Taking Behavioral Antitrust Seriously: On Default Agreements as Exclusive Dealing and Default Randomization as a Remedy to Promote Competition

54 Pages Posted: 11 Sep 2023 Last revised: 26 Sep 2023

See all articles by Omar Vásquez Duque

Omar Vásquez Duque

Stanford University; Rock Center for Corporate Governance; Stanford University

Date Written: August 22, 2023

Abstract

Antitrust scholarship has tended to stay away from the influx of behavioral economics. However, enforcers, policymakers, and scholars have recently suggested that the high concentration of many digital markets, such as search and advertising, is due in part to the exploitation of people’s inertia. In fact, a theory that has gained substantial traction is that agreements to set an application as its potential users’ default amount to exclusivity arrangements because people tend to stick to the status quo. This theory also suggests that since dominant firms exploit their users’ lack of choice, the best regulatory remedy to restore competition is to force people to choose their defaults.
This work criticizes said theory and its legal implications. This article presents a model of status quo effects that considers people’s decision-making as a dual process. The model predicts that default effects are likely when people pay no attention to their lack of choice, which suggests that user dissatisfaction is a key opt-out trigger. The foregoing prediction implies that (i) default effects are likely when people are relatively satisfied with the default option, (ii) when they are not aware of competing alternatives to the default, and/or (iii) misperceive their quality. This article tests the main model predictions with two experiments conducted on Prolific and a generalized synthetic control analysis with publicly available data.
The primary finding of this study reveals the presence of default effects in digital applications, but with considerable variations in effect sizes, which tend to diminish over time. This work suggests that the strategic use of defaults tends to be a part of a broader anticompetitive scheme, for which a generic monopoly maintenance theory of harm is better suited. Besides, this article shows that the dual process rationale is essential when considering the remedies that judges and regulators should employ to promote competition in digital markets. When there is an application that most users regard as the best of its kind, forcing people to choose their defaults merely leads them to select the dominant alternative. Only default randomization to an option within a set of competing applications may encourage users to experiment with substitutes to the dominant one. This work does not take a definitive position about default randomization, but it identifies the tradeoff policymakers should consider when evaluating it (i.e., monopoly costs vs. mismatches) and suggests assessing its social desirability. Nonetheless, this article argues that making the change of defaults as easy as feasible should be a priority for policymakers. An application specifically designed to facilitate the choice of defaults might provide substantial benefits.

Keywords: default applications, monopolization, experimental law and economics

JEL Classification: K21, L12, D03

Suggested Citation

Vásquez Duque, Omar, Taking Behavioral Antitrust Seriously: On Default Agreements as Exclusive Dealing and Default Randomization as a Remedy to Promote Competition (August 22, 2023). Available at SSRN: https://ssrn.com/abstract=4548662 or http://dx.doi.org/10.2139/ssrn.4548662

Omar Vásquez Duque (Contact Author)

Stanford University ( email )

Stanford, CA 94305
United States

Rock Center for Corporate Governance ( email )

CA
United States

Stanford University ( email )

559 Nathan Abbott Way
Stanford, CA 94305-8610
United States

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