We negate.

Contention one is The Tech Economy.

Calls for antitrust regulation are based on a misunderstanding of the tech industry. Evans ‘02 of the National Bureau of Economic Research writes that because the tech industry is reliant on creating platforms that require large communities of users to profit, tech is a winner-take-all market where firms innovate to create and dominate new markets, rather than competing for shares of the market like in traditional industries.

Cass ‘13 of Boston University explains that this structure makes tech very volatile: any tech giant is replaceable in the face of a new innovation or platform. Put simply, tech giants can easily fall from grace once the “next big thing” comes along. There are countless examples: Netflix overtaking television, Apple outcompeting Blackberry, and Facebook overthrowing MySpace.

Consequently, Evans continues that the threat of new companies popping up forces tech giants to constantly innovate to protect their dominance. For example, this would limit bad behavior such as price gouging and lackluster innovation. Thus, Evans finds that antitrust regulation is incompatible with tech because it only evaluates the current state of the market – which is a monopoly by necessity – without looking at the competition in innovation.

Consequently, Cass warrants that antitrust enforcement would dissuade investment into research and development due to fears that the massive amounts of investment needed to innovate in tech could not be recuperated through market dominance. Gayle 01’ of Kansas State University verifies that a one percent increase in industry monopolization increases a firm's innovative output by .13 percent.

Rosenberg ‘04 of the OECD impacts that innovation is crucial in driving productivity increases in the economy that generate higher wage and job growth, finding that eighty-five percent of economic growth is created by increases in innovation. Burns ‘08 of the World Bank explains that technological progress in developing nations has decreased the share of people living in poverty by 11 percent.

Contention two is Bringing the World Online.

Steitfield ‘19 of New York Times writes that because of the popularity of tech companies, antitrust laws have been relaxed in recent decades, allowing tech giants to form into large-scale monopolies. Indeed, Hubbard ‘19 of CNN explains that while traditional enforcement of antitrust laws would split the current tech giants, like Facebook and , into multiple firms, the current relaxed political climate protects these companies.

The immense growth of these technology companies has given them the economies of scale to make long-term investments in developing countries. Indeed, Bozzi ‘18 of The Conversation writes that Facebook and Google are investing heavily in critical infrastructure like cables, satellites, and other innovative approaches to expand cheap internet access to underdeveloped nations. Consequently, Kemp ‘19 of Global Digital finds that internet penetration has accelerated to an average of 1 million new users connecting every day.

Orell ‘19 of the American Economic Institute writes that with the expansion of the internet comes the expansion of better jobs for workers in developing nations. Thus, Deloitte ‘14 finds that achieving universal internet access would lift 160 million people out of poverty.

Unfortunately, Pan ‘17 of Sydney University explains that enforcing antitrust laws and restraining the growth of these large firms would destroy the economies of scale they have acquired, disabling them from undertaking ambitious projects.

In fact, affirming and breaking up the tech giants would force the current tech monopolies to halt the spread of internet infrastructure.

Because building internet infrastructure in poorer nations is unprofitable, investors aren’t interested, so tech companies must raise money for the projects internally. However, Thiel ‘18 of the Wall Street Journal explains that only monopolies have the ability to finance heavy projects because of their large sources of revenue. Monopolies can take on more risk because losing even large sums of money is a small dent to their total capital pool. Moreover, Mehak ‘13 of the University of Illinois writes that only the tech giants, like Facebook and Google, have the tech capabilities and human capital it takes to engineer cost-cutting solutions to make internet installation abroad feasible in the first place. Indeed, Rinehart ‘18 of the American Action Forum concludes that splitting up the tech giants would eliminate the funding, human capital, and technology, dooming the expansion of the internet.

Thus, we negate.

https://gigaom.com/2013/12/14/lessons-from-facebook-on-efficiency-for-the-enterprise/

https://itif.org/publications/2018/07/02/dont-fear-titans-tech-and-telecom

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2856502

Case Cards

Burns ‘08 - technological innovation spills over to developing nations and reduces poverty Andrew Burns. World Bank. 2008. http://siteresources.worldbank.org/INTGEP2008/Resources/GEP08-Brochure.pdf To a significant degree, technological progress is what makes the difference between fast-growing developing economies and slow-growing ones. In the graph below, the main difference between regions where GDP per capita has been growing quickly since the early 1990s (East Asia, South Asia, and developing countries in Europe) and those where growth has been weaker (Latin America, the Middle East, and Africa) has been the rate at which technology has progressed. Rapid GDP per capita growth translates into rising incomes. In this way, technological progress has helped reduce the share of people living in absolute poverty in developing countries from 29 percent in 1990 to 18 percent in 2004.

Streitfeld ‘19 - Washington lenient to tech giants has allowed monopoly formation [David Streitfeld, New York Times, "Why a Big Tech Breakup Looks Better to Washington - The New York Times," 09/17/19, https://www.nytimes.com/2019/03/17/technology/google-facebook-amazon- antitrust.html]

The political landscape is shifting, however, at a speed that dumbfounds even antitrust experts. President Barack Obama thought of the tech companies in the way they think of themselves: as progressive, smart entrepreneurs who want what’s best for America. His administration declined to pursue Google on antitrust charges and hired from the tech industry for top posts. Top staff members later went to work for the tech industry in top posts, too. It was a cozy relationship.

The financial firms were predatory last decade, exploiting weak spots in the mortgage markets in a way that undermined their viability. Google and Facebook, by contrast, offer their services for free, while Amazon built its reputation on selling as cheaply as possible. That makes it hard to regulate them by the antitrust consensus, which for a couple of decades has held that there is no injury unless consumers directly suffer by paying higher prices.

Hubbard ‘19 - judges have narrowed law, allowing data monopolies to exist [Sally Hubbard for CNN Business Perspectives, , CNN, "How Big Tech is breaking antitrust laws - CNN," 01/02/19, https://www.cnn.com/2019/01/02/perspectives/big-tech-facebook-google-amazon- microsoft-antitrust/index.html

Why, then, isn't anything being done about Big Tech violating the Sherman Act? In recent decades, corporate defendants have persuaded judges to narrow the law, by requiring, for instance, evidence of price increases to prove a case. But consumers pay for tech platforms' services with data, not dollars. The Sherman Act makes no mention of prices, and low prices should not be the only goal. Competition should be the goal. Competition maximizes consumer choice, innovation and quality, and combats the concentration of economic and political power.

Bozzi ‘18 - tech giants invest internet infrastructure

Bozzi, Claudio. “Tech Giants Are Battling It out to Supply the Global Internet - Here's Why That's a Problem.” The Conversation, 10 Dec. 2018, theconversation.com/tech-giants-are-battling-it- out-to-supply-the-global-internet-heres-why-thats-a-problem-94303. Accessed 14 June 2019. https://theconversation.com/tech-giants-are-battling-it-out-to-supply-the-global-internet- heres-why-thats-a-problem-94303 The tech giants have been investing heavily in critical infrastructure in recent years. Google owns the FASTER trans-Pacific undersea cable link, which has carried data (at 60 terabits per second) between the US, Japan and Taiwan since 2016. Meanwhile, the Microsoft and Facebook funded MAREA trans-Atlantic cable has connected the US to southern Europe (at 160 terabits per second) since in 2017. New investments centre on atmospheric, stratospheric and satellite delivery strategies. Along with SpaceX’s constellation of small satellites, Facebook’s internet.org uses atmospheric drones to deliver internet to rural and remote areas. Google’s Project Loon uses high altitude navigable balloons for the same purpose.

Kemp ‘19 - 1 million new internet users every day “Digital 2019: Global Internet Use Accelerates.” We Are Social, 30 Jan. 2019, wearesocial.com/blog/2019/01/digital-2019-global-internet-use-accelerates. Accessed 14 June 2019. https://wearesocial.com/blog/2019/01/digital-2019-global-internet-use-accelerates Our latest internet data – collected and synthesised from a wide variety of reputable sources – shows that internet users are growing at a rate of more than 11 new users per second, which results in that impressive total of one million new users each day. It’s worth noting that some of this growth may be attributable to more up-to-date reporting of user numbers, but that doesn’t detract from the implications of this growth.

Ornell ‘19 - expansion of jobs Ornell. AEI. 2019. http://www.aei.org/publication/its-a-big-world-somebodys-gotta-label-it/ Given the infinite variety and quantity of data that requires labeling and the ravenous appetite that all kinds of commercial entities have for that data, the big high-tech firms are turning to

developing countries for educated but inexpensive labor. Across Asia and Africa, firms like Google, Microsoft, Salesforce, and Yahoo! are employing low-cost tech workers to do the work of labeling the world. These jobs typically pay between $3 and $6 per day which, as the author says, is “chump change” to Big Tech but often the best job on offer for workers in developing countries.]

Baldwin believes rapidly spreading high-speed internet and significant recent improvements in online translation programs (e.g., , DeepL) are making it possible for well- educated foreign workers, even those with limited English, to take on routine, computer-based work like accounting, computer programming, and engineering at a fraction of the cost of domestic workers. The chart below shows the relative pay scales for several white-collar occupations in the US, UK, Poland, and China.

World Bank ‘09 - internet expansion increases GDP http://pubdocs.worldbank.org/en/391452529895999/WDR16-BP-Exploring-the-Relationship- between-Broadband-and-Economic-Growth-Minges.pdf This relatively recent emergence of broadband has already stimulated much discussion of it being a powerful general-purpose technology.4 Broadband has driven widespread changes in the Information Technology (IT) sector enabling services such as cloud computing and mobile apps. Equally, it is influencing innovation across many other sectors including health, transport and government. The impact of broadband Internet on the economy is therefore a subject of growing interest. This model has been updated using recent data (Scott 2012). The same model is used but with data for 86 countries for 1980–2011. The results were essentially the same as before with a ten percentage point increase in fixed broadband generating a 1.35% increase in per capita GDP for developing countries and a 1.19% increase for developed countries.

Deloitte ‘14 - internet access in the developing world will lift 160 million people out of poverty https://www2.deloitte.com/uk/en/pages/technology-media-and- telecommunications/articles/value-of-connectivity.html Internet access matters in today's world. The Internet has enabled developed economies to complete their transformation into knowledge-based economies where people share information without barriers, opening up opportunities for economic, business and social advancements and innovation. In developing countries, the Internet is already contributing to a number of social and economic benefits and has led to innovative services being developed that have allowed developing countries to leap-frog to many state of the art technologies. However, developing countries have still to realise their full potential. Deloitte has estimated that expanding internet access to an additional 2.2 billion people can increase GDP in developing countries by $2.2 trillion, create 140 million new jobs, and lift 160 million people out of extreme poverty.

Pisa ‘17 - innovative solutions are necessary to expand internet Since 2010, Facebook has worked with telecom providers in many low-income countries to offer a bundle of applications (including a streamlined version of Facebook) designed to run on phones with low processing power, limited storage space, and in low bandwidth environments at no cost to consumers. Mark Zuckerberg explained the rationale behind this approach in a 2013 essay that launched Facebook’s Internet.org initiative.39 In the essay, he argued that, although the cost of building and maintaining networks made it prohibitively expensive to provide full internet access to everyone in the world, a focused effort on reducing the cost of delivering data and building more efficient apps would make it economically feasible to provide a set of basic online services for free to those who could not afford them. Mobile providers have been willing to zero-rate these services (i.e., provide them without charging customers for the data used) because it helps them attract new customers who may eventually choose to pay for full access to the internet. A key challenge for the program—and a major source of the controversy surrounding it— has been defining what services should be considered “basic” and therefore zero-rated. At the project’s outset, the applications offered were limited to those agreed on by Facebook and their telecom partners. However, critics argued that the project violated net neutrality principles by giving zero-rated applications an unfair advantage over competitors and restricted users to operating in a “walled garden” that limited their ability to engage with the broader internet.40 In response to these criticisms—and as part of the company’s failed campaign to bring the program to —Facebook modified its approach in 2015 when it announced Free Basics, which provided an open platform that anyone can— submit a website to as long as it meets technical and participation guidelines. Notably, Facebook does not post ads on Free Basics.

While Free Basics provides services to people already in reach of telecom services, Facebook is also working on several speculative projects to expand access through projects under its Connectivity

banner. These include high-altitude platform stations and satellites that “beam connectivity throughout the atmosphere” and the ARIES project, which seeks to extend mobile coverage to rural areas.43 Facebook’s decision in June 2018 to end its much- publicized Aquila high-altitude drone project highlights the difficulty of developing new models for delivering connectivity.

While Google also experimented with zero-rating in its short-lived Free Zone project, its main avenue for attracting new users in the developing world has been the rapid expansion of the Android operating system, which it has supported by encouraging developers to design applications that meet the needs of users in emerging markets. This includes programs like Building for Billions, through which Google advises developers on how to design products that reduce battery consumption and conserve data use.44 Recent examples of this approach are , a stripped-down version of the operating system designed to work on entry level smartphones; Go, an Android app that allows users to transfer files offline; and YouTube Go, which makes it easier for users to playback predownloaded videos when offline.45 Google’s most recent project to expand access is Google Station, which provides free highspeed public Wi-Fi in select train stations in several developing countries. The project, which Google launched in 2016, now operates in more than 400 train stations in India, where more than eight million people use the service every month, and in a smaller number of stations in , Mexico, , and .46 With the combination of Google Station and its suite of Go apps, Google has created a digital ecosystem that allows people unable to access the internet on their own to use dataintensive applications and download large files that they can later use and share offline. Unlike a zero-rating approach, this model provides users with an un-walled internet experience with the key limitation that they must have access to a participating station. Google has also launched several ambitious initiatives aimed at bringing connectivity to those living in more rural and remote areas, including the highly publicized Project Loon, which uses high-altitude balloons to beam internet to users over a large area, and CSquared, which has laid hundreds of kilometers of fiber cable in sub-Saharan Africa.47

Pisa ‘17 - dev nations do not make companies as much revenue https://www.cgdev.org/sites/default/files/governing-big-techs-pursuit-next-billion-users.pdf https://www.cgdev.org/sites/default/files/governing-big-techs-pursuit-next-billion-users.pdf Because both companies derive most of their revenue from advertising (ads provide 98 percent of Facebook’s revenue and 85 percent of Google’s), their profitability depends on increasing the number of their users or the revenue they generate from each.25 Today, tech companies earn much more from their users in the developed world. For example, Facebook’s average revenue is $26.76 per user in North America, compared to only $1.86 in its “Rest of World” category, which captures users in Africa, the Middle East, and Latin America.26 As a result, Facebook earns roughly 43 percent of its revenue from the United States even though only 10 percent of its customers live there (see figure 1).27 Google similarly earns about 46 percent of its revenue in the United States.28

These investments are paying off. Facebook’s highest growth markets are now India, Indonesia, and Vietnam, and Google reports that use of its Maps application grew by over 50 percent in Indonesia,

India, and Nigeria over the last year.49 These commercial gains are driving rapid growth in internet access across the developing world. In 2017, the number of internet users in Africa grew by 20 percent. Despite these gains, Facebook and Google have not yet realized significant revenue growth in lower- income countries. As Caribou Digital emphasizes in its report Paying Attention to the Poor, “digital advertising revenue is a function of economic activity, and for many developing countries, there simply isn’t enough consumer spending to attract substantial advertising revenues.”50 To date, the internet giants have been willing to subsidize the services they provide in the developing world, in part because they value the data they collect there. Ultimately, however, that data must be put to commercial use to sustain their business models.51

Mehak ‘13 - economies of scale necessary to expand the internet https://gigaom.com/2013/12/14/lessons-from-facebook-on-efficiency-for-the-enterprise/ In the Internet.org paper issued in September 2013, Facebook, Ericsson and Qualcomm noted that boosting datacenter efficiency is essential to bringing down costs and expanding Internet access across the globe. Offering many lessons for enterprises working to improve real-time responsiveness to compete in our information economy without breaking the bank, the paper noted that integrated efforts have the potential to increase datacenter efficiency by an astounding 100x over the next five to 10 years. This achievement requires two key innovations outlined by Facebook. First of all, the underlying costs of delivering data need to be reduced. Secondly, we need to streamline data use by building more efficient applications. It is no coincidence that flash memory in the datacenter is playing an important role in both areas. Flash memory in data center servers is quickly becoming critical to achieving efficiency in scalable IT. Facebook and other leading hyperscale and enterprise companies have been using flash for processing more transactions using fewer servers, thereby reducing operating costs. Besides being a thousand times faster than disk drives, modern flash uses much less energy than yesterday’s spinning disk storage, or even the DRAM memory in servers. Flash creates less heat, and thus requires far less energy to cool. It also requires less space in the datacenter compared to racks of disks, for even greater savings and efficiency. As Facebook notes in its Internet.org paper, “Making the delivery of data faster and more efficient is crucial to ensuring access to more people in more diverse regions of the world.” Beyond the philanthropic appeal of expanding internet access and improving quality of life for billions, these lower-cost infrastructures create new markets for businesses of all sizes, as more and more consumers are able to participate in the global information economy. While Facebook’s attention is focused on reducing the amount of data used by devices on the consumer side of the Internet, there are also interesting lessons for enterprises to learn on how data can be streamlined on the server side. For example, flash memory finally makes it possible to move beyond disk-era application code. By streamlining software code and removing the unnecessary layers of complexity associated with archaic storage architectures, applications perform faster while using less data. For instance, data management systems can shortcut costly address translation layers, avoid costly double buffering, and eliminate locking and resource

overheads associated with input-output operations that remain outstanding for long periods of time.

Rinehart ‘18 - splitting tech giants would deintegrate the tech and teams they need to carry out projects “Breaking Up Tech Companies Means Breaking Up Teams And The Underlying Technology.” AAF, www.americanactionforum.org/insight/breaking-up-tech-means-breaking-up-technology-and-teams/. Accessed 25 May 2019. Many advocates pushing for tech firms to be broken up haven’t thought through how this heavy- handed intervention could split up these firms practically. To do so, regulators would be involved in two simultaneous acts. First, the government would have to split up the organizational teams, and then, at the same time, they would have to break the technology stack. Neither process would be pretty. Tech companies are tightly integrated firms, not holding companies, so the practical act of breaking them apart is far more difficult. It is important here to understand the basic types of company organization: functional organization and divisional organization. Functional organizations silo the basic functions of an organization; the early stages of large companies typically take this form. Finance, sales, customer service, and administration all work independently of each other, and the department head becomes responsible for maintaining performance. As a company and its product lines also grow, many firms will shift toward a divisional structure. The divisional form separates the company’s operational functions by product in order to optimize efficiencies. Under a divisional structure, each product is essentially a company unto itself. Engineering, finance, sales, and customer service are all unified within one division, which sits separate from other divisions within a company. Google and Facebook combine elements of the two structures, and are thus considered “matrix form” companies. Both companies rely upon flexible teams to solve problems that tend to cross the normal divisional and functional bounds. Teams prioritize communication and coordination, and both companies invest heavily to ensure cross-company collaboration. Joaquin Candela, Facebook’s head of applied machine learning, explained the outcome of these amorphous organizational boundaries to the Wall Street Journal, “If you look at all the engineers at Facebook, more than one in four are users of our AI platform. But more than 70% [of those ] aren’t experts.” Facebook engineers, thus, are using AI algorithms without knowing how to build them. As Candela further noted, the system is “a very modular layered cake where you can plug in at any level you want.” The result is a complex webbing of distinct yet clearly interconnected organizational divisions. This webbing makes implementing a Standard Oil-style trust-busting effort difficult at best. Adding to that complexity, any trust-busting action would also require breaking up the company’s technology stack — a general name for the suite of technologies powering web sites. For example, Facebook developed its technology stack in-house to address the unique problems facing Facebook’s vast troves of data. Facebook created BigPipe to dynamically serve pages faster, Haystack to store billions of photos efficiently, Unicorn for searching the social graph, TAO for storing graph

information, Peregrine for querying, and MysteryMachine to help with end-to-end performance analysis. The company also invested billions in data centers to quickly deliver video, and it split the cost of an undersea cable with Microsoft to speed up information travel. Where do you cut these technologies when splitting up the company? Google has a suite of tools that countless companies use to deliver services. They have released , an open-source JavaScript library for building web applications; AngularJS, a web application framework; AMP to improve the performance of web content and advertisements; Dart for making applications on Internet of Things devices; for Android and iOS mobile apps; Compute Engine, which can launch virtual machines on demand; App Engine for developing applications on ; and Analytics for website traffic reporting, just to name a few. On the back end, things are far more integrated. The provides a block data storage system; drives data storage systems; is the company’s globally distributed database; MapReduce helps with parallel programming; Dremel offers quick, interactive queries through a column-oriented datastore; and Borg/Omega acts as cluster manager and scheduler. Some assume breaking up companies like Google and Facebook will allow competition to flourish like never before, making consumers the ultimate winners. But the more likely outcome is that productivity will be destroyed. For one, large frontier firms more quickly deploy innovative tech. In part, getting productive ideas to the market is getting more expensive over time, so companies are having to assemble larger and more specialized teams to be productive. In one study of steel minimills, it was found that “the productivity effect of teams is significantly larger in more complex production lines, consistent with the result that more complex production lines are more likely to adopt problem-solving teams.” By their very nature, communication and computer technologies drive down the cost of connectivity and collaboration, helping to drive productivity within companies. Even though it should be obvious, several studies have charted the link between the use of computing technologies in a firm and the ability of that company to adjust to consumer demands and to innovate. Top firms use these technologies in spades. Economist James Bessen summarized the field when he said, “IT system use is associated with greater plant size, greater labor productivity, and greater operating margins for the top four firms in each industry compared to the rest.” On the outside what looks like an expansive and large firm is more accurately one that is using technology to its fullest—and that efficiency requires scale. Moreover, integrating tech into production processes isn’t easy, since about 25 percent of technology upgrade projects fail outright, while about another fourth don’t show any return on investment for a company. So, the sensible path to growth and competition, which has been suggested by the Organisation for Economic Co-operation and Development, would be for policymakers to help other companies adapt to dynamic markets—not bludgeon the top-performing ones with divestiture.

Cleaving the ad network from these tech companies would have drastic ramifications for the tech marketplace, but it would also erect legal barriers to experimentation and innovation. Splitting up platforms would require explicit limits on those companies from expanding into other markets through line-of-business restrictions as well as an adjudication apparatus to make final judgments.

Rinehart ‘18 - splitting up tech giants would ruin funding for large projects “Breaking Up Tech Companies Means Breaking Up Teams And The Underlying Technology.” AAF, www.americanactionforum.org/insight/breaking-up-tech-means-breaking-up-technology-and-teams/. Accessed 25 May 2019.

Last, this type of ad divestiture would set in motion a radical restructuring of the digital economy. Many of the biggest firms engage in internal cross-subsidization, supporting services that simply aren’t profitable on their own. YouTube is the classic example, as it is widely assumed not to be profitable (because there isn’t specific data, there is no way to know for sure). Google has also funded broadband through Google Fiber, self -driving cars through Waymo, and AI through , which was only recently integrated under the Alphabet, Inc. banner. In just the first quarter of 2016, Alphabet announced they had spent over $800 million on these and other “moonshot” bets— none of which are profitable on their own, but each of which can gestate under the support of Google’s overall profitability. Facebook has also been underwriting moonshot technologies. Not only has it supported Internet access throughout the world through Internet.org and its Terragraph projects, the company backs researchers in AI, computer science, and human - computer interaction. Breaking up the tech companies would likely pare down significantly, if not outright eliminate, the funding that allows these programs to exist.

Cleaving the ad network from these tech companies would have drastic ramifications for the tech marketplace, but it would also erect legal barriers to experimentation and innovati on. Splitting up platforms would require explicit limits on those companies from expanding into other markets through line-of-business restrictions as well as an adjudication apparatus to make final judgments.

Thiel ‘18 https://www.wsj.com/articles/peter-thiel-competition-is-for-losers-1410535536?mod=rsswn Before that, IBM 's hardware monopoly of the 1960s and '70s was overtaken by Microsoft's software monopoly. AT&T had a monopoly on telephone service for most of the 20th century, but now anyone can get a cheap cellphone plan from any number of providers. If the tendency of monopoly businesses was to hold back progress, they would be dangerous, and we'd be right to oppose them. But the history of progress is a history of better monopoly businesses replacing incumbents. Monopolies drive progress because the promise of years or even decades of monopoly profits provides a powerful incentive to innovate. Then monopolies can keep innovating because profits

enable them to make the long-term plans and finance the ambitious research projects that firms locked in competition can't dream of.

Americans mythologize competition and credit it with saving us from socialist bread lines. Actually, capitalism and competition are opposites. Capitalism is premised on the accumulation of capital, but under perfect competition, all profits get competed away. The lesson for entrepreneurs is clear: If you want to create and capture lasting value, don't build an undifferentiated commodity business.

A monopoly like Google is different. Since it doesn't have to worry about competing with anyone, it has wider latitude to care about its workers, its products and its impact on the wider world. Google's motto—"Don't be evil"—is in part a branding ploy, but it is also characteristic of a kind of business that is successful enough to take ethics seriously without jeopardizing its own existence. In business, money is either an important thing or it is everything. Monopolists can afford to think about things other than making money; non-monopolists can't. In perfect competition, a business is so focused on today's margins that it can't possibly plan for a long-term future. Only one thing can allow a business to transcend the daily brute struggle for survival: monopoly profits.

Cass ’13 – the winner-take-all system in the tech sector creates an environment where market leaders rise and fall rapidly

AND centralized anti-trust decision making is impossible because they are rooted in limited information available due to competition in the technology sector being dynamic and not static

AND antitrust enforcement raises the expected costs of antitrust inquiries, which deters general investment and incentives for activities to develop new products that would benefit society Cass, Ronald. “Antitrust and High-Tech: Regulatory Risks For Innovation and Competition.” Boston University School of Law. February 2013. https://fedsoc-cms- public.s3.amazonaws.com/update/pdf/jvJhsB7vKKJ476mLDjashshJ21VlnorJk1mz20GE.p df //RJ

The nature of high-technology industries where high investment in innovation, substantial economies of scale or network effects,7 and rapid change in what consumers prize leads to individual companies growing rapidly and dominating particular sectors until the next big thing comes along. These “winner-take-all” or “winner-take-most” markets are common in high-technology sectors. This may explain why the most valuable public company in America today—and the most valuable ever—is technology titan Apple, with a market capitalization in excess of $620 billion as of August 2012. That figure passed the record set by another tech giant, Microsoft, in 1999 (though, adjusting for inflation, Microsoft’s high-water

mark would come out ahead). Yet just as this sector can be characterized by rapid rises, it also can see rapid falls from the top. Facebook, which has now passed the billion user mark, may still be the dominant social network, but its stock value fell by half in just a few months after a much-anticipated public offering in the spring of 2012. Other high-tech businesses offer starker illustrations of the volatility of the sector: These markets attract enormous attention from innovators and entrepreneurs: the opportunity to leap to the front of the line with a new idea attracts competition to replace market leaders – competition that explains why a host of once-thriving companies have left the high-tech stage. Atari was once the leader in personal computing; so was Compaq. Wang led in word processing, as did MicroPro (WordStar) and SSI (WordPerfect). Some companies run fast enough to stay ahead of the pack, at times for a good while, but turnover in market leaders – even those that seem well-positioned to stay in front – is characteristic of these innovation-driven markets.8 Entry into these innovation markets is much easier than in markets that depend on traditional manufacturing or similar inputs; innovators can be rewarded for ideas at early stages; and the public obviously benefits from the new concepts and new companies that emerge from a relativel y open competition taking place over time and across traditionally-recognized market boundaries. Mostly, the very characteristics that generate high concentrations at the top of the market for a time and high returns to the most successful firms also attract investment in trying to come up with the innovation that will replace the leader, perhaps by establishing a new, successor market sector.9 C. Applying Antitrust to High-Tech Antitrust authorities need to exercise special care in making enforcement decisions respecting high-technology industries. Well-known problems of centralized decision-making (a common feature of regulatory schemes, including public antitrust enforcement) are rooted in limited information available to the decision-makers along with difficulties of analysis and prediction (attributable in part to changeable personal value judgments, in part to complexity, and in part to the extremely large range of potential paths that business, social trends, and technology can take).10 High-technology cases involve technical issues that are not readily understood by non-specialists and business directions that are not obvious even to the best-informed insiders. The mismatch between hope and change in using antitrust to regulate the leading high-tech firms is more pronounced because, while the concerns over network effects are dynamic, the principal tools for antitrust analysis—especially respecting definition of the relevant market—are static. These tools almost inevitably orient enforcers’ decisions toward excessive concern with one part of what, rightly understood, is a much larger competitive picture, even though the composition of the larger picture is difficult to predict. Theories have emerged that, if embraced by the courts, could give antitrust enforcers much greater scope for restraining aggressive competition from market-leading individual firms, but these depend on assumptions about the limits of market competition that seem ill-suited to high-tech markets where new ideas allow one firm to replace another and one technology to replace another in unpredictable fashion.11 Rather than demonstrating special caution in venturing into this set of cases, however, antitrust enforcers seem anxious to engage the leading high-technology firms while markets are evolving at a rapid pace. Among the companies publicly identified as actual or potential antitrust targets in recent months are Facebook, Apple, Yahoo, Google, IBM, AT&T, Microsoft and Intel. How the government handles decisions respecting these firms has important implications for the economy and for innovation. Antitrust inquiries can exact extraordinarily high costs from target firms, both in direct expenditures and in distraction from core business operations.12 Even inquiries that do not result in suits can be costly and disruptive. And in fields characterized by dynamic competition, there generally is little reason to expect that inquiries into individual firm conduct on dominance grounds will be socially beneficial—at least if pursued beyond an initial, cursory review; not only is it unlikely that there single-firm conduct will generate serious harm to consumers (as opposed to competitors), but whatever benefit in expanded competition might be produced by litigation is apt to be largely attained from market forces in any event. In other words, the incremental remedial benefit from investigation and litigation is apt to be modest when it exists at all.13 Further, the expected costs of antitrust inquiries and prosecutions by enforcement authorities will influence behavior of prospective targets before any specific investigation is begun—largely in ways that will not be socially beneficial. As the expected costs associated with antitrust investigations and litigation rise, incentives decline for investment in the activities that generate potential enforcement actions, including investments in initial innovation, follow-on improvements, and aggressive competitive conduct (often exactly the sort of conduct that results in lower prices, improved products, and reduced costs of acquisition, access or operation for consumers). “Aggressive competition” may sound bad to antitrust enforcers and antitrust-enthusiast academic theorists, but aggressive competition tends to deliver benefits to consumers, whether from a business offering the lowest prices, most or most convenient store locations, longest hours, most extensive and extensively integrated set of product features, or any other “most” that sets a business apart from its rivals.14 Excessively vigorous antitrust enforcement activity inevitably translates into insufficiently vigorous competition in exactly the markets the enforcers and theorists want to make competitive.15 Looking at some examples of past government investigations and prosecutions suggests lessons for future decisions.

Katz

Katz ’06 – dynamic competition provides the ground for a “systemic retreat in antitrust enforcement”

AND firms compete for the whole market, not shares of the market, in tech sectors

AND antitrust enforcement focuses on current sales, which deters innovation by distorting the reward structure for R&D Katz, Michael. “’Schumpeterian’ Competition and Antitrust Policy in High-Tech Markets.” Haas School of Business. 2006. http://dmccartney.com/nn/files/ssrn-id925707-1.pdf //RJ Adherents of the Schumpeterian School argue that dynamic, innovation-based competition provides grounds for great caution or even a systematic retreat in antitrust enforcement.13 At the heart of the Schumpeterian argument is the assertion that, in important instances, competition primarily occurs through cycles of innovation, rather than through static price or output competition. Firms in such markets compete for temporary dominance of the market through the introduction of new generations of relevant technology. That is, firms do not compete simultaneously for a share of the market, but rather sequentially for the market as a whole. At any given moment, only one firm might dominate sales of the product at issue but other firms continue to innovate and prepare to knock the incumbent from the market by developing superior products. The central implication of such dynamic competition for antitrust is that focusing on current sales and static price competition may cause enforcement agencies to miss the real force behind market performance: innovation. Intervention into dynamic markets might then have the unintended consequence of slowing innovation either by distorting the reward structure for risky R&D (i.e. by impeding temporary monopoly returns) or by preventing dynamically beneficial mergers (i.e. transactions that might speed innovation by aggregating complementary assets).

Evans

Evans ’02 – tech (or new-economy) firms face dynamic, Schumpeterian competition for a few reasons— 1: firms have high fixed costs and low marginal costs, and must invest substantially in R&D, which results in increasing returns instead of diminishing ones, 2: high-technology industries have network effects (where a product is only successful with lots of consumers using it), which inherently means that technology industries can only have one or two firms at the top (since they capture the consumer network, and other firms are outcompeted), 3: competition in the technology sector is inherently through innovation for winner-take-all markets, as firms invest heavily to develop a product that creates a new market

AND in order for dynamic competition to succeed, firms must expect to earn a competitive rate of return on their R&D investment, which means they *must* be granted market power to yield that return

AND these dynamics force a small number (often with just one) of firms to have a bulk of industry sales

Evans, David. “Some Economic Aspects of Antitrust Analysis in Dynamically Competitive Industries.” National Bureau of Economic Research. 2002. https://www.journals.uchicago.edu/doi/pdfplus/10.1086/653753 //RJ

Industries in which dynamic competition for the market is important have several of the following characteristics. Each characteristic reflects a deviation from the textbook model of static price/output competition and has important implications for antitrust analysis. Low Marginal Costs

and High Fixed Costs Firms in new-economy industries tend to have high fixed costs and low marginal production costs. They often must invest a great deal to develop their products, either because they must make substantial investments in R&D, or because they must invest in a physical or virtual network to create and deliver the product. But once they make this initial investment, it is cheap to create additional units. It does not cost much to produce an other copy of, say, the Adobe Acrobat Reader; nor, once a fabrication facility has been set up, to produce another Intel Pentium microprocessor. That is, production in new-economy industries exhibits increasing returns.15 For example, in 1998 material expenses accounted for 52% of revenues in manufacturing industries overall,16 while in new- economy industries material expenses averaged less than 30% of revenues (for example, software (19%),17 pharmaceuticals (29%),18 and semiconductor manufacturing (19%)19). Labor and Human Capital Intensity Many new-economy industries make more intensive use of labor and less intensive use of tangible cap ital than old-economy industries. That is because the fixed costs in curred by high-technology firms are mainly for the labor used to develop their products, by developing intellectual property (or intangi ble capital). Thus, even if the subsequent production process is fairly capital-intensive, as in chip manufacturing for instance, new-economy industries are generally relatively labor-intensive overall. Labor costs are 15% of revenue in manufacturing industries overall as compared to 22% in electromedical equipment, 30% in software publishing, and 48% in computer programming services.20 Another important reason why labor compensation accounts for a high fraction of the costs in high-technology industries is that they tend to have more highly educated workforces than old-economy indus tries; accordingly they tend to use more human capital.21 For example, the median education level of workers in the software industry is 15 years, while workers in all manufacturing have a median education level of 12 years. Moreover, 15.6% of workers in the software industry have a graduate degree, as compared to 4.6% in all manufacturing.22 Because intellectual property is the critical asset in new-economy in dustries, entry costs can be quite low, and the risk that a dangerous ri val will emerge seemingly from nowhere can be quite high. For example, the Linux operating system, initially written by a graduate student as a hobby and further developed by volunteers working through the open-source movement on the Internet, has captured a 24.4% share of new installations on servers.23 Another open-source product, Apache, has captured a 60% share of installations on Web servers.24 Network and System Effects Many high-technology industries, particularly those based on computer software, the Internet, or telecommunications generally, have network effects. An industry is often described as a network industry if the value of the network to any one consumer depends importantly, either directly or indirectly, on the number of other consumers on the network.25 Such an industry may or may not involve an actual physical network. Commonly cited examples of net work industries include telephones, fax machines, credit card systems, and e-mail. Many of these involve a physical network to link consumers,26 but the physical network is not really what makes these network industries in an economic sense. Some other network industries are clearly virtual (not physical) networks, in which consumers benefit in directly from the number of users of the network. In al l cases, the use of common standards plays a critical role in linking network users. Net work effects are a source of scale economies in consumption rather than production and thus tend to produce markets with at most a small number of clear leaders, making it difficult for firms with small shares to survive unless they produce significant innovation. Many of the high-technology industries that have emerged in the last twenty years have significant network effects. Wintel computers (i.e., computers in which Windows software runs on Intel-compatible hard ware) are more valuable to each consumer the more other consumers use this standard. Software developers will invest more in writing ap plications for this standard, making it more likely that consumers will have the applications they desire. Also, use of a common standard makes it easier for consumers to exchange input and output files (such as data sets, text documents, or spreadsheets) with each other. Many Internet-based businesses also have significant network effects. That is perhaps most clearly true for messaging services and chat rooms, the value of which directly increases with the number of people on the same network. It is also true for market-making services such as eBay, where buyers benefit from there being more sellers, and sellers benefit from there being more buyers. Firms that are not leaders in network industries generally have little hope of reaching that status unless they come up with a major innovation one that can defeat the natural advantage that network effects bestow on the industry leaders. Incremental innovation (making slight improvements in the leaders' products) will not enable a small firm to overtake a leader that enjoys the benefits of network economies. Similarly, the possibility of being displaced by a major innovation will shape leaders' research agendas. If there is a chance that today's products will be replaced by a major innovation, a leader's survival depends on bringing that innovation to market and thereby replacing itself before others do. As a result, competition in network industries often involves intense R&D efforts aimed at capturing or retaining market leadership. System effects in which the value of one component of a system de pends on complementary components in the system27 are important in computer- and Internet-related high-technology industries. The value of any software platform, such as Windows or Java, depends largely on the quality and quantity of applications written to run on that platform, as well as on the ability of available hardware to run that platform with both speed and reliability. Firms in high-technology industries have strong

incentives to encourage production of high quality complements. This welfare-enhancing activity generally re quires a good deal of interfirm communication of various sorts. Innovation as a Series of Winner-Take-All Races Competition in some high-technology industries involves sequences of races to develop a new product or, as discussed above, to replace an existing product through drastic innovation. In the initial race, firms invest heavily to develop a product that creates a new category or becomes an early leader in a new category; the PalmPilot, VisiCorp's spreadsheet for the Apple, and AOL's Instant Messenger are examples. Winners get large market shares and high profits for a while.28 Economic theorists have produced numerous models of races of this sort, typically involving patents or network effects.29 In most of this literature, any given industry is assumed for simplicity to experience one and only one race, after which the winner enjoys a monopoly position forever.30 Unfortunately, this literature seems to have suggested to some observers that real new-economy industries also become stable monopolies after an initial burst of dynamic competition. While it is true that network effects tend to reinforce leadership positions, in many high- technology industries there are multiple, sequential races for market leadership. Major innovations occur repeatedly, and switching costs and lock-in do not prevent displacement of category leaders by better products. Figure 1.1 illustrates this phenomenon in the microcomputer software industry.31 It is not atypical for a fringe firm that invests heavily to displace the leader by leapfrogging the leader's technology. These winner-take-all races arise for two related reasons discussed above.32 First, network effects create a snowball effect (sometimes called "positive feedback") for firms that are first to have many satisfied customers. When a firm attracts additional customers, the value of its product increases, making it possible to attract still more consumers. Second, there are scale economies at the firm level because of high fixed intellectual property costs, so that making more sales enables firms to get their average costs down and to make profits while charging low prices. In some high-technology industries, especially those based on the Internet, network effects and scale economies are so pronounced that many firms give away their products for extended periods of time, both to gain market penetration and to affect the evolution of technical standards. Netscape, for example, followed its famous "free, but not free" approach to market penetration of its web browser.33 Of course, in any particular industry, in either th e new or the old economy, there is no guarantee that competition through races for drastic innovations will continue indefinitely. In the U.S. automobile industry, an initial period of rapid innovation and product development was followed by several decades of comparative stability. One might have described the auto industry in 1910 as Schumpeterian in important respects; one would not have said this in 1950. On the other hand, a period of stability in market positions as measured by current sales can mask a fierce product development contest. Even though by 1990 Microsoft's MS-DOS had been far and away the leading PC operating system for almost a decade, Microsoft was en gaged in a bet-the-company battle to develop a version of its Windows operating system product that would prevail against IBM's OS/2.34 By 1990, DOS-type operating systems were generally viewed as obsolete deficient in handling memory, running multiple applications simultaneously, and providing ease of use. Microsoft had worked with IBM in developing early versions of OS/2, an operating system de signed to overcome these deficiencies, but by the early 1990s the two firms had gone their separate ways. In early 1992, IBM released the first, widel y praised version of OS/2 at about the same time that Micro soft released Windows 3.1. Industry analysts at the time disagreed in their predictions over which would be more successful.35 A similar pairing of hotly competing products appeared in late 1994 and mid-1995, with the releases of OS/2 Warp 3.0 and Windows 95.36 Again, analysts disagreed over which product would ultimately prevail.37 Highly Profitable Industry Leaders For firms to be willing to engage in dynamic competition, they must expect to earn, on average, a competitive rate of return on their R&D investments. These investments are risky, for competitive as well as technological reasons. With some probability, a firm's R&D spending will produce no returns at all. For its expected rate of return to be competitive, it must be the case that if these investments succeed, they at least temporarily produce enough market power - enough ability to charge prices that exceed the corresponding marginal costs of production - to yield a supracompetitive rate of return viewed ex post. Firms that expected that they would only be able to charge prices equal to marginal costs after completing their R&D successfully would obviously not invest in that R&D to begin with: they would not even recover their fixed and sunk R&D costs. In dynamically competitive industries, entrepreneurs and their backers recognize that many will try and most will fail. In the aggregate, we expect that entrepreneurs and investors will keep investing until the expected rate of return, adjusted for risk, is equal to what they can get elsewhere in the economy. But these investments will fund many enterprises that do not succeed (and therefore lose money) and a few enterprises that do succeed (and there fore make a great deal of money). Expected and observed returns are thus highly skewed.38 Similarly,

because of network effects and scale economies, as well as legally protected intellectual property, high- technology industries generally have a small number of relatively large firms at any point in time. In fact, in many new-economy industries these features may result in a single firm having the bulk of industry sales at any point in time.

Evans ’02 – dynamic competition is an important source of consumer benefit but antitrust policy is based entirely around perfect, static competition which is fundamentally incompatible with technology industries

AND traditional understandings of what constitutes an antitrust violation is not a market failure, but instead just a characteristic of dynamic competition

AND the complexity of the high tech market prevents any use of simple rules of antitrust policy, but more detailed rule-of-reason analysis operates too slowly for the tech market because the market changes so often

AND overall, the government can A. never access necessary information for a fair, successful tech antitrust case, or B. cannot process the case in time before the case is overtaken by market events – these two factors renders anti-trust policy in technology industries impossible, beating back any responses about adopting antitrust investigations to technology sectors Evans, David. “Some Economic Aspects of Antitrust Analysis in Dynamically Competitive Industries.” National Bureau of Economic Research. 2002. https://www.journals.uchicago.edu/doi/pdfplus/10.1086/653753 //RJ

In contrast, most economic texts and antitrust casebooks treat perfect competition as the welfare-maximizing market structure and treat departures from this structure as problematic.42 Of course, perfect competition is to economics what the frictionless plane is to physics: an abstract ideal that is never attained in reality. More importantly, perfect competition is an ideal only as regards static competition; nobody argues that it is an effective, let alone ideal, regime for producing innovation through dynamic competition. Where dynamic competition is actually or potentially important as a source of consumer benefit, basing antitrust policy on the notion that perfect competition is an attainable ideal is unlikely to serve consumers well. Nonetheless, antitrust analysis has historically taken departures from textbook perfect competition as signs of possible competitive problems that may warrant government intervention.43 In assessing the importance of those departures, antitrust analysis has traditionally paid particular attention to whether any firms have high market shares, since having a large number of relatively small firms is a key feature of perfect competition. However, as discussed just above, this statically competitive market structure cannot persist in many new-economy industries. Similarly, leaders in many new-economy industries generally set prices well above marginal cost and enjoy high rates of return even when dynamic competition is intense. There are three important implications for antitrust economic analysis. First, the rational expectation of significant market power for some period of time is a necessary condition for dynamic competition to exist in high-technology industries. Thus if dynamic competition is healthy, the presence of short-run market power is not a symptom of a market failure that will harm consumers. Second, one expects leaders in new-economy industries to charge prices well above marginal cost and to earn high profits. It is natural in dynamic competition, not an indicator of market failure, for successful firms to have high rates of return even adjusting for risks they have borne. In effect, their lottery tickets have paid off.

Third, although static competition is rarely vigorous in new-economy industries, the key determinant of the performance of these industries is the vigor of dynamic competition: an issue that is ignored by traditional antitrust analysis.44 An explicit investigation of present and likely future dynamic competition is essential to sound economic analysis of Schumpeterian industries. Some observers have contended that the complexity of high technology markets argues against the use of simple rules of antitrust policy and in favor of widespread use of detailed rule - of-reason analysis. On the other hand, such analysis tends to be time-consuming, and the high rate of technological progress in these sectors and the fragility of market positions based on intangible assets mean that analyses of new-economy industries require access to specialized technical knowledge and rapidly become dated. Based on these concerns, Judge Richard Posner (2000) has noted his doubts that government officials can access the technical information necessary for sound analysis and that the judicial system can process new-economy antitrust cases before they are overtaken by events. The only apparent approach to the mitigation of these problems is to develop presumptions and structured rules of reason that reflect new-economy realities and that are designed to lighten the courts' analytical burden. When the world is changing rapidly, an approximate analysis of today's conditions is much more likely to be useful than an exact analysis of conditions a decade ago.

Evans ’02 – antitrust enforcement agencies are fixated on market shares to evaluate cases

AND the market share model is problematic for new-economy industries because today’s evaluation of the market says nothing about the changing nature of the market through dynamic competition

AND this evidence indicates that even probabilistically, historical usage and approach to antitrust fails with respect to technology Evans, David. “Some Economic Aspects of Antitrust Analysis in Dynamically Competitive Industries.” National Bureau of Economic Research. 2002. https://www.journals.uchicago.edu/doi/pdfplus/10.1086/653753 //RJ

The courts and the enforcement agencies, however, have become fixated on market shares, and this has shaped the typical approach to market power analysis. This approach involves: (1) defining "the relevant market" in which the firms operate with products and regions necessarily either 100% in or 100% out of the market; (2) calc ulating the share of the market thus defined for the firm or firms in question; and (3) inferring significant market power mainly from whether the share is high (60% is a favorite threshold for the courts). Even in old-economy industries in which production capacity is often important and market share tends to follow capacity, there is no rigorous defense for strict reliance on this approach to measuring market power.47 Elasticities of demand and supply fall along a continuum, as do cross-price elasticities of demand and supply. Thus there is no basis in economics for drawing hard market boundaries or for treating all products as either all in or all out of the market.48 Even if market definition is not a problem, a firm's ability to affect price generally depends on more than its share of current sales, as the courts have from time to time recognized.49 The market-definition-market-share approach to the analysis of market power is considerably more problematic for new-economy industries. In the new economy, today's sales and market share tend to be driven by the quality of today's products, perhaps amplified by network effects, not by durable assets like production capacity and distribution systems. Today's sales do not necessarily say anything about the value of intellectual capital, the quality or popularity of tomorrow's products, or the changing nature of the markets in which they will compete. Market positions based on intellectual property are fragile when innovation is rapid. There is an even more basic difficulty: leaders in high- technology industries must have (temporary) market power if there is to be dynamic competition that enhances consumer welfare. And, of course, the purpose of market definition and market power analysis is to learn to what extent competitive forces constrain the ability of a firm or set of firms to engage in actions that will harm consumers.50

Evans ’02 – successful incumbents (i.e. current monopolists) are constrained by dynamic competition because the threat that another firm will outcompete it forces the incumbent to constantly invest in R&D to improve its product/market, which benefits consumers

AND the threat of other firms outcompeting the monopolist prevents the monopolist from ever engaging in damaging behavior like price gouging because it will make an entrant more attractive to consumers which beats back aff offense about monopolists engaging in damaging behavior Evans, David. “Some Economic Aspects of Antitrust Analysis in Dynamically Competitive Industries.” National Bureau of Economic Research. 2002. https://www.journals.uchicago.edu/doi/pdfplus/10.1086/653753 //RJ Traditional market definition analysis, which studies constraints on firms' price/output decisions, can present a seriously misleading picture of competitive relations in the new economy. Successful incumbents in Schumpeterian industries are constrained primarily by dynamic competition: by the threat that another firm will come up with a drastic innovation that causes demand for the incumbent's product to collapse. The new product may be just a vastly better version of the old product (the Palm Pilot vs. the Apple Newton), or it may be an entirely different product that eliminates the demand for the old product (the hand-held calculator vs. the slide rule).51 These threats force new economy firms to invest heavily in R&D and to bring out new versions of their products - including versions that lead to the demise of their old versions. (For instance, Windows 95 largely - though not instantly - eliminated the demand for MS-DOS.) These threats also generally constrain the prices charged by incumbents: the higher the current prices and the smaller the network of users, the more attractive an entrant will be to consumers - even if incumbents lower prices in response to entry.52 The recent history of high-technology industries demonstrates that dynamic competition takes place among firms that are not necessarily competitors in the static markets that economists ordinarily define for antitrust cases. Dynamic competition has been particularly evident in the software industry. In some instances firms race to create an entirely new product category. For example, VisiCalc defined the category of spreadsheet software and was the early market leader. But it was eventually displaced, first by Lotus 1-2-3 and subsequently by Microsoft Excel. In other instances, dynamic competition takes the form of innovation to displace a category leader. For example, Micropro's WordStar was the early leader in word processing software for PCs, which significantly displaced dedicated word processing systems such as those offered by Wang. But WordStar was eventually displaced by WordPerfect. WordPerfect retained category leadership for approximately six years before being displaced by Microsoft Word, which was helped in part by the transition to graphical user interfaces and, in particular, Windows.53

Evans ’02 – more of the same stuff that the Evans cards above say but: 1. Summarizes why measuring static market power is invalid for tech and 2. Is more concise in saying that leading firms are constrained by potential rivals, preventing them from taking anticompetitive actions that damage consumer welfare Evans, David. “Some Economic Aspects of Antitrust Analysis in Dynamically Competitive Industries.” National Bureau of Economic Research. 2002. https://www.journals.uchicago.edu/doi/pdfplus/10.1086/653753 //RJ Static market power, usually measured by market share, has been used by the courts as a screen to enable them to avoid inquiring into anti trust claims when consumer harm is implausible and to focus scarce judicial resources on those situations in which market forces may not provide sufficient discipline.61 But static market power, even if measured accurately by market share, is not a useful antitrust concept in high-technology industries, for two related reasons. First, market share tests do not provide a useful screen in new-economy industries, since most leading firms have market power in the static sense. Thus a consistent application of this approach would imply that their business practices would always be subject to full-blown rule-of-reason inquiries. Indeed, in many high-technology industries a single firm has a high share of whatever category it serves; this category is a market under the approaches ordinarily used by the enforcement agencies in antitrust inquires.62 For example, table 1.3 reviews the hares of leading high-technology companies in categories that plain tiffs could plausibly identify as markets in antitrust cases. Given the historical fragility of market leadership positions in new-economy industries, there is no economic basis for treating leading firms in these industries as if they had the sort of durable market

position that would be associated with, for instance, large shares of steel-making or oil-refining capacity. The second, related problem with reliance on market share in new-economy industries is that static market power does not provide a useful measure of the constraints that market forces place on efforts by a firm to take anticompetitive actions - those that will tend to reduce consumer welfare. In most traditional businesses, firms are primarily constrained by their direct competitors in the market. In some cases, potential competitors are also an i mportant constraint because it is easy to enter the business, produce comparable products, and compete effectively. R&D efforts are comparatively modest, and innovation is likely to result in incremental change, not "creative destruction." In many new-economy industries, on the other hand, leading firms are constrained mainly by rivals - known and unknown - that are investing or easily could invest in drastic innovations. They are not constrained much by the pricing or production decisions of existing firms, because they typically face few if any contemporaneous rivals, and scale economies and network effects are often effective barriers to the entry of comparable (or "me-too") products.