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Pardolesi, Roberto; Renda, Andrea --- "How Safe is the King’s Throne? Network Externalities on Trial" [2002] ELECD 97; in Cucinotta, Antonio; Pardolesi, Roberto; Van den Bergh, J. Roger (eds), "Post-Chicago Developments in Antitrust Law" (Edward Elgar Publishing, 2002)

Book Title: Post-Chicago Developments in Antitrust Law

Editor(s): Cucinotta, Antonio; Pardolesi, Roberto; Van den Bergh, J. Roger

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781843760016

Section: Chapter 11

Section Title: How Safe is the King’s Throne? Network Externalities on Trial

Author(s): Pardolesi, Roberto; Renda, Andrea

Number of pages: 38

Extract:

11. How safe is the king's throne?
Network externalities on trial
Roberto Pardolesi and Andrea Renda

Network externalities are among the most debated market phenomena of
present days. Since Katz and Shapiro published their seminal paper in 1985,1
many authors have tried to measure the impact of such effects on the so-called
`neoclassical' analysis of the market, without reaching any established
outcome. Network externalities have been defined as a ubiquitous, pantheistic
entity;2 they have been taken as supply-side as well as demand-side effects,
and have been associated with natural monopoly, essential facilities, learning
effects, standardization and tipping.
The remarkable rise of economists' and lawyers' attention to network effects
is also due to the advent of the so-called `post-Chicagoan' approach to antitrust,
whose more intense activism stems from the belief that these effects are likely
to divert the market away from its otherwise spontaneous efficiency path.
According to this vein of antitrust analysis, network externalities may severely
harm competition insofar as they strengthen the barriers protecting incumbent
firms from new entrants. Many antitrust decisions of the last decade refer to the
existence of network effects as a clue that a certain degree of intervention is
needed, even though in most of these cases no solid evidence concerning their
effective impact on the aggregate market equilibrium was brought about.3
As we hope to make clear in the following sections, the overwhelming
majority of these decisions are based on a vague, nebulous interpretation of ...