Much discussion of competition policy is based on notions of competition drawn from textbook models in which nineteenth century single product firms sell a good or service that is purchased by customers who only need to buy the good or service once. These relatively simple models have had staying power because they capture the essence of the competitive process. However, the economy of the twenty-first century is significantly more complicated, and complex products are sold in business relationships that often bear little resemblance to the one-time transactions that are described in most economic textbooks.

In this article from the 2006 edition of The Asia-Pacific Antitrust & Trade Review, a Global Competition Review special report, the authors discuss several features of complex markets, all of which have implications for competition policy analysis. These market conditions—switching costs, technological links that lead to aftermarket sales, and network effects—are present in many situations, particularly in the area of high technology where products are often part of larger operating systems and interoperability is an important aspect of the product or service itself. The authors examine the questions central to modern competition policy analysis, such as how certain market factors affect competitive dynamics and under what circumstances customers might be locked into a particular product or manufacturer. They argue that, although economic theories based on models that do not capture elements of modern markets still provide the background of much competition policy analysis, many features of real world markets can only be understood in terms of more recent economic developments.

This article first appeared in the 2006 edition of The Asia Pacific Antitrust & Trade Review, a Global Competition Review special report. For more information, please visit www.GlobalCompetitionReview.com.