This paper addresses the economic policy context surrounding the European merger regulation in high-tech industries. The rapidity of technological change raises questions as to the operation of the dynamic parameters underlying high-tech industries. While the identification of those parameters appears to be straightforward, the interpretation of the effects posed by the dynamics is rather controversial.
On the one hand, it is argued that the very dynamics of high-tech industries create or strengthen dominant companies whereby consumers run the risk of adopting inefficient technologies.
However, the present paper is to contest this reasoning since performance competition and the resultant Schumpeterian process of disequlibria makes a so-called lock-in unlikely.
The second chapter is to identify the distinctive parameters of high-tech industries, whereby a contrasting analysis between the two dimensions of economic performance, establishes dynamic competition as best utilised to serve the furtherance of consumer welfare. The third chapter is to consider the implications of dynamic competition for current relevant market definition by discussing the deficiencies of current practice. Recent competitive developments appear to confirm a broad, intermarket and technologies-based competition among firms. The fourth chapter, therefore, seeks to propose analytical tools that are capable of evaluating the state of competition more accurately. To that end, the cornerstones of relevant market definition are redefined by including a performance based test, an enquiry into capability explanations and the setting of time frames to assess entry competition.
The final chapter is to conclude that although Schumpeterian dynamic competition deals with the expectation of innovation, the proposed analysis is the more accurate approach to intermarket competition. The goal of this paper is to provide a pragmatic framework that assists merger analysis in evaluating the ongoing transformation of industrial organisation in the high-tech environment.
Table of Contents
1. Chapter One: Introduction
2. Chapter Two: The E-conomy
2.1. Section 2.1.: The Peculiarity of the E-conomy
2.1.1. Section 2.1.1.: Investment and Increasing Returns
2.1.2. Section 2.1.2.: Network Effects
2.1.3. Section 2.1.3.: Output Properties
2.1.4. Section 2.1.4.: Pioneering Effects and Instant Scalability
2.1.5. Section 2.1.5.: The Winner–Takes–Most Effects
2.2. Section 2.2.: The E-conomy’s Essence in Antitrust
2.3. Section 2.3.: Dynamic v. Perfect Competition
3. Chapter Three: Implications for Competition Policy
3.1. Section 3.1.: The Commission’s Relevant Market Definition
3.1.1. Section 3.1.1.: The Substitutability Test
3.1.2. Section 3.1.2.: Entry Analysis
3.1.3. Section 3.1.3.: Market Integration
3.1.4. Section 3.1.4.: Market Shares
3.2. Section 3.2.: Treatment of Dominance
3.3. Section 3.3.: Accounting for the Risks
4. Chapter Four: A Regulatory Outlook
4.1. Section 4.1.: Pragmatic Analysis
4.1.1. Section 4.1.1.: The SSNIP – A Performance Interface
4.1.2. Section 4.1.2.: Barriers to Entry and Subtle Incentives
4.1.3. Section 4.1.3.: Market Power – The Volatile Incidence
5. Chapter Five: A Dynamic Intermarket Conception
Research Objectives and Key Topics
This paper examines the economic policy context of European merger regulation within high-tech industries, questioning whether traditional static antitrust approaches effectively address the dynamic nature of these sectors and proposing a more pragmatic framework for competition analysis.
- Dynamic competition vs. static models in high-tech markets
- Identification of unique e-conomy parameters (e.g., network effects, instant scalability)
- Limitations of traditional relevant market definitions and the SSNIP test
- Assessment of dominance, barriers to entry, and the impact of technological innovation
- Proposals for a refined, dynamic-based merger analysis framework
Excerpt from the Book
2.1.2. Network Effects
Network effects describe the phenomenon whereby the value of a good to a consumer is dependent not only on the characteristics of the product, but also on how many other users have adopted the same product. The success of a network product will occur if it attracts a ‘critical mass’ of users, thus providing strong incentives to other potential users to join. An example of network effects would be applications such as AOL Instant Messenger or ICQ. The more people that use the same instant chat application (particularly if they know each other), the more sense it makes for the user to have that type of instant messenger.
It appears that the Commission’s view is that omnipresent network effects tend to be inherent in the e-conomy and specifically the communications sector. Dominance is then created by the positive feedback effects, because the more users that join the network, the greater are the risks of them becoming locked into the technology. Consequently, the whole e-conomy may adopt inefficient standards, because of the early entry of service providers gaining dominance by confining innovation to them. This could even entail that other service providers offering better quality and/or quantity would not be able to displace the dominance of the pioneering service provider. However, one should be very cautious in defining the circumstances in which such a lock-in may occur, if at all, since empirical studies dispute very persuasively the existence of such a process.
Summary of Chapters
Chapter One: Introduction: This chapter outlines the paper's focus on the economic policy context of European merger regulations in high-tech industries and introduces the contestation of traditional static models.
Chapter Two: The E-conomy: This chapter identifies the specific operational parameters of high-tech industries—such as investment, network effects, and scalability—that necessitate a dynamic approach to competition.
Chapter Three: Implications for Competition Policy: This chapter discusses the deficiencies of current competition policy tools, specifically the Commission's relevant market definition, when applied to dynamic environments.
Chapter Four: A Regulatory Outlook: This chapter proposes pragmatic analytical tools, including a performance-based SSNIP test, to evaluate market competition more accurately in high-tech sectors.
Chapter Five: A Dynamic Intermarket Conception: This chapter concludes that dynamic competition is essential for understanding continuous economic transformation, emphasizing that static analysis is often inadequate or detrimental to consumer welfare.
Keywords
E-conomy, European Merger Regulation, Dynamic Competition, Schumpeterian, Innovation, High-Tech Industries, Relevant Market Definition, SSNIP Test, Network Effects, Instant Scalability, Dominance, Market Power, Antitrust, Consumer Welfare, Vertical Integration
Frequently Asked Questions
What is the core focus of this dissertation?
The work addresses the challenges European competition authorities face when applying traditional merger regulations to high-tech, or "e-conomy," industries characterized by rapid technological change.
What are the primary themes discussed?
Key themes include the differences between static and dynamic competition, the importance of network effects and scalability, the limitations of current market definition tools, and the influence of innovation on market power.
What is the author's primary research goal?
The aim is to contest the sufficiency of static competition models and to propose a pragmatic, dynamic framework that more accurately assesses market power and benefits consumer welfare in high-tech sectors.
Which scientific methodology is employed?
The author uses a comparative and analytical approach, contrasting economic theories of competition with empirical observations from recent market developments and case law.
What topics are covered in the main body?
The body analyzes economic parameters such as investment, network effects, and output properties; evaluates the Commission's relevant market definition and entry analysis; and discusses the treatment of dominance.
Which keywords best characterize the work?
Key concepts include E-conomy, Schumpeterian dynamic competition, market definition, SSNIP test, and network effects.
How does the author view the "lock-in" effect?
The author argues that while frequently cited as a risk in high-tech industries, the actual occurrence of a lock-in is contested and often unsupported by empirical evidence, making it a weak justification for aggressive market intervention.
Why is the traditional SSNIP test considered limited in the e-conomy?
The SSNIP test relies heavily on price sensitivity and cross-elasticities; however, in the e-conomy, non-price factors like performance, quality, and rapid innovation are often more decisive than price considerations.
- Quote paper
- Andreas Seip (Author), 2002, Merger Policy in the E-conomy, Munich, GRIN Verlag, https://www.grin.com/document/185886
