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Antitrust in Zero-Price Markets: Applications

 |  October 29, 2015

Posted by Social Science Research Network

Antitrust in Zero-Price Markets: Applications John M. Newman (University of Memphis)

Abstract: “Free” products have exploded in popularity along with widespread Internet adoption — but many of them are not truly free. Customers often transfer something of value, typically their attention or personal information, in order to access zero-price products. This dynamic brings zero-price markets within the scope of antitrust law. Unfortunately, despite the critical role that such products now play in modern economies, the antitrust enterprise has failed to adequately account for the unique attributes of zero-price markets. Particularly in view of the rising tide of antitrust investigations and litigation targeting high-profile suppliers of zero-price products, this failure is indefensible.

This Article identifies and addresses several foundational aspects of antitrust law that are challenged by zero prices. First, as to consumer standing, it establishes that attention and information qualify as “property” under the Clayton Act. Second, it proposes altering the traditional tests for market definition and market power by, among other things, implementing a “SSNIC” variant of the hypothetical-monopolist test. It also suggests that analysts should incorporate into such inquiries behavioral-economics research demonstrating the “zero-price effect.” Third, this Article demonstrates the unviability of the “free goods defense.” Fourth, it proposes damages-valuation methods that do not depend on unreliable stated preferences. Finally, it surveys and critiques the existing antitrust case law involving conduct in zero-price markets by Google, Facebook, Microsoft, and others.