Antitrust and the global Internet economy

Antitrust Issues Raised by the Emerging Global Internet Economy

Web-based businesses are increasingly the subject of antitrust concerns. Plaintiffs in the United States have sued eBay for tying its online payments service to its transaction service.[1] Multiple jurisdictions in the European Community have claimed that Apple has violated the competition laws by limiting the ability of its music player to play music from competing music stores and limiting the ability of competing music players to play music purchased from its music stores.[2] During 2007, although the U.S. Federal Trade Commission decided not to block Google’s acquisition of DoubleClick after a lengthy investigation, it expressed its intent to “closely watch these markets” involved in online advertising.[3]

Of course, competition policymakers have not just discovered the web. In 1998, shortly after the start of the commercial internet three years earlier, the U.S. Department of Justice and various states filed an antitrust case against Microsoft for engaging in various practices related to web browsers.[4] The European Commission started an investigation of Microsoft’s practices related to media players that stream music over the internet in 2001.[5] However, the Microsoft cases mainly involved the use of the company’s market power in personal computers to influence competition in web-based markets that threatened it. The matters involving Apple, Google, and eBay concern market power in web-based products and services themselves.

The internet economy is likely to raise antitrust concerns—and possible demands for regulation—for years to come. Global gargantuan firms have emerged, which will likely attract scrutiny by competition authorities and by policymakers concerned with competition issues. The companies mentioned above, for example, have shares in putative antitrust markets that rival those held by Microsoft.[6] Apple has more than a 70 percent share of paid music downloads in the European Union,[7] Google has more than an 80 percent share of search queries in Europe,[8] and eBay has more than a 90 percent share of auction site page views in France, Germany, Italy, Spain, and the UK.[9]

Competition authorities and private parties can challenge the practices of these leading firms under the antitrust laws of most jurisdictions. Such challenges are especially likely under European Community law and decisional practice which impose special obligations and significant scrutiny on firms that have market shares as low as 40 percent.[10] Moreover, many web-based firms have complex business models and arrangements. Separating the merely complicated from the nefarious will take courts and competition authorities time to sort out. This Essay describes the economics and technology behind the web-based economy and how these features will influence internet competition policy in the years to come.

Section I provides a birds-eye view of the web-based economy. Although this sector is evolving quickly, its contours are beginning to take shape and we can be reasonably confident that several globally dominant firms will play significant roles. Section II describes the economics of the web-based economy. The key businesses are what economists call “multi-sided platforms” that serve several distinct but interdependent customer groups. Google for example serves people who are searching the web, advertisers who want to reach these users, and application developers who are using Google’s software to develop complementary products. The leading multi-sided platforms for the web are often built on “software platform” technologies that make portions of their code available to software developers who write applications that benefit users of the software platform. Section III considers the competition that arises in the web-based economy. The appearance of dominant firms in key sectors will ensure ongoing scrutiny, and the nature of the economics and technology of these businesses will result in ongoing disputes over their practices.

The web economy poses two major challenges to competition authorities. The law and economics for analyzing the multi-sided platforms that dominate the internet sector is not well developed. At the same time the web-economy is evolving very rapidly and in ways that are sure to result in antitrust complaints and investigations. Competition authorities and courts will need to exercise great care in balancing the protection of consumers from anticompetitive behavior against causing harm from interfering in complex businesses that are both rapidly moving and not fully understood.