Abstract

It is widely assumed that platform technology markets are inherently prone to converge on monopoly outcomes in which a single firm or a handful of firms enjoy market power due to a combination of network effects and switching costs. This assumption supports both proposed and enacted regulatory interventions that deploy competition law to place significant limitations on a wide range of practices by platform incumbents. In this paper, I revisit this market power assumption from theoretical and empirical perspectives. As a matter of theory, informed by selected real-world examples, I show that the conditions under which a platform incumbent can plausibly exercise market power are substantially more demanding than is commonly supposed. As a matter of empirics, I provide evidence from the food-delivery and cloud-computing markets, showing that widespread attributions of market power to leading platforms in these markets lack persuasive evidentiary support. Contrary to conventional wisdom, both theory and evidence cast significant doubt on the standard view that platform ecosystems are prone to converge on entrenched monopolies that justify preemptive intervention by competition regulators.

Over the past two years, the Federal Trade Commission has suffered a series of stinging defeats in headline matters: the reversal in August 2020 of the district court order in the agency’s lawsuit against Qualcomm; the near-dismissal in June 2021 of one of its lawsuits against Facebook, and, most recently, the rejection in February and September 2022, respectively, by administrative law judges of its lawsuits against Altria and Illumina.

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In its Advance Notice for Proposed Rulemaking (ANPR) on Commercial Surveillance and Data Security, the Federal Trade Commission (FTC) has requested public comment on an unprecedented initiative to promulgate and implement wide-ranging rules concerning the gathering and use of consumer data in digital markets. In this contribution, I will assume, for the sake of argument, that the commission has the legal authority to exercise its purported rulemaking powers for this purpose without a specific legislative mandate (a question as to which I recognize there is great uncertainty, which is further heightened by the fact that Congress is concurrently considered legislation in the same policy area).

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Abstract

It is common to characterize patents as monopolies. This assumption, which underlies the standard dichotomy between intellectual property and antitrust law, is challenged by evidence that large companies in technology markets (outside biopharmaceuticals) tend to advocate for weaker patent protection or, in some cases, no patent protection at all. This revealed preference for weaker patent protection reflects the fact that large integrated firms can often capture returns on innovation through economies of scale and scope and other non-patent-dependent capacities that few other firms can match. Relatedly, a weak-patent environment can confer a competitive advantage on integrated firms against smaller and more innovative firms that rely on patents to capture value on innovation through licensing and other contract-based monetization strategies.

Abstract

Competition policy generally prohibits coordination among buyers or sellers, especially coordination on price, price-related inputs, and output. In licensing markets for standard-essential patents (“SEPs”), it has been periodically proposed that this rule should be relaxed to permit the formation of licensing negotiation groups (“LNGs”), which is expected to reduce transaction costs and the purportedly “excessive” royalties paid to SEP licensors. Based on the economic structure of wireless technology markets, and empirical evidence from over three decades of SEP licensing, this policy intervention is likely to degrade, rather than enhance, competitive conditions in wireless communications and other 5G-enabled markets encompassed by the “Internet of Things.” In the short term, LNGs would most likely result in a redistributive (not an efficiency) effect that shifts economic value from innovators to implementers in the wireless technology supply chain without necessarily passing on cost-savings to consumers. In the medium to longer term, LNGs are liable to impose significant efficiency losses by endangering the viability of licensing-based monetization models that have funded continuous R&D investment, promoted broad dissemination of technology inputs, facilitated robust entry in device production, and enabled transformative business models across a wide range of industries. While LNGs may reduce the transaction costs of SEP licensing, pooling structures have a demonstrated record of having achieved the same objective in patent-intensive information technology markets at a substantially lower risk of competitive harm.

Abstract

The Federal Trade Commission’s initiative to use rulemaking powers to target “unfair methods of competition” under the FTC Act is part of a broader package of dramatic recent changes in antitrust enforcement policy and practice by FTC leadership. These changes, which have rejected the consumer-welfare standard and rule-of-reason balancing tests, represent a strategic effort to bypass the rigorous standards of federal antitrust case law and qualify for the deference generally accorded agency rulemaking by federal courts. Principal-agent analysis suggests that these changes, by detaching antitrust enforcement from antitrust case law and substituting regulatory discretion for structured guidelines, raise a significant risk that the agency will undertake actions that depart from its statutory mandate by targeting practices that do not pose any credible threat of competitive harm.

President Joe Biden’s July 2021 executive order set forth a commitment to reinvigorate U.S. innovation and competitiveness. The administration’s efforts to pass the America COMPETES Act would appear to further demonstrate a serious intent to pursue these objectives.

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During the exceptional rise in stock-market valuations from March 2020 to January 2022, both equity investors and antitrust regulators have implicitly agreed that so-called “Big Tech” firms enjoyed unbeatable competitive advantages as gatekeepers with largely unmitigated power over the digital ecosystem.

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Over the past decade and a half, virtually every branch of the federal government has taken steps to weaken the patent system. As reflected in President Joe Biden’s July 2021 executive order, these restraints on patent enforcement are now being coupled with antitrust policies that, in large part, adopt a “big is bad” approach in place of decades of economically grounded case law and agency guidelines.

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