Competition, Innovation, and Antitrust. A Theory of Market ... - Intertic

Preface
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to the determination or predatory pricing, to bundling as an exclusionary
strategy, and to issues of IPRs protection.
In Chapter 6, I apply my theoretical analysis to the markets of the New
Economy, in particular to the software sector, which is characterized by a
number of peculiar features analyzed in the book as network externalities,
two-sided markets, high investments in R&D and a pre-eminent role of the
leader in both the competition in the market and for the market. This leader
has been also the subject of antitrust investigations in US and EU, therefore
I analyze these famous antitrust cases from an economic point of view, and
try to focus on its main aspects: 1) whether Microsoft is a monopolist; 2)
whether its bundling strategies are predatory and harm consumers; and 3)
whether antitrust authorities should force the disclosure of its IPRs to promote
competition in the software market. I can briefly summarize the results
of my investigation as follows: 1) evidence from the competition in and for
software markets witnesses the lack of monopolistic power by Microsoft and
better defines its role as that of a Stackelberg leader in a market with endogenous
entry; 2) bundling strategies by Microsoft appear as natural aggressive,
or pro-competitive, strategies which may harm competitors but create benefits
to all consumers; and 3) forced disclosure of the IPRs of Microsoft for
interoperability purposes may severely jeopardize investment in R&D rather
than promoting it, with negative consequences for the consumers in the long
run.
In Chapter 7, I conclude this book by suggesting ways to investigate the
empirical predictions of the theory of market leaders concerning the pricing
policy of the leaders, and their decisions on quality, advertising, distribution,
financing and R&D investments as functions of the entry conditions. I also
re-interpret my results on the behavior of market leaders from the point of
view of business administration recommendations for marketing and strategy.
Finally, I suggest avenues for future theoretical research on market leadership
and on endogenous entry.
My initial interest in the role of market leaders and endogenous entry,
especially in the market for innovations, was inspired by discussions with
Michele Boldrin at U.C.L.A. While our later research efforts have taken radically
different directions, I am grateful to him for inspiring motivations.
At U.C.L.A., between 1998 and 2000, I also benefited from interaction with
Harold Demsetz, Jack Hirshleifer, David Levine, John Riley, Bill Zame and,
most of all, with Karina Firme whose wisdom and intelligence has enlightened
many of my thoughts on these issues (and others as well). I presented
a prototype model on the behavior of leaders in markets with endogenous
entry for the first time in a seminar at M.I.T. in November 2000. In that
occasion, comments by Robert Barro and Daron Acemoglu shaped a lot of
my subsequent theoretical investigations. I developed the first ideas of this
book at N.B.E.R. and Harvard University: the rigorous logic and the depth
of the suggestions of Robert Barro have been crucial for my understanding of