Chillin'Competition

Nicolas Petit’s new book, Big Tech and The Digital Economy – The Moligopoly Scenario, brings a fresh perspective to the discussions of tech giants. It is a lively, provocative read. In mapping the literature on big tech and antitrust in 2004 (“Article 82 EC and New Economy Markets”, in Competition, Regulation and the New Economy, Graham and Smith eds), I drew two ideal types among the scholarship: the neo-structuralists and the neo-Schumpeterians. In reading Nicolas’ book, I see the neo-structuralists are still holding strong – plus ça change!  The book challenges this camp, but Nicolas goes beyond the debate on the need for more or less antitrust. He firstly tries to diagnose what makes big tech special (they are moligopolists). Secondly, having diagnosed the issues, he asks how to calibrate antitrust in moligopoly markets. My comments are mostly about the second contribution, but let me share a couple of thoughts first about the economic reconstruction.

Moligopoly

The book shows, by reference to evidence like SEC filings, that tech giants feel they are in competition in spite of their size and market shares. Moreover, output, revenue and cost data suggest that they do not seem to behave like monopolists, which makes the case for a deeper reflection on their nature. I have two issues with these premises: the first is that it might have been interesting to see if the SEC filings of firms who confess to holding monopoly power would read any different. One firm that admitted holding a monopoly is 3M (in Le Page v 3M) so this might have been a nice comparator to test the validity of using the SEC filings. The second observation is that tech giants are active across a range of antitrust markets, so they might hold monopoly power here but not there. This  might explain why the firm as a whole feels under competitive pressure in markets where it does not dominate. And this is where the book lands on the term moligopoly: the tech giants hold ‘near monopoly positions in distinct product segments, markets or industries’ but they also ‘compete against each other or against non-big tech firms, either known or unknown to them.’ (p.151) Competition is not in the markets which they have caused to tip. Instead, they explore new markets, which may yield unexpected competitive clashes. For example, upon entry Netflix was competing against Blockbuster, now perhaps its rival is Amazon.

But then the question arises whether moligopolists are only found in digital markets.  For example, aren’t big pharma similar? Most have a handful blockbuster drugs that they make most of their profits from. They compete aggressively in developing treatment for other drugs, largely against each other. In other words, the economic reconstruction is attractive, but it might have been useful to compare big tech with other businesses or economic sectors. This might sharpen understandings of what is so distinctive about big tech that it  requires tailor-made rules.  My sense is that technology markets might well have some unique features, but not so unique as to require a new economic or legal paradigm, nor dedicated antitrust rules.

Antitrust intervention in moligopoly markets

The second contribution is to explore how antitrust should apply. Nicolas distinguishes between markets that big tech have conquered (tipped markets) and markets that are not tipped. Antitrust enforcement should be ‘stricter’ in tipped markets and ‘moderate’ in untipped markets (p.186). I skip here his discussion about why antitrust is not suited to handle privacy, hate speech and fake news largely because I agree that these are issues best solved by regulation. Unless one subscribes to the view that competition law is, to paraphrase the late Karel van Miert (for the millennials: Commissioner for competition 1993-1999), the can-opener for regulation.

Antitrust in tipped markets

For tipped markets the aim seems to be to control monopoly rents and three options are canvassed. (i) Direct control of monopoly rents (i.e. expanding the prohibition on excessive pricing) is discussed but dismissed. (ii) Tinker with the two-sided nature of most digital markets to reduce the share of output going to the monopoly firm. Two options are discussed. One is to allow horizontal cooperation on one side of the market to reduce the monopolist’s rent extraction there (on analogy with BMI v CBS). This is worthwhile perhaps, but how is this stricter enforcement? And how to implement it? Should the French competition authority encourage publishers to collude to demand that Google pay for snippets instead of forcing Google to negotiate with each publisher? The other suggestion is to apply strict antitrust law on the other side of the market, but this is puzzling because one would expect antitrust to apply against the platform, not the parties on either side of it. (iii) Finally, another suggestion is to sharpen the approach taken by the Commission when considering MFN clauses, by focusing on limiting monopoly rents. This last proposal draws on Apple v Pepper. However, Apple v Pepper is at its heart a case about exclusion. The theory of harm in monopolization cases is that the defendant excludes rivals to the app store in order to be able to raise prices, while the proposals in this book are about containing the rents of the tipped market actor. So, it would have been interesting to see how the author would have constructed the theory of harm on similar facts to those being litigated in Apple v Pepper. The bottom line on this segment of the book is that there is not that much by way of strict enforcement against dominant firms in tipped markets. I take the point that one wants to be careful about retaining efficiencies and the problems of securing effective remedies, but the proposals don’t really create an enforcement agenda that empowers competition enforcers. If we want to reduce rents in tipped markets, then some more effective means are needed. Unless antitrust comes to the rescue, we might see policy space for the bottleneck regulation that the Commission is currently contemplating.

Antitrust in untipped markets

There is even less antitrust intervention recommended here. Indeed, while the Commission in Google Shopping holds that ‘equal opportunity’ justifies intervention against the incumbent, according to Nicolas ‘incumbent firms should deserve equal opportunities to indirect entry.’ (p.206) The norm, which is in line with the view taken in this book, is that everyone should try and enter and develop new markets. That said, a standard for intervening is suggested. Although, this seems to be restricted to defensive leveraging (i.e. a setting where the firm dominating the tipped market enters the untipped one to protect its monopoly rents). In a case like Google Shopping the analysis proposed would go like this: (i) is Google leveraging from search to comparison shopping? (yes); (ii) is Google foreclosing the comparison shopping market (yes, if this is the right market to define); (iii) is the comparison shopping market challenging the monopoly in the tipped market (no); (iv) is Google’s entry in the comparison shopping market cheap exclusion (no since it’s still in operation). This is a pretty tough test. Its justification is that this prevents over-enforcement. However,  I wonder if, when one is concerned about that, it may be preferable to afford the dominant firm a proper efficiency defence rather than ramp up the burden of proof on the plaintiff to impossibly high levels. Otherwise, we might end up in a position like in the US where the concern about the misuse of antitrust by private litigants led the courts to narrow down liability standards. If the problem is rapacious plaintiffs then one should tackle that at the source, not by incapacitating even well-meaning enforcement.

There is obviously much more to this enjoyable book, which merits attention for the rich methodological diversity and the counter-intuitive suggestions that the research approach yields. It is highly recommended – you’ll learn something and be asked to think differently.