Role of Government In The Information Economy

1. Role of Government In The Information Economy By: Ajay S. Jagsi Competitive Strategies for Network Economies February 19, 2002

2. Discussion Topics • Overview of Key Anti-Trust Regulations • Implications of Anti-Trust Laws • Anti-Trust & Business Strategy Formulation • Cooperative Standard Setting • Single Firm Conduct • Role of Direct Government Intervention • Parting Thoughts

3. Key Anti-Trust Regulations • Sherman Act of 1890 • Targeted oil and railroad monopolies • Prohibits any contract, trust, or conspiracy in restraint of interstate or foreign trade • Illegal to “monopolize” market • Clayton Act of 1914 • Governs mergers & acquisition activities • “Substantially lessen competition” • Rationale behind Legislation • Spur economic growth • Protect consumers interest • Promote fair competition • Promote broad industry structures

4. Implications of Anti-Trust Laws • Regulation of economic affairs ALWAYS benefits consumers • Market forces are insufficient to protect consumers’ interests • Self-interest rules in the marketplace BUT does not exist among policy makers • Cooperation in self-defense can itself be a crime under anti-trust law • Bizarre example • United States vs. Container Corporation (1969)

5. Anti-Trust & The Information Economy • Do these regulations even apply to the information economy? • Should there be additional legislation designed specifically for information economy companies?

6. Anti-Trust & Business Strategy Formulation • When crafting a business strategy • Be cognizant of anti-trust rules • Fashion strategy with rules in mind • Implications • Avoids complex & costly litigation • Uninterrupted execution of strategy • Issues • Unrealistic to “plan” for market dominance • Too many unknown variables (I.e. market receptiveness) • Example: Iomega • Aggressive competition vs. predatory conduct Question: Are there any anti-trust considerations that matter to a small or medium size business?

7. Cooperative Standard Setting • Requires cooperation & agreement among competing firms • Authors contentions • Enhances public interests • “Critical” to the efficient flow of information and introduction of information technologies • Counter arguments • Provides opportunity for firms to limit competition • Survival of the fittest Question: Isn’t this a cartel in disguise?

8. Single Firm Conduct • Not all monopolies violate anti-trust laws • Illegal monopolistic practices • Exclusive dealing provisions • Tying • Examples of tying • Drills & drill bits • Televisions & remote controls • Cable television packages • Question(s): • Are exclusive dealing provisions and tying practices really harmful? • How do you determine if a company achieved monopolistic status by legitimately competing on its merits or through anticompetitive tactics?

9. Direct Government Intervention • Governmental intervention is NEEDED when: • Competitive processes breaks down • Becomes evident that genuine monopoly power will NOT be eroded by competitive pressures • New entry into monopoly markets is in the public’s interest (Example: PCS Auctions; Direct broadcast satellite spots) • Network externalities are difficult to internalize (Example: Internet)

10. Direct Government Intervention • Governmental intervention is HARMFUL when it: • Supports a system of cross subsidization • Benefits certain special interests vs. the public interest • Limits ways in which information economy companies deal with those in adjacent markets

11. Parting Thoughts • Government regulation should be kept to a minimum • Anti-trust is anti-consumer • Authors assertions • Obvious at best • Impractical in the context of real world applications • Overall chapter • Poorly organized • Non-value added • Saving grace • Recommendation that companies audit their practices to ensure compliance with anti-trust regulations is sound