Tuesday, September 18, 2007

Technology and Antitrust

I taught Bell Atlantic v. Twombly to my civil procedure students yesterday and encountered a fact that was astounding to me and reveals that the underlying antitrust dispute was about something of decreasing importance. For those not familiar with the case, it involved a class action against the successors to the "baby Bells," claiming that they had engaged in a conspiracy to carve up the market for local telephone service so that each maintained a monopoly in its own region. The suit was dismissed on the ground that it contained insufficient factual allegations to support an inference of a conspiracy (as opposed to merely uncoordinated but individually rational behavior), and has become an important (and perplexing) precedent regarding the sufficiency of a complaint under the Federal Rules of Civil Procedure. (See my FindLaw column on the case here.)

As we were discussing the facts, I asked how many of the students used their mobile phones as their only phones. The answer that stunned me (but probably shouldn't have): 28 out of the 31 have no land line. This is not a scientific survey, obviously, and students are probably especially unlikely to have land lines if they have reliable mobile phones, but I strongly suspect it represents the wave of the future. Older and middle-aged folks like myself will continue to have land lines, but with each passing year, we will become more of a niche, like the market for network tv news or printed books.

This, in turn, may provide at least some partial vindication for those who want to minimize the role of antitrust law in areas of rapidly changing technology. While it is no doubt true that a monopolist can slow down innovation (as Microsoft's practices with its operating system and related apps have allegedly done), monopoly pricing will prove self-destructive in the long run if it encourages consumers to switch to substitute technologies outside the monopolist's control.

I'm not saying I completely buy this argument. For example, I'd want regulatory scrutiny of a proposed local phone company purchase of the cable company in its area, giving it control of the two principal land line methods of delivering signals. I'd want to see even more such scrutiny if that phenomenon were combined with severe concentration in the mobile network provider market, especially if the mobile networks are owned by the same companies that provide phone and cable lines.

Still, the overall pattern in both the OS market (as discussed in a NY Times story on European antitrust litigation against Microsoft here) and the market for voice and data communications, suggests that by the time antitrust litigation catches up with monopolists (and oligopolists), competing firms may have created substitute technologies that generate effective competition.