Definition
Market tipping refers to a process wherein a competitive market converges progressively in favour of a single dominant undertaking or a few undertakings. This happens due to multiple economic forces which are self-reinforcing in nature, such as network effects (direct or indirect), data accumulation, switching costs, and economies of scale. This self-reinforcing position acts like a feedback loop which becomes very difficult for any rival to challenge and often results in a ‘winner-takes-all’ or ‘winner-takes-most’ scenario for the incumbent platform.
For instance, the dominance of Google in online search illustrates market tipping.
Commentary
1. Origin of the term
The concept of tipping has become increasingly significant in competition law, particularly in the context of the digital economy. However, it is pertinent to note that the concept does not owe its origin to competition law. It is primarily an economic concept rather than a legal one. Its origins can be traced to economic theories which explain the tendency of certain markets to converge towards a single dominant firm. Widely, it is attributed to the works of Brian Arthur,1 and later Carl Shapiro and Hal Varian.2
The modern understanding of the term in digital markets can be attributed to a report by the Digital Competition Expert Panel (the ‘Furman Report’)3 of 2019, which brought the concept of tipping in digital markets to the forefront of modern competition policy discussions.
Historically, the term became especially influential in antitrust discourse during:
the antitrust scrutiny of Microsoft in the late 1990s;
the growth of internet platforms in the 2000s;
and more recently in investigations involving the big tech platforms like Google, Facebook, Apple, and Amazon.
2. Argument: Tipping is not inherently problematic
The concept of market tipping is not anticompetitive per se. In certain scenarios, a market may tip because it offers a superior product or service, a higher level of innovation, lower costs, or, overall, a better user experience. In this context, tipping may signify healthy competition and enhanced consumer welfare rather than market failure.
3. Competition law and constraints of market tipping
It is important to note the distinction between a tipping market and a tipped market. These markets correspond to different stages of market evolution and are characterised by different competitive dynamics. This difference may call for distinct approaches by regulatory authorities. In a tipping market, for instance, it may be challenging to assess if a firm’s growing dominance is attributable to superior efficiency or anticompetitive conduct. Thus, premature intervention may result in false positives. In contrast, once a market has tipped, strong network effects and entry barriers may make it difficult for new competitors to enter the market. Consequently, ex-post remedies may prove ineffective in restoring competition, as it may be difficult to reverse the entrenched position.
Competition authorities should not therefore intervene solely because a market is tipping. Instead, intervention should be directed at instances wherein anticompetitive conduct contributes to or accelerates the tipping process.
4. Illustrative legal frameworks to address the issue of market tipping
United States: The U.S. framework is largely based on the traditional antitrust enforcement mechanism contained under the Sherman and Clayton Acts.
European Union: The European Union has introduced the Digital Markets Act, which represents an ex-ante regulatory framework. Among other objectives, this legislation seeks to ensure contestability in digital markets.
India: The regulatory response to market tipping in digital markets remains under development. The Competition Act, 2002 continues to serve as the primary legal framework for addressing competition concerns in digital markets.
W Brian Arthur, ‘Competing Technologies, Increasing Returns, and Lock-In by Historical Events’ (1989) 99 The Economic Journal 116.↩︎
Carl Shapiro and Hal R Varian, Information Rules: A Strategic Guide to the Network Economy (Harvard Business School Press 1999).↩︎
Jason Furman, Diane Coyle, Amelia Fletcher, Philip Marsden and Derek McAuley, ‘Unlocking Digital Competition, Report of the Digital Competition Expert Panel’ (UK Government 2019).↩︎
