Testimony on Competition in the Evolving Digital Marketplace Before the Subcommittee on the Courts and Competition Policy, US House of Representatives

Abstract:     
Given the link between innovation and economic growth, the stakes of “getting it right” in high-tech antitrust are high. Caution and humility are warranted in light of both the historical hostility towards innovative business practices by competition policy as well as the large gaps of empirically-validated theory in the economic literature on competition and innovation. The traditional problem of identifying and distinguishing pro-competitive from anticompetitive conduct faced by enforcers and courts in all antitrust cases is a difficult one. But those difficulties are exacerbated in innovative industries. Both product and business innovations involve novel practices, and such practices generally result in monopoly explanations from the economics profession followed by hostility from the courts (though sometimes in reverse order) and then a subsequent, more nuanced economic understanding of the business practice usually recognizing its pro-competitive virtues. This sequence and outcome is exactly what one might expect in a world where economists’ career incentives skew in favor of generating models that demonstrate inefficiencies and debunk the economics status quo, while defendants engaged in business practices that have evolved over time through trial and error have a difficult time articulating a justification that fits one of a court’s checklist of acceptable answers. From an error-cost perspective, the critical point is that antitrust scrutiny of innovation and innovative business practices is likely to be biased in the direction of assigning higher likelihood that a given practice is anticompetitive than the subsequent literature and evidence will ultimately suggest is reasonable or accurate.

Number of Pages in PDF File: 9

Keywords: antitrust, competition policy, congressional testimony, digital marketplace, google, apple, microsoft, privacy, monopolization, mergers, vertical integration

JEL Classification: K21, L41, L42

working papers series