R you being foreclosed?

December 17, 2021

In this article published in the European Competition Journal, Oliver Latham and Chara Tzanetaki draw parallels between the pandemic and foreclosure in network industries by applying “Susceptible, Infected, Recovered” (SIR) modelling to an antitrust setting. We consider a digital service seeking to grow into an addressable market occupied by an incumbent platform. The entrant can grow organically, but amassing more users allows it to spread faster as users invite friends or generate content increasing its attractiveness. We consider the impact of the incumbent taking steps (e.g. reducing interoperability) to make the entrant “less infectious” with three main implications for antitrust policy: conduct may have large effects even if the targeted service continues to grow; conduct is most effective when applied against nascent services before they can harness network effects; and conduct can have non-linear effects, with the most “viral” services continuing to grow while others are eliminated. Each result has parallels with the experience of the pandemic and implications for innovation incentives.