ric Biber, Sarah Light (Berkeley), J. B. Ruhl, and James Salzman (UCLA) “Regulating Business Innovation as Policy Disruption: From the Model T to Airbnb” (2017) 70 Vand. L. Rev. 1561

The argument of this paper – which can be found here – is straightforward: scholarship about the platform economy has been ahistorical; focusing on the immediacy and novelty of the platform economy misses the fact that its interaction with the legal system does not raise fundamentally new questions from a law and policy perspective. From a business or economic perspective, history is full of technological and management advances that fundamentally disrupted business models over a brief period of time. This is not to say that current developments do not pose challenges to public policy. Regulatory policy generally—even necessarily—presumes a certain kind of organizational model for the activities that it regulates.  When business innovation upends that pre-existing model, the result is a disjunction between the structure of the regulatory system and the industry that is being regulated: a policy disruption. This has occurred in the past. Debates over whether and how the regulatory system should adjust to the rise of platforms…

Kenneth A. Bamberger and Orly Lobel ‘Platform Market Power’ (2018) 32 Berkeley Tech. L.J. 1051

In this paper – which can be found here – the authors seek to develop a framework for considering the market power of platform companies that use digital technology to connect a multisided network of individual users. Throughout, they use Uber as an example.  The framework identifies a number of questions that may be helpful in assessing whether a platform has market power. The first question one should ask is whether the success of a platform is a result of innovation or of undesirable regulatory arbitrage. The authors argue that understanding the net impact of digital platforms requires careful inquiry into the gains arising from the entry of platforms into mature markets and their disruption of staid industries; and to the harm they may pose to regulatory protections set out to protect valuable social goods. This means that antitrust law cannot be asked to answer – as it has been asked to do by some authors – questions of regulatory…

Peter Menell  ‘Economic Analysis of Network Effects and Intellectual Property’ in Ben Depoorter & Peter S. Menell (eds.), Research Handbook on the Economics of Intellectual Property Law: Vol I. Theory (2018)

This piece – which can be found here – is a rather long , but very comprehensive book chapter that surveys and integrates the economic, business strategy and legal literatures on IP, competition and network effects. It is structured as follows: Part I introduces network effects. I have done this to death in the past, so I’m not going to repeat it here. Suffice it to say that the author looks mainly at demand side network effects, and what its implications are for IP and competition policy: ‘In a static economic model (i.e., one without innovation), consumers benefit from robust competition within product standards. Open access to product standards encourages realization of network externalities. Although bandwagon effects can enhance consumer welfare in a static context, they can also make it more difficult for developers of improved platforms to enter the market. Consumers and suppliers of complementary products can face significant switching costs in migrating from one platform to another.’ Like…

David Evans and Richard Schmalensee ‘Network Effects: March to the Evidence, Not to the Slogans’ (2017) Antitrust Chronicle

The basic position of this paper – which can be found here – is that: ‘Competition authorities (…) with support from some dismal scientists, saw the dark side of network effects. Firms could rig the race to become the winner and thereby “tip” the market to make themselves monopolies. And even if a firm won fair and square, network effects would result in insurmountable barriers to entry and would be the font of permanent monopoly power. (…) A recent argument in this debate is that online platforms have troves of data that make network effects even more potent. Unfortunately, this view of network effects evolved from a seminal economic contribution to a set of slogans that don’t comport with the facts.” A first section looks at the economics of networks. This covers the origins of theoretical studies on this topic – which focused on telephone networks and fax machines, and standard-tipping (i.e. the VCR-BetaMax war). Theoretical refinements to the theory…

RBB Brief 54 ‘An innovative leap into the theoretical abyss: Dow/DuPont and the Commission’s novel theory of harm’

This paper contradicts the paper below. It describes how, in Dow/DuPont, the Commission  adopted an innovation theory of harm that is based on a much broader concern than before: namely, that the parties would find it profitable to reduce overall R&D investments post-merger, causing a reduction in the number of innovative pesticide products (as yet unidentified) at some unspecified time in the future.  It then describes the old approach of the Commission, which was concerned with late stage pipeline products. It notes that the assessment of: “a pipeline product (for which practically all the innovation work has been done) and an existing product is substantively no different to the assessment of a merger between two already existing products. In both of these cases, the concern is that the internalisation of the constraint between the rival products may give the merged entity an incentive to increase prices or reduce output, perhaps even discontinuing one of the products altogether to avoid cannibalisation of…

Giulio Federico, Gregor Langus, Tommaso Valletti “A simple model of mergers and innovation” (2017) CESifo Working Paper Series 6539, CESifo Group Munich

This paper, while simple, has some significant (and charged) conclusions. They purport to demonstrate that: (i) merging parties always decrease their innovation efforts post-merger while outsiders to the merger respond by increasing their effort; (ii) a merger tends to reduce overall innovation; (iii) consumers are always worse off after a merger; (iv) the model calls into question the applicability of the ‘‘inverted-U’’ relationship between innovation and competition to a merger setting. The argument goes as follows: A merger between competitors affects the incentives to innovate through two channels: (i) the first channel relates to the (negative) externality that innovation by one firm has on its rival firms. A merger allows the merging parties to partially internalize this innovation externality and thus it lowers the incentives to innovate for the merged firm; (ii) the second channel relates to product market competition. This is relaxed after the merger so that profits increase both when firms do and do not innovate. A highly stylized…

Wolfgang Kerber and Benjamin R. Kern ‘Assessing Innovation Effects in US Merger Policy’ (2016) Journal of Industry, Competition and Trade 16(3) 37

This paper presents the results of a (quantitative) empirical study on how the US antitrust authorities assessed mergers in regard to their innovation effects from 1995 to 2008. It is structured as follows: Section 2 contains a brief overview of the theoretical and empirical literature in economics about innovation effects. The particular characteristics of innovation processes – which lead to the unpredictability of outcomes arising from innovation processes, and the possibility that important (even revolutionary) innovations can emerge entirely unexpected from anywhere – have raised the question of whether policy-makers have enough knowledge about the determinants of innovation to adopt policy instruments for promoting innovation. The paper also covers the Arrow-Schumpeter-Aghion debate on the relation between competition and innovation, which I am not going to repeat here. More interestingly, the authors review the model-theoretic literature about the relation between competition and innovation, and distinguish between different groups of models. In the first group of modles, the innovation incentives of firms are…

Rachel Brandenburger, Logan Breed and Falk Schöning ‘The Role of Innovation in Merger Control’ (2016) CPI July (1)

This paper argues that role of innovation in merger control is a hot topic because “recent statements and enforcement actions on both sides of the Atlantic reflect the agencies’ growing emphasis on innovation in their merger investigations and decisions”. The paper provides an overview of these developments. The paper begins by providing an overview of the context in which this increased focus on innovation is taking place. First, because technological development is now fundamental to business success in so many industries, assessing the impact of mergers on innovation now plays a key role in merger control. Second, innovation is at the heart of wider policies, such as the “Europe 2020 strategy” and the US’ “Strategy for American Innovation”. The paper then moves to the more interesting topic of how innovation has been taken into account in practice by enforcement agencies. In Europe, the European Commission has focused on the effects of a merger on innovation in a number of decisions…

Herbert Hovenkamp ‘Antitrust and Information Technologies’ 2017 Fla. L. Rev. 68 419

This is a polished version of a lecture given by Hovenkamp last year, and it can be found here.  As the name indicates it provides an overview of “the relationship between competition policy and the technologies of information.” A first section looks at the relationship between digital technology and market power. In particular, digital technology affects the way firms exercise market power and also creates serious measurement difficulties. A pervasive problem in analysing power in digital markets is that sellers typically have a very high ratio of fixed to variable costs. This entails that prices must be considerably above short-run marginal cost to be profitable. As a result of this, many traditional measures of market power produce unacceptable false positives. These measures include the Lerner Index and other tools derived from it, but are not limited to them: “None of the antitrust tools for assessing power is particularly sensitive to the presence of fixed costs”. He thus concludes that antitrust…

Angela Daly ‘Beyond Hipster Antitrust:  A Critical Perspective on the European Commission’s Google Decision’ (2017) European Competition and Regulation Law Review 1(3) 188

The argument of this article – which can be found here – is straightforward: “competition law as it stands is not well-equipped to address (all of) the problems a very large concentration of private power such as Google poses to Internet users. However, unlike the ‘antitrust hipsters’, it is argued that reform to competition law is insufficient – other areas of law and regulation may be more appropriately employed to ensure user autonomy in these circumstances.” The paper begins with an extremely cursory analysis of the Commission’s decision in the Google case. Since the decision is not yet published, the paper relies on comments from the Competition Commissioner that there was an abuse because Google: “promoted its own comparison shopping service in its generic search results, and demoted the results of its competitors, with the effect that competitors were ‘denied… the chance to compete on the merits and to innovate’ and European consumers were ‘denied… a genuine choice of services…