Competition Law Issues in the Computer Industry: An Economic Perspective

Abstract

The computer industry has been the subject of some of the most intense, extended and controversial investigations in competition law. The IBM case in the 1970s and the Microsoft casehave polarized debate over the role and enforcement of competition law. Some argue that the computer industry and related sectors require a new type of antitrust, by which they mean a more permissive regime. Others believe that the concerns raised by the computer sector are no different to those routinely dealt with by competition authorities, say in the telephone, media and pharmaceuticals sectors - so there is no need for a new competition law and new economics - just better analysis and more stringent enforcement to prevent irreversible monopoly positions being created. There is no doubt that the computer industry poses a challenge to competition law and its economics. The industry raises traditional competition law concerns of monopoly, foreclosure and bundling together with more complex considerations of innovation, tipping, and the interplay between intellectual property rights and competition law. It raises the question whether the static definition of market power - usually cast in terms of the ability to profitably raise price above the competitive level - is an adequate benchmark in emerging industries where non-price competition, dynamic efficiency, price discrimination and prices below marginal costs are endemic. It is also an industry where market boundaries are changing and converging, and where often a few large firms supply the 'building blocks' for those down- and up- stream. This article addresses some of the economic issues raised by the computer sector relevant to competition law analysis. The discussion is organized as follows. Section II identifies several basic economic concepts relevant to the competitive assessment of the computer industry, its structure and business practices. This is followed in Section III with a critical assessment of the implications of these concepts for policy and competition law enforcement, and the concerns over how dynamic competition factors should be incorporated into competition law (Section IV). The discussion then turns to the definition of relevant markets and in particular whether complementary products should be regarded as one or two relevant product markets (Section V), often referred to as aftermarkets. The discussion then looks at the economics of product bundling (Section VI) and a brief discussion of intellectual property rights (Section VII). The discussion for the most part makes reference to European law and cases, and in relation to bundling United States v Microsoft Corporation.