Department of Justice antitrust chief Makan Delrahim gave a speech to the Federal Institute of Telecommunications Conference in Mexico City on enforcing antitrust in the digital age on Wednesday, November 7.
He was invited to speak on “Challenges of Competition in Convergent Markets.” One of the challenges of such enforcement, he said was assessing market power, signaling that today’s Facebook could be tomorrow’s MySpace.
He said that given the fact that market power is a motivator for investment in a free market, the government must be careful about ascribing market power in markets subject to rapid change and added that assessment can be “tricky” in a digital economy.
“Market leaders are often displaced overall and within categories,” he said. “The existence of multi-sided platforms further complicates the analysis, especially where platforms provide services for free to one set of users subsidized through sales to another set of consumers.
“Traditional market share calculation may not be as helpful in such cases,” he said, adding: “A high market share does not always equate to market power. Depending on the circumstances, a firm with a high market share still may lack the ability to increase price or exclude competitors.”
He said market share and high profit margins may be the advantage of a first mover, which uses those profits to “recoup investment in sunk costs and provide incentives to take on the risks inherent in innovation.” He also said high prices can “serve as an engine of innovation, inviting entry and even disruption by new competitors,” he argues. That could mean “it may be entirely possible for popular companies with large market shares to be replaced quickly by new, innovative competitors. Firms that fail to innovate are often left behind in the dust.”
He suggested that first to dust scenario could be the case for the current market leaders.
“This is true in both the United States and Mexico. For instance, a study looked at the top 20 most popular websites in Mexico between 2006 and 2013. Facebook jumped from #14 in popularity in 2006 to #1 by 2013, while competitors MySpace and Hi5 dropped from #7 and #13, respectively, to off the chart entirely. Twitter was not on the list at all in 2006, but was #7 by 2013. Who knows what a comparable list will look like in 2025?”
He said the question for antitrust enforcers is whether that market power has staying power, or whether it may not translate to “a supracompetitive price or exclude competitors.”
In any event, market power alone is not an antitrust violation, he said. Only if “a firm uses market power to harm or exclude competition” is “timely and vigorous enforcement necessary.”