 01:12:30.430 --> 01:12:33.850 align:middle line:84% given that there is a superior quality 01:12:33.850 --> 01:12:38.500 align:middle line:84% for the entrant for the third-party app minus delta. 01:12:38.500 --> 01:12:39.426 align:middle line:90% OK? 01:12:39.426 --> 01:12:45.160 align:middle line:84% So what's going to happen is that P1-- 01:12:45.160 --> 01:12:49.530 align:middle line:84% remember, a minus b is the opportunity marginal cost? 01:12:49.530 --> 01:12:53.220 align:middle line:84% So P1, which is-- think about Bertrand competition. 01:12:53.220 --> 01:12:57.810 align:middle line:84% Under Bertrand competition, basically, the superior product 01:12:57.810 --> 01:13:02.650 align:middle line:84% is going to get the entire market in the up market. 01:13:02.650 --> 01:13:06.590 align:middle line:84% And the inferior product is going to charge a marginal cost. 01:13:06.590 --> 01:13:10.650 align:middle line:84% Marginal cost is going to be a minus b, OK? 01:13:10.650 --> 01:13:14.340 align:middle line:84% Because, again, if you acquire a consumer, 01:13:14.340 --> 01:13:18.870 align:middle line:84% you lose the access charge, but you gain the ancillary benefit. 01:13:18.870 --> 01:13:23.070 align:middle line:84% So the marginal, that will be the normal Bertrand outcome, 01:13:23.070 --> 01:13:29.150 align:middle line:84% except that if a is less than b, then you 01:13:29.150 --> 01:13:33.170 align:middle line:84% are bound by the zero lower bound. 01:13:33.170 --> 01:13:38.190 align:middle line:90% So your price will be 0. 01:13:38.190 --> 01:13:41.620 align:middle line:84% You like to go below that, but you cannot go below that. 01:13:41.620 --> 01:13:48.220 align:middle line:84% You cannot subsidize because that will be arbitraged away. 01:13:48.220 --> 01:13:52.170 align:middle line:90% So this is very simple. 01:13:52.170 --> 01:13:55.290 align:middle line:84% If b is greater than a, so if the ancillary benefit 01:13:55.290 --> 01:13:57.450 align:middle line:84% is greater than the access charge, 01:13:57.450 --> 01:14:00.020 align:middle line:84% you are going to charge a zero price. 01:14:00.020 --> 01:14:03.690 align:middle line:84% You would like to charge a negative price, but you can't. 01:14:03.690 --> 01:14:06.480 align:middle line:84% And that's going to have as an implication 01:14:06.480 --> 01:14:11.190 align:middle line:84% that the rival app is going to make 01:14:11.190 --> 01:14:16.500 align:middle line:84% an extra profit above its contribution to the platform. 01:14:16.500 --> 01:14:20.190 align:middle line:90% So let me just mention that. 01:14:20.190 --> 01:14:28.550 align:middle line:90% 01:14:28.550 --> 01:14:31.610 align:middle line:84% Imagine there was no access charge. 01:14:31.610 --> 01:14:37.010 align:middle line:84% So basically, if there were no access charge, basically, 01:14:37.010 --> 01:14:41.630 align:middle line:84% the third-party app will be charging delta. 01:14:41.630 --> 01:14:49.110 align:middle line:84% The platform will be charging 0 for the app. 01:14:49.110 --> 01:14:53.430 align:middle line:84% But then, the profit of the third-party app 01:14:53.430 --> 01:14:56.490 align:middle line:90% will be delta plus b. 01:14:56.490 --> 01:14:59.940 align:middle line:84% So the third-party app will make profits 01:14:59.940 --> 01:15:04.280 align:middle line:84% which are greater than what it contributes to the ecosystem. 01:15:04.280 --> 01:15:07.050 align:middle line:84% The contribution to the ecosystem is delta, 01:15:07.050 --> 01:15:09.360 align:middle line:84% but you get this benefit, which is 01:15:09.360 --> 01:15:13.260 align:middle line:84% not competitive, where precisely because of the zero lower bound. 01:15:13.260 --> 01:15:16.830 align:middle line:84% To be competitive where you will have to basically charge minus 01:15:16.830 --> 01:15:19.780 align:middle line:90% b, but minus b is not feasible. 01:15:19.780 --> 01:15:23.850 align:middle line:84% So basically, you get supranormal profits 01:15:23.850 --> 01:15:27.640 align:middle line:90% for the third-party app. 01:15:27.640 --> 01:15:28.140 align:middle line:90% OK? 01:15:28.140 --> 01:15:33.165 align:middle line:90% 01:15:33.165 --> 01:15:33.665 align:middle line:90% OK. 01:15:33.665 --> 01:15:38.070 align:middle line:90% 01:15:38.070 --> 01:15:42.090 align:middle line:84% The second question is, basically, 01:15:42.090 --> 01:15:47.220 align:middle line:84% what is your willingness to engage in non-price foreclosure? 01:15:47.220 --> 01:15:50.760 align:middle line:84% And you have two kinds of foreclosure in those models. 01:15:50.760 --> 01:15:54.150 align:middle line:84% One is a price foreclosure when you charge an access 01:15:54.150 --> 01:15:57.210 align:middle line:90% charge, which is very high. 01:15:57.210 --> 01:15:59.250 align:middle line:84% But when you have an access charge, which 01:15:59.250 --> 01:16:03.610 align:middle line:84% is very low, less than b, you actually 01:16:03.610 --> 01:16:05.630 align:middle line:84% want to use non-price foreclosure. 01:16:05.630 --> 01:16:08.470 align:middle line:84% So you basically get rid of the rival. 01:16:08.470 --> 01:16:12.370 align:middle line:84% You don't give access in some way. 01:16:12.370 --> 01:16:16.870 align:middle line:84% And it's pretty easy to see actually that as long as a 01:16:16.870 --> 01:16:22.910 align:middle line:84% is greater than b, you don't want to foreclose your rival. 01:16:22.910 --> 01:16:24.940 align:middle line:90% It's a superior rival. 01:16:24.940 --> 01:16:30.160 align:middle line:84% So there's no reason to get rid of the rival. 01:16:30.160 --> 01:16:33.650 align:middle line:84% But because you are making money on access, 01:16:33.650 --> 01:16:37.370 align:middle line:84% more than you will be making just 01:16:37.370 --> 01:16:39.733 align:middle line:84% from the ancillary benefit of having the consumer. 01:16:39.733 --> 01:16:43.544 align:middle line:90% 01:16:43.544 --> 01:16:45.540 align:middle line:84% And basically, you're going to want 01:16:45.540 --> 01:16:50.760 align:middle line:84% to foreclose exactly when the app zero lower bond binds, 01:16:50.760 --> 01:16:52.770 align:middle line:90% so when a is less than b. 01:16:52.770 --> 01:16:57.720 align:middle line:84% When a is less than b, you want to foreclose. 01:16:57.720 --> 01:17:01.390 align:middle line:84% So what this means is that having an access charge, which 01:17:01.390 --> 01:17:03.160 align:middle line:84% is too low-- by the way, that was already 01:17:03.160 --> 01:17:07.810 align:middle line:84% known in the one-sided market exam theory. 01:17:07.810 --> 01:17:10.810 align:middle line:84% Having an access charge which is too low 01:17:10.810 --> 01:17:18.220 align:middle line:84% is going to imply that you want to foreclose, OK? 01:17:18.220 --> 01:17:21.400 align:middle line:90% 01:17:21.400 --> 01:17:25.720 align:middle line:84% By the way, there is a deep connection with the ECPR. 01:17:25.720 --> 01:17:29.830 align:middle line:84% Even if you don't remember what ECPR means, 01:17:29.830 --> 01:17:32.350 align:middle line:84% there is a deep connection with the ECPR, 01:17:32.350 --> 01:17:40.720 align:middle line:84% which is that in that region, a is less than P1 minus b. 01:17:40.720 --> 01:17:42.700 align:middle line:84% Remember, that's the action of C1. 01:17:42.700 --> 01:17:49.810 align:middle line:84% So actually, ECPR is satisfied with inequality in the sense 01:17:49.810 --> 01:17:54.220 align:middle line:84% that the access charge is very low. 01:17:54.220 --> 01:17:56.770 align:middle line:84% So you have this region where the access charge 01:17:56.770 --> 01:18:02.470 align:middle line:84% is less than b, where ECPR taken with an equality is violated, 01:18:02.470 --> 01:18:05.990 align:middle line:84% and where the platform wants to foreclose. 01:18:05.990 --> 01:18:08.530 align:middle line:84% So if you want to insist on access charges which 01:18:08.530 --> 01:18:11.320 align:middle line:84% are too low, you are going to end up 01:18:11.320 --> 01:18:17.410 align:middle line:84% getting foreclosure, which means that you need big regulator just 01:18:17.410 --> 01:18:24.190 align:middle line:84% to oversee that there is no foreclosure, which is not easy. 01:18:24.190 --> 01:18:30.010 align:middle line:84% I mean, that requires going into the algorithm of Google, 01:18:30.010 --> 01:18:30.900 align:middle line:90% of Amazon. 01:18:30.900 --> 01:18:34.120 align:middle line:84% How do you choose which product to recommend 01:18:34.120 --> 01:18:35.470 align:middle line:90% and all those things? 01:18:35.470 --> 01:18:37.270 align:middle line:90% And being on the second screen. 01:18:37.270 --> 01:18:39.370 align:middle line:90% Is that foreclosure and so on? 01:18:39.370 --> 01:18:43.570 align:middle line:84% That was, by the way, already the case for the computer 01:18:43.570 --> 01:18:46.120 align:middle line:90% reservation system in the '80s. 01:18:46.120 --> 01:18:49.180 align:middle line:84% There were a bunch of antitrust cases in the '80s on computer 01:18:49.180 --> 01:18:52.540 align:middle line:90% reservation systems. 01:18:52.540 --> 01:18:55.210 align:middle line:84% You were not born, but basically, 01:18:55.210 --> 01:19:00.640 align:middle line:84% if you wanted to travel, you had to go to Harvard Square 01:19:00.640 --> 01:19:02.770 align:middle line:90% and go to an agent. 01:19:02.770 --> 01:19:04.840 align:middle line:90% The agent will have a computer. 01:19:04.840 --> 01:19:07.360 align:middle line:84% At the time, I think a computer was a big thing, 01:19:07.360 --> 01:19:10.000 align:middle line:84% You had a computer with software. 01:19:10.000 --> 01:19:13.450 align:middle line:84% And you will say, I want to fly to Chicago. 01:19:13.450 --> 01:19:18.920 align:middle line:84% And the agent will just look, flights Boston to Chicago. 01:19:18.920 --> 01:19:21.700 align:middle line:84% That will take a few minutes because that was very slow. 01:19:21.700 --> 01:19:24.640 align:middle line:84% And then, you will have a first screen which will appear 01:19:24.640 --> 01:19:27.580 align:middle line:90% and say, here are the flights. 01:19:27.580 --> 01:19:33.820 align:middle line:84% And you say, oh, this is flight of United Airlines. 01:19:33.820 --> 01:19:36.550 align:middle line:84% And then you wonder, but doesn't the software 01:19:36.550 --> 01:19:38.240 align:middle line:90% belong to United Airlines? 01:19:38.240 --> 01:19:40.510 align:middle line:84% Because the software-- and you know, 01:19:40.510 --> 01:19:43.660 align:middle line:84% isn't that an incentive for United Airlines 01:19:43.660 --> 01:19:45.700 align:middle line:84% to actually put its flight first, 01:19:45.700 --> 01:19:49.150 align:middle line:84% given that nobody will ever go to the second page? 01:19:49.150 --> 01:19:50.390 align:middle line:90% It was too slow. 01:19:50.390 --> 01:19:55.210 align:middle line:84% You would not do that or for the third or fourth page. 01:19:55.210 --> 01:19:59.600 align:middle line:84% So those things already happened at the time. 01:19:59.600 --> 01:20:00.110 align:middle line:90% OK? 01:20:00.110 --> 01:20:01.850 align:middle line:90% Let me tell you-- 01:20:01.850 --> 01:20:06.380 align:middle line:84% I'm just going to just tell you about this 01:20:06.380 --> 01:20:09.486 align:middle line:84% and conclude with some policy questions. 01:20:09.486 --> 01:20:14.570 align:middle line:90% 01:20:14.570 --> 01:20:17.510 align:middle line:90% So what happens if the-- 01:20:17.510 --> 01:20:19.140 align:middle line:90% here is the access charge. 01:20:19.140 --> 01:20:21.980 align:middle line:84% If the access charge is SNB, I told you 01:20:21.980 --> 01:20:26.940 align:middle line:90% that you want to foreclose. 01:20:26.940 --> 01:20:30.630 align:middle line:84% So basically, the access charge for the incumbent 01:20:30.630 --> 01:20:32.620 align:middle line:84% is not going to affect its profit. 01:20:32.620 --> 01:20:35.550 align:middle line:84% It's going to be theta, which is P0 in that case, 01:20:35.550 --> 01:20:41.130 align:middle line:84% plus the ancillary benefit, b, OK? 01:20:41.130 --> 01:20:44.100 align:middle line:84% If there is monitoring of foreclosure, 01:20:44.100 --> 01:20:50.460 align:middle line:84% then the profit is going to grow with a and conversely, 01:20:50.460 --> 01:20:55.010 align:middle line:84% for the entrant, the third-party app. 01:20:55.010 --> 01:20:57.410 align:middle line:90% Then, you have a region of-- 01:20:57.410 --> 01:21:01.830 align:middle line:84% and then, ECPR will be with an inequality. 01:21:01.830 --> 01:21:04.130 align:middle line:84% Then, you have a region which is a Chicago School 01:21:04.130 --> 01:21:12.450 align:middle line:84% region, in which, basically, a is equal to P1 minus b. 01:21:12.450 --> 01:21:16.140 align:middle line:84% Everything is going to be independent of a. 01:21:16.140 --> 01:21:19.390 align:middle line:84% So the access charge is not going to matter in this region. 01:21:19.390 --> 01:21:20.680 align:middle line:90% You can raise it, lower it. 01:21:20.680 --> 01:21:22.080 align:middle line:90% It doesn't matter. 01:21:22.080 --> 01:21:23.890 align:middle line:84% The profits are going to be the same. 01:21:23.890 --> 01:21:27.410 align:middle line:84% The allocation is going to be the same. 01:21:27.410 --> 01:21:31.640 align:middle line:84% And then, at some point, when a is large, 01:21:31.640 --> 01:21:35.650 align:middle line:84% that means the prices of apps is going to go up. 01:21:35.650 --> 01:21:39.430 align:middle line:84% That means at some point the zero lower bound 01:21:39.430 --> 01:21:42.260 align:middle line:84% is going to bind for the core service. 01:21:42.260 --> 01:21:47.380 align:middle line:84% So P0 is going to be equal to 0 because the consumer are 01:21:47.380 --> 01:21:49.240 align:middle line:90% paying a lot for the apps. 01:21:49.240 --> 01:21:54.790 align:middle line:84% So they are not willing to pay much for access to the platform. 01:21:54.790 --> 01:22:00.000 align:middle line:84% In that case, if you raise a, it cannot be absorbed 01:22:00.000 --> 01:22:00.820 align:middle line:90% by the platform. 01:22:00.820 --> 01:22:02.890 align:middle line:84% It has to be absorbed by the apps. 01:22:02.890 --> 01:22:06.230 align:middle line:84% The platform is already at P0 equals 0. 01:22:06.230 --> 01:22:10.460 align:middle line:84% So here, you have a region where the core zero lower bound binds, 01:22:10.460 --> 01:22:12.500 align:middle line:90% and there's a squeeze. 01:22:12.500 --> 01:22:18.200 align:middle line:84% So actually, the profit of the apps is going to go down to 0. 01:22:18.200 --> 01:22:23.940 align:middle line:84% And if a is really too large, then, basically, there's 01:22:23.940 --> 01:22:25.890 align:middle line:90% price foreclosure this time. 01:22:25.890 --> 01:22:29.700 align:middle line:84% But the action is going to be there mainly 01:22:29.700 --> 01:22:35.490 align:middle line:84% when you have an access charge, which is too low because then 01:22:35.490 --> 01:22:37.950 align:middle line:84% there will be foreclosure and when there 01:22:37.950 --> 01:22:40.800 align:middle line:84% is an access charge, which is too high, when 01:22:40.800 --> 01:22:42.750 align:middle line:90% there is a squeeze. 01:22:42.750 --> 01:22:45.553 align:middle line:90% Now, what the best-- 01:22:45.553 --> 01:22:47.970 align:middle line:84% you see from this diagram-- what the best for the platform 01:22:47.970 --> 01:22:50.760 align:middle line:84% is, actually to choose this very high surcharge, 01:22:50.760 --> 01:22:56.790 align:middle line:84% to squeeze completely the superior third-party app. 01:22:56.790 --> 01:22:57.360 align:middle line:90% OK? 01:22:57.360 --> 01:22:58.600 align:middle line:90% That will be the one. 01:22:58.600 --> 01:23:00.060 align:middle line:84% So if you let the platform choose, 01:23:00.060 --> 01:23:02.770 align:middle line:90% it's going to choose this price. 01:23:02.770 --> 01:23:08.840 align:middle line:84% Now, what will be the optimal price for regulator? 01:23:08.840 --> 01:23:12.970 align:middle line:84% Well, like this, it will be in this range. 01:23:12.970 --> 01:23:17.540 align:middle line:84% And actually, you'll get exactly delta 01:23:17.540 --> 01:23:22.560 align:middle line:84% in this range for the profit of the entrant. 01:23:22.560 --> 01:23:27.260 align:middle line:84% Now, if you add other consideration, like innovation, 01:23:27.260 --> 01:23:33.000 align:middle line:84% and endogeneity of consumer with respect 01:23:33.000 --> 01:23:34.810 align:middle line:84% to their preference for the app and so on, 01:23:34.810 --> 01:23:38.520 align:middle line:84% you can show that the optimal access charge is always b. 01:23:38.520 --> 01:23:41.670 align:middle line:84% That's another thing is that the optimal access 01:23:41.670 --> 01:23:44.010 align:middle line:90% charge has to be b, optimal. 01:23:44.010 --> 01:23:47.527 align:middle line:90% So that will be-- 01:23:47.527 --> 01:23:49.860 align:middle line:84% but you have to introduce other considerations for that. 01:23:49.860 --> 01:23:52.390 align:middle line:84% And I'll let you look at this, the paper. 01:23:52.390 --> 01:23:56.610 align:middle line:84% But basically, the platform will choose a star here 01:23:56.610 --> 01:23:59.520 align:middle line:84% and the optimal access charge will be lower, 01:23:59.520 --> 01:24:03.420 align:middle line:90% but it will never be 0. 01:24:03.420 --> 01:24:08.380 align:middle line:90% It has to be b actually. 01:24:08.380 --> 01:24:08.880 align:middle line:90% OK? 01:24:08.880 --> 01:24:10.800 align:middle line:84% Now, the next question, of course, you 01:24:10.800 --> 01:24:15.360 align:middle line:84% are going to ask me-- and I have exactly one minute to answer it, 01:24:15.360 --> 01:24:20.320 align:middle line:84% but it's a huge question-- is, now, how do you know b? 01:24:20.320 --> 01:24:21.284 align:middle line:90% OK? 01:24:21.284 --> 01:24:27.610 align:middle line:84% Probably, the participant, the firms have some estimate of b. 01:24:27.610 --> 01:24:31.450 align:middle line:84% Otherwise, they will have a hard time deciding what to do. 01:24:31.450 --> 01:24:33.970 align:middle line:84% But the regulator doesn't have a clue. 01:24:33.970 --> 01:24:37.990 align:middle line:84% And it's heterogenous across applications, of course. 01:24:37.990 --> 01:24:40.540 align:middle line:90% So how do you know b? 01:24:40.540 --> 01:24:42.490 align:middle line:90% Now, don't ask a platform. 01:24:42.490 --> 01:24:43.750 align:middle line:90% That's hopeless. 01:24:43.750 --> 01:24:46.360 align:middle line:84% The platform is not going to tell you the truth. 01:24:46.360 --> 01:24:51.640 align:middle line:84% What you could ask, what you could do-- 01:24:51.640 --> 01:24:54.850 align:middle line:84% I mean, basically, you like to elicit 01:24:54.850 --> 01:24:57.050 align:middle line:90% some commonly held information. 01:24:57.050 --> 01:25:01.040 align:middle line:84% So it's a masking game, You have to design a masking game. 01:25:01.040 --> 01:25:03.400 align:middle line:84% But here is a very simple masking game 01:25:03.400 --> 01:25:07.510 align:middle line:84% in which you could ask the entrant, the third-party app, 01:25:07.510 --> 01:25:09.730 align:middle line:84% and you say, how much are you willing to pay 01:25:09.730 --> 01:25:11.340 align:middle line:90% in terms of access charge? 01:25:11.340 --> 01:25:16.900 align:middle line:84% Now, if you let the platform foreclose the entrant, 01:25:16.900 --> 01:25:21.280 align:middle line:84% the third-party app, then the answer will be a equals b. 01:25:21.280 --> 01:25:22.390 align:middle line:90% I want to pay b. 01:25:22.390 --> 01:25:25.210 align:middle line:84% Because, of course, the third-party app 01:25:25.210 --> 01:25:29.270 align:middle line:84% wants to pay the access charge, which is as small as possible. 01:25:29.270 --> 01:25:32.310 align:middle line:84% But he doesn't want to feel foreclosed. 01:25:32.310 --> 01:25:34.860 align:middle line:90% So it's going to ask-- 01:25:34.860 --> 01:25:38.100 align:middle line:84% it's going to say, I want b, right? 01:25:38.100 --> 01:25:41.340 align:middle line:84% Now, this is a bit dangerous for a reason 01:25:41.340 --> 01:25:42.460 align:middle line:90% we discussed in the paper. 01:25:42.460 --> 01:25:43.990 align:middle line:90% We haven't fully solved it. 01:25:43.990 --> 01:25:46.000 align:middle line:90% We show it's a Pigouvian. 01:25:46.000 --> 01:25:48.570 align:middle line:90% It's in the spirit of Pigou. 01:25:48.570 --> 01:25:50.106 align:middle line:90% It's a Pigouvian regulation. 01:25:50.106 --> 01:25:52.640 align:middle line:90% 01:25:52.640 --> 01:25:55.430 align:middle line:84% And in principle, it could be used 01:25:55.430 --> 01:26:00.800 align:middle line:84% by regulators for the moment that they don't really 01:26:00.800 --> 01:26:03.150 align:middle line:90% have a rule for that. 01:26:03.150 --> 01:26:07.760 align:middle line:84% They have in a special case, which is for credit cards, 01:26:07.760 --> 01:26:09.290 align:middle line:84% the European Union has a rule, which 01:26:09.290 --> 01:26:10.880 align:middle line:84% we designed with Jean-Charles Rochet 01:26:10.880 --> 01:26:16.310 align:middle line:84% actually, which we call the tourist test for credit cards. 01:26:16.310 --> 01:26:21.700 align:middle line:84% But for platforms, general platforms, we don't have a rule. 01:26:21.700 --> 01:26:24.490 align:middle line:90% Here is a rule, equals b. 01:26:24.490 --> 01:26:26.630 align:middle line:90% That's not complicated. 01:26:26.630 --> 01:26:29.250 align:middle line:90% Here is a way of eliciting b. 01:26:29.250 --> 01:26:33.330 align:middle line:84% As we discussed, it's pretty risky still, 01:26:33.330 --> 01:26:35.760 align:middle line:84% and there is much more work to be done so 01:26:35.760 --> 01:26:37.740 align:middle line:90% that we make this operational. 01:26:37.740 --> 01:26:43.200 align:middle line:84% Because you have to realize when you design regulation, 01:26:43.200 --> 01:26:45.330 align:middle line:84% you also have to think about whether it's 01:26:45.330 --> 01:26:47.020 align:middle line:90% going to be used by regulators. 01:26:47.020 --> 01:26:50.320 align:middle line:84% And the regulators have a very small staff. 01:26:50.320 --> 01:26:52.730 align:middle line:84% And they don't have much time to think about it. 01:26:52.730 --> 01:26:55.720 align:middle line:84% And, you know, if you design rules, 01:26:55.720 --> 01:27:00.320 align:middle line:84% which are incredibly complicated and requires 200 elasticities, 01:27:00.320 --> 01:27:01.590 align:middle line:90% forget about it. 01:27:01.590 --> 01:27:03.000 align:middle line:90% It's not going to happen. 01:27:03.000 --> 01:27:06.320 align:middle line:84% You need to have simple rules which work relatively well. 01:27:06.320 --> 01:27:09.080 align:middle line:84% And that's going to be part of the challenge in IO. 01:27:09.080 --> 01:27:10.800 align:middle line:90% We need to design those rules. 01:27:10.800 --> 01:27:15.470 align:middle line:84% Now, I realize I'm one minute late, 01:27:15.470 --> 01:27:17.700 align:middle line:90% but I'll see you on Wednesday. 01:27:17.700 --> 01:27:20.460 align:middle line:84% So on Wednesday, you can ask me more questions about that. 01:27:20.460 --> 01:27:22.370 align:middle line:84% And then, I will tell you everything you ever 01:27:22.370 --> 01:27:25.790 align:middle line:84% wanted to know about the morality of markets, which 01:27:25.790 --> 01:27:30.650 align:middle line:84% is important because now, even the antitrust authorities are 01:27:30.650 --> 01:27:37.310 align:middle line:84% thinking about changing their rules in order to account 01:27:37.310 --> 01:27:39.260 align:middle line:84% for their responsibility with respect 01:27:39.260 --> 01:27:41.460 align:middle line:84% to the environment and other things. 01:27:41.460 --> 01:27:43.490 align:middle line:84% So I'll tell you a little bit more 01:27:43.490 --> 01:27:48.100 align:middle line:84% about the morality of markets on Wednesday. 01:27:48.100 --> 01:27:53.000 align:middle line:90%