In Search of a Competition Doctrine for Information Technology Markets: Recent Antitrust Developments in the Online Sector

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EISENACH J.A., KNABLE GOTTS I., In Search of a Competition Doctrine for Information Technology Markets: Recent Antitrust Developments in the Online Sector, The Netherlands, Wolters Kluwer Law and Business, 17.11.2014

Type Book
Abstract Recent antitrust developments in the online sector – sometimes described as the

“Internet Ecosystem” – demonstrate that the search for a coherent and reliable doctrine for evaluating competition issues in high-tech markets remains incomplete. While acknowledging that traditional approaches are often inapposite for assessing the competitive dynamics of high-tech markets, enforcers continue to struggle to devise a coherent alternative framework. We review some recent cases that illustrate the challenges of enforcing competition-law in information technology markets.

Link http://www.nera.com/content/dam/nera/publications/2014/PUB_CommCompLaw_Eisenach.pdf
Topics Business Model, Competition

Notes

Interoperability and interconnection issues are central when we deal with competition in IT markets, because of strong complementaries existing in this kind of markets (between smartphones and networks; operating systems and microchips; etc.).

Business practices may be both innovation-enhancing and competition-inhibiting at the same time.

Consumer welfare is the central objective of antitrust.


The three main characteristics distinguishing IT markets from more traditional markets are:

  • Dynamism: innovation is a fundamental aspect of these markets; indeed, it is fundamental for the success of companies operating in the IT markets; today's hot product may become obsolete tomorrow. Consequences on competition: existing monopolies may be ephemeral; impeding mergers or other acquisitions or transaction may frustrate or discourage innovation (we have to see if restraining competition leads to innovation improving consumer welfare).
  • Modularity (or "platform competition"): strong complementaries in production or consumption (between operating systems and personal computers; smartphones and communication networks; online music or app stores and smartphones; etc.); because of this complementarity, IT firms normally create platforms, together (offering sets of compatible complements) or alone (vertical integration = the supply chain of a company is owned by that company; e.g. Apple); competition exists between platforms and within platforms. Consequences on competition: refusals to interconnect or to facilitate interoperability (i.e. proprietary or "walled gardens" approaches) may aim to impair competition or to optimize system functionality.
  • Demand-Side Effects:
    • Demand-side economies of scale (network effects): a product is more valuable to consumers as the number of users increases. Consequences on competition: significant network effects may create barriers to entry, but they also create real benefits for consumers.
    • Demand-side economies of scope (multisided markets): a product's value increases with the diversity of users. Consequences on competition: we have to consider the effects of transactions, mergers, etc. on all the categories of users (i.e. on both downstream consumers and upstream suppliers). The article examines several recent U.S. cases.


New important competition issues related to IT markets are:

  • Net neutrality issues: when refusals to interconnect (or imposition of discriminatory interconnection fees) by firms are per se illegal?
  • Big Data and IoT issues: IoT is perhaps the most significant factor driving the related phenomena commonly referred to as "big data" (= the capacity to collect, synthesize and analyse previously incomprehensible amounts of data); big data challenges not only refer to privacy, security and other consumer protection issues, but also competition (page 90: "it is also true that access to database information is becoming increasingly important from a competition perspective").


So, IT markets present apparent barriers to entry and potential market power, but their dynamic nature challenges the longevity of even the most powerful monopolist.