Antitrust and Platform Monopoly
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University of Pennsylvania Carey Law School Penn Law: Legal Scholarship Repository Faculty Scholarship at Penn Law 11-16-2020 Antitrust and Platform Monopoly Herbert J. Hovenkamp University of Pennsylvania Carey Law School Follow this and additional works at: https://scholarship.law.upenn.edu/faculty_scholarship Part of the Antitrust and Trade Regulation Commons, Business Organizations Law Commons, Industrial Organization Commons, Intellectual Property Law Commons, Law and Economics Commons, Legal Remedies Commons, Other Economics Commons, Science and Technology Studies Commons, and the Technology and Innovation Commons Repository Citation Hovenkamp, Herbert J., "Antitrust and Platform Monopoly" (2020). Faculty Scholarship at Penn Law. 2192. https://scholarship.law.upenn.edu/faculty_scholarship/2192 This Article is brought to you for free and open access by Penn Law: Legal Scholarship Repository. It has been accepted for inclusion in Faculty Scholarship at Penn Law by an authorized administrator of Penn Law: Legal Scholarship Repository. For more information, please contact [email protected]. ANTITRUST AND PLATFORM MONOPOLY 130 Yale L.J. __ (2021) Herbert Hovenkamp* INTRODUCTION .............................................................................................. 2 I. DIGITAL PLATFORM MONOPOLY ..................................................... 6 A. ASSESSING PLATFORM POWER..................................................................... 6 1. Measuring Power Directly ...................................................................... 6 2. “Cluster” Markets ................................................................................ 13 B. IDENTIFYING TWO-SIDED PLATFORMS ...................................................... 15 C. ARE PLATFORM MARKETS WINNER-TAKE-ALL? ...................................... 17 1. Stable Competition Among Incumbent Firms: Single- vs. Multi-Homing 21 2. Durable Dominant Positions: Entry Barriers, No-Fault Monopoly, and Exclusionary Practices .................................................................................. 28 3. Declining Costs, Network Effects, and the Extent of the Market .......... 42 4. Product Differentiation and Winner-Take-All ...................................... 51 II. ANTITRUST REMEDIES AGAINST DOMINANT PLATFORMS ..... 58 A. AGAINST PLATFORM EXCEPTIONALISM ..................................................... 58 B. ANTICOMPETITIVE CONDUCT ..................................................................... 61 C. DESIGNING APPROPRIATE ANTITRUST REMEDIES ...................................... 63 1. Structural Relief, Limits on Defaults, and Other Injunctions................ 65 a. Breakups for Sherman Act Violations ........................................................... 65 b. Addressing Defaults ...................................................................................... 68 c. Platform Segregation .................................................................................... 71 d. The Comparative Advantage of Injunctions ................................................. 73 e. Administrability ............................................................................................ 76 2. More Creative Alternatives ................................................................... 78 a. Enabling Competitive Management ............................................................. 81 b. Mandatory Interoperability or Pooling ......................................................... 96 3. Conclusion: Compelling Network Competition Without Sacrificing Structural Efficiency .................................................................................... 105 *James G. Dinan University Professor, Univ. of Pennsylvania Carey Law School and The Wharton School. Thanks to Erik Gordon, Erik Hovenkamp, Fiona Scott Morton, Elizabeth Pollman, Richard Schmalensee, and D. Daniel Sokol for commenting on a draft, and to Nicholas Whetstone for valuable research assistance. 1 Electronic copy available at: https://ssrn.com/abstract=3639142 2 Platform Monopoly Nov. 2020 III. PLATFORM ACQUISITIONS ......................................................... 106 A. Acquisitions of Nascent Firms Generally ........................................... 106 B. Killer Acquisitions .............................................................................. 114 CONCLUSION .............................................................................................. 119 INTRODUCTION Should antitrust policy do more to promote competition in digital platform markets? The claim that antitrust is falling short comes from both the left and the right, but it also provokes strong disagreement. How much of the call for action is a response to real competitive harm—and how much to large firm size, personal animus, myopia, perceived political power, or something else—is unclear. This is evident in the forty responses to a House Judiciary Committee’s request in early 2020 for recommendations concerning digital platform monopoly.1 Some believe that everything is fine and 1 See Digital Markets Investigation: Antitrust Investigation of the Rise and Use of Market Power Online and the Adequacy of Existing Antitrust Laws and Current Enforcement Levels, HOUSE COMMITTEE ON JUDICIARY, https://judiciary.house.gov/issues/issue/?IssueID=14921 [https://perma.cc/HM6U-RW47]. For some examples, see Jonathan B. Baker et al., Joint Response to the House Judiciary Committee on the State of Antitrust Law and Implications for Protecting Competition in Digital Markets (Apr. 30, 2020), https://judiciary.house.gov/uploadedfiles/joint_submission_from_michael_ kades_and_antitrust_expert_coalition.pdf [https://perma.cc/UE78-CHMW]; Jonathan M. Barnett et al., Joint Submission of Antitrust Economists, Legal Scholars, and Practitioners to the House Judiciary Committee on the State of Antitrust Law and Implications for Protecting Competition in Digital Markets (May 15, 2020), https://judiciary.house.gov/uploadedfiles/joint_submission_from_internatio nal_center_for_law__economics.pdf [https://perma.cc/62QW-KJ4N; James C. Cooper, Joshua D. Wright & John M. Yun, Prepared Statement Before the Investigation into the State of Competition in the Digital Marketplace (Apr. 17, 2020), Electronic copy available at: https://ssrn.com/abstract=3639142 2020 Platform Monopoly 3 we should make few substantive changes.2 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 One question underlying all of this is whether antitrust law’s focused and litigation driven approach is sufficient to address competition problems in digital platforms? Or are the problems so common and widespread that they require more pervasive public control? https://judiciary.house.gov/uploadedfiles/submission_from_joshua_wright_ james_cooper_and_john_yun.pdf [https://perma.cc/MD4A-AR75]; Thomas A. Lambert, Submission (Apr. 17, 2020), https://judiciary.house.gov/uploadedfiles/submission_from_thomas_lambert .pdf [https://perma.cc/8PAA-UVQ8]; Robert H. Lande, Submission on Competition in the Digital Marketplace (Apr. 16, 2020), https://judiciary.house.gov/uploadedfiles/submission_from_robert_lande.pd f [https://perma.cc/2G8Q-FBFB]; D. Daniel Sokol, Antitrust House Judiciary Committee Antitrust Submcommittee Testimony, https://judiciary.house.gov/uploadedfiles/submission_from_daniel_sokol.pd f [https://perma.cc/JVS2-NLMC]; Spencer Weber Waller, Submission (Mar. 30, 2020), https://judiciary.house.gov/uploadedfiles/submission_from_spencer_waller _weber.pdf [https://perma.cc/5PYR-4JPS]; see also Thurman Arnold Project at Yale, Digital Platforms and Antitrust, YALE SCH. MGMT., https://som.yale.edu/faculty-research-centers/centers-initiatives/thurman- arnold-project-at-yale/digital-platforms-and-antitrust [https://perma.cc/L5EZ-EHN3] (collecting resources). For my own response see Herbert Hovenkamp, Submission (Apr. 17, 2020), https://judiciary.house.gov/uploadedfiles/submission_from_herbert_hovenk amp.pdf [https://perma.cc/U6Z4-QLSA]. 2 See, e.g., Barnett et al., supra note Error! Bookmark not defined.. 3 See, e.g., ZEPHYR TEACHOUT, BREAK ‘EM UP: RECOVERING OUR FREEDOM FROM BIG AG, BIG TECH, AND BIG MONEY (2020); Sophia Lam, It’s Time to Break Up Big Tech, GATE (Oct. 20, 2019), http://uchicagogate.com/articles/2019/10/20/its-time-break-big-tech [https://perma.cc/K48V-GAVR]. Somewhat more sensitive to the administrability question is Rory Van Loo, In Defense of Breakups: Administering a “Radical” Remedy, 106 CORNELL L. REV. (forthcoming 2020). Electronic copy available at: https://ssrn.com/abstract=3639142 4 Platform Monopoly Nov. 2020 Cutting against broad statutory regulation is the fact that digital platforms are extremely diverse from one another. Regulation in an industry such as air travel, electric power, or telecommunications applies to firms with common technologies and similar market relationships. This is not the case with the four major digital platforms that have drawn so much media and political attention – namely, Amazon, Apple, Facebook, and Google. They have different inputs. While there is some overlap, they sell different products, only some of which are digital. They deal with various third parties including customers 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 statutory control of individual aspects of their business,