Competing, countervailing, and coalescing forces: the economics of intra- and inter-business system competition.

I. INTRODUCTION

The recent work on complexity science, business ecosystems, and networks offers fresh insights into how modern business systems operate, compete, and evolve. In particular, the new literature has focused the spotlight on those businesses that represent critical catalysts in the development, even creation, of markets. Such businesses, labeled as "hubs," "stewards," or "keystone companies," play central roles in business systems, exerting their influence and power not only on those that they directly trade with, but also on those other players in the system on whose existence they depend, like complementary product providers, as well as competitors. (1) Indeed, a key characteristic of a modern business system is the extensive interdependence of the numerous participants that typically make up a system, with service and product markets often intertwined by extensive multimarket contact and competition. In such circumstances, it seems appropriate that antitrust analysis should take a broader perspective than merely looking at market power in the context of separate individual markets.

While there may be an emphasis on a single, key business and its central role in a business system, the nature of interdependency may well mean that a number of influential and powerful organizations may jointly hold key roles in determining outcomes not only within a business system but also across different business systems. Consequently, it is quite conceivable that more than one party in a business system--where complementary and competing firms interact to produce a good or set of goods--may potentially hold market power. This then raises antitrust issues, which hark back to old economic debates about what happens when positions of market power lie side by side or face to face in a broad industry or sector of the economy. Do such multiple occurrences of market power tend to alleviate or exaggerate market failure problems? Similarly, do they countervail one another to the public good or coalesce to protect incumbent positions to the public detriment?

Drawing on the insights from the work on business ecosystems and networks, but viewed through the more traditional lens of competition economics, this article considers these questions with a view to providing an antitrust perspective on developments within and across business systems. In particular, the article shows that the market failure problems that may be associated with business system competition have a long and established pedigree in economic theory. Utilizing this body of economic learning, the article begins by considering intra-system competition, examining the implications of multiple instances of market power arising in the same business system. The section that follows considers inter-system competition, looking at what happens when one hub-led business system meets another. The final section provides some concluding remarks.

II. INTRA-SYSTEM COMPETITION

In a business system, with interconnected and interdependent firms, it is quite possible that market power may arise at more than one "bloc" or "point." (2) For example, market power may be vertically connected, i.e., between trading parties as arising in a bilateral monopoly or bilateral oligopoly situation. It may also be horizontally connected, as between firms making substitute products, in what might be tantamount to an oligopoly in a broadly defined market, or between firms making complementary products. More generally, business systems offer potentially complex competition scenarios in which different firms having different roles strive for advantage or even dominance over rivals in the quest for profits.

While different blocs or points of power in a business system would in effect compete with each other for a share of available profits arising from the system's output, it is not immediately obvious what the ultimate impact would be on value creation and economic welfare. Conceivably, the different power sources may operate in a socially benign way, each providing impetus for development and improvement within the system, but where the power of each is held in check by another, providing balance and continuity in the system and ensuring that final consumers are well served. Alternatively, the competing power sources may work in tandem in a more malign way, coalescing in a manner that reinforces their mutual strength, while weakening their rivals, to better exploit their joint market power to the detriment of the ultimate consumers.