David Evans ‘The Economics of Attention Markets’

This paper – which can be found here – describes the fundamental economic features of the markets where attention platforms acquire time from consumers, and then sell access to that time to advertisers who want to deliver messages to those consumers – and introduces an economic framework that should assist in the application of competition law in these markets. It is structured as follows: Section II introduces an economic framework for analysing the allocation of time by consumers, which is one of the main competitive vectors in certain platform markets. It begins by describing the amount of time that American consumers spend consuming content on ad-supported media. It then relies on the economic theory of household production to analyse the value to consumers of the time they spend on such media. In the basic model, people derive utility from a range of household activities, each of which consists of a combination of market goods and time spent on them. People…

Nicolas Petit ‘Technology Giants, the Moligopoly Hypothesis and Holistic Competition’

The gist of the argument in this paper – which can be found here – is intriguing, and plausible: tech giants do not compete within itemized relevant markets where they are monopolists. Instead, they are conglomerates that compete three-dimensionally as oligopolists across industries, which is what the author meant by a moligopoly. This blindness of antitrust to competition across markets is likely to lead to mistakes, and should be rectified. The paper is structured as follows: Section I sets out the moligopoly hypothesis and tests it by reference to empirical data. The author begins by reviewing how the competition law literature’s default position is to characterise the tech giants as dominant firms. Competition law focuses on one industry segment – i.e. a “relevant market” – where the investigated tech giants often enjoy unassailable clout, and where substitution by actual or potential rivals is unlikely. For example, Google’s competitive stronghold is search, Apple’s core is its unique ecosystem, Facebook’s moat is…

David Evans  ‘Why the Dynamics of Competition for Online Platforms Lead to Sleepless Nights but Not to Sleepy Monopolies’

This paper – which can be found here – makes more use of the dismal science than the paper above, but makes a similar point: claims that online platforms have secured permanent monopolies protected by barriers to entry arising from network effects and stockpiles of data are inconsistent with economics, the technology literature, and the history of online competition. The paper is structured as follows: Section I provides an Introduction. It notes that: “The record is replete with forecasts, soon proved wrong and then forgotten, that winners that took all, or most, were unbeatable’. Furthermore, there are four reasons why comparison to old staid corporate giants is unsuited to online platforms. First, turbulent waves of disruptive innovation have constantly shaken the business models of platform leaders and opened new avenues for entry and competition since the dawn of the digital age. Second, online platforms pegged as leaders in one area compete with each other in many other areas. They identify…

Stefan Holzweber ‘Market Definition for Multi-Sided Platforms: A Legal Reappraisal’ (2017) World Competition 40(4) 563

The article – which can be found here – seeks to analyse, from both an economic and a legal perspective, how relevant product markets for multi-sided platforms are defined under  European competition law. It starts from the premise that delimiting the relevant product market in the context of multi-sided platforms is a particularly delicate and complex task. This is because well-established economic approaches for defining product markets were not designed to deal with  multi-sided platforms, which address at least two distinct groups of customers. The paper further argues that multi-sidedness can be considered a question of degree. Therefore, for the purpose of using standard concepts of market definition, it is necessary to distinguish between different types of multi-sided platforms – the stronger the indirect network effects involved, the more the market definition will deviate from traditional approaches. The paper is structured as follows: Section 2 puts multi-sided platforms in an economic context, building on the literature on network effects. These…

Richard Ward ‘Testing for Multisided Platform Effects in Antitrust Market Definition’ (2017) University of Chicago Law Review 84 2059

The paper – which can be found here – begins by observing that, if the relevant market is defined as including all sides of the platform, this creates a broader space of allowable trade-offs between pro- and anti-competitive effects than if the definition encompasses fewer sides. Thus, it matters crucially to case outcomes whether and how courts incorporate “multi-sidedness” during market definition. This paper suggests an approach that courts should follow when making such decisions. Part I explores the challenges inherent in market definition. First, it outlines how the US case law requires market definition in antitrust analysis, and describes how this case law structures market definition analyses. Second, the practical difficulties of pursuing market definition exercises in practice are explored. Part II addresses the added challenge of deciding whether a relevant market should comprise all, some, or no sides of the platform. It describes the economic approach to multisided platforms – which I will not focus on here, because…

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…

Paul Bates ‘Network effects, antitrust, and falsifiability’ (2017) Journal of Antitrust Enforcement 5(3) 341

This  (short) piece – that can be found here – makes a rather straightforward argument: as competition law confronts new business models enabled by new technologies, it is important to advance theories of harm that are scientific – in the Popperian sense that they must be drawn in such a way as to allow one to demonstrate that the theory might be wrong (or, as the technical jargon puts it, falsified). The paper begins with a description of network effects, before describing how quality is at the heart of a number of cases concerning digital platforms. network effects mean that increased concentration – and reduced competition – may improve the perceived quality of the product. This leads to a heretical question: ‘should we relax antitrust enforcement when network effects are strong? (…) as big data and network effects become more common in the economy, competition enforcement should become less aggressive so as to allow the benefits of network effects to…

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…

Cento Veljanowski “Credit Cards, Counterfactuals, and Antitrust Damages” Journal of European Competition Law & Practice (2018) 9(3) 146–160

This paper – which can be found here – provides an overview of the UK MasterCard litigation. Mr. Veljanowski is likely very well placed to discuss this:  he was one of the two economic experts involved in a case recently decided by the CAT on the matter. He also seems to publish a paper about every court decision concerning the MasterCard litigation (see my post of 24 March 2017, regarding the Arcadia v MasterCard case). The paper begins with a quick overview of the MasterCard litigation. As a result of the European Commission’s MasterCard decision, there are currently about 25 separate standalone and follow-on retailer actions making their way through the English courts concerning MasterCard and Visa’s card systems’ interchange fees. The first decision in these cases was adopted by the CAT last year (Sainsbury v MasterCard). The second one was the Arcadia v MasterCard case I posted about on 10 February. There are also more recent decisions by the…

Niamh Dunne ‘Competition Law (and its Limits) in the Sharing Economy’ Forthcoming, Nestor Davidson, Michèle Finck and John Infranca (eds.), Cambridge Handbook on Law and Regulation of the Sharing Economy (Cambridge University Press)

As the title indicates: ‘This contribution (which can be found here) considers the potential application of competition law—specifically, the ‘antitrust’ rules governing anticompetitive unilateral or coordinated conduct—within the sharing economy.’ The sharing economy is described as a sector marked by recurrent characteristics, such as: (i) its underlying economic rationale is the under-utilisation of durable goods or other assets, which generates excess capacity that can be rented out; (ii) sharing economy businesses provide classic examples of ‘disruptive’ innovation, which originates outside a value network and displaces it; (iii) the innovations that underpin the sharing economy are rooted in the internet and mobile technologies; (iv) sharing economy businesses are often platforms in multi-sided markets; (v) sharing economy firms frequently conflict with regulatory regimes that control and limit the activities of competitors, resulting in recurrent critiques that such competition is inherently ‘unfair’. The paper is structured as follows: Section II examines how prohibitions against anticompetitive unilateral conduct may apply to the sharing economy. It begins…