Another free market economist, George Priest, neatly dispatches the network effects argument advanced by many of the conservative backsliders. In a nutshell, advocates of network effects claim that consumers are locked in to a dominant technology (e.g., Windows) because of the need for compatibility. Priest, writing in the current Texas Review of Law & Politics, reminds us that the central goal of antitrust law is to benefit consumers. Ask yourself, he advises, whether consumers would be better off or worse off if their network were dismantled. Whenever a network bars entry, it's because the efficiencies are so great that the network cannot be duplicated. So the barrier and the efficiency are two sides of the same coin.
To illustrate, suppose prices decline by $1 because of network efficiencies but increase $2 because the dominant provider exploits its competitive edge. No consumer would join that network, but the extraordinary profits would attract competitors. Conversely, assume that network efficiencies drive prices down by $2, but the dominant provider drives them up by $1. Competitors would find it unprofitable to enter, but consumers would surely benefit. In other words, states Priest, if the network helps consumers, the objective of the antitrust laws is satisfied. If the network harms consumers, the harm is self-correcting.
cato.org |
