Abstract

http://ssrn.com/abstract=2138254
 


 



Antitrust for High-Tech and Low: Regulation, Innovation, and Risk


Ronald A. Cass


Center for the Rule of Law; Cass & Associates, PC; Boston University School of Law

August 22, 2012

Journal of Law, Economics and Policy, Forthcoming

Abstract:     
Severe limitations on antitrust enforcement officials’ knowledge and the potential impact of ill-advised investigations and prosecutions on markets suggest that officials should exercise extraordinary caution in enforcement of restraints on single-firm conduct. Although it is common to depict antitrust enforcement as protecting market competition while other forms of regulation are seen as intrusions (justifiable or not) into market operation, antitrust enforcement has characteristics and risks similar to other forms of regulation. Indeed, government antitrust enforcement can be especially problematic, as it requires discretionary selection among an extraordinary range of possible targets, imposes significant burdens on companies that are under investigation or subject to suit, invites efforts by individual firms to motivate officials to deploy resources against rivals, and can seriously disrupt competition among firms. Antitrust authorities need to exercise special care in making enforcement decisions respecting conduct of individual dominant firms in high-technology industries, where antitrust enforcers’ abilities to understand and predict industry evolution are most limited and where enforcement actions are most likely to rest on debatable predicates about the effects of specific conduct.

Critically, market boundaries that so often are taken for granted as setting the proper framework for evaluating effects of a leading firm’s conduct frequently fail to capture the most important sources of competition for the firm, which in many industries (including many high-technology industries with strong network effects) are dynamic and involve potential replacement of the technology that is associated with the government’s market definition. This has led to ill-advised enforcement initiatives which have dramatically burdened the target companies (even at the formal investigation stage) and has prejudiced market development without compensating benefits to consumers. Further, while network effects can establish or sustain dominance within a narrowly defined market, network effects also can have just the opposite effect: they can be the reason that a firm’s dominance comes to an end, as the success of a dominant firm is a spur to investment in competing technologies, including technologies that can replace the currently successful product or service.

At a time when companies publicly identified as potential antitrust enforcement targets include a very large number of leading high-technology firms (among them, Facebook, Apple, Google, IBM, AT&T, Microsoft, and Intel), it is important to look critically at prior enforcement efforts predicated on similar theories. This article examines government enforcement decisions respecting four prior targets and draws lessons for enforcement going forward.

Number of Pages in PDF File: 35

Keywords: market definition, high-technology, regulation, innovation, prosecution, dynamic

JEL Classification: D73, K20, K21, K40, L20, L40, L41, L50, L59

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Date posted: August 30, 2012  

Suggested Citation

Cass, Ronald A., Antitrust for High-Tech and Low: Regulation, Innovation, and Risk (August 22, 2012). Journal of Law, Economics and Policy, Forthcoming. Available at SSRN: http://ssrn.com/abstract=2138254

Contact Information

Ronald A. Cass (Contact Author)
Center for the Rule of Law ( email )
9907 Georgetown Pike
Suite 148
Great Falls, VA 22066
United States
703-438-8832 (Phone)
Cass & Associates, PC ( email )
10560 Fox Forest Drive
Great Falls, VA 22066
United States
703-438-7590 (Phone)
703-438-7591 (Fax)
HOME PAGE: http://www.cassassociates.net
Boston University School of Law ( email )
765 Commonwealth Avenue
Boston, MA 02215
United States
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