Enforcing Competition on the
Internet
Howard Shelanski
Georgetown University
February 13, 2012
The Problem
• As on-line services become more essential to
everyday life dominance on the Internet
becomes an increasing public policy focus
• Even as firms provide consumers with newer
and better services, there is concern about
conduct that might impede the arrival of yet
more innovative and diverse offerings
Digital “Platforms” are a Particular
Challenge
• “Platforms” are products or services whose
value to consumers is, or is greatly enhanced
by, their provision of access to complementary
products or services.
– They may have multiple, inter-related
constituencies: e.g. end users on one side, and
complementary products on the other.
The Concerns
• Platforms can “tip” toward dominance
because of network effects, scale effects, or
both.
• Platforms may try to leverage their dominance
into one level into dominance in
complementary markets
• Platforms may act anticompetitively in
complementary markets to protect their
platform monopolies
A Role for Enforcement . . .
• Government competition enforcement has a
place in complex, dynamic markets
– Microsoft
– Intel
– Merger enforcement (Thoratec/HeartWare;
Google/ITA)
• Focus here on monopolization cases
But an Increasingly Difficult One . . .
• Identifying violations is especially difficult in
“digital” marketplaces.
• Articulating remedies is especially difficult for
digital services
The principal challenge is not
doctrinal, but practical
• Distinguishing competitive strategy from engineering
decisions is particularly difficult
– Is an algorithmic change designed to yield better search
results or drop rivals from those results?
• Distinguishing technical integration from economic
discrimination is especially difficult
– Is the better interoperability with a proprietary
complement due to improved internal technology or
degraded external interfaces?
– Are limits on external interfaces designed to preserve
technological integrity or harm competition?
Ambiguous Effects Make Remedies
Difficult
• What will an agency or court tell the
monopolist it cannot do?
• Remedies almost always have tradeoffs: much
conduct that is on balance anticompetitive has
something on the benefit side of the scale
• This is particularly true for digital goods
Two Relevant lines of competition
policy
• The efficiency strand: conduct that furthers
innovation and integration is presumptively
valid, and the presumption is very difficult to
rebut.
• The property-rights strand: firms have wide
latitude to refuse to deal with rivals and to
vertically discriminate.
Implications
• These Different Policy Strands Suggest a
Difference Between Anti-Monopoly Enforcement
and Merger Enforcement
– The ambiguities of some conduct on the Internet
make anti-monopoly enforcement where firms have
entered on their own less feasible and possibly less
desirable
– The fact that once a firm owns a complementary
business it will be harder to police its actions to favor
that business means entry by acquisition should be
more strictly scrutinized.
• Renewed emphasis on vertical mergers
Moving Beyond the Sherman Act
• Increased difficulty of using Section 2 in the
digital world opens doors to other options
– Prescriptive regulation
• But problems well known and costs likely to be high
– Ex post enforcement by the FTC under Section 5
• Promising, but limiting principles still to be developed
Conclusions
• Antitrust enforcement under Section 2
• Merger enforcement under Section 7
• FTC enforcement under Section 5
?
• Public enforcement role greater than private