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Exclusion in Digital Markets

 |  May 7, 2017

Posted by Social Science Research Network

Exclusion in Digital Markets

By Konstantinos Stylianou (University of Leeds)

Abstract:     Exclusionary practices and effects are at the core of antitrust enforcement and sector-specific regulation, as they serve as one of the main determinants of the competitive conditions in the market. The antitrust treatment and regulation of exclusion have undergone a significant transformation over the past few decades removing much of the stigma they were associated with. And yet, exclusion in digital markets is still regarded with great suspicion. Digital markets are often associated with claims for openness, sharing, and non-discrimination, all of which are in tension with exclusion. The recent aggressive net neutrality rules, the recurrent antitrust investigations against tying and integration, and the highly precautionary concessions in merger approvals show that there is indeed a fundamental fear against exclusion.

This article recasts the existing analytical framework on exclusion to account for the technology-intensive nature of digital markets, and in doing so, to place exclusion on its true dimensions. While rich scholarship on exclusion in digital markets exists, this article distinguishes itself in two important regards: first, extant scholarship addresses almost exclusively the economic aspects and special features of exclusion in digital markets, not the technological ones, and second, extant scholarship tends to maintain a narrow focus on specific issues (e.g. market definition), or specific industries (e.g. software), or specific offenses (e.g. tying), as opposed to cross-cutting factors. On the contrary, this article discusses the overarching factors of a) competitive intensity as shaped by supply and demand factors, b) durability of competitive advantage, and c) the nature of exclusion as a monopolization tactic from a technological point of view. The technology element is important because as a matter of order it is technological capabilities and limitations that define what the transactional overlay can be, not the other way around. Economists start from the pre-assumption that “in the beginning there [are] markets,” but in markets where the high technology element is prominent, which market actors, transactional interactions, and options are available, and under which conditions, is largely dependent on what is technically possible. Taken together these factors update and enrich the general analytical framework used to assess exclusion.

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