Week 9 R2 and 3
R2
Patents
Used to prevent competitors from entering the market
can be used as an entry barrier to start-up firms, this can further foster market entry and innovation
Compulsory licensing is found to be ineffective in market where dominant firms have other means of market foreclosure.
Innovation creates economic growth, the main instrument to help foster innovation through the government is patents
Patents may also prevent innovation as larger companies use them to deny other companies from entering the market
Compulsory licensing can help to foster market entry and stimulate innovation in the short and the long run. Yet, if a dominant company can use other exclusionary practices to keep out innovative start-ups, compulsory licensing is ineffective.
This suggest that an antitrust policy concerned with innovation should recognize exclusion as a core concern of competition policy and put the protection of market entrants front and center.
R3
_Overview of the AT&T Case and Its Implications for Big Tech
Date: February 20, 2023
Authors: Monika Schnitzer & Martin Watzinger
Main Theme: The potential impact of breaking up dominant companies on innovation and consumer welfare using lessons from the AT&T breakup in 1984.
Context of Antitrust Concerns
Rising Concerns: Allegations of market power concentration among Big Tech companies.
Debate: Perspectives vary from viewing it as a result of innovation to concerns about its negative impact on innovation and consumer choice.
US House Antitrust Committee: Raises alarm about monopolies affecting innovation, choice, and democracy.
Alleged Exclusionary Tactics by Big Tech:
Using dominance in one market to leverage power in unrelated markets.
These tactics may inhibit competition and discourage new entrants from innovating.
Proposed Remedies:
Recommendations from the committee include structural separation and restrictions on lines of business for dominant firms.
Structural Remedies: Intended to prevent exclusionary practices, such as those seen in vertically integrated companies.
Historical Context: The 1984 AT&T Breakup
Characteristics of the Bell System:
Vertically integrated telecommunications company with AT&T as the holding entity.
Employing over one million staff and holding more than 85% market share in local telephone services.
Dominated long-distance services (85%) and telephone equipment (82%) through subsidiaries.
Nature of Regulation:
Regulated at both state and federal levels due to monopoly status.
Competitors claimed AT&T used market power to block market entry in related sectors.
Antitrust Case Initiation:
US Department of Justice filed against AT&T in 1974 due to alleged vertical foreclosure.
Accusations of AT&T abusing its access to local telephone networks to exclude competitors in equipment and services.
Outcome of the Case:
Ruling: Structural separation mandated, with implementation by January 1, 1984.
Intended effect: Facilitate market access thereby promoting competition.
Impact of the Breakup on Innovation
Consequences of Separation:
Former subsidiaries, known as Baby Bells, gained independence and could source equipment independently, enhancing competition.
Initial Concerns Post-Breakup:
Potential decline in patenting by Bell Laboratories, with predictions of lost innovations.
Actual data revealed: Bell’s patenting decreased by about 100 patents per year post-breakup.
Positive Trends Post-Breakup:
Number of important patents (top 10% in citation within tech subclass) remained unaffected.
Surge in innovation across all firms in the telecommunications sector following the breakup.
Statistical Analysis of Patenting Trends:
Patenting in sectors affected by the breakup increased by 19% compared to control sectors post-1982.
This translates to about 1000 additional patents per year, which is approximately 2.6% of total annual patents by US inventors.
Diversity in Innovation: