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7 Criterion J. on Innovation 1 (2021)

handle is hein.journals/critjinov7 and id is 1 raw text is: T H E C R I T E R I 0 N J O U R N A L O N IN N O V A T I O N VOL. 7 + + 2021 The Law ofn+i j Gregory Sidak* In economics, the traditional way of viewing businesses and products has been to regard the firm as a multiproduct enterprise. The firm produces n different products and earns a different price-cost margin on each, depending on the firm's own-price elasticity of demand for each. William Baumol and Daniel Swanson argued that competing multiproduct firms are compelled to engage in price discrimination.' Actually, Baumol and Swanson make the point with respect to separate classes of consumers for a single product, which analytically resembles the multiproduct situation, with the excep- tion that economies of scope do not necessarily figure in the analysis.2 The implicit assumption is that the firm produces a well-defined, mature product with which consumers are very familiar. The Internet's maturation as a popular platform for commerce has created a new range of business models based on greater economies of scale in distribution, lower search costs, higher returns to buyers' investment in search, more product differentiation, and lower barriers to entry for the production or sale of many products. The Internet has made possible * Chairman, Criterion Economics, Washington, D.C. Email: jgsidak@criterioneconomics.com. I wrote this essay in about 2010 and left it in a drawer for years, wondering whether my point was trivial. After another decade of antitrust adventures in high-tech industries, I came to suspect that my message had not already become entirely obvious. I thank Henry Brooke, Tad Lipsky Douglas Maggs, Giovanna Massarotto, Urska Petrovei , Blount Stewart, and Andrew Vassallo for their helpful comments, which of course do not imply that any of them endorses the views expressed here. No client or third party has commissioned or funded or exercised editorial control over this essay The views expressed here are solely my own. Copyright 2021 by J. Gregory Sidak. All rights reserved. ' William J. Baumol & Daniel G. Swanson, The New Economy and Ubiquitous Competitive Price Discrimination: Identifying Defensible Criteria of Market Power, 7o ANTITRUST LJ. 661 (2003). 2 A firm's technology is said to exhibit economies of scope if a single firm can produce two products at a lower cost than if each product were produced by a different firm. See, e.g, J. GREGORY SIDAK & DANIEL F. SPULBER, DEREGULATORY TAKINGS AND THE REGULATORY CONTRACT: THE COMPETITIVE TRANSFORMATION OF NETWORK INDUSTRIES IN THE UNITED STATES 55-6o (Cambridge Univ. Press 1997); DANIEL F. SPULBER, REGULATION AND MARKETS 114-17 (MIT Press 1989); WILLIAM J. BAUMOL, JOHN C. PANZAR & ROBERT D. WILLIG, CONTESTABLE MARKETS AND THE THEORY OF INDUSTRY STRUCTURE 71 (Harcourt Brace Jovanovich rev ed. 1988) (1982). The seminal exposition of economies of scope is John C. Panzar & Robert D. Willig, Economies of Scale in Multi-Output Production, 91 Q.J. ECON. 481 ('977). 1I

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