Herbert Hovenkamp (University of Pennsylvania Carey Law School; University of Pennsylvania – The Wharton School; University College London) has posted “Digital Cluster Markets” (Columbia Business Law Review, Forthcoming) on SSRN. Here is the abstract:
This paper considers the role of “cluster” markets in antitrust litigation, the minimum requirements for recognizing such markets, and the relevance of network effects in identifying them.
One foundational requirement of markets in antitrust cases is that they consist of products that are very close substitutes for one another. Even though markets are nearly always porous, this principle is very robust in antitrust analysis and there are few deviations.
Nevertheless, clustering noncompeting products into a single market for purposes of antitrust analysis can be valuable, provided that its limitations are understood. Clustering contributes to market power when (1) many customers need or at least prefer the convenience of receiving the defendant’s grouping of products rather than any single one, or (2) economies of joint provision (economies of scope in production) make joint distribution of the cluster cheaper per good than distribution of each separately, and (3) entering into competition with the cluster is difficult.
When network effects are present, an important additional reason is what might be termed economies of scope in consumption, or increased value that accrues as a group of goods or services offered on the same platform becomes not only more numerous but also more diverse. Finally, often the best way to address the cluster market problem is to avoid market definition altogether. Here, digital markets are particularly susceptible to direct measurements of market power that do not depend on a market definition.
Finally, the logic of cluster markets carries an implicit warning about antitrust remedies. Clustering occurs when it creates value, and for consumers as well as producers. As a result antitrust enforcers should be wary about aggressive breakup remedies that serve to break apart components that were clustered for a competitive reason.