Academic journal article Vanderbilt Law Review

Antitrust in Digital Markets

Academic journal article Vanderbilt Law Review

Antitrust in Digital Markets

Article excerpt

Introduction

At the turn of the millennium, the antitrust enterprise underwent an intense bout of soul-searching. This introspective turn was prompted by the high-profile litigation against Microsoft in the united States, one of the earliest instances of antitrust law being used to target strategic conduct in a digital market.2 Was antitrust doctrine-developed primarily in a bygone era of smokestack industries-appropriately designed for the digital age?

In a widely influential essay published in 2000, Richard Posner provided what became the consensus view: "[A]ntitrust doctrine is supple enough . . . to take in stride the competitive issues presented by the new economy."3 Even so, he argued, the risk of false positives dictates a hands-off approach to digital markets.4 Posner's position, in other words, was that digital markets are not novel enough to warrant explicitly different antitrust rules, but are novel enough to warrant unusually defendant-friendly treatment.

No explicitly different rules for digital markets emerged in subsequent years,5 and there is widespread agreement that none are needed.6 Of course, analysts continue to take the unique characteristics of each relevant market into account on a case-by-case basis.7 But the rules themselves do not (in theory, at least) vary based on the type of market at issue.8

Posner's preferred pro-defendant position also became the order of the day. Since the U.S. Court of Appeals for the D.C. Circuit issued its Microsoft III decision in 2001, the United States has experienced a near-total lack of antitrust enforcement in digital markets.9 The general consensus seems to be that power in digital markets will be rare and fleeting, and that enforcement efforts would entail a prohibitively high risk of chilling innovation.10

But is the consensus correct? Or are digital markets fundamentally different, such that different rules are appropriate? Moreover, even if antitrust rules are "supple enough" to address digital markets, is purposefully lax enforcement an effective means of promoting the goals of antitrust law?

Today, antitrust doctrine finds itself again confronting a "new economy." The concerns about desktop computer operating systems that motivated the Microsoft litigation appear ever more quaint. Computers are vastly more capable, yet can now fit into users' pockets and be worn as bracelets or eyeglasses.11 Software is increasingly delivered as a service, rather than installed as a product.12 Is antitrust doctrine "supple enough" to address manipulation of search results?13 Algorithm-based collusion?14 Markets without prices?15 Markets wherein digital data acts as currency,16 a competitive advantage,17 a means of increasing product quality,18 or all three at once?19

This Article contends that digital markets are different, such that they deserve-indeed, demand-unique treatment under the antitrust laws. Three concepts are of primary importance to the institutional design of modern antitrust: power, harm, and efficiencies. In each of these areas, proponents of the status quo have overlooked, ignored, and sometimes distorted reality.

Part I of this Article demonstrates that digital markets facilitate uniquely durable market power, in ways that reach far beyond what previous analyses have imagined.20 Part II develops novel theories of digital-market harm and-proceeding beyond theory-draws on original analysis of dominant firms' investor statements to identify real-world instances in which such harms appear to have occurred.21 Part II also identifies multiple features that render digital markets uniquely susceptible to more familiar types of harm.22 Through examination and application of the extant case law and formal agency guidance, Part III establishes that digital-market conduct tends to lack any significant offsetting efficiencies.23

All of this suggests that the pro-defendant status quo is deeply misguided. The balance of error costs is the inverse of what orthodox analysts previously assumed: false positives are relatively rare and costless, while false negatives are relatively common and costly. …

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