Competition Policy in the Information Economy

Many of the so-called industrial nations are indeed experiencing a transition to an information-based economy, in the sense that ICE -information, communications, and entertainment -comprises an ever-greater share of GDP. In this brave new world, the economics of networks takes on greater importance in comparison with traditional economies of scale. This paper explores the implications of the shift towards an informationand network-based economy for the three traditional branches of competition policy: (1) mergers, (2) inter-firm cooperation/collusion, and (3) unilateral conduct by dominant firms. The general theme of the paper is that we possess the economic tools to fashion sound competition policy in the information economy, and those tools are indeed being used to develop and refine such policy. This theme is illustrated with examples from the United States, including the widely followed case of the U.S. v. Microsoft. ********************* Forthcoming in Foundations of Competition Policy Analysis, 2000, Routledge. I thank those at the Norwegian Competition Authority for in Oslo, Norway, for their helpful comments. Please direct comments and case suggestions to [email protected] or visit my web site http://haas.berkeley.edu/~shapiro. I am deeply indebted to my co-authors on related projects. I have learned a great deal about the information economy, the Internet, and on-line commerce from my colleague Hal R. Varian, Dean of the School of Information Management and Systems at the University of California at Berkeley. This paper draws from our book, Information Rules: A Strategic Guide to the Network Economy, Harvard Business School Press, 1999. See http://www.inforules.com for more information. I also am relying heavily on my colleague Michael L. Katz, and our joint paper, “Antitrust in Software Markets,” in Competition, Convergence, and the Microsoft Monopoly, 1999, Kluwer; see http://haas.berkeley.edu/~shapiro/software.pdf.