Ted Audio Collective Hi, everyone.
You're listening to HBS After Hours.
I'm Youngmi and I'm here tonight with Felix and Meir.
Hi, guys. Hey, Youngmi.
Hey, Youngmi. How are you guys doing?
Good. I heard you did this show with teenagers.
Oh, yes. So I decided to tape an episode with three teenagers.
So it's a conversation.
Yes. Was it fun? It was so fascinating.
I'm going to post it very soon.
Oh, can't wait. It's fascinating to listen to how 17 and 18 -year -olds view the world.
So you guys... Very good.
Stay tuned. Yeah, exactly.
So both of you brought stuff for us to talk about tonight, right?
Yes, I would love to talk about antitrust.
Okay, all right. Sounds so dry and so interesting.
I hope. All right. So we'll talk about antitrust and then Meir, what did you do?
I thought we could go straight to the headlines and talk about AT &T and Novartis and lobbying, what the ethics of lobbying are.
Ooh, that's a little juicier.
Well, there you go.
Okay, Felix. Why don't you get us started?
Yes, so antitrust. Super interesting.
You and... Can you say that?
I know. I'm the only one who's passionate about antitrust here.
You remember the day when we all thought that the Internet would lead to a super competitive economy.
Very difficult to make money because consumers know everything.
They know all the products and know all the prices.
It's as if the economics textbook has come alive.
Competition would flourish.
That's right. And now, in a way, the opposite seems to have happened.
Instead of getting sort of this competition between many, many, many companies, we get these gigantic companies.
And the concern is that these companies in one way or another, they misuse the market power that they have.
And you can imagine that happening in various ways.
For instance, I might charge consumer higher prices than I would if I had more competitors.
Maybe I innovate less than I would have if I faced greater competition.
Or even on the worker side, maybe wages stagnate or even fall because the big powerful company doesn't really have to pay.
The traditional remedy, of course, is antitrust.
Antitrust is in place to essentially protect the consumers.
So it says much less about the worker side of things.
But it's essentially in place to make sure that given consumers' willingness to pay, what they have to pay for those services is not more than what we think might happen under reasonable competition.
So one interesting question for you, I think, is what do you see?
Do you think antitrust fails?
Antitrust is in place but doesn't have the right weapon to fight against the big companies.
What is going on? I think it's a fascinating question and I think the growth of these big companies is causing a lot of concern.
In general, I tend to think that the hysteria is a little bit over -steemed, right?
So first, I think in terms of prices, which is the way the U .S.
tends to think about antitrust, we have pretty good evidence that's leading to better prices or consumer welfare narrowly defined is kind of increasing.
And that's the way we usually think about antitrust.
That seems to me okay.
And then the concern on wages is I think a little bit more complicated, which is people think that as these companies are getting really, really big, the wages are stagnating because the company's got really big.
I'm less sure about that one and I think the reason I'm less sure about it is, one, obviously in the most seemingly anti -competitive places like high -tech, wages are blowing through the roof, so it's not exactly clear that that simple story holds up.
And then second, I think there are other things going on with wages.
So I guess in general, this is like one of those questions where I feel like I'm not exercised enough about it.
Maybe I don't understand exactly what the drama is.
What about you, Yang Mi?
You know, I have multiple reactions.
So one reaction is in many ways, it's working exactly the way that you would have anticipated in the sense that it feels to me like as consumers, we have access to more companies than ever before.
In other words, the competitive space in just about every industry seems to have gotten more crowded.
So there's more choice, prices have come down, there's more information symmetry, all the things that you would want in an environment like this.
But I agree with you in the sense that in the midst of all this, you also see the emergence of these giants that just are beginning to take up more and more market space in a way that transcends traditional industry boundaries.
I think the part that when the internet was just beginning to take off, the part that I don't know that I fully appreciated, was the extent to which there would be benefits associated with scale, not for consumers.
For consumers, yes.
For consumers. So we talk about network effects, for example, and the more people use something, the better off we all are.
But I don't think I fully appreciated how many additional benefits to scale there are, even beyond traditional network effects, and how the big therefore benefit and as a result, are able to get bigger and bigger and bigger.
I think that's exactly right.
It's one of the big forces that then limits entry, limits competition.
And there, I think what you said me here, I think is right, that prices tend to decline, but the big question is compared to what.
Maybe I can be a little more specific and give you ride sharing services, I think is a great example.
Every market that Uber exits, because it cannot withstand the competition for exactly the reason that you pointed out young me, I have to be really big.
If I'm not really big, people have to wait for a long time for my car, so they don't wait, and then the big guy wins.
Exit looks this way.
Uber will typically exit the market and either merge or acquire a part of the leading company.
So, TD first, Yandex in Russia next, now just a couple of weeks ago in Southeast Asia, where basically they get an almost 30 % stake of Grab Taxi in exchange for leaving the market.
I mean, that's a sounding thing.
I say, okay, I will no longer compete with you, and as my little gift for giving up on competition, you give me a big chunk of your firm.
And then they point out the billions of dollars in profit that results from these, and that feels deeply, deeply, deeply anti -competitive.
Well, what do we mean by anti -competitive?
This is like the question.
So, in the case of TD, we know after Uber left, consumers' experience got worse.
They have to wait for a longer period of time.
Their service is not quite as nice, and it's gotten much more expensive.
That sounds sort of the textbook definition of anti -competitive.
Well, that sounds bad.
I think what I don't understand is the meta -concern is companies have gotten so big.
Antitrust isn't working.
We have to change the rules of the game.
That I don't observe as being necessarily true, which is, I think, in general, prices have benefited from having more, you know, having these kinds of players in the market, I guess I'm really worried, in a way, right?
I'm worried that there's this attitude towards bigness now, where we're going to end up going into a different direction.
We're going to stop liking bigness in business.
If we start to bust up companies because they're big, that strikes me as problematic, and maybe more problematic than what we actually observe, which is big companies.
We do seem to have gone to the point where if you think about the big tech giants, and if you see an emergent competitor come up, there's a moment in that competitor's lifecycle where they have an opportunity to sell themselves to one of the big players.
So Snapchat is a great example.
Snapchat had an opportunity to do that.
And there's this existential moment when they have to decide, do I continue to try to go it alone?
So Instagram decided to sell to Facebook.
YouTube sold to Google.
Snapchat decided to go out of the loan.
And it's having a hell of a time because it is competing in a market where there are so many benefits associated to scale on the consumer side that it's very difficult to sustain itself.
Twitter is having the same problem.
So that part does feel anti -competitive to me.
But what are we worried about?
I'm still not sure.
So in that case, right, what's the problem?
I feel like a lot of this is just fear of bigness.
I mean, just to go back to writing services for a moment, what operates here in the background is the observation that if you take any service anywhere on the planet, there is now a 90 % probability that the company that you use is partially owned by SoftBank.
Okay. SoftBank basically says Uber gets out of Southeast Asia.
And so they do. I just feel there's this diffused concern about bigness.
I think I have the very American attitude towards this, which is look at prices, and if it's beneficial to prices, I don't really care about whether smaller rivals are being heard or helped or I care about consumer prices.
That's kind of what I care about.
And as long as that's staying good and beneficial, I don't know why I should get exercise.
So let me come at it a slightly different way.
In many ways, if you think about the new business models, they're almost perfectly constructed to circumvent antitrust law.
They really are. So Amazon is a great example.
The business model is designed to keep prices low for consumers and then to generate profitability down the road as a result of having built this incredible logistical infrastructure.
The irony is watching Amazon get bigger and bigger and bigger and enter more and more verticals.
And then you look over there and you see AT &T trying to merge with Time Warner.
And they have to go to trial to do it.
It's not clear they're going to be able to do it because antitrust law is getting in the way.
And if you were to try to muster up any kind of sympathy for AT &T and Time Warner, you would say these poor guys are trying so hard to compete in this new world.
And because of their lack of access to consumer data, they cannot survive in a world of targeting advertising anymore.
And so they have to combine.
But antitrust law gets in the way because it will almost certainly mean that their prices to consumers go up.
And so they're completely crippled.
Meanwhile, you see these technology giants getting bigger and bigger and bigger and they are in the content space as well as in the distribution space.
And so they're able to go back and forth across these industry boundaries without any antitrust concerns as a result of having a very different kind of business model.
Does that? Well, I mean, the question is, what's the alternative?
So I mean, the European model is on fairness or on protecting rivals or incumbents.
I mean, I think that's kind of problematic.
And so this is a totally old -fashioned, right?
I'm like a kind of old -fashioned on this one, which is I think prices are a really good metric.
I mean, the concern that… So let me just push back on that because prices are held up.
It's consumer welfare.
Yes. Which has two components, right?
Yes. Which has prices on the one hand, and then consumer willingness to pay for the services.
And the classic economic idea is, I'm doing a really great job by innovating and improving my product.
And so willingness to pay goes up.
Sure. And I don't really… And that is not necessarily true.
I mean, the reason why you have a willingness to pay advantage in this new world is just scale.
Think about the homepage of Facebook.
It's a mess. Yeah, I agree with that.
What is Facebook's advantage?
Or the rest of humanity is on Facebook, right?
And so in a way, these companies get to create that consumer welfare.
I think in a way that is very different from the way we typically think about consumer welfare.
Oh, here's a business that has great ideas.
There's innovative things.
But who's being harmed?
Who's being harmed?
I'm still getting confused.
The smaller company that… The smaller internet company, Snapchat.
Snapchat, which had all the ideas in the world that then get copied by Instagram.
And the only reason why Instagram wins is because it's bigger.
Well, it's hard for me to muster a bunch of sympathy for snap .com because they seem to have taken on a lot of different wrong terms along the way.
But we have intellectual property laws.
If you want to protect people, then we protect people that way.
We don't protect people by just stifling competition.
We usually have targeted ways to do that.
But no competition.
There is no competition there.
Well, you said that there's some unfair advantage because Instagram can copy snap .com.
The way advantage is produced, it's just by scale.
And what's wrong with that?
What's wrong with that is that an alternative which says we're actually going to get better products over time, better services, that's less and less of interest.
All I need to do is I need to get to that point where I'm really, really big.
So let's take Amazon.
A big chunk of Amazon's profitability comes from the cash conversion cycle.
What do they do? They basically don't pay their suppliers.
As a supplier of Amazon, now you have to wait 80 days to get paid.
That's not exactly the kind of wonderful competitive effect that I would expect to happen from a company that is leading in this space.
I would also add that they're benefiting from basically inverting the business model.
So there's that old saying that if you're getting a service that feels like it's free, then you're the product.
That's essentially what all of these companies are doing.
So they are owning the relationship with you.
You're getting very low prices.
You're getting a huge amount of benefit.
But as a result of owning that relationship, they can then turn around and they can take advantage of everybody else on the other side of that business model.
And as a result of having this sort of inverted business model, they can expand into any new vertical they want.
They can essentially circumvent all antitrust loans.
I just really worry there's a destructive piece of this anti -bigness thing, which you can see in a lot of developing countries.
I'm the one who recommended the book last episode.
Biggest beautiful. So yes, there's many fabulous things about big companies.
But I think just like it's a mistake to say biggest beautiful in all cases, it's probably also problematic to say, oh, we don't worry about scale and how scale gets used.
Yeah, I think that's fair.
Okay, I'm here. Yeah, let's talk about lobbying.
So straight out of the headlines, we had this interesting thing come up.
It came to the public awareness that AT &T and Novartis had been paying Trump's personal lawyer, Michael Cohen, a fair amount of money.
I think AT &T's was $50 ,000 a month.
Novartis was more than a million dollars over 12 months.
For some general sense of what was going on in Washington DC.
I wish. Oh yeah, exactly.
That's when we don't know exactly what they were paying for it.
It's an open question.
But it raises this general question about lobbying.
And I think there's two reactions to this kind of an event.
One is, oh my god, this is terrible.
Corporations are paying money to find out what's going on in Washington.
And then there's the kind of Casablanca reaction, which is, I'm shocked.
Shocked to hear there's lobbying going on by corporations when in fact it's quite commonplace.
In terms of the role of business in society, this is a really critical margin, which is how do businesses influence and learn about policy.
And do they have a right to learn or influence policy?
Or should they not spend money?
And by the way, we're talking about billions of dollars of industry that is corporate lobbying in Washington.
And so I'm curious about how you think about corporate lobbying as an activity that is useful, needs to be regulated, or actually something that is deeply, deeply problematic that should be effectively curtailed at all costs.
So what do you think?
So first of all, the 18 teen Novartis thing, my understanding is that that wasn't lobbying per se.
And that was a kind of consulting almost.
And the only reason I say that is so there's a continuum of activity.
There's registered lobbying activity that happens where you have to report it and there's at least some modicum of transparency.
And then there are a whole bunch of other things and there's consulting and you can pay people for intelligence about Washington and things like that.
And I think this falls into that category.
Well, he didn't register, for sure.
That is true. But I think implicit in this is that he was going to give them knowledge that would help them about the legislative process or how to think about how to provide access.
Or provide access. All of this was like a fancy preface for me to say that there's a continuum from legitimate stuff and sketchy.
And this feels really, really sketchy.
And what is that? Tell me what's distinguishing.
Because I think to a lot of people it all looks the same.
It's like there's a bunch of money flowing into a DC insider from a corporation.
And I think they depend on most of the public sort of feeling like it's all the same.
In other words, just like in any industry, if you go deep into the industry, what you find is that legitimate behavior and then there's the underbelly.
And there are signals that in this case, this was the end of it.
So tell me what you think is legitimate.
Tell me what you think is the good stuff.
So I believe that companies absolutely have the right to lobby for things.
There should be a diversity of voices and there should be an opportunity to engage with lawmakers and to make your case.
But I think best practice around lobbying involves, number one, transparency.
So I think companies that really try to do this in a legitimate way and a socially responsible way go to great lengths to make sure that they're very transparent about what they do.
They make sure their customers understand, their shareholders understand what they're doing.
So Microsoft is an example, I think, of a company that likes to think it does this in the right way.
And I have no reason to believe that's not true.
You can go to their website and they have a description of everything they do, including the causes they support and why they support them.
And I think there's nothing wrong with that.
But I do think, just like in any other industry, there is a slippery slope.
And in this particular case, there are so many signals that this thing is so sketchy.
But let me challenge you on this idea that there's stuff that's good, right, that you think is okay because it's disclosed.
I mean, I think the challenge to that is, look, this is so asymmetric.
Microsoft is lobbying for its interests, and other corporations are.
And there is nobody on the other side with countervailing resources that can challenge Microsoft's influence.
And the reality is there's no one on the other side.
And so I don't know.
I used to think lobbying was like what you said, which is information.
It's in the public, whatever it is, it is.
And in fact, there's a huge benefit to it.
But there is this view, which is there's no countervailing force.
And so, I mean, you have lobbyists writing laws, right?
What do you think, Felix?
So I've always found this distinction that I think that people in political science make.
They sort of look at two ways that businesses interact with politics.
And one is just campaign contributions, furthering particular parties or particular individuals, and then lobbying, which is much more around the provision of information.
And I think that is, you can just not underestimate how important that is for reasonable policies.
A little while ago, I wrote a case with a colleague around the government's attempt to get a rating system for tires.
Even something that is...
You really go for the sexy stuff.
Yes, absolutely. Tires, it's my kind of thing.
Even for something that...
How hard can it be to distinguish an okay tire from an entire that is not so great?
It turns out the government tried alone for a decade, couldn't succeed.
It took the collaboration between a particular subset of firms who lobbied and provided information and collaborated with the government to then come up with a standard that would hold up in court.
And so I think a lot of the interaction that we see, and this goes a little bit to Yang Mi's point, not everything is obviously above board, but there is substantial interaction between the private sector and politics.
That is just about, oh my God, if you do XYZ, we're just going to let you know, here's a bunch of things that are likely going to happen, which probably are not great.
And then I would have said the counter -waiting force is elections.
Okay, keep going. I'm not sure I'm going to buy this.
So for instance, what's the incentive of lawmakers to bring the bacon back to their district?
If in fact you don't do anything for your district, the mechanism that we have is not lobbying illegal.
The mechanism that we have is don't re -elect these guys.
Well, but maybe in the absence of campaign finance, but in the presence of the current campaign finance regime in the US, effectively what's happening, which is we have campaign being financed by private interests who then expect returns for what they do.
You could argue they've hijacked that part of the process as well.
I don't want to be like the super leftist here, but you're telling a story where everything is going to be okay because the people will vote them out.
I think everything is going to be okay.
Well, maybe the counter -waiting force in this case might be other corporations.
In other words, think of something like net neutrality.
Net neutrality is an example where we're going to duke it out as a nation.
We're going to duke it out.
And I know I want the companies on my side of the issue to be in there because I know that the opposition is going to be in there.
And I think on a lot of these cases, you can find corporate interests on both sides.
But isn't that problematic in the sense that neither side in that battle actually thinks about you?
It's just different ways of getting rules that further my profits.
And so we don't agree on net neutrality.
But it's not because...
Well, they dress it up as being about young people.
But everybody needs to dress it up as...
Yeah, as being about young people.
You could argue that no, in fact, they understand that their profitability depends upon their ability to create value for their customers and do the right thing for their customers.
And so you could argue that, in fact, of course they're thinking about you.
So let me put it in a question form.
You're on a board and somebody comes to the board, we need to triple our lobbying budget because of the current level of uncertainty in Washington.
You're willing to sign on to that?
I think it depends.
I think it really depends.
So say I have a new drug that's going to help a lot of people.
For some reason, it's stuck in FDA land, and I want to spend some money to speed up the product.
That, I think, if I was on a board, yes, of course, we're trying to do something great for patients here.
I think for those kinds of issues, you would probably say yes.
Yeah, but the issues are just not distinguishable ex -ante.
I mean, everything looks socially beneficial.
And you can't... Can I just sign up to...
Well, look, Novartis says, we have a lot of drugs in the public.
Michael Cohen is the personal lawyer to the president and we can understand the FDA process better if we pay him $1 .2 million.
And it's all for the life of future victims of Alzheimer's.
I don't know. I'm a little concerned because this idea that there's this tidy split between informational lobbying which is helpful and productive and this nasty type of lobbying, to your first point, young me, it's all like a sliding scale.
And it's totally slippery and you can misrepresent one to the other pretty effectively.
But everything is a sliding scale.
And I think the way that you distinguish between best practice companies and the ones that are not are the ones that keep themselves on the right side of that continuum.
And maybe then the check is actually on the shareholders as opposed to the electoral check, which is maybe it's about good corporations benefiting by doing it well.
And good governance.
The companies that I do believe engage in best practice around this.
They're transparent to everyone.
There's board -level oversight on what those political activities involve, the kind of lobbying they do, the kind of political contributions they make.
And I think there's absolutely nothing wrong with that.
And in fact, in some cases, it really is in consumers' best interest for that to happen in an above board kind of way.
And we have good rules, right?
So if you go to OpenSecrets .org, you can see everything.
It's quite, compared to almost any other country that I know, it's amazing what you can know.
You can literally look up, oh, this guy had lunch with that guy and here's what they talked about.
And so part of why the Cohen story is so concerning is by not registering as a lobbyist, you evade all those rules that they don't apply.
And so that's the part where at least, I think, you have to ask serious questions.
We're paying this guy much more than we would a general lobbyist.
And then he is not registered.
I think alarm bells should go off.
I remember when the Bill Clinton scandal with the Lincoln bedroom, you know, it came out that you could donate to the campaign and get a night in the Lincoln bedroom, or some version of that.
And I remember at the time there was, like, part of my reaction was, that's absolutely horrible.
And the other part of my reaction was, actually, you know, that's kind of cheap for getting a night in the Lincoln bedroom.
All right, guys, do you bring in your after -hours pegs?
We did. You did. You would never forget.
Yes, absolutely. Yeah, right.
Felix, what you got?
So I have a cookbook that I would like to remember.
A cookbook? Yes. I don't know.
Do you watch Top Chef?
Of course I do. I love Top Chef.
Of course I watch Top Chef.
You are such reliable friends.
We're there for you.
I was nervous for a second.
You were saying, Top Chef, what is that?
We should keep scoring on him.
We should keep scoring on him.
That's ridiculous. Of course I do.
So Kristen Kish, you might remember, she battled her way back to eventually being the Top Chef.
Yes, from Boston, too.
So she was born in Korea, grew up in Michigan.
But then sort of her culinary career took off in the Barbara Lynch group here in Boston.
And she published her first cookbook.
Very good. And I'm always a little amazed around recipes because you think, if you have to come up with something new, that has to be so daunting.
And yet, I think, and this is one reason why I love cookbooks as opposed to individual recipes, if it works well.
Not only do you see things that you have not seen elsewhere, but you also sort of get a signature of a chef.
Her book is Kristen Kish Cooking, appropriately.
Fantastic title. Probably didn't think about the title all that long.
You know? It needs some marketing help.
So the marketing might be, but the book itself is very personal.
You learn a lot about her.
You learn a lot about cooking.
You learn a lot about technique.
And her food is so beautiful.
It's so clean and beautiful and simple and elegant.
What's your favorite cookbook?
Do you have a favorite cookbook?
I don't cook. I watch cooking.
Cooking is a spectator thing for me.
My favorite. Do you have a favorite?
I have Ottolenghi. You know this guy?
Oh, yes, the London guy.
He's a London guy. He's amazing.
I mean, again, I don't cook that much, but I can appreciate the recipes from Ottolenghi.
All right, so I got a pick.
I got a TV show. So I'm a sucker for the British cop shows, and there's a new one, which is Killing Eve.
Oh, I knew you were going to say that.
No, you did really?
I did the minute you said British cop shows.
I love that show. I love that show.
So I love all the British cop shows.
Sandra Oh is so good at shows.
Sandra Oh is so good.
So quickly, it is a interesting thing about it.
It's a British cop show, but Sandra Oh is an American actress, and she plays an American.
More interestingly, the psychopath who they're following is a woman, a young woman.
And so it's a really interesting, you know, you very seldom see...
And Sandra Oh's boss is very cool too.
Sandra Oh's boss is very cool.
We all, yeah. But it's really interesting to see a female cop and a female psychopath, and, like, that drama that goes on between them, and it's like really well played out.
Sandra Oh, well, why are you laughing?
It's really good. And it also takes place around the world, so, like, they go to, you know, London and Paris, and it's like all these beautiful scenes everywhere.
Anyway, great TV show, Killing Eve, BBC America.
I've only seen four episodes, but...
Well, it's, I think, another one dropped last night, so I'm a little bit behind, but yes.
Okay, so mine... So you need to go to YouTube, and you need to type in Google Duplex, okay?
And you will hear two phone calls, and each phone call is about 30 seconds long.
And it's Google's new AI assistant, and they demoed it at their recent conference, and they're the most mundane phone calls.
One is Google Assistant is calling up to make a haircut appointment for a woman's haircut, and the second is a man's voice calling to make a restaurant reservation.
So I played these two phone calls to my husband, and he listened to them, and he looked at me and he said, why are you having me listen to these phone calls?
And I said, that was a computer.
That was Google's AI assistant, their new AI assistant.
And he almost fell out of his chair because this thing sounds...
So natural. So human.
Have you heard it? Yes, yeah.
It's a little creepy how human it is.
It kind of made me believe in the use case for these...
It's assistants. Yeah, that was the first time.
And it was only one of a bunch of things they demoed at this conference, but it gave you a little glimpse into how they're thinking about AI and how quickly they're moving down this path.
So anyway, give it a listen.
It's a little bit of the brave new world we're entering.
Fantastic. All right, thanks everyone for listening.
This is HBS After Hours.
The minute you said that British TV show, I thought, oh, it's good to kill a game, that's so good.
I love that show. So what's the fascination with the...
This is why I was laughing.
It's like, what's the fascination with the female psychopath?
Well, you don't see them that often.
And she's... The actress is fantastic.
But there's also, there's a relationship between the female detective and the female psychopath, which turns...
It's just very cerebral.
It's like very psychological and there's almost like, I don't know, this has got a lot of complexity to it in a way that...
Yeah, it's good. It's just good.
