Monopoly, Abuse of Dominance, and Unilateral Conduct

Week 5

Find these slides online: https://webslides.baxterlab.ca/slides/competition2025-26/05/
Category: Competition 2025-26

Agenda

Essential point is that capitalism is an evolutionary process.

The “fundamental impulse” of this process of change is from new consumption goods, production and transportation processes, new markets, and new forms of industrial organization.

The process of change is Schumpeter’s “perennial gale of creative destruction”

“But economists who, ex visu of a point of time, look for example at the behavior of an oligopolist industry—an industry which consists of a few big firms—and observe the well-known moves and countermoves within it that seem to aim at nothing but high prices and restrictions of output are making precisely that hypothesis. They accept the data of the momentary situation as if there were no past or future to it and think that they have understood what there is to understand if they interpret the behavior of those firms by means of the principle of maximizing profits with reference to those data. The usual theorist’s paper and the usual government commission’s report practically never try to see that behavior, on the one hand, as a result of a piece of past history and, on the other hand, as an attempt to deal with a situation that is sure to change presently—as an attempt by those firms to keep on their feet, on ground that is slipping away from under them.”

What really “counts” in Schumpeter’s view is not price competition, or even competition on quality or other characteristics, but “competition from the new commodity, the new technology, the new source of supply, the new type of organization”

David Teece: “innovation drives competition as assuredly as competition drives innovation.” (Teece, “Dynamic Competition, Organizational Capabilities, & M&A: A Short Synopsis.”) Often, what seem to be monopolistic practices (i.e., practices that seem to restrict output at the expense of consumers) help finance new investment.

EXAMPLES of dynamic competition (from https://itif.org/publications/2025/10/14/rethinking-antitrust-the-case-for-dynamic-competition-policy/):

Amazon spent significant resources to develop the Kindle e-reader, even though its core business at the time revolved around selling books.17 A significant quote from a former Amazon executive was that it is “better to cannibalize yourself than have someone else do it.”18
Kodak, once thought of as a monopolist, is an obsolete company that refused to invest in innovating because it was afraid of cannibalizing its own profitable lines of business.19
Firms such as Apple, Samsung, and Google continually invest in developing and launching improved devices, such as smartphones, for fear that a rival will take advantage of continuous improvements in technologies to release devices that will make them obsolete.
Google incorporates AI into its search service, given the propensity of many adopters to prefer AI tools for search services rather than traditional search engines.20
Nvidia’s invests over the course of decades to transition from a computer graphics chip company to a supplier of advance processors to fuel the current wave of AI.21

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