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To: Thure Meyer who wrote (19688)	5/24/1998 1:12:00 PM
From: Gerald R. Lampton	Read Replies (1) \| Respond to of 24154

It will be complex if this case is partially based on emergent economics, in particular increasing returns and network externalities. In my personal view, that's one of the weaknesses of the case. It's something the DOJ is going to have to deal with and, if it's true, of which I am sure they are aware. Network Effects theory seems to find a monopoly engaged in predatory conduct under every rock and exhibits a predisposition to regulate them all. To the extent networks have been around for a long, long time, that may be a flaw in the theory, not a valid truth. Bork says predation is rare and often confused with desirable pro-competitive conduct. So, he says, given its rarity and irrationality, courts should hesitate before finding that a particular course of conduct is predatory and should be banned. Yet, in the WSJ article, he says this case is an exception, presumably because of the differences between software markets and other markets, which I take to mean the presence of network effects and increasing returns to scale in the software market. I also have not found anything yet in the network effects literature (not that my search has been comprehensive, but I still haven't seen it) which suggests this brand of economics is any more capable than past brands when it comes to distinguishing between competitive and predatory conduct. So, what you have when you combine the rule against predatory conduct with network effects theory is a pretty potent and contagious hybrid of economic and legal analysis. You have an economic theory which says that in certain actually quite widespread circumstances predation is rational combined with a rule against predation which is inherently overly broad in application (according to Bork) and will kill off a lot of desirable competitive conduct. You have a hospitable environment in the form of a legal system where principles are ordinarily expanded to their natural limit by the process of reasoning by analogy. A liberal court would probably be willing to go there, since liberal ideology sees monopoly as a common and inherent characteristic of capitalism. But I'm not so sure a libertarian or conservative court will want to unleash this new life form into the legal ecology. On the plus side, it will force a very public examination of the whole software, telecommunications, computer and media markets. And since these growing markets all exhibit network effects and increasing returns to scale, I think you are going to see a lot more predatory conduct antitrust cases if this new hybrid takes root. (BTW, that's a personal, not a legal opinion, so it could be wrong, and anyone should feel free to disagree.;) )