Chillin'Competition

I have finally read the report jointly issued by the Autorité de la Concurrence and the Competition & Markets Authority on the economics of open and closed systems and published about a month ago. The topic is exciting, the timing ideal and the initiative itself most interesting for several (both substantive and institutional) reasons. It remains to be seen whether joint action of this kind will become more frequent in the years to come.

The report seems to be broadly in line with consensus positions. Both relatively open (say, Android) and relatively closed (say, iOS) systems can have pro- or anticompetitive effects depending on the circumstances. As a result, there is no reason, from a competition law standpoint, to favour one over the other, or to seek an allegedly optimal level of openness. The fact that the report restates these commonly known principles does not make it any less interesting or relevant. Well-established positions tend to be forgotten all too often, and it is reassuring that two leading authorities embrace them publicly.

My only criticism (admittedly an incredibly unfair one!) of the report is that it is too abstract and avoids the use of concrete examples. When it is said that prohibiting closed systems could lead to substantial efficiency losses, advocates of open systems tend not to take the warning very seriously. Efficiency, when dealt with as an abstract concept, seems to be inherently suspicious and as such can be disposed of very easily. ‘Who wants efficiency when you can have freedom?’ has become a fairly frequent argument, even in published work.

It is only by referring to concrete examples that a discussion about these matters becomes meaningful. Apple launched its iPhone as a relatively closed system. It was even more closed in the early days than it is now – remember that Apple preferred to offer the phone through a single mobile provider in each country. It would be difficult to deny that the iPhone and the revolution in mobile telephony to which it gave rise have been immensely beneficial for consumers and society as whole (and please note that this statement comes from a never-ever-Apple person!).

Cable television was created as a closed system (something that was deemed problematic during the 1970s in the US). We may never have witnessed the dawn of a new ‘golden age’ in television if network providers had been prevented from keeping tight control of content. HBO was not created as a stand-alone venture, but at the initiative of a cable operator that wanted to attract subscribers to its system. The phenomenal growth of satellite pay television in countries like the UK during the mid-1990s owes much to the integration between the two activities.

Now that the battle seems to have been lost forever in the context of telecommunications regulation – net neutrality without a compelling theory, I am afraid, is here to stay – we can only hope that competition authorities do not fall into the trap of making sweeping assumptions or favouring across-the-board remedies. This is a risk that I have already identified in some of my pieces. I see a worrying tendency to assume – both in abuse of dominance and in merger cases – that the creation of a ‘level playing field’ in vertical settings is by definition conducive to more competition and innovation. This is not necessarily the case, and, as I say above, the report is a fine reminder that things are far more complex in practice.