Friday, October 20, 2017

Network effects, antitrust, and falsifiability

Paul Johnson, Canadian Competition Bureau has a paper on Network effects, antitrust, and falsifiability.

ABSTRACT:  In a speech, Paul A. Johnson discussed how network effects may affect competition analysis. Network effects arise when a product’s value to one consumer increases with consumption by others. But competition can fragment a market so that network effects may not be enjoyed. Products that rely on algorithmic analysis of big data and exhibit network effects are growing increasingly important in the economy. In response, should antitrust enforcement become less aggressive so as to allow the benefits of network effects to be enjoyed? This note answers that question in the negative based on a lack of clear consensus in the literature that the benefits of network effects outweigh the benefits of competition. As antitrust confronts new business models enabled by new technologies, the analysis also serves as a reminder of the importance of postulating theories that are scientific in the sense that they can be falsified.

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