Business Law and ICT – Week 1

1. What is Business Law?

Business Law refers to the legal framework that governs the conduct of businesses in a competitive market.
It ensures that companies:

 Operate fairly.
 Do not abuse their market power.
 Protect consumers from unfair practices.
 Comply with regulations on data, privacy, and intellectual property (IP).

Why is Business Law Important in ICT?

In the ICT (Information and Communication Technology) sector, business law plays a critical role because
tech companies deal with:

 Data privacy (GDPR)

 Monopoly concerns (Big Tech cases)
 Interoperability (how companies share or restrict data)

The central question: Are laws keeping up with fast technological advancements?

2. Key Questions in Business Law

These are some of the key legal and economic questions that arise in business law:

1. Are tech giants (Google, Apple, Facebook, Amazon, Microsoft - GAFAM)

breaking competition laws?

 Example: Google favoring its own services in search results (Google

Shopping case).
 Example: Apple charging high commissions in the App Store.

2. Are Big Data practices legal?

 Companies collect massive amounts of data, which gives them a

competitive advantage.
 Legal issue: Is this data collection violating privacy laws or leading to
unfair competition?

3. What is market power?

 A company has market power when it can set prices or exclude

competitors.
 Example: Amazon’s pricing algorithms and the Nessie project, which
allegedly manipulated prices.
4. Are monopolies illegal?

 Not all monopolies are illegal, but abusing monopoly power is.
 Example: Microsoft’s bundling of Internet Explorer with Windows in the
1990s.

3. Goals of Competition Law

Competition law ensures that markets remain fair and efficient by:

 Preventing monopolies from controlling prices.

 Encouraging innovation (so small businesses can compete).
 Protecting consumer welfare (ensuring low prices and high quality).
 Maintaining economic freedom (so businesses can enter the market).

Different Approaches to Competition Law

 United States: Focuses on consumer welfare (Are prices too high?).

 European Union: Focuses on market structure (Are there enough
competitors?).
 China & India: Also consider economic policy goals (e.g., job creation).

4. Market Power & Equilibrium

Market Equilibrium

In a competitive market, prices adjust so that:

 Consumer surplus (the benefit consumers receive when they pay less than
they are willing to) is maximized.
 Producer surplus (the profit a business makes beyond the cost of production)
is fair.
 Economic welfare is the sum of consumer and producer surplus.

Market Power

 Definition: A company has market power when it can raise prices without
losing all customers.
 Key insight: In a perfectly competitive market, no company has market
power.

Why is Market Power a Problem?

 Higher prices and reduced consumer choice.

 Deadweight loss (lost economic efficiency).
 Governments regulate market power through antitrust laws.
5. Monopoly vs. Perfect Competition
Market Structures Comparison

 Monopolies are discouraged, except in cases of natural monopolies (e.g.,

utilities like water or electricity).
 Antitrust laws prevent abuse of monopoly power.

6. Key Economic Goals in Competition Law

Types of Efficiency

1. Allocative Efficiency:
o Prices reflect the actual cost of production (P = MC).
o Consumers get products at fair prices.

2. Productive Efficiency:
o Companies produce at the lowest cost possible.
o Competition forces cost efficiency.

3. Dynamic Efficiency:
o Innovation over time.
o Encourages research and development (e.g., pharmaceutical
industry).

Consumer Welfare vs. Total Welfare

 Consumer welfare: Protecting consumers (low prices, better quality).

 Total welfare: Balancing producers and consumers.

Example:

 A merger might reduce consumer welfare (higher prices) but increase total
welfare (more efficiency).
 Should regulators block such mergers?

7. Competition Law & Digital Markets

Big Tech faces increasing scrutiny:

 Google: Accused of favoring its own products in search.

 Apple: Accused of restricting app developers with App Store rules.
 Amazon: Investigated for self-preferencing its own brands.

Regulatory Responses

 Digital Markets Act (DMA): Controls Big Tech monopolies.

 Digital Services Act (DSA): Ensures platform accountability.
 General Data Protection Regulation (GDPR): Protects consumer privacy.
8. Business Law & Inequality
The Problem of Inequality

 Market power increases wealth gaps.

 Top 1% saw their income grow by 90% (1982-2013), while the bottom 40%
lost income.

Antitrust Solutions

 Stronger enforcement against dominant firms.

 Fines for anti-consumer behavior.
 Policies favoring small businesses.

9. Business Law, ICT & Sustainability

Positive Impacts

1. Efficiency improvements (less waste in logistics, smart grids).

2. Remote work reduces carbon emissions.
3. AI helps monitor the environment.

Negative Impacts

1. E-waste: Tech devices create toxic waste.

2. Energy consumption: Data centers consume massive amounts of electricity.
3. Rare earth mining: Essential for electronics, but damaging to the
environment.

Solutions

 Better e-waste regulations.

 Encouraging green computing.

10. Key Takeaways

 Competition law is essential for fair markets and consumer protection.
 Big Tech is under increasing legal scrutiny (Google, Apple, Amazon
cases).
 Balancing innovation, efficiency, and fairness is a challenge.
 Regulations like DMA, DSA, and GDPR are shaping the digital economy.
 Sustainability is an emerging issue in business law.
Business Law and ICT – Week 2
1. Economic Approaches to Competition Law
Competition law has evolved through various economic schools of thought, each shaping different
enforcement strategies. In the US, economic reasoning has influenced law since 1890, whereas in the EU, it
was initially less dominant but has gained importance.

Main Schools of Thought:

1. Classical Economics (Adam Smith):

o Competition is a dynamic process of rivalry.
o Free markets work best with many firms and no collusion.
o The role of law: prevent collusion and ensure market freedom.

2. Neo-Classical Price Theory:

o Opposes perfect competition to monopoly.
o Sees competition as a static model, not dynamic.
o Focus on Pareto efficiency and welfare maximization.

3. Structuralist Approach (Harvard School):

o Market structure affects firm behavior and economic outcomes.
o Preventive antitrust policy is needed (e.g., merger control).

4. Ordoliberalism (Freiburg School - Germany):

o Strong institutional framework to prevent both private and state
monopolies.
o Inspired Germany’s social market economy model.

5. Chicago School:
o Minimal antitrust intervention – markets self-correct.
o Monopolies are temporary and reflect efficiency, not market abuse.

6. Contestable Markets Theory:

o The threat of competition (not just actual competition) controls
markets.
o Entry and exit barriers should be minimal.

7. Modern Industrial Organization (Post-Chicago):

o Uses game theory to analyze competition.
o Recognizes strategic barriers to entry and anti-competitive
practices.

8. Behavioral Economics:
o Consumers and firms do not always behave rationally.
o Recognizes the need for stronger regulations in certain markets.
2. Classical Economics & Competition
Key Principles (Adam Smith, 1776):

 Competition ensures long-term economic efficiency.

 Markets function best when there are no artificial restrictions.
 Collusion is a major risk (firms may conspire to fix prices).
 Role of law: Ensure market freedom and prevent collusion.

3. Price Theory
With the rise of mathematical economics, competition is analyzed through models:

 Perfect competition vs. Monopoly (static analysis).

 Perfect competition is idealized but rarely exists in real markets.
 Antitrust laws aim to improve welfare by reducing inefficiencies.

Policy Conclusions:

1. Competition law should eliminate monopoly power where possible.

2. Recognizing that real markets are not perfectly competitive, but law should
aim for welfare improvements.

4. Ordoliberalism (Freiburg School)

 Focuses on limiting both private and government monopolies.
 Legal rules are necessary to ensure true market competition.
 Advocates a third way between free markets and state control (Germany’s
social market economy).

5. Harvard School (Structure-Conduct-Performance)

 Firm behavior is determined by market structure.
 Market concentration leads to higher prices and lower competition.
 Government intervention is necessary to prevent anti-competitive
behavior.
 Merger control is a key tool in antitrust policy.

6. Chicago School (Minimal Antitrust Enforcement)

 Opposes Harvard School’s interventionist approach.
 Believes high concentration = efficiency, not necessarily market abuse.
  Markets self-correct over time (monopolies are temporary).

7. Contestable Markets Theory

 Potential competition (not actual competition) is enough to regulate firms.
 Entry and exit should be easy to keep markets fair.
 Implications for law: Governments should not block concentration, but
remove barriers to entry.

8. Modern Industrial Organization (Post-Chicago)

 Uses game theory to understand cartels, strategic pricing, and entry
barriers.
 Some anti-competitive behavior is deliberate and needs regulation.
 Both over-regulation and under-regulation can be harmful.

9. Neo-Brandesian Movement
 Criticizes the Chicago School’s focus on consumer welfare.
 Argues for broader economic and social concerns.
 Amazon Antitrust Paradox (Lina Khan): Even if prices are low, Amazon’s
dominance is harmful in the long run.

10. Summary of Economic Theories

11. Substantive Law: EU Competition Rules

The European Union (EU) competition framework is based on the Treaty on the Functioning of the
European Union (TFEU). These rules aim to prevent anti-competitive behavior, ensure fair markets,
and protect consumer welfare.
Key Provisions of EU Competition Law

1. Article 101 TFEU

o Prohibits anti-competitive agreements that restrict competition.
o Includes price-fixing, market allocation, and bid-rigging.
o Agreements can be exempted if they benefit consumers (e.g.,
improve efficiency or innovation).

2. Article 102 TFEU

o Prevents abuse of a dominant market position.
o Includes practices like predatory pricing, unfair trading conditions,
and limiting production.

3. Article 107 TFEU

o Regulates state aid provided by governments to businesses.
o Prevents subsidies that distort competition within the EU single
market.

4. EU Merger Regulation (Regulation 139/2004)

o Controls mergers and acquisitions that could reduce competition.
o Large mergers must be approved by the European Commission.

Key Features of EU Competition Law

 Direct Applicability: These rules automatically apply in all EU Member

States.
 Case Law is Crucial: The rules are vague, so court decisions clarify
enforcement.
 Economic Analysis: Enforcement relies on market impact assessments.

12. Antitrust in the US: The Sherman Act

The United States' antitrust framework is based on the Sherman Antitrust Act (1890), the first
competition law in the world. It aims to prevent monopolization and anti-competitive agreements.

Key Sections of the Sherman Act

1. Section 1 – Prohibits agreements that restrain trade, including:

o Price-fixing (competitors agreeing on prices).
o Market allocation (dividing territories to avoid competition).
o Bid-rigging (manipulating competitive bidding).

2. Section 2 – Prohibits firms from monopolizing a market:

o Having a monopoly is not illegal unless a firm abuses its dominance.

Other Key US Antitrust Laws

 Clayton Act (1914)

o Bans anti-competitive mergers.
 o Prevents exclusive dealing contracts that reduce competition.

 Federal Trade Commission (FTC) Act (1914)

o Bans unfair competition practices.
o Created the Federal Trade Commission (FTC) to enforce antitrust laws.

Key Differences: EU vs. US

13. Enforcement in the EU

The EU enforces competition law using both centralized and decentralized enforcement mechanisms.

Key Enforcement Institutions

1. European Commission (EC) – Main enforcer of competition law.

o Can investigate companies, issue fines, and block mergers.
o Ensures uniform enforcement across all EU Member States.

2. National Competition Authorities (NCAs)

o Each EU country has its own competition agency.
o NCAs enforce EU and national competition laws simultaneously.

3. European Competition Network (ECN)

o A coordination network between the European Commission and
NCAs.
o Helps decide which authority should investigate a case.

Key Enforcement Tools

 Fines: The European Commission can impose fines up to 10% of a

company’s global turnover.
 Investigations: The EC can conduct dawn raids on suspected companies.
 Merger Control: Companies must seek approval for large mergers.
14. Judicial Role: European Courts
Key Judicial Institutions

1. General Court (GC)

o Reviews European Commission decisions.
o Can annul or reduce fines imposed by the Commission.

2. European Court of Justice (ECJ)

o Final authority on EU competition law.
o Handles appeals from the General Court.
o Only reviews legal issues, not factual disputes.

Judicial Review Process

 Companies can challenge EC decisions before the General Court.

 If unsatisfied, they can appeal to the ECJ (on points of law only).

Why is the Court Important?

 Provides legal certainty in competition law.

 Balances EC enforcement power with judicial oversight.

15. Antitrust Agencies in the US

In the United States, two main agencies enforce antitrust laws:

1. Federal Trade Commission (FTC)

 Focuses on consumer protection and non-criminal antitrust cases.

 Covers industries like healthcare, technology, and online platforms.

2. Department of Justice (DOJ) – Antitrust Division

 Handles criminal violations of antitrust laws.

 Has sole jurisdiction over criminal price-fixing and bid-rigging cases.

US Courts and Antitrust

 Companies can appeal antitrust decisions to US Courts of Appeal.

 The Supreme Court has the final say on major antitrust cases.

16. China’s Antitrust Law: The Anti-Monopoly Law (AML)

China’s competition law was introduced late compared to the EU and US. The Anti-Monopoly Law
(AML) came into force in 2008.
Key Challenges in China

1. Transition from a planned economy to a market system.

2. State-Owned Enterprises (SOEs) still dominate key industries.
3. Foreign companies face stricter enforcement than local firms.

Key Provisions of the AML

 Prohibits monopolistic agreements (similar to Article 101 TFEU).

 Prevents abuse of dominance (similar to Article 102 TFEU).
 Regulates mergers to prevent market concentration.

Enforcement in China

 State Administration for Market Regulation (SAMR) enforces competition

law.
 There are concerns about political influence in enforcement.

17. International Competition Policy

Competition law is not limited to one country. Global coordination is necessary to handle cross-border
issues.

Key International Organizations

1. World Trade Organization (WTO)

o Promotes fair trade and competition among 164 countries.

2. Organization for Economic Cooperation and Development (OECD)

o Helps 34 member countries develop best practices in competition law.

3. United Nations Conference on Trade and Development (UNCTAD)

o Focuses on competition law in developing countries.

4. International Competition Network (ICN)

o Brings together 138 national competition authorities.

Key Challenges in International Enforcement

 Different legal traditions (US vs. EU vs. China).

 Jurisdiction conflicts (e.g., should the EU regulate US tech giants?).
 Extraterritorial application (laws affecting companies outside their home
country).
Business Law and ICT – Week 3
Market Power, Market Definition, and Practical Problems

1. Market Power: Economic and Legal Perspectives

Market power is defined differently in economic and legal contexts.

Economic Definitions of Market Power

1. Carlton & Perloff:

o "Market power is the ability to set prices above competitive levels
profitably."

2. Motta:
o Market power is measured by the Lerner index, which calculates how
much a firm raises prices above marginal cost:
L = (P - MC) / P
o In a perfectly competitive market, L = 0 (no market power).
Legal Definition of Market Power (EU Law)

 Defined in United Brands (ECJ, 1978) as:

"A position of economic strength that allows a firm to act independently of competitors and
consumers."

 Key difference from economic definition:

o Economic approach focuses on price-setting power.
o Legal approach focuses on market dominance and lack of
competition.

2. Economic Measurement of Market Power

Market power is hard to measure directly because data on marginal costs (MC) and price elasticity are
often unavailable.

Direct Measurement (Lerner Index)

 If a firm sets prices much higher than costs, it likely has market power.
 Challenges:
o Difficult to estimate marginal costs.
o Price elasticity (consumer response to price changes) is hard to
observe.

3. Apple and Market Power – Case Study

Case Study: Apple and Market Power

This case study helps us apply the economic and legal concepts of market power we’ve studied so far. It
focuses on Apple’s position in different markets, from smartphones to tablets, operating systems (OS),
and digital services, and asks:

1. Does Apple have market power in these markets?

2. How should we define the relevant market to determine Apple’s
dominance?

The answer depends on how we define competition—whether Apple competes only with premium
brands (e.g., Samsung Galaxy), or with all smartphone manufacturers (including Xiaomi, Huawei,
and others).
a. Market Power: Can Apple Raise Prices Without Losing
Customers?
Economic Perspective on Market Power

From an economic standpoint, we measure market power based on Apple’s ability to set prices above
competitive levels. Apple is known for selling iPhones at significantly higher prices than its competitors,
often with very high profit margins. This aligns with the Lerner Index, which calculates market power by
assessing how much a company can charge above its marginal costs:

Lerner Index = (Price - Marginal Cost) / Price

If a company can maintain high prices without losing customers, it suggests that customers have no real
alternative, and thus, the company holds market power.

Apple’s premium pricing strategy suggests some degree of market power, but does this mean it
dominates the smartphone market as a whole?

b. Market Share Analysis: How Dominant is Apple?

One way to determine market power is to look at market share. If a company has a very large market
share, it might be able to act independently of competitors, which is key to the legal definition of
dominance.

According to the data in your notes, Apple’s market shares are as follows:

 Worldwide Smartphone Market: Apple holds around 27%, slightly below

Samsung (~28%).
 European Market: Apple has a higher share (33%), making it a stronger
player.
 Italian Market: Apple and Samsung both hold around 30%.
 Tablet Market: Apple dominates with a 52% market share, far ahead of
Samsung (26%).
 Operating Systems (OS): Apple’s iOS holds only 17%, while Android (42%)
and Windows (31%) lead.

What does this tell us?

 Apple is not the dominant smartphone manufacturer worldwide, as

Samsung remains a strong competitor.
 In specific regions (like Europe), Apple has a stronger position.
 Apple is dominant in the tablet market, where its competitors have much
lower shares.
 In operating systems, Apple does not have market power, as it competes
with Android and Windows.
c. Market Definition: How Should We Define Apple’s
Competition?
To determine whether Apple truly has market power, we must carefully define the relevant market. If
we define the market too broadly, Apple may seem like just one of many players, facing strong
competition. But if we define it too narrowly, Apple may appear as a monopoly when it isn’t.

For example:

 Is the iPhone part of the "smartphone market" or just the "premium smartphone market"?
o If we include all smartphones (Samsung, Xiaomi, Huawei), Apple is just
one of many competitors.
o But if we consider only premium brands (Samsung Galaxy, Google
Pixel), Apple could be more dominant.

 Does Apple compete only in hardware (iPhones), or does its App Store and ecosystem create a
separate market?
o If we consider only iPhones, Apple competes with other manufacturers.
o But if we include the App Store and digital services, Apple has much
more control over its ecosystem, making it harder for consumers to
switch.

This is why market definition is crucial in competition law. Courts and regulators must decide which
market matters before they determine if Apple truly has dominance.

d. Using the SSNIP Test to Measure Market Power

One method used to define markets in antitrust law is the SSNIP test (Small but Significant Non-
transitory Increase in Price). This test helps determine:

 If Apple raised iPhone prices by 5-10%, would consumers switch to

competitors?
 If enough consumers stay with Apple despite price increases, then iPhones
might belong to a separate market (suggesting market power).
 If many consumers switch to Samsung, Xiaomi, or other brands, then
Apple is part of a larger competitive market and does not have market
power.

For iPhones, many users stay loyal to Apple despite higher prices, which could indicate some market
power. However, the presence of strong competitors like Samsung suggests that Apple does not dominate
the smartphone market entirely.
e. The Cellophane Fallacy: A Common Mistake in Market
Definition
One mistake that courts and regulators can make when defining markets is the Cellophane Fallacy. This
occurs when authorities look at product substitution at already inflated prices and assume that
competition exists.

For example:

 If Apple has already raised iPhone prices significantly, consumers might be

forced to consider alternatives.
 But this doesn’t mean there was always competition—Apple may have already
exercised market power before the analysis began.

This is exactly what happened in the DuPont Cellophane case, where the US Supreme Court mistakenly
assumed DuPont faced competition, when in reality, DuPont had already exploited its market power.

The same fallacy could apply to Apple—just because some people switch brands when prices are high
doesn’t mean Apple isn't dominant in certain segments.

f. The Role of Apple’s Ecosystem in Market Power

Unlike most companies, Apple’s strength comes not just from its individual products, but from its
entire ecosystem. This creates a two-sided market, where Apple controls:

1. The hardware (iPhones, iPads, MacBooks, etc.).

2. The software (iOS, macOS, App Store).
3. Digital services (iCloud, Apple Music, Apple Pay, etc.).

This gives Apple stronger control over its users, because switching to a competitor means leaving the
entire ecosystem. This is a key reason why Apple may have more market power than simple market
share statistics suggest.

For example:

 Even if Android has a larger market share, Apple’s loyal customer base and
App Store control give it significant leverage over developers and users.
 Apple’s 30% App Store fees have led to antitrust cases (e.g., Epic Games
vs. Apple).

This ecosystem effect reinforces Apple’s market power, even in areas where it doesn’t hold the largest
market share.
g. Final Conclusions on Apple’s Market Power
Key Takeaways:

 Apple has strong market power in some areas (tablets, App Store) but not
in others (smartphones, OS).
 The SSNIP test suggests that Apple may control the premium smartphone
market but faces strong competition overall.
 The Cellophane Fallacy warns against assuming competition exists
based on already-inflated prices.
 Apple’s ecosystem strengthens its control, making it harder for users to
switch.

4. Market Definition in Competition Law

Steps to Define a Market in Antitrust Cases

1. Define the relevant market (choose among possible alternatives).

2. Assess the competitive landscape (number of suppliers, market shares).
3. Infer market power based on market share.

Legal Precedents on Market Definition

 US Supreme Court (Du Pont, 1956):

o "Products are in the same market if they are reasonably
interchangeable."
 ECJ (United Brands, 1978):
o The relevant product market includes goods/services that are
substitutable based on characteristics, price, and use.

Geographic Market Definition

 Based on homogeneity of competition conditions (i.e., is competition

similar across locations?).

5. The Banana Case – United Brands (ECJ, 1978)

Key Issue:

 United Brands sold bananas at much higher prices in some EU countries

than others.

Commission’s Findings:

 Bananas were a separate market from other fresh fruits because:

o Unique characteristics (softness, seedlessness, availability year-
round).
 o Target consumers (elderly, children, sick individuals).

Controversy:

 Defining markets too narrowly can lead to false monopolization claims.

 Should bananas be grouped with other fresh fruits?
 Similar debate: Android vs. iOS – Are they in the same market?

6. Challenges in Market Definition

Problems with Market Definition in Law

1. Subjectivity:
o How much substitution is necessary for two products to be in the
same market?
2. Legal Bias:
o Authorities define the market after finding an infringement, leading
to biased results.
3. US vs. EU Approach:
o US: Less emphasis on market definition, uses economic models (price-
concentration analysis).
o EU: Market definition remains a core legal tool in competition law.

7. The SSNIP Test (Small but Significant Non-Transitory Increase

in Price)
A standard test used to define markets in antitrust law.

How the SSNIP Test Works

 Ask: Would a monopolist increase prices by 5-10% and still make a

profit?
 If consumers switch to substitutes, expand the market definition.
 Repeat until a price increase becomes profitable.

Key Factors in SSNIP Test

1. Demand Substitution:
o Do consumers view two products as substitutes?
2. Supply Substitution:
o Can producers quickly switch to making substitutes?
3. Potential Competition:
o Can new firms enter if prices rise?
Limitations of the SSNIP Test

 Does not work well for digital markets (e.g., free services like Google
Search, Facebook).

8. Cellophane Fallacy
A major mistake in market definition:

 Looking at product substitution at current (monopoly) prices.

 If a firm already has market power, consumers will be forced to substitute
due to high prices.

Example:

 US Supreme Court’s mistake in the DuPont Cellophane case.

 Court assumed cellophane competed with other packaging materials but
ignored that DuPont had already raised prices.

9. Challenges in Market Definition for Digital Services

 How to define a market for free products?
o A 5-10% price increase on "zero-price" services is meaningless.
o Other factors like quality, data collection, or innovation must be
considered.

 Example: Google Maps (Paris Tribunal, 2012)

o Google Maps was found dominant over a paid competitor (Bottin
Cartographes).
o But does free Google Maps really compete with paid alternatives?

Alternative Approach: SSNIQ Test (Quality-based version of SSNIP)

 Instead of a price increase, ask:

"Would a monopolist reduce quality (e.g., more ads, slower service) and still keep users?"

10. Final Takeaways

 Market power can be measured economically (Lerner Index) or legally
(dominance in the market).
 Market definition is crucial but can be manipulated in legal cases.
 The SSNIP test helps define markets but has limitations, especially in
digital markets.
 Antitrust authorities must balance economic and legal perspectives to
avoid mistakes like the Cellophane Fallacy.
 For digital markets and free services, new tools like the SSNIQ test may
be needed.