Marshall Steinbaum 🔥 (@Econ_Marshall): "Platform MFNs are a hidden cause of the current macroeconomic inflation."
--My new piece up at The Sling, a new site dedicated to competition policy & research. /1 https://www.thesling.org/the-hidden-cause-of-economy-wide-inflation/
Marshall Steinbaum 🔥 (@Econ_Marshall): There's been a lot of talk about inflation and market power, with most economists dumping cold water on the idea that one is responsible for the other. They call it "greedflation" to lampoon the suggestion that everyone suddenly got more greedy. /2
Marshall Steinbaum 🔥 (@Econ_Marshall): But the exact same people used to celebrate the fact that the economy's most powerful firms had market power they weren't using: https://slate.com/business/2013/01/amazon-q4-profits-fall-45-percent.html /3
Marshall Steinbaum 🔥 (@Econ_Marshall): Why would powerful gatekeepers use their market power to raise prices now? The strategy of predatory pricing isn't supposed to work because recoupment just invites entry, making predation irrational. /4
Marshall Steinbaum 🔥 (@Econ_Marshall): But suppose that during the recoupment phase, not only could you raise your own prices, but you could also dictate that no one else is allowed to charge lower ones. Suddenly predatory pricing sounds a lot more doable. And that's what MFNs allow. /5
Marshall Steinbaum 🔥 (@Econ_Marshall): Most dominant platforms and other intermediaries and gatekeepers use MFNs. So when they start cranking up their take rate, in a declining equities market where stockholders are finally demanding to be paid back, prices start going up everywhere. /6
Marshall Steinbaum 🔥 (@Econ_Marshall): And what looks to consumers (and to naive economists in the pay of tech platforms) like a general rise in prices that can't be tied to the unilateral exercise of market power is actually all about those powerful gatekeepers turning the screws on the public. /7
Marshall Steinbaum 🔥 (@Econ_Marshall): How is it possibly allowed that powerful gatekeepers don't just set their own prices, but also get to order everyone else not to undercut them? Well, let me tell you about a little thing called the conservative majority on the Supreme Court. /8
Marshall Steinbaum 🔥 (@Econ_Marshall): The 2018 ruling in Ohio v. American Express blessed the imposition of anti-steering restraints on upstream counterparties (in that instance, a credit card company's policy that merchants can't charge lower prices for non-credit-card transactions). /9
Marshall Steinbaum 🔥 (@Econ_Marshall): That follows almost four decades of permissive jurisprudence of vertical restraints imposed by dominant firms on their subsidiaries, affiliates, franchisees, and ultimately their workers, designed to prevent them from multi-homing and thus make them dependent & subservient. /10
Marshall Steinbaum 🔥 (@Econ_Marshall): So if you're looking for someone to blame for the current inflation, the conservative majority on the Supreme Court is an excellent one to pick. /11
Marshall Steinbaum 🔥 (@Econ_Marshall): But not the only one! At any time in the last two years, a Democratic Congress could have overturned all of this. The 2020 House Majority Report on Tech Platform Dominance recommended it. That's what the real "Inflation Reduction Act" should have been. /12
Marshall Steinbaum 🔥 (@Econ_Marshall): But as far as I know, nothing of the kind has even been proposed in Congress, even as they're all handwringing about inflation (for good reason, because the public is.) Only, their "representatives" won't lift a finger to threaten corporate power or profits. /13
Marshall Steinbaum 🔥 (@Econ_Marshall): So instead the Fed is going to throw millions of people out of work for no reason, thanks to a widespread, near-universal misdiagnosis of the current inflation by "experts" whose simplistic theories rule out the possibility of MFNs by assumption. We deserve much better. /fin
Marshall Steinbaum 🔥 (@Econ_Marshall): Thanks to @HalSinger. @AsherSchechter, @TedTatos, & Darren Bush for being the brain trust behind The Sling. Look for more exciting competition content to come!
Marshall Steinbaum 🔥 (@Econ_Marshall): I'm curious what @joseazar @TomValletti @jbbecon @stevesalop @florianederer & other competition econs think of this idea, not to mention the "greedflation" crowd.
Marshall Steinbaum 🔥 (@Econ_Marshall): @joseazar @TomValletti @jbbecon @stevesalop @florianederer Oh I take it all back. I want you all to be shopping at expensive craft boutiques. https://twitter.com/Econ_Marshall/status/1587060631311556608/photo/1