Dear Readers,
The practice of antitrust law is essentially an exercise in tradeoffs. How does a given practice by businesses benefit consumers? And how does it potentially harm them? Some practices are unambiguous: cartels, for example, produce no conceivable consumer benefit (and depress the economy as a whole). Other practices (particularly involving potential abuses of dominance) involve a more complex analysis of the inherent tradeoffs involved. This is all the more true as the economy becomes increasingly complex (particularly as regards digital markets, and platform businesses). The pieces in this Chronicle analyze the increasingly difficult question of how these tradeoffs should be addressed, with a focus on the digital economy.
Carmelo Cennamo & Juan Santaló begin by setting out the tradeoffs addressed by the EU Digital Markets Act. This piece of legislation makes clear certain choices about important tradeoffs in value to constrain the arbitrary power and dominance of gatekeepers over digital markets and guarantee a more equitable distribution of value with business users. The piece argues that the extent to which those objectives will be realized depend largely on the nature of competition one favors: both the type of competition (within vs. across platform) and the competition dynamics (winner-takes-all vs. differentiation).
Catherine Tucker addresses how platforms create value through a process known as “coring.” Coring refers to steps a digital platform takes to make sure that interactions between different user groups go well, and that as a consequence they wish to return to the platform and use it again. Platforms typically therefore take on a governance role and actively manage interactions between different user groups. The piece discusses two implications of this concept for competition economics: Market definition and the recent Supreme Court Decision in Amex.
Ariel Ezrachi & Maurice E. Stucke discuss how Silicon Valley’s concentration of talent, combined with limited regulation promised a new age of technological innovation in which entrepreneurs would fuel unprecedented job growth, improve overall wellbeing, and address pressing issues. Rather than accepting this narrative, the authors discuss how, instead, in their view,, the leading tech companies design their sprawling ecosystems to extract value (often at the expense of individuals and business users), while crushing entrepreneurs that pose a threat. This essay highlights several important themes from their new book, How Big-Tech Barons Smash Innovation and How to Strike Back.
Similarly, Alexander Raskovich & John M. Yun discuss the economic principle that “there is no such thing as a free lunch.” More formally, any benefit must come at some cost; economic resources must be expended, and someone will have to cover those expenditures. The authors discuss how this principle explains the harms that this principle imposes on society, in particular with respect to the digital economy. Sean F. Ennis strikes a similar note, observing that unfair competition may occur if a competitive outcome is influenced my misled expectations, notably if the company that wins the competition either misled consumers or did not affirmatively correct consumer expectations that were incorrect. The ability to exploit customers whose expectations have been misled is particularly strong for networks that have “tipped.”
Marco Iansiti et al explore how digital recommender systems provide consumers with recommendations across a variety of contexts. While recommender systems generate efficiencies by lowering the cost and improving the quality of product discovery, their impact on individuals’ purchases and consumption has the potential of affecting downstream competition of products and industries. These systems may also present sensitive issues for national security, democracy, and public health. Recommender systems have therefore come under increasing scrutiny from governments around the world in recent years.
Sarit Markovich & Yaron Yehezkel turn to the increasingly important issue of data. Many platforms base their business model on the commercialization of their users’ data. For example, search engines, navigation apps, media streaming platforms, and wearables, such as all base their business models, to varying degrees, on collecting data on users’ activities and preferences. These platforms can then use the data to improve their services, but at the same time, the data can also be used for commercial purposes such as selling it to advertisers or to other third-party providers. This raises the question of who should own the property rights over users’ data? Specifically, who should have the right to decide which data items to collect and which to commercialize?
On a related note, Mikołaj Barczentewicz explores how the EU Digital Markets Act purports to benefit consumers and improve the competitiveness of digital markets, concluding that it is likely to have negative and The pieces focuses on the DMA’s interoperability mandates. Only one of those obligations — on the interoperability of messaging services — is accompanied by a potentially adequate safeguard: a requirement that any third-party service must offer at least the same level of user security as the original service. This is a very demanding standard, which may render the interoperability provision a dead letter for the foreseeable future.
Finally, Rosa Abrantes-Metz & Mame Maloney analyze the competitive interplay of prices among retail channels: offline (brick-and-mortar) and online (such as retailers’ websites and online marketplaces). Their empirical analysis draws from two data sources: a novel hand-collected price dataset, and a national aggregate scanner dataset. The piece finds evidence of a close competitive relationship between the online and offline channels, and that prices in one channel are highly responsive to changes in the other channel’s prices.
In sum, the pieces in this Chronicle provide an overview of the increasingly complex calculus facing antitrust policymakers in today’s ever-developing environment.
As always, many thanks to our great panel of authors.
Sincerely, CPI Team*
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