Markets for information and communication technologies, including software and online platforms, have become incredibly dynamic—more so than any other industry in human history. The innovation cycle in this area is so rapid that companies are able to sustain their technological lead for ever‐shorter periods of time—making lock‐in with a particular technology standard an increasingly irrelevant problem.
Furthermore, the entry into the software and online business is practically costless—certainly in comparison with industries like energy or transport, which require enormous fixed costs and which have therefore been the traditional focus of competition policy.
Software and Internet giants have come and gone. These days, very few young people have vivid recollections of Word Perfect or Netscape Navigator—once the dominant word processor and web browser, respectively—or sites like Geocities or Altavista. It follows that static measures of market power, used by European regulators, are misleading and will underrate the actual degree of competition existing in the market. Worse yet, policy interventions in this dynamic economic environment are likely to backfire.
In a paper published in 2008, during the heyday of the European Commission’s crusade against Microsoft, regulatory economists Bob Hahn and Peter Passell wrote that these cases were, “at best, a way to keep lawyers well remunerated and, more likely, a significant barrier to productive change.”
One wonders whether the most recent decision by the Commission means that European regulators are planning to ‘get tough’ again on seemingly dominant firms in the area of information and communication technologies. If so, Europeans should worry. Scholars see policy uncertainty as a major obstacle on the way to economic recovery. Note that, although European competition law is very detailed, no transparent criteria have been offered to set the actual amount of the fine. If more companies in Europe risk finding themselves in violation of competition statutes and facing unspecified penalties, they will almost certainly consider moving their business elsewhere.
Using tools of competition policy to penalize technological leaders during—or even after—the brief periods when they enjoy market leadership damages the emergence and diffusion of new technologies on the continent. Competition policy thus amplifies the effect of Europe’s privacy and hate speech laws, which are much stricter than on the other side of the Atlantic.
In 2000, European leaders promised to turn the continent into “the most competitive and dynamic knowledge‐based economy in the world.” What might have sounded once like an ambitious policy goal sounds today like a bad joke. But it does not have to be—the continent’s troubles are completely self‐inflicted. But if European policymakers decide to continue in their present course, there is even less hope that a new Microsoft will be started in a garage in Munich or Lyon.