NRRI 00-13 A REGULATORY PERSPECTIVE ON DOMINANCE IN NETWORK MARKETS


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Create Date August 1, 2000
Last Updated August 3, 2018
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This report addresses the emerging competitive questions
associated with network industries that are moving from monopoly to
competitive market structures. Firms with substantial market share can
result from the current transition to competitive markets. These "dominant"
firms by their nature have the potential to set prices at supra-competitive
levels or engage in other activities that adversely affect competition. The
incentives to engage in this conduct may be enhanced by the network
structure of these markets. Industries with network effects will tend to be
"sticky" since the costs to move may be high and the value of a new
network may be initially small. The twin features of dominance and
network effects in turn translate into a need for greater scrutiny of market
activities. One of the interesting outcomes is the greater credibility
network effects may have on claims of predation. At the same time it may
also provide a market defense for predation claims since consumer value
may be derived from increased networking of those customers.
Potential problems in these transition markets may be mitigated by
appropriate regulatory action. Fair interconnection standards may be the
most critical thing that commissions can provide to the process.
Additionally, they may need to structure proceedings for quick response to
predation claims. Moreover, commissions may want to strengthen their
abilities to address pricing, costing, and subsidization issues that
traditionally have been within the purview of antitrust authorities.

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