Posts Tagged ‘nodoid’

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 http://www.elgaronline.com/view/9781848445215.xml 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 http://www.patrickmcnutt.com/news/who-owns-our-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 https://www.competitionpolicyinternational.com/eu-vestager-open-on-how-to-end-google-antitrust-case.

[2] Described in McNutt (2014) Decoding Strategy http://www.amazon.com/Decoding-Strategy-Predictions-Patrick-McNutt/dp/1259071065

[3] Read http://www.theguardian.com/money/shortcuts/2014/jan/05/coffice-future-of-work

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

Memo to Ms Ahrendts

MEMO

Re: Apple Inc: Play not to lose: Minimax strategy

Dear Ms Ahrendts

Congratulations on your recent appointment. We have been commenting on Apple for a number of years in this Blog, and from the perspective of game theory. You should challenge everything about the data – market share figures, consumer loyalty and the source of the competitive threat. Apple does need to refocus, to reshape its strategy in order to compete in an evolving game that exhibits both convergent technologies and rapidly changing set of consumer preferences. Are you a brand? Are you a design company or an innovator? Analysts look at Apple in terms of profit margins and a company trading on earnings estimates and revision of the estimates. With new product launches across the i-suite of products, coupled with an underlying iOS ecosystem, they look forward to new product launches, and endless queues by early adopters and loyal fans at different cities across the world. But from our perspective, observing Apple as a player in a game, we would adjudge that you are not winning the game.

Confused consumers

First of all, your product offerings are in danger of becoming nodoids: in other words, they come to represent nothing more than a roll-out across a common platform of a suite of not dissimilar products absent any innovation. Consumers are either underwhelmed or disappointed. Once they ask the nodoid question: ‘is an iPhone an iPad or is the iPad an iPhone?’ the game dynamic switches from a game of playing to win to a game of playing not to lose. This is happening. Secondly, the analysts expect the i-Watch – so what? Analysts continue to debate the next big thing. So what? Could it be IPTV or cloud solutions?  So what? You know that you are not in search, you know that you are not in digital mobile advertising, you are a late entrant into cloud services, you failed to acquire Twitter, SIRI failed, Newton failed in the 1990s and in 2013 you allow us to believe that you are not a player in IPTV.

We have argued this before #tuncnunc discussing a range of game solutions to consider: launch a nano iPhone or engage in a telecom alliance with 4G LTE providers such as China Mobile. The 5C launch is about maximising profit margins; a nano offensive play, however, would ignite a $99 ‘sweet price’ competition for full functionality smartphone devices. Forward guidance on the stock estimate above $500 may adjust for these events in 2014-15 but these events may now be too late from a game perspective to play to win the long game. In other words, no longer is it about how Apple is performing in 2013, it should be about Apple’s likely performance in 2023.

 

 

Second mover advantage: SMA & Minimax

So an alternative for you to consider in your new role is to secure the second mover advantage [SMA] by playing not to lose. First, recognise that your market shares are increasing at a decreasing rate. Correct that trend. The iPhone 5 delay, for example, created a zero-sum switch to rivals, notably Samsung, in the UK and possibly across the EU. Your smartphone market share is under threat in Asia as the convergent smartphone and tablet game evolves to become Apple’s game to lose. Start thinking like your competitors – reason like this: ‘I think-you think-I-think’: Apple thinks that Samsung expects it to defend the iPhone, so Samsung will attack the iPad. But Samsung believes that Apple will reason this way, and so assuming that Apple will defend the iPad, Samsung will attack the iPhone. But Samsung also knows that Apple will reason this way.

This line of reasoning suggests that some kind of a decision tree ‘what-if’ analysis will reveal which strategy is Apple’s optimal choice. But it is more complex than that – we argue in our new book Decoding Strategy that how either player does in the game depends on what each believes the other is likely to do. Apple has to choose to play a minimax strategy, that is, a strategy that minimizes the maximum amount Samsung can expect to get in the evolving smartphone and tablet game, and thus maximize the amount Apple can expect to win. It is for you to patch a minimax strategy into your strategic vision for 2014 and beyond. To quote T.S.Eliot: ‘What we call the beginning is often the end, and to make an end is to make a beginning, the end is what we start from’. With best wishes in t+1…..