Wednesday, September 30, 2020

Antitrust and Platform Monopoly

Antitrust and Platform Monopoly

 

Herbert Hovenkamp

University of Pennsylvania Law School; University of Pennsylvania - The Wharton School; University College London

Abstract

Are large digital platforms that deal directly with consumers “winner take all,” or natural monopoly, firms? That question is surprisingly complex and does not produce the same answer for every platform. The closer one looks at digital platforms the less they seem to be winner-take-all. We can assume that competition can be made to work in most of them.

Second, assuming that an antitrust violation is found, what should be the appropriate remedy? Breaking up large firms subject to extensive scale economies or positive network effects is generally unwise. The resulting entities will be unable to behave competitively. Inevitably, they will either merge or collude, or else one will drive the others out of business. Even if a platform is not a natural monopoly but does experience significant economies of scale in production or consumption, a breakup will be socially costly. In the past, structural relief of this type has led to lower output and higher prices or business firm failure. Two likely exceptions are acquisitions of small firms that threaten to grow into substantial rivals, and spinoffs of proven natural monopoly assets that may be necessary to assure competition in adjacent markets.

If breakup is not the answer, then what are the best antitrust remedies? Often the best way to deal with platform monopoly is to break up ownership and management rather than assets. Leaving the platforms intact as production entities but making ownership more competitive could actually increase output, benefitting consumers, labor, and suppliers. The history of antitrust law is replete with firms, including the Chicago Board of Trade, the NCAA, the NFL, and numerous real estate boards that are organized as single entities for many legal purposes but that also function as combinations and can be treated that way by antitrust law.

Finally, this paper examines the problem of platform acquisition of nascent firms, where the biggest threat is not from horizontal mergers but rather from acquisitions of complements or differentiated technologies. For these, the tools we currently use in merger law are poorly suited. Here I offer some suggestions.

https://lawprofessors.typepad.com/antitrustprof_blog/2020/09/antitrust-and-platform-monopoly.html

| Permalink

Comments

Post a comment