The Problem of Antitrust "nostalgia": Market Definition, Barriers to Entry, and Network Effects in High-tech Markets

Geoffrey A. Manne (International Center for Law & Economics)
Pinar Akman (University of Leeds School of Law)

Abstract: All platforms are not created equal. And the first key to properly assessing competitive effects in high-tech platform markets is to do so in a manner that takes account of actual competitive dynamics. Among other things, this means taking account of complex and shifting markets, actual competitive constraints, the unique consequences of network effects, the role of data and advertising, and other important at-tributes of high-tech, online, platform competition. Accommodating today’s high-tech markets in antitrust enforcement does not necessitate a wholesale overhaul of well-established legal and economic principles of antitrust. But it does require a shift in the understanding of the nature of competition to ensure that those principles further, rather than impair, social welfare. The most significant risk confronting antitrust enforcers, courts, practitioners and scholars today is the use (and potential abuse) of standard antitrust tools to overly preference the status quo, which is unlikely to be optimal — least of all in high-tech industries characterized by rapid and jarring change. As our paper will discuss in detail, too often it is some kind of change from established practice that precipitates antitrust complaints and undergirds enforcement. But in high-tech industries, change is the hallmark of competition. Moreover, it is precisely in the situation of allegedly anticompetitive innovation (i.e. change) that intervention may be more likely, despite being exactly what we want and expect from competition. This is the “nostalgia bias” in antitrust. Antitrust is (often) too quick to hold that because a practice has benefited competition before, changing it will harm competition going forward. Paradoxically, excessive concern for the quite-possibly costly, static effects of innovation — business model change, product design change, price change — on current users or competitors can harm welfare overall.

Download the paper