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Blockchain and Competition – SCHREPEL – June 2018 OECD discussion

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This presentation by Thibault Schrepel, Associate Researcher, University of Paris 1 Panthéon-Sorbonne, was made during the discussion “Blockchain and Competition” held at the 129th meeting of the OECD Competition Committee on 8 June 2018. More papers and presentations on the topic can be found out at oe.cd/2gx.

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Blockchain and Competition – SCHREPEL – June 2018 OECD discussion

  1. 1. BLOCKCHAIN AND UNILATERAL CONDUCTS Dr. Thibault SCHREPEL Ph.D., LL.M. OECD, 8 June 2018 Blockchain and competition policy
  2. 2. 2 Three questions… 1. How to define dominance? 2. What practices to expect? 3. What sanctions to impose? … 'answered' through 5 points.
  3. 3. 3 1. Code is law1. Dominance
  4. 4. 4 • They are decentralized • They are not legal entities • Dominance = liability • Should the creators and/or users be liable? • We see 6 options How to define dominance on blockchain? ——————————
  5. 5. 5 • Option #1: dominant position in themselves • Option #2: based on the number of users • Option #3: based on the number of recorded transactions / blocks • Option #4: based on the market power of the users • Option #5: based on the type of governance • Option #6: based on the type of applications ‣ the number of users ‣ the number of transactions recorded ‣ the number of blocks…? ๏ geographical aspects The 6 options ——————————
  6. 6. 6 1. Code is law2. Governance
  7. 7. 7 Are blockchains governed: a pilot on the plane? —————————— • Consensus is a 'sort of' new governance • It solves the "Byzantine Generals Problem" • Here, no (or very few) unilateral strategies • But new governance models are being implemented in public blockchains • It does already exist for private blockchains • So let's anticipate the technology a bit
  8. 8. 8 1. Code is law3. Public vs private
  9. 9. 9 Public blockchains and unilateral practices —————————— • Visible effect: all practices perpetuated on such blockchains are public and visible by all • Sun Tzu: "what is of supreme importance in war is to attack the enemy's strategy" • Most unilateral practices would somehow have to be implemented in the protocol, from start: tying, bundling, exclusive dealing…. • Modifying the protocol is very hard = less anti-competitive practices: predatory pricing, margin squeeze, loyalty rebates, exploitative and discriminatory abuses… Likelihood of anti-competitive unilateral practices on public blockchain: LOW (for the moment)
  10. 10. 10 Private blockchains and unilateral practices —————————— • The "visible effect" doesn't always play • The protocol and/or governance may be changed anytime • Some practices are then very likely: tying, exclusive dealing, loyalty rebates and discriminatory abuses • Others are likely: predatory pricing, margin squeeze and exploitative abuses Likelihood of anti- competitive unilateral practices on private blockchain: HIGH (already)
  11. 11. 11 1. Code is law4. Predatory innovation
  12. 12. 12 What predatory innovation is —————————— • First, what is innovation? ‣ Answer: "the implementation of a new or significantly improved product (good or service)…" (Oslo Manual, p. 146) • Now, what is predatory innovation? ‣ Answer: "the alteration of one or more technical elements of a product to limit or eliminate competition" (https://ssrn.com/abstract=3115949) ‣ In other words, predatory innovation takes the form of a real innovation - it's a new version of a product/technology - but isn't! • Why is that anti-competitive? ‣ Because it eliminates competition without benefiting the consumer 1212
  13. 13. 13 Predatory innovation on blockchain —————————— Vitalik Buterin: "the consortium or company running a private blockchain can easily, if desired, change the rules of a blockchain, revert transactions, modify balances, etc." • Private blockchain: most likely, a change in the rules/governance is easy and does not require any approval from the users • Public blockchain: could be done as well (once governance will be generalized) although it is less "easy" Beware, predatory innovation is: cheap, fast, radical, surgical and multiform!
  14. 14. 14 1. Code is law5. Regulatory infiltration
  15. 15. 15 Is there a "blockchain fortress"? ——————————
  16. 16. 16 Is there a "blockchain fortress"? —————————— Answer: YES there is! • Why? Because of pseudonymity, the distributed network architecture… • Create several issues: ‣ how to detect the practices? ‣ how to identify the author of these practices? ‣ how to use emergency measures? ‣ how to remedy these practices for the future? • Yet, dominance should be permitted when it's based on the merits • So, a way has to be found to prohibit/sanction anti-competitive practices
  17. 17. 17 Regulation as a way to enter the blockchain —————————— © Thibault Schrepel
  18. 18. 18 Regulatory humility —————————— • The time for regulation must come after the time for technology • Is it different for the blockchain? Maybe (because of technical issues) • And yet, "as governments increase their control, they replicate their vices on the Internet" (Jack Goldsmith & Tim Wu) • Therefore, the founding principles of blockchain should not be questioned. It includes: 1. Distributed ledger system 2. Peer-to-peer transmission 3. Computational logic 5. Data immutability 6. Pseudonymity4. Blockchain consensus
  19. 19. 19 Regulatory humility —————————— • Until the blockchain develops: ‣ Governance could be subjected to rules of good conduct ‣ We would promote certain types of governance by setting out "safe harbors" for some of them • If we act unwisely: ‣ Blockchain is at risk, and/or ‣ Innovation will go somewhere else ๏ BitLicense 19
  20. 20. 20 To sum up: 5 key ideas
  21. 21. 21 1. Defining dominance: a puzzle 2. Governance: still a new topic 3. Private & public : different issues 4. Predatory innovation for all 5. Regulatory infiltration

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