In this article, the authors show that blockchain can help in reaching the goals of antitrust law in situations where the rule of law does not (fully) apply. They detail what needs to be done to this end, from both a technical and legal standpoint.
In Silicon Valley, the most important thing to think about when starting a company is how you’re going to end it. The venture capital funding model that dominates the tech industry is focused on the “exit strategy” — the ways funders and founders can cash out their investment. While in common lore the exit strategy is an initial public offering (IPO), in practice IPOs are increasingly rare. Most companies that succeed instead exit the market by merging with an existing firm. And for a variety of reasons, innovative startups are especially likely to be acquired by the dominant firm in the market, particularly when they are venture funded.
In this paper, we argue that this focus on exit, particularly exit by acquisition, is pathological. It leads to concentration in the tech industry, reinforcing the power of dominant firms. It short-circuits the development of truly disruptive new technologies that have historically displaced incumbents in innovative industries. And because incumbents often buy startups only to shut them down, intentionally or not, it means that the public loses access to many of the most promising new technologies Silicon Valley has developed.
There has to be a better way. We suggest a number of ways to break the cycle of acquisition by incumbents, including changing the incentives that favor acquisition over continued operation, finding other ways to fund startups or to allow venture capital firms to cash out without an acquisition, and changing the antitrust laws to focus on who is acquiring startups. These solutions won’t fix the problem of today’s entrenched tech monopolies. But they will allow the next generation of companies that might displace the tech giants to make it to market.
3. The Theory of Granularity: A Path for Antitrust in Blockchain Ecosystems
by Thibault Schrepel
Forthcoming (1.414 downloads)
Modern antitrust and competition law relies extensively on the firm as defined by Ronald Coase: a hierarchy reducing transaction costs thanks to vertical control, where such control defines the firm’s boundaries. Meanwhile, the governance of public permissionless blockchains is horizontal. Transaction costs are minimized thanks to specific characteristics that are singular to these blockchains and do not depend on the verticality of relationships. The absence of vertical control to direct the resources holds antitrust and competition in check.
Against this background, the present article introduces the “theory of granularity,” which permits analysis of the roles played by each (group of) participant in the horizontal governance of public permissionless blockchains. On this basis, one may identify a “blockchain nucleus,” i.e., a set of participants collaborating to ensure and maximize the blockchain survival by “controlling” it all together. Antitrust and competition law becomes applicable again as the nucleus serves as the basis for the definition of the relevant market and market power, the assessment of practices’ legality, and liability assignment.
This article explores several potential antitrust claims against Apple – namely tying, essential facilities, refusal to deal and monopoly leveraging. We argue that the Apple ecosystem’s large revenue share in terms of app transactions, lock-in effects and consumers’ behavioral bias in online markets give the iPhone maker monopoly power as a mobile platform. Apple has exploited its market power to illegally tie the distribution of digital goods to its proprietary in-app purchase system to impose a 30% tax and extract supracompetitive profits, leading to higher app prices and reduced innovation. Moreover, Apple has excluded rivals and favored its own apps by downgrading competitors’ discovery and promotions, blocking certain rivals entirely from the App Store, and limiting others’ access to key APIs, in some cases right after copying their apps. In conjunction with the discriminatory application of the 30% tax, Apple’s conduct towards major multi-homing apps such as Spotify reduces cross-platform competition with Android. These anticompetitive practices prolong and expand Apple’s monopoly at the expense of competition.
This article examines the meaning and scope of the notion of anticompetitive effects in EU competition law. It does so by bringing together several strands of the case law (and this across all provisions, namely Articles 101 and 102 TFEU and merger control). The analysis is structured around a framework that considers the main variables that shape the notion in practice: the time variable (actual or potential effects); the dimensions of competition and the counterfactual; the meaning of effects and the probability threshold (plausibility, likelihood, certainty).
The exercise shows that it is possible to discern a concrete meaning to the notion of anticompetitive effects. Some central questions, including the role and operation of the counterfactual and the threshold of effects, have already been answered by the Court of Justice. In particular, it has long been clear that anticompetitive effects amount to more than a mere competitive disadvantage and/or a limitation of a firm’s freedom of action. The impact on equally efficient firms’ ability and/or incentive to compete would need to be established. At the same time, some open questions and some potential areas of friction (relating, inter alia, to stakeholders’ tendency to conflate appreciability and effects) remain. These are also discussed.
Are large digital platforms that deal directly with consumers “winner take all,” or natural monopoly, firms? That question is surprisingly complex and does not produce the same answer for every platform. The closer one looks at digital platforms the less they seem to be winner-take-all. As a result, competition can be made to work in most of them. Further, antitrust enforcement, with its accommodation of firm variety, is generally superior to any form of statutory regulation that generalizes over large numbers. Assuming that an antitrust violation is found, what should be the remedy? Breaking up large firms subject to extensive scale economies or positive network effects is sure to be costly. In the past, structural relief of this type has led to lower output and higher prices or business firm failure. One likely exception is acquisitions of small firms that threaten to grow into substantial rivals.
If breakup is not the answer, then what are the best antitrust remedies? Sometimes the best way to deal with platform monopoly is to break up ownership and management rather than assets. Leaving the platform intact as a production entity but making ownership more competitive could actually increase output, benefitting consumers, labor, and suppliers. The history of antitrust law is replete with firms that are organized as single entities for many legal purposes but that also function as combinations and can be treated that way by antitrust law. A second possibility is forced interoperability or pooling of important information, which can make markets more competitive while actually increasing the value of positive network externalities. Finally, this paper examines the problem of platform acquisition of nascent firms, where the biggest threat is not from horizontal mergers but rather from acquisitions of complements or differentiated technologies. For these, the tools we currently use in merger law are poorly suited. Here I offer some suggestions.
The Apple App Store is the only channel through which app developers may distribute their apps on iOS. First launched in 2008, the App Store has evolved into a highly profitable marketplace, with overall consumer spend exceeding $ 50 billion in 2019. However, concerns are increasingly expressed on both sides of the Atlantic that various practices of Apple with regard to the App Store may breach competition law. The purpose of this paper is to examine whether this is indeed the case and, if so, how these concerns can be addressed. With these aims in mind, the paper first introduces the reader to the app ecosystem and the Apple App Store, with a focus on the controversial 30% commission charged for in-app purchases. After engaging critically with various public statements of Apple discussing the services that the 30% commission aims to cover, the paper concludes that the 30% commission is charged for payment processing and related services and not, as Apple asserts, for distribution, since in that case it would be charged on all apps distributed on the App Store and not only on apps delivering “digital goods and services”.
The paper then critically reviews several practices of Apple that appear to be at odds with competition law and in particular Article 102 TFEU. We first discuss the issue of market definition and dominance with regard to the App Store. We find that Apple is a monopolist in the market for app distribution on iOS, as it is not subject to any meaningful competitive constraint from alternative distribution channels, such as Android app stores or the web. The result is that Apple is the gateway through which app developers have to go in order to reach the valuable audience of iOS users. This bottleneck position affords Apple the power to engage in several prima facie anti-competitive practices. First, Apple exploits app developers by charging excessive fees for the services it provides, applying its guidelines in a capricious and discriminatory manner, and depriving them of the user data they need to improve the quality of their services and user experience. Second, based on four case studies, the paper illustrates how Apple may use its control of the App Store or iOS to engage in exclusionary behaviour to the detriment of rival apps. Third, the paper shows that Apple may have also engaged in discriminatory practices by treating some app developers more favourably. These practices should be investigated by competition authorities, as they are likely to result in considerable consumer harm, be it in the form of higher app prices, worse user experience or reduced consumer choice. The paper finally proposes a combination of concrete remedies that would address the competition concerns identified.
Mark Zuckerberg introduced Libra to the world in June 2019 with the goal of “enabl[ing] a simple global currency and financial infrastructure that empowers billions of people.” Two months after, and without waiting for the project to be launched, the European Commission sent a questionnaire to various parties connected to Libra in order to investigate “potential anti-competitive behaviors.” The U.S. House of Representatives also conducted a series of hearings at the end of October 2019 questioning the intentions behind Libra.
Against this background, Part I of this Essay analyzes the type of governance that Libra is aiming for, as it indicates the nature and frequency of certain anti-competitive risks. Part II offers an assessment of the anti-competitive collusion and monopolization that Libra governance might yield. The discussion concludes by assessing the desirability of the adversarial approach adopted by antitrust agencies and governments thus far.
Digital platforms are at the heart of online economic activity, connecting multi-sided markets of producers and consumers of various goods and services. Their market power, in combination with their privileged ecosystem position, raises concerns that they may engage in anti-competitive practices that reduce innovation and consumer welfare. This paper deals with the role of market competition and regulation in addressing these concerns. Traditional (ex-post) antitrust intervention will be less effective in markets driven by network effects unless it is combined with a proper (ex-ante) regulatory framework. Antitrust tools should focus on value creation and its distribution before focusing on competition.
The scope of regulatory intervention should satisfy the following three criteria: i) value creation from operation of the platforms does not decrease due to the policy intervention; in particular, interventions should not reduce network effects; ii) allocative efficiency is based on distributing the value created in a fair way among market participants e.g. use of the Shapley Value. Fair and transparent rules must govern the platform ecosystem; iii) dynamic efficiency and competition ensure that incentives for market misconduct and anticompetitive strategies such as artificial entry barriers are eliminated. Market interventions that target a firm’s market power should ideally retain value creation while also encouraging small firm entry and innovation. Data has a central role in online markets. Value creation is reinforced through a recursive a data capture and data deployment feedback loop which is enabled by machine learning technologies. A regulatory intervention that facilitates data sharing mechanisms, such that data will not only confer value to market leaders but also to their competitors to the benefit of consumers, is crucial for creating more competitive and innovative digital markets.
10. Antitrust Law and Digital Markets: A Guide to the European Competition Law Experience in the Digital Economy
by Viktoria H.S.E. Robertson
Forthcoming (785 downloads)
Leading jurisdictions around the world are debating whether the nature of data-driven digital markets and the smart technologies that enable these markets require a re-thinking of how antitrust law applies to digital markets. There are many aspects to consider in this discussion, relating both to the analytical tools that competition law applies and to the way that anti-competitive behaviour is understood. This contribution provides an overview of the challenges that competition law faces in digital markets, including market definition, market power assessments, anti-competitive agreements, abuse of dominance and mergers. It analyses how European competition law has dealt with these challenges in the recent past and discusses what provisional conclusions some of the major European reports have arrived at in order to meet these challenges. It outlines those areas of competition law that require new answers, either by competition law practice, through soft law instruments or by legislators.