Author(s)
George Priest
Source
Yale Law & Economics Research Paper No. 352, 2007
Summary
This paper asks how competition policy should be adapted to networks.
Policy Relevance
Applying old ideas about competition to modern networks can harm consumers. Even very large networks can offer the best benefits for consumers.
Main Points
- Some networks are different from other products because of “network effects”. Network effects make things more valuable to a user when there are more additional users.
- One fax machine is not useful, as it cannot send or receive, but as more machines are put in use, the single fax machine becomes more useful to its owner.
- Some networks cost less to run as they grow larger, making them natural monopolies.
- For networks, one should ask whether a business practice increases the value of the network for consumers. Traditional queries about market power are not helpful.
- Consumers can benefit so much from network effects that the network becomes a demand driven natural monopoly.
- Recent cases such as those against American Airlines, Mastercard/Visa, and Microsoft come out differently if benefits to consumers are considered.
