How Digital Economics Revises Antitrust Thinking.PDF

1 Antitrust thinking and enforcement have traditionally been firmly grounded in conventional economic models of monopoly and oligopoly market structures, all fully and inevitably constrained by the " laws " of demand and decreasing returns. The new economics of " digits, " encompassing those goods (like software, books, and music) that are capable of being reduced to 1's and 0's (meaning electrons) – or what we call " digital economics " – necessarily changes antitrust thinking and enforcement. This is primarily because of two concepts, and accompanying postulates, discussed below, that have risen to prominence in economics over the past two or three decades, and have played important roles in the Microsoft antitrust trial over the past three years. In this paper, we explore various ways digital economics should give rise to revisions in the way antitrust cases against digital firms should be appraised and how antitrust prosecution of digital firms will be restrained. We use the experience with the Microsoft antitrust case to show how errors can be made in antitrust prosecutions when underlying monopoly models are not revised to accommodate these digital economic postulates. Although the thrust of our arguments advises restraint in antitrust prosecution, we also argue that the prospects of effective, anti-monopoly, antitrust prosecution can be seen as beneficial to those firms, like Microsoft, that are subject to digital and network forces and that become dominant, if not " monopoly, " producers in their markets.