(I very much welcome comments on this. Amicus briefs for NetChoice v. Paxton are due January 23. You can make micro-edit-comments at Google Docs at https://docs.google.com/document/d/1l23Gq1xvr5bxmdXD6Oa-bQnLROgmn4oE49JnukkOef8/edit?usp=sharing)
Nos. 22-277, 22-555
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In the Supreme Court of the United States
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Ashley Moody, Attorney General of Florida, et al., Petitioners,
v.
NetChoice, LLC, dba NetChoice, et al.
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NetChoice, LLC, dba NetChoice, et al., Petitioners,
v.
Ken Paxton, Attorney General of Texas
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On Writs of Certiorari
to the United States Court of Appeals
for the Eleventh and Fifth Circuits
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Brief of Eric Rasmusen and Friends
as Amici Curiae in favor of
Respondents in 22-555 and Petitioners in 22-277
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John H. Doe
Counsel of Record
Dewey, Cheatham, and Howe LLP
222 Main Street, Suite 4100
Houston, TX 77002
(713) 632-8000
325516
TABLE OF CONTENTS
Table of authorities.......................................ii
Interests of the amici curiae.......................................…3
Summary of the argument........................…4
The argument .............................................................. 5
I. In normal markets, antitrust law can be relied upon to prevent mo nopoly................... 6
II. But some markets are “natural monopolies”, where antitrust law fails and different regulation is necessary............................................. 14
A. Increasing returns to scale is the most common reason for natural monopoly................................ 15
B. But network externalities also creates natural monopoly, and that is a problem for Internet platforms................ 2
C. An additional common problem for large natural monopolies is who controls the corporation……………........... 20
1. Control by managers harms all shareholders................... 2
2. Control by dominant shareholders harms minority
shareholders........................................................ 2
3. Control by wealthy shareholders harms the public good.
4. Control by government hurts all shareholders and the public good. ........................................................ 2
D. Regulation such as that of common carriers helps solve the prob lem of natural monopoly.… ................ 23
III. The Texas statute addresses “market failure” without falling into “government failure”…………………..234
IV. The Internet’s new technology requires new law.............. 2
Conclusion........................................................ 2
Certificate of word count
Certificate of service
SUMMARY OF THE ARGUMENT
If someone wants to post a message on Facebook saying “Vote for Trump!,” should Facebook be able to refuse?
It depends.
The issue is whether Facebook is more like the phone company, or more like a magazine.
If Facebook is more like a local landline phone company, it can’t refuse. When John Doe wants to telephone a friend and tell him, “Vote for Trump!”, the phone company can’t drop Doe as a customer. It may argue that it owns the phone lines or that allowing such phone calls would make people think the company was pro-Trump, but a court will reject those arguments. If Facebook is more like a magazine, on the other hand, it can refuse. When someone wants to publish “Vote for Trump” as a letter to the editor, a magazine has every right to refuse him.
Which is the correct analogy, phone company or magazine?
The question has high significance. If Facebook can ban “Vote for Trump”, it can also ban posts by Trump supporters on any subject. Indeed, it can ban posts by any Republican.1 It can even make a declaration of support for the re-election of President Biden a legal requirement for use of the site, part of the “terms of service”. This parade of horribles is not dispositive, but reminds us that we are deciding a question with the potential to profoundly affect American government.
One way to decide between phone company and magazine is to look at the law of common carriers, e.g. the five-part Thomas test of infra xxx. We need to go deeper, however. The internet is a new technology and neither common law nor constitutional should be applied without attention to their first principles. Precedent must be considered, of course, but which precedents are still on point? We must ask of each precedent why it was first established. Even followers of originalism and textualism must ask this question; it is not just a matter of what is good policy. Thus: What would the Founders have intended to do with the Internet? That is no more absurd than to ask what they would have thought of an Air Force. What does “freedom of speech” mean when applied to political arguments on the internet? —Not necessarily the same thing as when applied to a speech in the village square.
At the center of the cases is the idea of “natural monopoly”. This is the economic idea behind the legal idea of “common carrier”. In economics a monopoly is marked not so much by the firm’s market share as by its market power: its ability to raise price or reduce quality without attracting competition. A firm may have 95% of sales but zero market power because if it raised its price it would instantly lose all its sales to its competitors. Market power can arise in various ways. Antitrust law deals with what we might call “artificial monopoly”: market power created by firms merging with their competitors, by conspiring with them to keep prices high, or by driving them out with unfair practices such as threatening suppliers. But some monopolies are “natural”. They arise even if nobody commits a crime, and even if nobody has an advantage in cost technology or product quality.
The classic example of a natural monopoly is the electric company. The first company in a city to lay cables to each house will have an unbreakable monopoly without violating antitrust law. Any new competitor would have to lay new cables at high cost, after which competition between the two rivals would reduce the price too low for either of them to recover their cable-laying investment.
The electric company is a natural monopoly on the supply side, the cost side. There also exist natural monopolies on the demand side, the product side. In the days of landlines, only one local phone company could survive. Partly, that was because of the cost of the lines, as with the electric company. More important, though, is that customers want to join whichever company has the most other customers. Nobody wants to be a phone company’s only customer; the phone company with the biggest network would attract all of the customers.
Economists use the term “network externalities” for this idea that when customer joins the network he generates a positive spillover onto other customers, who are all the happier to be part of the network.2 Conditions change. In 1924 the phone industry was a natural monopoly. In 2024 it is not, because technology (and law) makes customer interconnection between companies easy and technology has evolved to where there is room for several companies to survive with reasonable profits.
Ordinary markets have higher prices and lower quality if they are monopolies. Natural monopoly, however, has a curious policy implication. An industry with a natural monopoly ought to be monopolized, because splitting it into two companies would be bad for consumers. Consumers do not want ten phone companies in a city; they want one, so they can call 100% of other people with phones. Even if the city government were in charge, it would set up one company, not ten competing companies. This is not because the one company would be particularly talented or innovative; it’s just that bigger is better. One badly-run big company is better than ten well-run small companies. Most industries are not like this, but most industries don’t have network externalities.
Despite its network advantage, however, a natural monopoly will set its prices too high and its quality too low because it’s immune to competitive pressure. It will keep to itself the advantages of bigness. It will be lazy, and the Invisible Hand of Providence will fail: the seller’s greed will not ultimately benefit the customers, but its shareholders (at best), but possibly just its managers, its majority shareholders, or even the government— if the government uses its power to extract advantages from the single business in control of the market.3
And so countries regulate their natural monopolies. Most commonly, the state utility commission requires a firm to serve all customers, maintain quality, and keep prices low. The law has come to call power companies “common carriers” to justify utility regulation, but the underlying idea is natural monopoly: a power company is carrying electrons, not customers, and its common carrier status is a legal fiction. A judge in 1750 would think it absurd to say that a tangle of wires was like a stagecoach. But it is. Both are natural monopolies within their large or small markets, because only one company can survive at each moment in time and space.4 The law is right to look at the underlying idea instead of the exact product sold. As Isaac Asimov said,
I discovered, to my amazement, that all through history there had been resistance...and bitter, exaggerated, last-stitch resistance...to every significant technological change that had taken place on earth. Usually the resistance came from those groups who stood to lose influence, status, money...as a result of the change. Although they never advanced this as their reason for resisting it. It was always the good of humanity that rested upon their hearts.
For instance, when the stagecoaches came into England, the canal owners objected. Not that they would lose money, although they would, but they feared for humanity. Because as the stagecoaches tore along at fifteen miles an hour, the air whipping past the nostrils of the people on board, would by Bernoulli's Principle, suck all the air out of the lungs. . . . Well naturally the stagecoach people laughed heartily, and all they had to do was run a stagecoach at fifteen miles an hour with people inside and show them there's no harm. But they memorized the argument...for when the railroads came in. (The Future of Humanity: a Lecture by Isaac Asimov, speech at Newark College of Engineering, November 8, 1974.)
Asimov is correct. Today the United States has come to accept the desirability of product innovation, even though blogs and webzines are driving newspapers and magazines out of business. But we still see a vigorous struggle to stifle the legal innovation needed to deal with technological innovation.
We will discuss the concept of natural monopoly in more detail below and argue that it fits large internet platforms. In this context, the worrisome result is not high prices or low quality of service, but the suppression of user speech.
1 Can Facebook ban posts by Roman Catholics, or women, or Blacks? If Twitter is like a magazine, not a common carrier, why not? From the 5th Circ. Majority, at 2:
“Twitter unapologetically argues that it could turn around and ban all pro-LGBT speech for no other reason than its employees want to pick on members of that community, Oral Arg. at 22:39–22:52.”
2 A better term than “network externalities” would be “network spillovers”. The confusion began because Alfred Marshall, the inventor of the supply and demand curve, discussed how a company setting up shop in a region could create benefits to nearby companies “external” to itself. ADD CITE
3 The Invisible Hand:
“He intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.”
1776, Adam Smith, chapter 2, in The Wealth of Nations. On Providence, see Helen Joyce Adam, Smith and the invisible hand, plus.maths.org 1 March 2007, Adam Smith and the invisible hand | plus.maths.org; but for a Straussian view see Gavin Kennedy, “The Hidden Adam Smith in His Alleged Theology, Journal of the History of Economic Thought , Volume 33 , Issue 3 , September 2011, pp. 385-402, https://doi.org/10.1017/S1053837211000204.
4It might be instructive to look in detail at the arguments used historically to extend the concept of “common carrier” so far beyond its original application, and, in particular to look at the arguments against its extension in each particular case. Professor Candeub’s report is a good place to start.
See also: “A Fisking of the 11th Circuit Opinion in Florida vs. Big Tech (Netchoice v. Moody)” (May 2022).
The phone company is a magazine with only two readers--unless it's a zoom call.