Antitrust in Zero-Price Markets

Posted by Social Science Research Network

Antitrust in Zero-Price Markets – John M. Newman (University of Memphis – Cecil C. Humphreys School of Law)

ABSTRACT: This Article examines “zero-price markets,” where firms set the price of their goods or services at $0. Creative content, software, search functions, social media platforms, mobile applications, travel booking, navigation and mapping systems, and myriad other goods and services are now widely distributed at zero prices. But despite the exponential increase in zero-price products, scholars have paid almost no attention to how the absence of positive prices impacts traditional legal principles and methodologies.

Antitrust law in particular is firmly grounded in neoclassical economics, which is in turn based on price theory. This heavy dependence on positive prices has led U.S. antitrust-enforcement agencies to overlook potentially massive consumer-welfare harms. The dramatic consolidation of the broadcast-radio industry as a result of deregulation in the late 1990s provides one example: the Department of Justice failed even to consider potential harm to listeners, instead focusing solely on harm to advertisers.

That an agency well-staffed with professional antitrust analysts could commit such an error suggests how fundamentally zero-price markets challenge traditional theories and analytical frameworks. Zero-price markets raise unanswered questions regarding market definition, market power, consumer standing, harm, and damages calculations. They also call into question the role and efficacy of antitrust — and of competition itself. In light of the critical importance of zero-price markets to the broader economy, antitrust institutions must evolve. This Article offers multiple suggested solutions, including modifying the traditional “SSNIP” test for market definition, reevaluating the legal standard for market power, and multiple means of calculating consumer damages for nonprice antitrust injuries.