Soft Law: Google & The Coffice

The EU regulators should settle the long running case[1] against Google. They should present Google with the opportunity to amend any alleged or putative anti-competitive practices. Markets are evolving eco-systems – contest, combat and scramble market systems[2] – and new markets are created by technology. The challenge for the law is how to handle technology not in terms of the application of black letter competition or antitrust law but in terms of how differences in company treatment can be justified. Technology impacts on existing markets, it creates new commodities, it displaces old commodities, and in some respects a sceptic could begin an economic analysis by disputing the very premise of a market as understood in this case. Is there an alternative?

Frozen Markets

Yes. In the book Political Economy of Law we introduced the concept of a frozen market.  If you are reading this Blog on a laptop or smartphone while sipping coffee conducting business in your favourite coffee house – you are in a ‘coffice’ – half coffee half office[3] facilitated by the smart technology created by Google and myriads of new and evolving companies. As an antitrust practitioner you can recognize a frozen market (empirically) as the market with zero prices, long-run marginal cost converging to zero, scope economies in functionalities, time dependent consumer preferences, aged competition, technology convergence and average fixed costs declining.

A frozen market is a market that evolves as companies like Google, Apple, Amazon, Microsoft, Baidu, Uber, Facebook, Airbnb, LinkedIn, Twitter, Spotify, Symphony inter alia, discover new products, new services, new production and delivery processes. Former beliefs about competing and innovating change as end-user coffice workers demand more and firms risk lagging behind the technology curve. In traditional markets monopolies were transparent and the impact of monopoly power, for example, was defined in terms of alleged higher monopoly prices. However the new architecture of the Internet and cloud computing makes centralised control of services going over IP technology almost impossible. Using IP technology information can quickly reroute around and within specific countries. Regulators will not be able to implement rules on products and services in the evolving frozen markets. EU competition and antitrust law runs the risk of lagging behind technology companies. The treatment of personal data and the owneship of the data is an equally important topic.

Legal Principles to Adapt

Google today, new start-ups tomorrow are companies in a frozen market, companies that evolve from a latent underbelly of technology struggling to meet new challenges and set new standards in a modern evolving economy. In disputing the very premise of a market as understood in antitrust a case could be made that Google is neither an abuse of dominance nor a monopolist case; the perfect ‘frozen’ market does not imply perfect competition – the bedrock of modern antitrust. Rather, Google is a data-driven platform, an information pharaoh facilitating new innovative firms in the sharing economy, start-ups touching every aspect of our daily life. It is the creator of a momentum effect across myriads of multiple goods and services. Start-ups search for growth in an eco-system as we breathe for life with the intensity and frequency of effort and investment to affect our eco-system of life both human and economic. Technology is of the essence. Legal principles are adapting to reflect both the concept of a market as an evolving sharing eco-system but more needs to be done.

Indeed the intricacies and entanglement of engagement that companies face with Google provide a network of unavoidable transaction costs and insurmountable gains and leverage. This allows start-ups to grow exponentially in a technology convergence type of competition where cooperation and joint enterprising is more the norm than competing as frozen markets ‘thaw’ out to create new and unimagined products and services. There appears to be some resistance in the inn of black law antitrust for an alternative definition of a market as an evolving eco-system despite the importance of evolving technology to economic activity and to the innovation process.

Soft law

There is also a need to redefine ‘competitor’ in an era of rapid innovation and technological change. Arguably there is no black letter law directly germane to Google activities in the 21st century nor should there be an unquestioning and unchecked progress of Google and others in the technology market – but every effort should be made to amend, adapt the black letter law to facilitate rather than retard Google and the leveraged industries it has helped to create. Regulators should benchmark Google against a soft law of zero prices, long-run marginal costs converging to zero, economies of scope in functionalities, time dependent consumer preferences, aged competition, technology convergence and average fixed costs declining.

We need a soft law approach to Google. There is a need for further integration of the economics of technology and information markets into antitrust and legal reasoning with less focus and emphasis on competition in the product market and more focus on market systems. In the nineteenth century Alexis de Tocqueville once remarked[4] that ‘only a newspaper can put the same thought at the same time before a thousand readers (p517)’. Today, in the 21st century, Google and the Internet are doing that and, at an alarming speed. Ultimately, in assessing the merits of any case centred on geography, frozen markets and the role of technology, cloud computing and Internet information, law may be as relevant as the colour of the judge’s eyes.

[1] Check

[2] Described in McNutt (2014) Decoding Strategy

[3] Read

[4] Alexis de Tocqueville’s 1841 classic text: Of Democracy in America, vol 1 and 2.

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