My Thesis Proposal

Regulation of Cartels in High-Tech Markets

The hypothesis in this paper is that antitrust law principles should be modified to prevent cartel behavior in high-tech markets by allowing intellectual property laws to promote dynamic efficiency. Antitrust law in so-called “smokestack industries” focused on static efficiencies. Competition was a matter of reducing costs of production (productive efficiency) while ensuring such efficiencies were passed onto consumers (allocative efficiency). Antitrust law as it presently stands on the statute books is the culmination of over a hundred years of regulation of competition to achieve static efficiencies. Yet the project for the next hundred years will be how to apply the same principles of competition to promote the development of intellectual property as an essential part of products and services in the 21st century (dynamic efficiency).

One thesis that has been presented by Chicago school scholars such as Posner is that antitrust required relatively little modification to function in the new economy. In other words, antitrust should be restricted to the field of productive and allocative efficiencies. Dynamic efficiencies are beyond the scope of antitrust law, according to this view. Antitrust has reached its culmination in the Chicago school, such scholars argue, so that it needs to focus its efforts on enforcement. This view has been most eloquently put in the book authored by Posner, Antitrust Law (2001).

Another thesis implicitly supported by Post-Chicago school scholars led by Carl Shapiro is that intellectual property is the major field of competition for the 21st century so that antitrust law and intellectual property will converge to an increasing degree. In this new world of antitrust, intellectual property can be seen as even more important than reducing costs of production (productive efficiency) and the passing of such efficiency onto consumers (allocative efficiency). To illustrate this point, one might imagine the thousands of patents involved in the production of high-tech products that have become superior substitutes for inferior products involving lower levels of intellectual property, e.g., your I-Pod is far superior in capabilities of storage and sound quality to a Walkman, which is in turn far superior in terms of an immobile cassette player in terms of mobility, etc.

This paper argues that the law in the area of horizontal cooperation in high-tech industries is not settled and that new legal theories are developing that will require more detailed guidance from antitrust regulators in order to ensure that anti-competitive practices are stopped and pro-competitive practices are promoted. The work in the thesis will build upon the substantial work of Carl Shapiro in this field in developing a new legal theory for the regulation of cartels in the 21st century.