Antitrust and Platform Monopoly.

AuthorHovenkamp, Herbert

ARTICLE CONTENTS INTRODUCTION 1955 I. DIGITAL-PLAT FORM MONOPOLY 1958 A. Assessing Platform Power 1958 1. "Direct" vs. "Indirect" Measures of Market Power 1958 2. "Cluster" Markets 1966 B. Identifying Two-Sided Platforms 1968 C. Are Platform Markets Winner-Take-All? 1969 1. Stable Competition Among Incumbent Firms: Single- 1972 vs. Multi-Homing and Interoperability 2. Durable Dominant Positions: Entry Barriers, No-Fault 1978 Monopoly, and Exclusionary Practices 3. Declining Costs, Network Structure, and the Extent 1988 of Competition 4. Product Differentiation and Winner-Take-All 1996 II. ANTITRUST REMEDIES AGAINST DOMINANT PLATFORMS 2001 A. Against Platform Exceptionalism 2001 B. Anticompetitive Conduct 2003 C. Coordinating Antitrust Remedies with Its Goals 2005 1. Structural Relief, Limits on Defaults, and Other 2007 Injunctions a. Remedies and Choice of Statute 2007 b. Anticompetitive Defaults 2011 c. Line-of-Business Restrictions 2013 d. The Comparative Advantage of Tailored Injunctions 2016 e. Administrability 2018 2. More Creative Alternatives 2020 a. Enabling Competition Within the Platform 2021 b. Mandatory Interoperability or Pooling 2032 3. Conclusion: Compelling Network Competition Without 2039 Sacrificing Structural Efficiency III. PLATFORM ACQUISITIONS 2039 A. Acquisitions of Nascent Firms Generally 2039 B. Killer Acquisitions 2045 CONCLUSION 2049 INTRODUCTION

Should antitrust policy do more to promote competition in digital-platform markets? And is it the best tool for the job? The claim that antitrust is falling short comes from both the left and the right, but it provokes strong disagreement. How much of the call for action is a response to real competitive harm, and how much is it simply a reaction to large firm size, personal animus, myopia, or perceived political power? The source of hostility is unclear.

This is evident in the forty responses to the House Judiciary Committee's request for recommendations concerning digital-platform monopoly. (1) Some believe that everything is fine, and we should make few substantive changes. (2) They worry that misplaced government intervention could derail the greatest engines of economic growth in recent history. Others would drive over the industry with a power mower, breaking up the platforms with little thought about the impact on output or consumers. (3) Meanwhile, the enforcers have not been idle. The Antitrust Division of the U.S. Department of Justice (DOJ), the Federal Trade Commission (FTC), and numerous state attorneys general have filed antitrust complaints against both Google and Facebook. The European Commission has filed a statement of objections against Amazon, (4) and Apple is embroiled in several private antitrust actions. (5)

One question underlying all of this activity is whether antitrust law's focused and litigation-driven approach is sufficient to address competition problems in digital platforms. Are the platforms so resistant to ordinary market mechanisms that they call for more pervasive public control?

If action is needed, the alternative to antitrust is some form of regulation. But broad regulation is ill-suited for digital platforms because they are so disparate. By contrast, regulation in industries such as air travel, electric power, and telecommunications targets firms with common technologies and similar market relationships. This is not the case, however, with the four major digital platforms that have drawn so much media and political attention--namely, Amazon, Apple, Facebook, and Google. These platforms have different inputs. They sell different products, albeit with some overlap, and only some of these products are digital. They deal with customers and diverse sets of third parties in different ways. What they have in common is that they are very large and that a sizeable portion of their operating technology is digital. To be sure, increased regulatory oversight of individual aspects of their business--such as advertising, acquisitions, or control of information--is possible and likely even desirable. But the core of their business models should be governed by the antitrust laws.

This Article argues that sustainable competition in platform markets is possible for most aspects of their business. As a result, the less intrusive and more individualized approach of the antitrust laws is better for consumers, input suppliers, and most other affected interest groups than broad-brush regulation. It will be less likely to reduce product or service quality, limit innovation, or reduce output. Where antitrust law applies, federal judges should be given a chance to apply the law.

The biggest roadblock to an antitrust-focused approach is not intrinsic but ideological--an antienforcement bias has haunted antitrust since the late twentieth century.

Antitrust law and scholarship speak to competition problems on large digital platforms with various levels of engagement. The Chicago School in particular pushed a mindset that saw markets as all alike. (6) This leaves judges toothless when confronted with an industry that behaves in unexpected ways.

More moderate students of antitrust are more circumspect, appreciating that both markets and firms are institutions that can be quite different from one another. As a result, their approaches require more specific fact finding rather than overly broad policy generalizations. Digital platforms, in this view, are merely one of the variations. For example, in Ohio v. American Express Co. (Amex), Justice Breyer in dissent was much more comfortable with factual examination of the particular digital market than the Court's majority. (7) The majority spoke mainly in generalities, largely ignored the record, and drew legal conclusions that are inconsistent with fundamental economic principles. (8) Antitrust law needs to treat digital-platform markets for what they are: markets that have some unique characteristics, but markets nonetheless susceptible to fact-specific antitrust analysis.

To begin that analysis, a digital platform is a website, app, or other digital venue that interacts commercially (9) with one or more groups of users. A "two-sided" digital platform is one that facilitates activities involving at least two interdependent groups of users. (10) In some cases (Amazon, eBay, Uber, and Amex), transactions between these groups are negotiated directly on the website. In other cases (Google Search, Facebook,, and most periodicals and electronic video games), users do not make commercial transactions directly with one another, but their commercial transactions support the platform as a profit center.

This Article first considers the nature of platform power and the extent to which competition is possible or desirable in markets dominated by digital platforms, including those that are two-sided. It then discusses remedies for anticompetitive abuses and proposes two new approaches. From there, it contemplates reform; one area that may require new legislation or at least a change in judicial thinking is mergers involving very large platforms. (11)

On remedies, courts could tailor novel forms of relief without new legislation. One new proposal is that intrafirm decisionmaking could be restructured in ways that facilitate competition inside a platform, rather than between the platform and other entities. This could be accomplished without breaking up the platforms themselves. Another promising proposal is forced interoperability or pooling, which can make markets more efficient by broadening the range of positive network effects. Both of these alternatives could enable greater competition without jeopardizing productivity and consumer value, which would be at risk if productive assets were to be broken up. Existing law provides ample precedent to support these remedies. (12)


    1. Assessing Platform Power

      Antitrust policy is concerned with exercises of market power, which is the power to profit by reducing output below the competitive level and increasing prices unreasonably above cost. (13) Alternative articulations, such as concern for the "competitive process," (14) provide no content against which results can be evaluated. Further, antitrust doctrine does not condemn firms simply because they are very large, although that would simplify the analysis. It rejects imposing liability based on size because size and market power do not always go hand in hand.

      For digital platforms, the market-power question is complex because each platform does business in a variety of products or services and employs diverse technologies. Two-sided platforms pose particular problems because one cannot estimate power on one side without considering interactions from the other side.

      1. "Direct" vs. "Indirect" Measures of Market Power

        Traditionally, courts have measured market power "indirectly," inferring from a firm's market share in a "relevant market." (15) A market consists of a group of products or services that are close substitutes for each other. (16) That methodology dominated antitrust analysis through the twentieth century, but economists have increasingly favored more "direct" measures, which rely on empirical measurement of output responses to price changes. These methods do not typically require a market definition, avoiding questions of how broadly or narrowly to define the relevant class of goods or services. Further, direct measures are more accurate and permit finer adjustments, provided that the data for using them are available. (17) They are particularly attractive for measuring the market power of digital platforms because nearly all transactions in platform markets produce a digital record.

        Today, economists use both direct and indirect methodologies for assessing power in digital markets. They also urge caution, however, that traditional market-definition and market-share measurements can be particularly unreliable in cases involving digital...

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