Chillin'Competition

Now then. Let me come clear on this. I fear this is the first blog I have ever written. Nothing to do with my age, I assure you. There were already personal computers when I went to Uni (just about). But there had to be a first time – there is one for most things, or at least there ought to be. And I am glad that the occasion came in the shape of an invitation to comment on Nicolas Petit’s forthcoming book on his moligopoly theory. Surely, this is a timely book – on the digital economy no less – and written by an author who can be trusted, a household name, so to speak. Surely, there is loads going on about the digital economy. And the book is original and adopts a new, and robust, approach to empirical evidence, building a theory of the boundaries and nature of competition among the big tech based on verifiable market perceptions and assessments rather than abstract models or political positioning. We find a wealth of information in the book about big tech, how the “giants” of the digital economy became what they are now, how they compete against each other and with firms outside the club. We are also presented with operational policy recommendations that are thoughtful and such that they should trigger new research to test their theoretical and empirical bases, their feasibility and their implications. But these are not the main reasons why I enjoyed this book. I will now tell you what they are.

The first is, I guess, that for the first time I have read in Nicolas’ book a theoretically sound explanation of what competition between “ecosystems” means. We have heard the phrase many times – from big tech themselves and from market analysists and pretty much anybody who has a technical or commercial understanding of the digital space – but this has always remained a vague concept. A concept hanging mid-air between the instinctively sound intuition that this is exactly what happens and the equally sound scepticism of the pragmatic lawyer or official, who needs to rely on a verifiable framework to reach conclusions on, say, whether a merger should be cleared or a business model is anti-competitive. Now Nicolas gives us this framework. Competition between ecosystems means that big tech compete in an integrated space that is a combination of a structural monopoly in a core product/service and oligopolistic dynamics in neighbouring or related markets. Hopefully, this framework will give competition authorities the confidence to move away from their static, narrow understanding of market definition to a more holistic and nuanced understanding of the digital space.

The second must be, surely, the reliance on the concept of “competitive pressure” as a guiding principle or, perhaps I should say, a yardstick in the analysis of competition in the digital space. I have always tried to explain market definition to my students as a way to get a first understanding of the short-term (mainly) demand-side competitive pressure on a focal product or service. As such, market definition is part of a continuum that moves on to look at supply-side pressure, both short-term (generally included in market definition, but who cares where you place it, what matters is just that you look at it!), and then moves on to short- to medium-term pressures that include entry, dynamic competition, innovation, and so on. The obsession with the “apples and bananas” approach to market definition may lead to both over-enforcement – seeing monopolies in narrow spaces that make no economic and commercial sense – and under-enforcement. Cases like Facebook/WhatsApp and Facebook/Instagram were not cleared because very perceptive competition authorities saw, researched and established competitive harm but, alas! an antiquated law prevented them from prohibiting the mergers. And so that the law must be changed at all costs and quickly to avoid further harm – as the politicians and their appointees to competition authorities claim louder and louder. Those mergers – and others – were cleared because, assuming, without conceding, that there was harm, the competition authorities did not see it. Did they not see it because they had not understood moligopolistic competition?

The third – and there are many more but I stop here (I am told blogs are short and punchy, you see … ) – is the clear articulation of the idea that competition law cannot enforce rivalry. Data sharing, interoperability and break-ups are likely to be sterile remedies, at best, or, more likely, damaging political stich-ups that will harm consumers, businesses and, ultimately, the economy (these are my words, not Nicolas’!). And also, I always thought that competition law needs to protect rivalry. It is not its job to try and “create” competition. Businesses create competition, not bureaucrats and politicians. Competition authorities are not – or, if they are or think they are … an increasingly real risk – should not be central planners or the long-arms of a dirigiste, illiberal state who has fed to the public opinion the fable that the problems of today’s world are the fault of big tech. My hope is that competition authorities will continue to be – as they have been so far, chapeau! – the bulwark of impartiality, rigour and evidence-based analysis in dealing with that reasonably narrow – but by no means unimportant – set of economic problems that are brought about by restrictions or reductions of competition. My hope is that this book will give them a tool, among others, to do so.