AEI-Brookings Joint Center for Regulatory Studies Working Paper 01-03, 2001
This paper looks at how competition policy should adapt to the new economy.
Old-style competition policy relies on theories that will make it harder for consumers to benefit from networks.
- Traditional competition policy assumes consumers are best off if many firms compete at once.
- Networks industries are different than “normal” industries because the value of their product to users increases if more people use the product. Here, consumers may benefit from having a dominant firm.
- In a modern economy with innovation and rapid change, dominant firms are always under pressure from rivals.
- The author recommends:
- Recognizing antitrust moves slower than innovation.
- Looking closely at each antitrust case.
- Looking for competition over time (dynamic competition).
- Erring on the side of caution in regulating.
- Avoiding giving firms chances to lobby to hurt competitors.
- Learning more about how markets actually work.