 So it's my pleasure to introduce Tim Wu. Tim Wu, to me, is a somewhat wonky, very enthusiastic first-year law student in my civil procedure class at Harvard Law School. He's grown up. Indeed, I walked into my roommate this past weekend who picked up the program and said, oh, Tim Wu is coming. I said, yes indeed. I've known Tim Wu for a long time. She said, haven't you read The New York Times? So he has just been featured in a major profile. He is a professor at Columbia Law School. He's the author of The Master Switch, which he did, wrote after being a New America fellow. He's also been formerly the senior advisor to the Federal Trade Commission. And although we're in the midst of the net neutrality debate, and yes, he did coin the idea of net neutrality and he is deservedly celebrated for that, he is going to actually talk to us on a different subject, always looking ahead. And his topic is how to disrupt stagnant industry. So Tim. Hi, everybody. Thank you so much. I love this conference. The big ideas is it's so much fun you talk about ideas. They don't necessarily have to come true. It's just terrific. And thank you for that introduction, and Marie. I remember her not as the president CO of New America or all the other things she's done, but as a young law professor with a book with about a million post-it notes attached to it with all the different sections in the civil procedure class. So that's how I remember it. So I'm going to talk today about something that has very little to do with net neutrality, but rather draws on my experience both working at the Federal Trade Commission in antitrust enforcement and also having worked at a few startups and having advised a lot of startups and spending some time in the private sector. And what I'm going to talk about is something that's a persistent problem for antitrust enforcers. And I should say that give some credit to Barry Lin, who's done a New America here, who's done a lot to publicize this issue. It is the problem of stagnant industries. You may kind of have a feeling for this yourself. As a consumer, some products from some industries just always seem to be getting better. Next time you, every time you buy a hard drive, they seem to be faster and cheaper. Laptops like this one, this is an ancient machine at this point, you know, they're always getting, the battery lives keep getting better, they get thinner, they're terrific. And then there's other industries where for some reason the prices just seem to go up, the products don't seem to get any better and they just kind of stay the same. And these are what I want to describe as the stagnant industries. And I'm gonna say that they tend to have five characteristics, not all of them but at least some of them. One is the structure of the industry is often an oligopoly or a monopoly or in any sense it's dominated by a number of small number of companies who are able to coordinate their activity easily. You usually see high profit margins that don't seem to have any particular justification. They are often resistant to product innovation. You don't see any real disruptive changes in these industries. You do often see what you might call cosmetic innovation. They'll introduce some new supposed improvement which really isn't much then tinkering with the product and an effort to charge a higher price for it. Number four, these industries tend to feature many artificial barriers to entry. They may be control of the retail sector, some control of a resource necessary to the product. Often it's manipulation of government regulation, abuse of the patent system, all things that make it harder for companies to get started. And finally, number five, many of these more stagnant industries tend to have large investments in government lobbying campaigns to run the regulatory programs. So it's always dangerous to name names but I'm not gonna name companies, well I will name a few companies, but I won't mostly name industries. I'll give two examples of industries that are like this. Consider first the eyeglass industry. It's a large industry, $28 billion. And you may sometimes go to sunglass stores or stores like Glencrafters to buy glasses and you seem to be presented by a selection, Ray-Bans, Oakleys, Prada, Chanel, DKNY designers, seems like there's an enormously competitive industry. The fact is that almost every single manufacturer of glasses or every brand is owned by one giant company named Luxotica and they make all the sunglasses you've ever heard of. They have one competitor that makes the other ones. All those ones I've mentioned, Prada, Chanel, DKNY, all the Ray-Bans, so forth, they're actually made by a single company. They own retailers like Sunglass Hut. So if you're in Sunglass Hut and you're looking around, you're like, why are the prices just seem to be in lockstep? It's because they're all owned by the same company. They also own Lenscrafters, other things like that. And the profits in this industry are relatively obscene. Eyeglasses, when you think about it, are really just plastic and glass and not very complicated. Frames are often north of $300, maybe $400, $500 for designer frames. They cost about $25 to make, maybe 50 at most. And so when you think about it, you charge $500 for something that costs $50. It's a pretty nice business to be in. There hasn't been any serious innovation in the industry. I mean, Google Glass might be the best example, but they're pretty far from getting into it. There are some entrants I'm gonna talk about later. And so this industry just sort of sits there and it makes a lot of money and it is, I would suggest, stagnant and extracts the cost of billions of dollars from American and actually just global consumers. Let me point to another industry similar to this, the mattress industry. If you've ever tried buying mattresses, you've probably had the experience of wondering why unearthed mattresses cost $3,000, $2,000. There is a confusing variety of product brands, all of which have names which cannot be compared. So if you ever try to do comparison shopping, none of the stores name their mattresses the same things even though they're made by the companies. And what I'm sure is a plot, the three major manufacturers all start with S, Sealy, Serda, and Simmons. And I challenge anyone in this room to tell me what the difference is between these companies. So I have never been able to figure. And they occasionally come up with some sort of superficial innovation. They'll have some kind of new gel they have or a new layer of something, but basically it's the same product. The one innovation was the temper, the therapy, what's it called? Tempuriputic, and that is, and there were water beds at one point. So occasionally, I won't say there's no innovation. And there they are to add a layer. This is how they do their business. Sales tactics are unbelievably confusing, I said that. And you know, one of the tricks, there's two real tricks to the business. One is that consumers only buy mattresses once every five, 10 years or something, so they're not constantly in this market and they come and supposedly things are new. It's also extremely hard to really test mattresses. You know, you just lie there for a second. And so, you know, it doesn't really, so this is another industry that is roughly stagnant and is roughly some kind of racket. Now, the problem is that the antitrust law has enormous difficulties dealing with these industries and that is for a number of reasons. I just want to, usually just as a legal matter, these industries are clever enough to understand that what antitrust law bans is explicit price fixing. So they understand that. There's no agreements that you will be found to say all mattresses shall cost $2,000 or whatever it is. But what antitrust law does not ban is parallel pricing. That is, if you have the exact same prices for things, that is not a violation of the antitrust law and it's been a long-standing problem. The other real problem that antitrust law has is that it's never been clear, even if you wanted to do something about the mattress industry or the eyeglass industry, what exactly can its remedies be? So one thing you can try to do, for example, is, well, discover if they're fixing prices and tell them not to do that. But then they'll figure out some other way about it. You can try and break the companies into smaller pieces. That's an aggressive tactic. It involves a lot of government involvement. If you want to lower prices, you really have to contemplate an involvement of the state in the industries, which is hard to really see a sustainable. Most people, even if you're on the left of the spectrum, have some problems with there being a mattress czar who's gonna say, listen, the price of mattresses I've decided is $500. Take it or leave it. It gets a little bit too much like a centralized economy. So this is the problem and antitrust law really is a strung bite. And I'll say the last thing which I should have said is antitrust law is episodic. The enforcers come to this problem, they look at it maybe for a year or so and then they're on to some other industry. And so even if they try and do things, even if they break stuff up, even if they have some remedies, the industry, having survived, just kind of gets angry. They have better lawyers, they have better lobbyists next time around and they're in it for the long run. So my instinct or my big idea is that the best remedy is to try to target stagnant industries and introduce natural competition. My inspiration for this idea actually came from our cottage where we have a problem with too much seaweed. And one of the solutions to this problem, one is pesticides, but the other solution is you introduce natural predators. You introduce these carp that eat all the seaweed. And farmers sometimes do this with their fields. They'll introduce a natural predator to a pest. And so what stagnant industries fear the most, of course, is a new entrant, a company that is going to come in and underpriced what they're doing and offer better service and better products and take this apart. And often we assume that this is gonna happen automatically, but what I'm suggesting is that either as a part of antitrust or as part of some other aspect of government that government could do more to foster the entry of competitive companies into stagnant industries. And I wanna suggest some of the ways it could do this. So idea number one is, well, I'll just call the most wanted list. The government has enormous powers to get information and to publish information in a credible way. This is one of the government's greatest powers. It's used in securities regulation. It's used in the patent law. So one of the things, I mean, often what I notice at the FTC is we would investigate an industry or a company, get very far, have an enormous amount of data, realize the weaknesses and the susceptibilities of this industry to disruption, but then just leave that information in a file somewhere right over here across the street in the Federal Trade Commission. So we know these industries are vulnerable. So one thing that government could do is either as a most wanted list or more regularly, publish more information about the industries that would be used by entrepreneurs to think, well, I never knew that the mattress industry was this vulnerable to disruption or I never knew that real estate, well everyone knows that about real estate brokers. Or maybe chairs, I mean, I don't know. So because people in business school, one challenge they have is informationally, everyone gets focused on hot industries. Most people in business, coming out of business school entrepreneurs are excited about building an app or becoming the next Facebook and they're not necessarily thinking of becoming a mattress king. But there might be actually more opportunities in these stagnant industries. It's just that information is not well known and it's not aware. So if you had greater visibility and more information forcing of the industries that are in a stagnant condition and are vulnerable to disruption, you might see more entrants coming. The second idea is what I call a police escort. So one of the problems for entrants in these industries is sometimes people do try and get into them but they're dealing with masters of the game who've usually mastered some anti-competitive measure or another that keeps them out. Either they can't find any retailers to carry their products or the wholesalers suddenly won't deal with them or they find their tires are all flat when they go to the parking lot, whatever it is, there's ways and they're just like, you don't really wanna be in this industry and so often a lot of entrants get killed and it seems discouraging. The police escort idea is to try to improve the protection for new entrants into stagnant industries by the antitrust agencies or other government enforcement powers and I'm not sure how this would work but it would have to be a sort of quicker version of some of what quicker version of remedies for anti-competitive practices where the Federal Trade Commission or the Justice Department could learn of these and say, you know, you better back off that stuff because the thing is entrants and this is my experience dealing with high tech companies, entrants have this advantage that they're usually newer, they've got a better product idea, they're willing to price lower so they just need a little bit of room to get growing. They have advantages but they have to not be killed in their first couple years of being in the market and a few warnings from government can go a long way towards protecting an entrant in a dangerous market. My third idea, this one maybe controversial is an idea of a reward program, a little bit for the lawyers in the audience like Ketam. So the idea is that you offer some kind of reward to consumers that prove that they are saving consumers money in a stagnant industry. So for example, in the eyeglass market, I wanna highlight a company, some of you may know named Warby Parker which has entered over the last few years. So Warby Parker did a little bit what I said, they noticed that eyeglasses are selling for $400 and cost $50 to make so they had the idea or actually more like $25 and they thought, okay, well, we will price our eyeglasses at $95, undercut them by $400, see how that goes and they're doing pretty well. Unsurprisingly, they have some retail, they kind of did what I suggested and to encourage that kind of thing, you might devise, you have to do this carefully, some kind of program where you can, if you can prove that you have can save consumers some X billions of dollars or even hundreds of millions of dollars that you get some kind of tax subsidy for that. Doesn't have to be a big one, but some kind of tax subsidy so people notice there are prizes out there. So the model for this is KITAM which is a government program that gives people incentives to sue when they notice people defrauding the government. This is people defrauding the consumer as opposed to the government but the principle is about the same. So that's my idea. Obviously this would not necessarily be a popular idea in certain sectors. Companies would complain that new competitions costing them jobs, governments paying favorites and so forth and I understand that but I think it's also important to understand that economic growth is fundamentally about disruption and it is, I'd go back to some of what Secretary Clinton was talking about, America is about a disruptive economy. It is about people taking advantage of opportunities to try to do something new and the way this country grows is when the old replaces the new in a constant cycle. So I believe this could be an important idea. Thank you very much. I think I have time for one or two questions. I see one, I'm supposed to take a view on the back, right? So I see like a silhouette there in the back. Yeah, okay, I don't have no idea, I can't see who it is. Hi Tim, just a quick question. Why do you think the government is better than entrepreneur plus investors identifying stacked in industries? Why is government better at it? Yeah. Oh, they're just able to get information. They're able to get information out of these industries better. They have subpoena powers. And so I know that, so competitors have limited, there's a lot of stuff that's hard to get at and government has a lot better information forcing powers. Yeah, sure, in the front and then that'll be it. Thanks Tim, is this working? Can I ask a net neutrality question? Oh boy, all right. Sure. So my question is, what should the answer be here for what's in the best interests of the people of America? This does dovetail, so one of the things I would have said if it was an antitrust focused is that the most powerful thing for disrupting stagnant economies or industries the last 20 years clearly been the internet. And so one way, a really clever way for the government to get, I don't think it planned on this, but when it funded the internet it did a lot of the work I was talking about. It's probably a better big idea than my big idea, but that's pretty obvious. So part of what, why net neutrality is really important because it represents the idea for startups that there is an opportunity to either put your product out there and try and reach consumers or for speakers to be heard. And maybe not to succeed, but at least you get your shot. So I think that it's very important the FCC preserve this. I think that it has to do so by banning fast lanes and banning all blocking and allowing transparency. And I think the way it should do this is using authority that would make it do it. They're trying to do it. This will get technical with a complex legal picture. I think they should simply use their main authority, which is known as Title II of the 1934 Telecom Act and create a net neutrality principle that hopefully lasts for a very long time and acts as a Magna Carta for startups for a very long time to come. Thank you very much.