I am delighted to publish a 15-video series dedicated to my book, “Blockchain + Antitrust: The Decentralization formula”. You can access all the chapters over here, and all the video transcripts over here.
In this video, I’d like to address the paradox between antitrust law and blockchain.
First, let me introduce antitrust law to you. This should be especially relevant if you are new to the field. Google Scholar brings up no fewer than 1.400 articles with the keywords “history of the Sherman Act”. There is currently a lively debate as to what should be the goal of antitrust law. Some scholars and lawmakers argue that it should remain to protect consumers. Others ascertain that it should be polycentric and take several objectives into account, such as protecting democracy, the environment, workers, etc.
But regardless of your beliefs here, we can all agree that antitrust law fundamentally prohibits centralization when it does not result from competition on the merits. Let me explain, but first, I want to recall that the fourth video discusses the meaning of the word “decentralization”, which is key here. Section 1 of the Sherman Act prohibits companies from coordinating their business activities in illegal terms. When they do so, they introduce a centralized governance between them. They also force other companies to react to their collusion, further centralizing the market. Section 2 of the Sherman Act prohibits dominant companies from abusing their market power. Why? Because when they do so, they exclude competitors and prevent fair competition. This centralizes the market, prohibiting these competitors from behaving the way they would under fair competition. The logic is the exact same in European competition law.
Here, I should pause a minute and underline that I am not discussing competition outcomes, but only the competitive process. Antitrust laws tolerate and even encourage centralized outcomes, but again, only if they result from fair competition. Just to be clear, the US Supreme Court went astray in the Brown Shoe case of 1962 and imposed the decentralization of competitive outcomes, but that is not what I am talking about here. I am talking about the decentralization of processes.
OK, back to our business. As I have already discussed in video #4, blockchain seeks to decentralize transactions. And here again, centralized outcomes are welcomed if they result from better design, etc. The principle remains that all players in the ecosystem should be able to define their own perimeter of action. In a nutshell, blockchain and antitrust law follow the same logic: they seek to decentralize processes, not outcomes.
Against this background, you may think “well, blockchain and antitrust are made to cooperate, and it shall be easy. Great!” This is where the paradox kicks in. Although they seek the same objective, they may fight one another and reduce the overall potential to achieve this goal. This is due to what I call “mutual aggressions”. In a nutshell, blockchain may be used to implement anticompetitive practices and be enforcement resistant. Antitrust labels various blockchain behaviors as anticompetitive. So… blockchain and antitrust operate on two different levels. Antitrust law prohibits certain categories of conduct without focusing much on digital architectures. On the contrary, blockchain seeks decentralization by providing its users with a specific digital architecture. It does not prohibit (anti-competitive) practices where code allows.
In the following videos, I will explore these tensions and what to do to address them in a way to make blockchain and antitrust cooperate. But before doing that, I need to explain an important reason why they should cooperate. As I said already, they seek the same objective. That’s already a lot. But there is more. Both antitrust and blockchain have failures, and, as it happens, cooperation between them may address these failures.
On the side of antitrust, I am sorry to say that “law is not self-sufficient”. First, antitrust agencies’ detection rate remains low. Empirical work tends to shows that they detect about 10 to 20% of illegal agreements and even fewer abuses of dominance. This means illegal behaviors often go unpunished. Second, enforcement is costly, making it impossible to prosecute every potentially illegal practice, especially for private parties. Third, the rule of law is (unfortunately) inapplicable in some places. The public international law literature documents that very well. Fourth, antitrust laws are complex and cannot be mastered by all companies. Against this, blockchain can play an important role by decentralizing more transactions. It also gets rid of most existing intermediaries with a power of command and control, and, with that, anticompetitive practices they implement. Last but not least, blockchain aligns value creation with value capture. I will explore how when discussing NFTs, but for now, let me simply say that it benefits market players.
On the side of blockchain, I am also sorry to say that “code is not self-sufficient”. First, we have already seen antitrust cases in which blockchain miners and users colluded in anti-competitive terms. Second, there are anticompetitive practices coming outside the chain, but creating an impact within it. Code is often ineffective here, for example… if big players prohibit blockchain advertisement. And third, the law can foster investments when it is clear and fair. Macroeconomists have well documented the phenomenon.
In short, blockchain and antitrust not only have the same objective, but their cooperation also creates synergies. That explains why they should cooperate despite mutual aggressions. This first implies addressing these aggressions.
That is all for today. Thank you very much for listening. Take care of yourself, and, if you can, someone else too. Cheers.