8

Competition policy in the information economy

Carl Shapiro


Introduction

The recent monopolization action brought by the United States against Microsoft has galvanized public interest in competition policy as applied to the high-technology sector. Yet the Microsoft case is but one in a series of public enforcement actions, and private antitrust suits, that are determining how antitrust laws will be applied to the information economy. This chapter describes the economic characteristics of information industries, draws out the implications of these characteristics for competition policy, and illustrates how antitrust policy has evolved recently in the United States in the high-tech sector.

Some commentators have suggested that enforcement officials should leave the high-tech sector alone, since it is fluid, experiencing rapid technological change, and by and large displaying vigorous competition. Yet few can deny that pockets of monopoly power remain, usually associated with the control of some information bottleneck: local telephone companies, cable television operators, and Microsoft present themselves as examples, but many more companies enjoy powerful positions, often based on their control over interfaces or standards, if not genuine bottlenecks of network hubs. The leading goal of competition policy in the information economy should be to hasten the erosion of such monopoly power, and to prevent the use of monopoly power to destroy competition in adjacent markets.

This chapter is organized into four parts. The first part offers a strategic guide to the network economy. Competitive strategies in the information economy are distinct from strategies in other sectors of the economy, and competition policy must be attuned to the new strategies that firms are employing. While durable monopoly power has always been rooted in underlying scale economies, the sources of those scale economies, and the resulting barriers to entry, are distinctive in the information economy. Demand-side economies of scale associated with network externalities are especially important in many high-tech markets.

The remaining parts of the chapter explore the three broad areas of antitrust law in the United States: merger enforcement, limits on the ways in which rivals firms can cooperate, and limits on the behavior of dominant firms.

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Competition Policy Analysis
Table of contents

Table of contents

  • Title Page iii
  • Contents v
  • Figures ix
  • Tables x
  • List of Contributors xi
  • Preface xiii
  • Introduction 1
  • Notes 5
  • 1 - Towards a Competitive Society? 6
  • 2 - Competition Law and Policy 20
  • 3 - Competition Policy and Market Dynamics 35
  • 4 - Who Should Be Responsible for Competition Policy in Regulated Industries? 43
  • 5 - Implementation of Second-Best Solutions 65
  • 6 - Competition Policy with a Coasian Prior? 78
  • 7 - The Australian Competition Policy Reforms 87
  • 8 - Competition Policy in the Information Economy 109
  • Notes 130
  • 9 - Regulating Manufacturers and Their Exclusive Retailers 133
  • References 148
  • 10 - Deregulating Norwegian Airlines 150
  • 11 - Resource Allocation by a Competition Authority 165
  • 12 - European State Aid Policy 200
  • Index 239
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