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 hightech
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
Chapter One: Introduction
Chapter Two: The E-conomy
Section 2.1.: The Peculiarity of the E-conomy
Section 2.1.1.: Investment and Increasing Returns
Section 2.1.2.: Network Effects
Section 2.1.3.: Output Properties
Section 2.1.4.: Pioneering Effects and Instant Scalability
Section 2.1.5.: The Winner–Takes–Most Effects
Section 2.2.: The E-conomy’s Essence in Antitrust
Section 2.3.: Dynamic v. Perfect Competition
Chapter Three: Implications for Competition Policy
Section 3.1.: The Commission’s Relevant Market Definition
Section 3.1.1.: The Substitutability Test
Section 3.1.2.: Entry Analysis
Section 3.1.3.: Market Integration
Section 3.1.4.: Market Shares
Section 3.2.: Treatment of Dominance
Section 3.3.: Accounting for the Risks
Chapter Four: A Regulatory Outlook
Section 4.1.: Pragmatic Analysis
Section 4.1.1.: The SSNIP – A Performance Interface
Section 4.1.2.: Barriers to Entry and Subtle Incentives
Section 4.1.3.: Market Power – The Volatile Incidence
Chapter Five: A Dynamic Intermarket Conception
Objectives and Core Topics
This dissertation examines the economic policy environment surrounding European merger regulation within high-tech industries. It specifically explores how dynamic competition—characterized by rapid technological change and innovation—challenges traditional antitrust methods, arguing for a more pragmatic framework that avoids premature conclusions about dominance and market lock-in.
- Analysis of the unique parameters of the "e-conomy" (e.g., network effects, increasing returns).
- Critique of static competition models in the context of high-tech and fast-changing markets.
- Evaluation of the Commission’s relevant market definition tools, including the SSNIP test.
- Proposing dynamic analytical tools to assess market power and barriers to entry more accurately.
- Case study insights into ISP markets and vertical integration strategies.
Excerpt from the Book
2.1.1. Investment and Increasing Returns
Essential to gaining a competitive edge in the e-conomy is investment. The fixed sunk costs tend to be particularly high in the e-conomy, if investments have to be made into research and development (R&D) of software and/or hardware, or the setting up of delivery channels through physical networks, which cannot be fully recovered because of a concentrated market. Apart from maintenance and marketing costs, it is important to note that the subsequent production or service provision costs are low. This cost relationship is also referred to as the e-conomy exhibiting increasing returns.
Particularly, software qualifies as exhibiting increasing returns, since an unusually high percentage of its costs are absorbed by initial fixed costs but subsequent modification costs are minimal. While this refers to increasing returns on the supply side potentially leading to a natural monopoly, there is also a demand side form of increasing returns in the e-conomy, which results in a more concentrated market. This phenomenon of demand-side increasing returns is also known as network effects.
Summary of Chapters
Chapter One: Introduction: Provides an overview of the policy context, introducing the tension between high-tech industry dynamics and static merger regulation, and sets the goal of establishing a more pragmatic analytical framework.
Chapter Two: The E-conomy: Defines the core characteristics of the "e-conomy," such as network effects, increasing returns, and instant scalability, while contrasting dynamic competition with traditional perfect competition models.
Chapter Three: Implications for Competition Policy: Analyzes the deficiencies in the European Commission's current relevant market definition, focusing on challenges with the SSNIP test, entry analysis, and market share evaluation.
Chapter Four: A Regulatory Outlook: Proposes refined analytical tools for merger control, emphasizing a performance-based test, capability explanations, and longer time horizons to assess potential competition.
Chapter Five: A Dynamic Intermarket Conception: Concludes that Schumpeterian dynamic competition is the most accurate approach for understanding intermarket competition and calls for a regulatory shift to improve consumer welfare.
Keywords
Merger Policy, E-conomy, High-Tech Industries, Dynamic Competition, Antitrust, Relevant Market Definition, Network Effects, Increasing Returns, Instant Scalability, Schumpeterian, Innovation, Consumer Welfare, Vertical Integration, SSNIP, Market Dominance
Frequently Asked Questions
What is the primary focus of this dissertation?
The paper addresses the economic policy context surrounding European merger regulation in high-tech industries, focusing on how to adapt antitrust analysis to reflect the dynamic nature of these markets.
What are the central themes discussed in the work?
Key themes include the peculiarities of the "e-conomy" (network effects, increasing returns), the debate between static and dynamic competition, and the necessity of reorienting market definition and dominance assessment.
What is the primary goal or research question?
The goal is to provide a pragmatic framework for merger analysis that more accurately reflects the ongoing transformation of industrial organization in the high-tech environment.
Which scientific methodology is applied?
The work employs an analytical approach based on academic theories of dynamic competition, empirical studies of software and ISP markets, and a legal evaluation of the Commission’s current merger regulation practice.
What is covered in the main body of the text?
The main body breaks down the economic parameters of the e-conomy, critiques traditional market definitions like the SSNIP test, explores entry and dominance in high-tech sectors, and proposes alternative performance-based tools for regulators.
Which keywords characterize the research?
The paper is characterized by terms such as Dynamic Competition, Network Effects, Schumpeterian process, SSNIP, Vertical Integration, and Market Power.
How does the author view the "SSNIP" test in the e-conomy?
The author argues that the SSNIP test is of limited utility in the e-conomy because it relies on price cross-elasticities, while competition in high-tech sectors is primarily driven by quality and performance rather than price.
What is the author's stance on vertical integration in tech markets?
The author contends that vertical integration is the overarching organizational form in the e-conomy and warns that regulators often impose "far-fetched" undertakings that could destroy the efficiencies this integration provides.
Does the author support the Commission's current approach to mergers?
The author is critical of the Commission's tendency to apply static competition analysis to dynamic industries, suggesting that it often results in overly narrow market definitions and incorrect assessments of dominance.
- Quote paper
- Andreas Seip (Author), 2002, Merger Policy in the E-conomy, Munich, GRIN Verlag, https://www.grin.com/document/18916
