Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Saturday, October 20, 2012

Fines for Abuse of Dominance in "High Tech" Markets

Posted by D. Daniel Sokol

Benoit Durand (RBB Economics) & Andreas P. Reindl (Leuphana University) analyze Fines for Abuse of Dominance in "High Tech" Markets.

ABSTRACT: Blockbuster fines have become a trademark of European Commission abuse of dominance cases. Intel's EUR 1 billion fine is currently under appeal, and just a few months ago the General Court largely upheld the EUR 800 million fine imposed on Microsoft for its failure to comply with the licensing remedy in the initial Commission decision, which "supplemented" the EUR 450 million fine imposed in 2004.

The practice of wielding the big stick in Article 102 cases involving high-tech firms has had an impact on the narrative about European competition law. Take the numerous reports in the trade press about the Commission's ongoing Google investigation; they have little to report on substance, but almost invariably emphasize that the tough antitrust enforcers in Brussels could impose a EUR 4 billion fine if they found Google guilty of a violation. That is not small change, even for the Googles of the world. For a firm with a little less cash at hand than Google, the threat of being subject to an investigation by a competition authority with little understanding of high-tech markets and equally little hesitation to consider novel and perhaps experimental conduct to be a "very serious" infringement on par with price-fixing, and thereby impose enormous fines, might be enough reason to change its business conduct when an unhappy rival makes noises about filing a complaint.

This is a worrisome development. The current fining practices in single-firm conduct cases rest on shaky grounds and are potentially harmful. We begin with a brief discussion of core economic concepts that should inform the imposition of corporate fines, in particular in single-firm conduct cases. We then use the Commission's Intel and Microsoft decisions to illustrate the risks associated with the current ill-designed fining practice, in particular in cases involving high-tech sectors: (i) enforcers may find it impossible to determine whether conduct was, in fact, inefficient and harmful; (ii) the risk of deterring beneficial conduct is particularly high; and (iii) market participants will typically find it impossible to understand what type of future conduct a fine is supposed to deter, given the rapidly changing market conditions and unclear substantive analytical standards. We conclude by identifying conditions that must be met if a competition authority considers imposing sanctions in single-firm conduct cases. We are not arguing here that corporate fines should never be imposed in cases involving high-tech industries, but we doubt that blockbuster fines are a suitable enforcement tool in most single-firm conduct cases.

October 20, 2012 | Permalink | Comments (0) | TrackBack (0)

Friday, October 19, 2012

Pass-Through as an Economic Tool

Posted by D. Daniel Sokol

E. Glen Weyl, University of Chicago; University of Toulouse 1 - Toulouse School of Economics and Michal Fabinger, Pennsylvania State University have written on Pass-Through as an Economic Tool.

ABSTRACT: We extend five principles of tax incidence under perfect competition to a general model of imperfect competition. The principles cover 1) the independence of physical and economic incidence, the 2) qualitative and 3) quantitative manner in which taxes are split between consumers and producers, 4) the determinants of tax pass-through and 5) the integration of local incidence to determine the overall division of surplus. We show how these principles can be used to simplify and generalize the analysis of a range of economic questions such as the optimal procurement of new markets and the welfare effects of third-degree price discrimination.

October 19, 2012 | Permalink | Comments (0) | TrackBack (0)

Strategic delegation in price competition

Posted by D. Daniel Sokol

Werner Guth (Max Planck), Kerstin Pull (Tubingen) & Manfred Stadler (Tubingen) discuss Strategic delegation in price competition.

ABSTRACT: We study price competition in heterogeneous markets where price decisions are delegated to agents. Principals implement a revenue sharing scheme to which agents react by commonly charging a sales price. The results of our model exemplify the importance of both intrafirm- and interfirm interactions of principals and agents in competition. We show that price delegation can increase or decrease the firms' surplus depending on the heterogeneity of the market and the number of agents employed by the firms.

October 19, 2012 | Permalink | Comments (0) | TrackBack (0)

The Goals of Antitrust - October 26, 2012 George Washington University School of Law

Posted by D. Daniel Sokol


Updated: October 18, 2012


The Goals of Antitrust

October 26, 2012

George Washington University School of Law


8:20-8:50: Continental Breakfast

8:50-9:00 Opening Remarks

9:00-10:30 First Session

  • Jonathan Baker

Pursuing Antitrust’s Goals in a Political Context 

  • Joshua Wright, George Mason University School of Law & Douglas Ginsburg, United States Court of Appeals for the District of Columbia Circuit, NYU School of Law

The Goals of Antitrust: Why Welfare Trumps Choice 

  • Robert Lande, University of Baltimore School of Law

A Traditional and Textualist Analysis of the Antitrust Statutes: The Efficiency v. Wealth Transfer Debate

10:45-12:15 Second Session

  • Roger Blair, the University of Florida Department of Economics & Daniel Sokol, University of Florida Levin College of Law

Welfare Standards in U.S. and EU Antitrust Enforcement 

  • Dale Collins, Shearman & Sterling

The Revealed Choice of Antitrust Norms 

  • Maurice Stucke, University of Tennessee College of Law

Should Antitrust Promote Happiness? 

12:15-1:30 Lunch

  • Keynote Speaker: William Kovacic, George Washington University School of Law

The Lifecycle of Goals in Systems of Competition Law

1:30-3:00: Third Session

  • Harry First, NYU School of Law & Spencer Waller, Loyola University of Chicago School of Law

Antitrust’s Democracy Deficit 

  • John Kirkwood, Seattle University School of Law

Protecting Consumers and Small Suppliers from Anticompetitive Conduct: The Goal With the Widest Support 

  • Alan Meese, William & Mary Law School

Reframing the (False?) Choice Between Purchaser and Total Welfare: Removing the Blinders Imposed by the Partial Equilibrium Tradeoff Model

 3:15-4:45: Fourth Session

  • Einer Elhauge, Harvard Law School

Ironically, Total Welfare Is Advanced Better by a Consumer Welfare Test 

  • Barak Orbach, University of Arizona College of Law

Goals for Antitrust 

  • Steven Salop, Georgetown University Law Center

Merger Settlement and Enforcement Strategy for Optimal Deterrence and Maximum Welfare


October 19, 2012 | Permalink | Comments (0) | TrackBack (0)

Antitrust Concerns of Patent Acquisitions

Posted by D. Daniel Sokol

Ilene Gotts (Wachtell) and Scott Sher (Wilson Sonsini) describe Antitrust Concerns of Patent Acquisitions.

ABSTRACT: Recent events demonstrate that patents increasingly are being purchased and used for anticompetitive means. For example, patent assertion entities (also known as "patent trolls" or "PAEs") collect patents to extract high licensing fees; competitors acquire patents to create blocking positions that serve to exclude other competitors from competing in downstream markets; and firms acquire patents to create "patent thickets," which are patent collections on such a scale to make it difficult for smaller competitors to evaluate potential infringement with regard to their product development and innovation. The problem is particularly pronounced in the mobile marketplace, where intellectual property litigation is rampant, as market participants jockey for the dominant position in this hundreds-of-billions of dollars market.

A recent example involving the highly publicized patent dispute between Apple and Samsung highlights the potential for anticompetitive application of a high tech patent portfolio. In its trial brief, Samsung accused Apple of using patent enforcement to "stifle legitimate competition and limit consumer choice to maintain its historically exorbitant profits." Although Apple ultimately prevailed in its litigation, securing a potential multi-billion dollar settlement from Samsung, as well as a potential injunction that would prohibit Samsung from selling many of its mobile products in the United States, that case and others demonstrate the potential exclusionary effect of IP in these highly competitive mobile markets.

Indeed, under current marketplace dynamics, a company competing in high-tech industries must amass a large patent portfolio to defend itself against the inevitable lawsuits that competitors or non-practicing entities (or "patent trolls") bring either to impose high rents on necessary technology components or prevent new competing products from entering the market. It is for this reason that antitrust authorities around the world have taken a heightened interest in IP market dynamics, and have conducted a number of very high profile investigations, and announced several significant consent decrees.

October 19, 2012 | Permalink | Comments (0) | TrackBack (0)

El control de Fusiones y Adquisiciones en Argentina (1999-2011): Indicadores de desempeno

Posted by D. Daniel Sokol

Esteban M. Greco, Diego Petrecolla, Carlos A. Romero and Exequiel Romero Gomez have posted El control de Fusiones y Adquisiciones en Argentina (1999-2011): Indicadores de desempeno.

ABSTRACT: This paper presents a statistical analysis of the mergers and acquisitions (M&A) evaluated by the Argentinean competition authority, from 1999 to 2011. In particular, we analyze the evolution of the quantity of cases using different classifications and cross checks in accordance with the nature of the operations (horizontal, vertical, conglomerate), the result of the evaluation (authorization, its denial or conditioning), the economic sector affected and the duration of the procedures. The latter shows a significantly growing tendency since 2006. The analysis developed allows us to obtain quantitative indicators of the merger control and produces results and conclusions useful, both from the perspective of firms planning operations in Argentina and for the performance evaluation and design of public policies.

October 19, 2012 | Permalink | Comments (0) | TrackBack (0)

Implications of the Samsung-Apple Patent Disputes to Patent System, October 24th, 2012

Posted by D. Daniel Sokol

We are pleased to inform you that ICR Law Center is planning to conduct the seminar
on "Implications of  the Samsung-Apple Patent Disputes to Patent System"
Seminar will be held over three different dates, and an
in-dept discussion will be made
over specific issues
and the ripple effects concerning the dispute.
Experts from Korea, United States, Germany, and Japan will exchange information
on the subject of "Background & Development of the
Samsung-Apple Patent Disputes," at our first seminar.
Each expert will introduce each country's latest verdict on the dispute, and thorough
discussion will be made.
Below are the details for the Seminar.

Date: October 24th, 2012 (Wed.) 2-6 P.M.
Venue: Public
Procurement Service - 3rd floor PPS Hall (3rd floor Fair Trade Center,
Banpo-4-dong, Seochogu, Seoul)
Hosted by: ICR Center, Franklin Pierce Law Center for
IP, National Research Foundation of Korea
Sponsored by: National Intellectual Property Committee
of Korea
check attached invitation for more details.

Simultaneous interpreter is provided at the seminar.

Feel free to contact us at 82-2-3290-2915 (ICR
Center executive office) or via email;

October 19, 2012 | Permalink | Comments (0) | TrackBack (0)

Antitrust and Nonexcluding Ties

Posted by D. Daniel Sokol

Herb Hovenkamp (Iowa) has written on Antitrust and Nonexcluding Ties.

ABSTRACT: Notwithstanding hundreds of court decisions, tying arrangements remain enigmatic. Conclusions that go to either extreme, per se legality or per se illegality, invariably make simplifying assumptions that frequently do not obtain. For example, by ignoring double marginalization or tying product price cuts it becomes very easy to prove that a wide range of ties are anticompetitive. At the other extreme, by ignoring foreclosure possibilities one can readily conclude that ties are invariably benign.

Ties have historically been thought to produce two kinds of competitive harm: “leverage,” or extraction; and foreclosure, or exclusion. The two theories are not mutually exclusive. Indeed, the premise of the foreclosure theory is that exclusion of rivals is harmful because it enables a firm to keep prices up or to prevent them from falling in response to the entry of new competitors. Ultimately, anticompetitive foreclosing ties must harm consumers.

Is there any reason for thinking that ties that do not exclude anyone should be condemned under the antitrust laws? The issue can arise in several different contexts. The most common is the “unwanted” tied product. The purchaser does not want the tied product at all and is objecting about being forced to take and pay for it. This is basically the facts of the Ninth Circuit’s Brantley case, in which cable television consumers complain that the defendant cable television provider offers programming only in large packages of channels. The complaint was dismissed because the plaintiffs could not identify any independent program providers who were excluded by the arrangement. Another subset of cases involves customers complaining about the way the seller allocates the price between the tying and tied goods, typically in order to facilitate price discrimination.

To be sure, customers may be injured when they want to purchase a smaller package than a seller wishes to sell. The customer might wish to buy a single residential lot rather than a rancher’s 1000 acre spread. Neither exclusion of a rival nor a restraint of trade producing lower market output is in prospect. Indeed, in a case such as Brantley the per channel cost of delivering a large number of channels is almost certainly lower than the per channel cost of delivering a few. The fixed cost component of a cable television system is a significant portion of its costs and the incremental costs of adding channels are very low. The Brantley plaintiffs simply want the seller to offer a smaller product. That is fundamentally not an antitrust problem.

October 19, 2012 | Permalink | Comments (0) | TrackBack (0)

Thursday, October 18, 2012

Double Marginalization in Two-Sided Markets

Posted by D. Daniel Sokol

E. Glen Weyl, University of Chicago; University of Toulouse 1 - Toulouse School of Economics discusses Double Marginalization in Two-Sided Markets.

ABSTRACT: Should banks (through Visa) be allowed to own debit clearing networks? This problem combines the classic Cournot (1838)-Spengler (1950) double marginalization problem with the more recent literature on two-sided markets (Rochet and Tirole, 2003). Because both the double marginalization (Weyl, 2008a) and two-sided markets (Weyl, 2008b) problems depend crucially on the pass-through rate, the analysis is natural and leads to strong over-identification given simple assumptions. Vertical integration does not generally erode (and often enhances) platform mark-ups. Therefore its (price level benefits) are more robust than those of competition in two-sided markets.

October 18, 2012 | Permalink | Comments (0) | TrackBack (0)

Moving Beyond Naive Foreclosure Analysis

Posted by D. Daniel Sokol

Josh Wright (George Mason) argues for Moving Beyond Naive Foreclosure Analysis.

ABSTRACT: Over the past several decades, antitrust law has shifted from predation to exclusion as the predominant competitive risk associated with single-firm conduct. This shift is attributable to the rise of Raising Rivals’ Costs (“RRC”) as the modern economic paradigm for understanding the potential anticompetitive concerns associated with exclusionary contracts. Courts in exclusion cases have long analyzed the extent to which a defendant’s distribution contracts foreclose rivals from a critical input by calculating the percentage of the input market contractually committed to the defendant and therefore presumptively foreclosed from rival suppliers. I describe this measure as the “naive foreclosure” rate. RRC provided a more economically sophisticated approach to assessing the competitive risks associated with exclusion, while also embracing possible efficiencies of such arrangements. However, while RRC replaced the discredited foreclosure theories within economics, the naive foreclosure requirement embraced by the law has barely changed over the last half century. What is left is a mismatch between new economic theories and obsolete doctrine. The primary purpose of this Article is to highlight this conflict and its importance and to propose the beginnings of a solution consistent with the modern approach focusing upon identifying the direct competitive impact of the restraint rather than unreliable proxies detached from economic theory. This Article proposes abandonment of the naive foreclosure measure in favor of a “but-for foreclosure” approach that assesses the net impact of the restraint at issue and isolates out other factors influencing the availability of distribution to rivals.

October 18, 2012 | Permalink | Comments (0) | TrackBack (0)

Buyer Power and Suppliers' Incentives to Innovate

Posted by D. Daniel Sokol

Christian Koehler, Centre for European Economic Research (ZEW) and Christian Rammer, Centre for European Economic Research (ZEW) describe Buyer Power and Suppliers' Incentives to Innovate.

ABSTRACT: Buyer power is widely considered to decrease innovation incentives of suppliers. However, there is little empirical evidence for this statement. Our paper analyses how buyer power influences innovation incentives of upstream firms while taking into account the type of competition in the downstream market, namely price and technology. We explore this relationship empirically for a unique dataset containing 1,129 observations of German firms from manufacturing and service sectors including information on the economic dependency of firms from their buyers. Using a generalised Tobit model, we find a negative effect of buyer power on a supplier’s likelihood to start R&D activities. This negative effect is mitigated if the supplier faces powerful buyers operating under strong price competition. There is also weak evidence for a negative effect of buyer power on suppliers’ R&D intensity if the powerful buyer operates under strong technology competition.

October 18, 2012 | Permalink | Comments (0) | TrackBack (0)

Libor damages: key emerging issues

Posted by D. Daniel Sokol

James Kavanagh (Oxera) has an interesting column on Libor damages: key emerging issues. I agree with his conclusion that "LIBOR damages cases may be unprecedented in the scale of claims, but they may also be unusual in terms of the complexity of determining a reliable damages quantum."

October 18, 2012 | Permalink | Comments (0) | TrackBack (0)

Patent Portfolio Acquisitions: An Economic Analysis

Posted by D. Daniel Sokol

Fiona M. Scott Morton gave a speech on Patent Portfolio Acquisitions: An Economic Analysis.

October 18, 2012 | Permalink | Comments (0) | TrackBack (0)

Deterrence of Antitrust Violations: Do Actions for Damages Matter in Japan?

Posted by D. Daniel Sokol

Simon Vande Walle, University of Tokyo - Graduate School of Law and Politics asks Deterrence of Antitrust Violations: Do Actions for Damages Matter in Japan?

ABSTRACT: There is considerable debate about the role private litigation should play in the enforcement of antitrust law. This article focuses on one particular private enforcement mechanism – damages actions – and assesses whether and how much such actions have contributed to deterring antitrust violations in Japan. It does so by answering two questions: (1) how much have damages actions contributed to the detection of antitrust violations?, and (2) how much have damages actions contributed to an increase in the sanctions for antitrust violations?

Based on original data concerning damages actions between 1990 and 2010, the article argues that damages actions have somewhat contributed to deterring certain antitrust violations, bid-rigging in particular, but that this deterrence has mainly originated from the fact that damages imposed an additional sanction on the infringers. Damages actions have rarely brought to light violations that were not detected previously by the Japan Fair Trade Commission or criminal prosecutors. Hence, an almost equivalent measure of deterrence could have been generated more efficiently by imposing higher penalties through public enforcement.

October 18, 2012 | Permalink | Comments (0) | TrackBack (0)

Wednesday, October 17, 2012

Innovation is King. Or is it?

Posted by D. Daniel Sokol

Paul Lugard & David Cardwell (Baker Botts, Brussels) ask Innovation is King. Or is it?

ABSTRACT: Nowadays, it is undisputed that innovation is a key driver of consumer welfare. As a result, unwarranted restraints on desirable innovative activity as a consequence of enforcement errors that incorrectly condemn pro-competitive or competitively neutral conduct (Type 1 errors), are potentially most damaging. Obviously, by the same token, private restraints-whether through mergers, cartels, or unilateral conduct-which hamper innovation may bring about significant negative effects.

Against this background, one would expect that, over time, the application of EU competition law under Articles 101 and 102 TFEU, as well as the European Commission's ("Commission") enforcement practice under the EU Merger Control Regulation ("EUMR"), would have given rise to a refined analytical framework as to how to adequately integrate dynamic efficiencies (as well as restraints on innovation) into the overall analysis of business transactions.

However, it is striking that, despite the general recognition that innovation is an important source of welfare gains, the precise significance of innovation in EU competition law has remained, at best, opaque. In fact, it appears that, in many instances, the very notion of innovation is given remarkably short shrift and is, as a result, not yet well developed. This is particularly surprising as the Commission has, over the past few years, risen as a pro-active leader in single-firm conduct enforcement by bringing abuse of dominance actions against firms including Qualcomm, Intel, and Microsoft and, more recently, against Samsung and other owners of standard essential patents ("SEPs") in the smart phone sector.

Regardless of whether the outcome in these matters is correct, it has sometimes been argued that the Commission has paid little-perhaps too little-attention to the nature and significance of the specific type of innovation that is of importance in the market. This argument is particularly made in relation to the European Microsoft case. In general, in Commission decisions under Article 102 TFEU one searches in vain for an analysis of the innovation potential of the various players on the market, let alone an attempt to weigh the innovation benefits that those parties bring to consumers against those of the dominant company.

October 17, 2012 | Permalink | Comments (0) | TrackBack (0)

Collective Bargaining and Competition Law: A Comparative Study on the Media, Arts, and Entertainment Sectors

Posted by D. Daniel Sokol

Shlomit Yanisky-Ravid ONO Academic College; Yale Law School has posted Collective Bargaining and Competition Law: A Comparative Study on the Media, Arts, and Entertainment Sectors.

ABSTRACT: The conflict between collective bargaining and competition law is not necessarily new. However, while not completely immune to the rules of competition law, it is widely acknowledged that collective agreements concluded in good faith, dealing with core subjects such as wages and working conditions are in principle legal and therefore fall outside the scope of competition law.

Yet, since there are few legislations providing for clear statutory exemptions that remove collective bargaining from the range of competition laws, it has been mostly a matter for the courts to harmonize this conflicting relationship at times. At EU level, for example, the exemption was supported by the decisions of the European Court of Justice (ECJ) in the Albany, Brentjens and Drijvende Bokken cases. For instance, in Albany, the ECJ held that: "It is beyond question that certain restrictions of competition are inherent in collective agreements between organisations representing employers and workers. However, the social policy objectives pursued by such agreements would be seriously undermined if management and labour were subject to Article 85(1) of the Treaty [now Article 101(1) of the Treaty on the Functioning of the European Union (TFEU)] when seeking jointly to adopt measures to improve conditions of work and employment. It therefore follows from an interpretation of the provisions of the Treaty as a whole which is both effective and consistent that agreements concluded in the context of collective negotiations between management and labour in pursuit of such objectives must, by virtue of their nature and purpose, be regarded as falling outside the scope of Article 85(1) of the Treaty."

These decisions, however, have been given a narrow interpretation and competition authorities in a number of countries have been particularly active lately, targeting some categories of workers which have concluded collective agreements on the grounds that these are agreements between “undertakings” that are aimed at “price-fixing” and therefore restrict competition. This has specially affected workers in the media, art and entertainment sectors (but not only), a number of which are “self-employed.”

One can argue that it would be enough to acquire the status of “employee” to avoid the proceedings conducted by competition authorities. However, the issue of the employment relationship may be crucial, as those of these workers who work as employees under a “work for hire” legislation automatically assign their intellectual property rights to their employer. In this latter case, the only way for workers to retain their IP rights is to declare themselves as “self-employed.”

October 17, 2012 | Permalink | Comments (0) | TrackBack (0)

Almunia speech on Compliance and Competition policy Business Europe

Posted by D. Daniel Sokol

Joaquin Almunia (DG Comp) has given a speech on Compliance and Competition policy Business Europe.

October 17, 2012 | Permalink | Comments (0) | TrackBack (0)

The Boundaries of an Undertaking in EU Competition Law

Posted by D. Daniel Sokol

Alison Jones, King's College London - School of Law describes The Boundaries of an Undertaking in EU Competition Law.

ABSTRACT: This article considers how the boundaries of an undertaking or economic unit are identified in EU competition law. As an undertaking may be made up of several persons, it is not always easy to know when it comprises a natural person, a legal person or a group of persons (such as principal and agent, parent and subsidiaries or parent(s) and JV) and, consequently, whether such persons are acting unilaterally or jointly for the purposes of the competition law rules. This article scrutinizes the two principal lines of cases dealing with the notion of an undertaking as an economic unit and the relationship between them. It seeks to elucidate the principles and policy underpinning and influencing them and questions whether there is, or should be, a single concept of an undertaking which applies throughout EU competition law and, if so, how it is defined. It also discusses whether there is a need for a more holistic approach to be taken to the concept of an undertaking in the future, requiring some reconsideration of, and retrenchment in, the case-law.

October 17, 2012 | Permalink | Comments (0) | TrackBack (0)

All About Fair Trade? - Competition Law in Taiwan and East Asian Economic Development

Posted by D. Daniel Sokol

Lawrence S. Liu, China Development Financial Holdings Corporation asks All About Fair Trade? - Competition Law in Taiwan and East Asian Economic Development.

ABSTRACT: The proliferation of antitrust laws around the world in the last three decades demands a series of inquiries, including what exactly are the nature and goals of these young competition statutes? Reviewing Taiwan’s Fair Trade Law and the political economy informing its passage, this article reveals an infatuation, common in Asia, with 'fairness.' This article first traces traditional Chinese political thought about businesses and the offense of cornering public markets. It then summarizes post–World War II economic development and policies in Taiwan, including the relevancy of constitutional provisions and emergency economic legislation. It shows that Taiwan’s Fair Trade Law was enacted amid economic liberalization and political and social reforms. The article then addresses the aim of promoting consumer welfare and other nonefficiency goals, concluding that Taiwan’s experience, including how it has struggled to outgrow the fairness fever, has ramifications for other Asian economies following the development state model, including China.

October 17, 2012 | Permalink | Comments (0) | TrackBack (0)

Antitrust for High-Tech and Low: Regulation, Innovation, and Risk

Posted by D. Daniel Sokol

Ron Cass, Center for the Rule of Law, Cass & Associates, PC, Boston University School of Law explores Antitrust for High-Tech and Low: Regulation, Innovation, and Risk.

ABSTRACT: Severe limitations on antitrust enforcement officials’ knowledge and the potential impact of ill-advised investigations and prosecutions on markets suggest that officials should exercise extraordinary caution in enforcement of restraints on single-firm conduct. Although it is common to depict antitrust enforcement as protecting market competition while other forms of regulation are seen as intrusions (justifiable or not) into market operation, antitrust enforcement has characteristics and risks similar to other forms of regulation. Indeed, government antitrust enforcement can be especially problematic, as it requires discretionary selection among an extraordinary range of possible targets, imposes significant burdens on companies that are under investigation or subject to suit, invites efforts by individual firms to motivate officials to deploy resources against rivals, and can seriously disrupt competition among firms. Antitrust authorities need to exercise special care in making enforcement decisions respecting conduct of individual dominant firms in high-technology industries, where antitrust enforcers’ abilities to understand and predict industry evolution are most limited and where enforcement actions are most likely to rest on debatable predicates about the effects of specific conduct.

Critically, market boundaries that so often are taken for granted as setting the proper framework for evaluating effects of a leading firm’s conduct frequently fail to capture the most important sources of competition for the firm, which in many industries (including many high-technology industries with strong network effects) are dynamic and involve potential replacement of the technology that is associated with the government’s market definition. This has led to ill-advised enforcement initiatives which have dramatically burdened the target companies (even at the formal investigation stage) and has prejudiced market development without compensating benefits to consumers. Further, while network effects can establish or sustain dominance within a narrowly defined market, network effects also can have just the opposite effect: they can be the reason that a firm’s dominance comes to an end, as the success of a dominant firm is a spur to investment in competing technologies, including technologies that can replace the currently successful product or service.

At a time when companies publicly identified as potential antitrust enforcement targets include a very large number of leading high-technology firms (among them, Facebook, Apple, Google, IBM, AT&T, Microsoft, and Intel), it is important to look critically at prior enforcement efforts predicated on similar theories. This article examines government enforcement decisions respecting four prior targets and draws lessons for enforcement going forward.

October 17, 2012 | Permalink | Comments (0) | TrackBack (0)