The Antitrust Revolution: Economics, Competition, and Policy

By John E. Kwoka Jr.; Lawrence J. White | Go to book overview

The Economic
and Legal Context

The concepts of “network economics” and “network effects” are relatively new for microeconomics, and antitrust legal decisions have just recently begun explicitly to take them into account. But networks themselves—e.g., telephone, rail, pipelines, electricity, broadcasting, even highways—have been around for far longer. The economic issues that they raise—economies of scale, strategic uses of assets, refusals to deal, etc.—also have long histories, and they arise in many other contexts described in other parts of this book. Because of those other contexts, antitrust has had to confront network issues—often described in other terms—for a long time as well.1

We will first address the economics of networks and then the relevant antitrust law.


ECONOMICS

Some Basic Concepts

Technically, a network is a set of nodes connected by links. Because this definition does not convey much intuition some diagrams and examples will surely help.2

A Simple Network. Figure IV-1 portrays a simple “star” or “hub-andspokes” network. The outer nodes (A,B,C, etc.) are all connected to each other through a central node S.3 Examples of networks that look approximately like Figure IV-1 include:

1In addition to antitrust, many networks are subject to direct regulation of various kinds, often as a
policy response to the kinds of features of networks that are discussed in the text below. See White
(1999).

2Overviews can be found in Economides and White (1994), Katz and Shapiro (1994), Besen and
Farrell (1994), Liebowitz and Margolis (1994), Economides (1996), and White (1999).

3A star is not the only possible configuration of a network. It could also be circular (e.g., some local
computer networks; the highway “beltways” or “rings” around major cities) or all-points-
connected (e.g., a local street grid in a city; “ham” radio connections). See White (1999).

-414-

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