INTEROPERABILITY AS A COMPETITION REMEDY FOR DIGITAL NETWORKS

41 Pages Posted: 22 Mar 2021

See all articles by Fiona M. Scott Morton

Fiona M. Scott Morton

Yale School of Management; National Bureau of Economic Research (NBER)

Michael Kades

Washington Center for Equitable Growth

Date Written: March 19, 2021

Abstract

In this article we argue addressing entry barriers created by network effects is critical to remedying a monopolization violation in a social network market (e.g. Facebook). For a social network, interoperability is likely a necessary, but not necessarily a sufficient, condition for an effective remedy. Mandatory interoperability based on robust and effective rules could overcome the network effects that protect the incumbent from entry, maximizing the potential for new entrants to enter at minimal cost, compete in the market, and take share from the incumbent. This remedy could be ordered in addition to other relief such as a divestiture, and indeed could be complementary to it, or stand on its own. In today’s internet-based network markets, interoperability carries no incremental costs such as dedicated wires and machines that were true of the telecom interoperability of past decades. Its main cost is the establishment of an open standard to exchange commonly used functionalities (e.g. text, images) of social networks. If this remedy were ordered by a court after a finding of antitrust liability, the standard should be overseen by an agency to ensure it serves to protect competition, lower entry barriers, and erode market power. Entrants who wish to interoperate with the incumbent could demonstrate adherence to privacy and security standards and receive royalty-free licenses.

Keywords: interoperability, monopolization, digital platforms, social networks

JEL Classification: L41, L51

Suggested Citation

Scott Morton, Fiona M. and Kades, Michael, INTEROPERABILITY AS A COMPETITION REMEDY FOR DIGITAL NETWORKS (March 19, 2021). Available at SSRN: https://ssrn.com/abstract=3808372 or http://dx.doi.org/10.2139/ssrn.3808372

Fiona M. Scott Morton (Contact Author)

Yale School of Management ( email )

New Haven, CT 06520
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Michael Kades

Washington Center for Equitable Growth ( email )

Washington, DC
United States

HOME PAGE: http://https://equitablegrowth.org/

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