Video: “Blockchain and monopolization”

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 answer two complementary questions: one, where do we see abuses of dominance within blockchain ecosystems, and two, can blockchain be used to abuse market power outside the chain?

So, let me start with the first. There are typically three types of abuses of dominance within blockchain ecosystems or, said differently, monopolization. The first type of exclusionary practices. Here, we find refusals to deal. There are very unlikely to be implemented on public permissionless blockchains, as anyone can just access them. Things are different for private blockchain; after all, refusing access to certain companies is their raison d’être. It doesn’t mean that all private blockchains are illegal, but they can be depending on each jurisdiction criteria, generally, linked to whether the refusal eliminate all competition or not.

Then we find tying practices in which one company ties the sale of a product to another one. Here again, this is unlikely on public permissionless blockchain because access is free. And here also, tying is likely on private blockchains where we can imagine that a company will give access to its private blockchain only after the user has acquired a token, for example.

Another practice is predatory pricing. The idea here is to cut the price of a product or service so low that competitors are driven out of the market. In the context of blockchains, that price could be the one to use it, such as transaction fees. Such practice is unlikely with public permissionless blockchains because they cannot easily change fee structures. It means the blockchain could not potentially raise the fees after competitors have been eliminated. As for private blockchains, predatory pricing is likely because its gatekeepers can change them. I think you see a pattern: public permissionless blockchains escape most of these practices while, on the contrary, private blockchains are riskier. Let us keep going to see if the tendency is confirmed.

A blockchain may want to grant a rebate for reducing a user’s costs to transact, but for the same reasons, this couldn’t easily be done with public permissionless while it is likely with private ones. The same logic applies to exclusive dealing, which consists of granting benefits to a company if and only if that company gets all it needs from the dominant market player. Because public permissionless blockchains are open, this practice is unlikely. The exact opposite is true for private blockchains. Finally, the same can be said for predatory innovation. Pubic permissionless blockchain could not easily change their design so to hurt competitors while such changes could be easily decided with private blockchains. In a nutshell, only margin squeeze is a practice that is unlikely on both types of blockchain, so I am not discussing it. All the others are likely on private blockchains.

And in fact, the same dichotomy applies to the other two types of anticompetitive behaviors: exploitative abuses and discriminatory ones. It proves much harder to abuse or discriminate against specific public permissionless blockchain participants than private ones. One can imagine that private blockchains would create fast lanes for specific companies to validate their transaction faster. This could discriminate against other participants, therefore infringing competition law.

Now, I want to provide an answer to my second question: can blockchain be used to abuse market power outside the chain? The answer is… positive. This could theoretically be done, first, without a smart contract, but I do not see any good reason why a company would do that because blockchain characteristics do not help. If I go back to the two main blockchain characteristics I have explained in my second video, encryption does not help implement abuses of dominance because abused companies know who the dominant player is. And immutability does not help either because there is no need to transform practices into cooperative games, as I discussed in the ninth video.

Things are different with smart contracts. Here’s why. A smart contract can help implement a refusal to deal by setting up extremely high conditions for the contract to be signed. Tying is even more likely. A company could use a smart contract to condition the sale of a product to the proof a token has been acquired before. A smart contract could also automate a predatory pricing strategy, for example, using an oracle to search for outside-the-chain information. The same is true for margin squeeze, rebates, and discounts. Smart contracts can automate these practices and put pressure on business partners precisely because they are immutable.

On the contrary, I do not believe that smart contracts will be used to implement exclusive dealing because they would require permanent access to the inventories. And they do not really make sense in the context of changing the blockchain; this can better be done manually. As for exploitative and discriminatory abuses, smart contracts could automate the practice, but it remains to be seen if they are more likely to be used than simple algorithms.

That is all for today. Thank you very much for listening. Take care of yourself, and, if you can, someone else too. Cheers.

Thibault Schrepel

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