Refusal to license : abuse of dominant position and switching costs

• Main Author: Le, Net
• Published: London School of Economics and Political Science (University of London) 2004
• Subjects: 346.048
• Online Access: http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.419908

The question of this thesis is: "when is the rightholder's refusal to license a software interface an abuse of dominant position." Using the principles of law and economics, I will approach this question from the consumers' perspective. The critical themes of this thesis are the distinction between innovative/non-innovative markets and the role of indirect switching costs of consumers in anti-abuse cases. Developing the studies of Klemperer (1987) and other authors on switching costs, I hypothesise that a dominant software incumbent abuses his market power if he prejudices consumers without justification. The consumers will suffer a detriment when their switching costs (S) are higher than the maximum utility surplus brought to the consumers by an entrant's product, or when the incumbent intentionally raises switching costs without justification. To remedy this, the incumbent should grant the entrant a license to access any interfaces or data formats which could reduce S. A refusal to license may result in an abuse, unless it is justified on the grounds of sunk costs and free riding. The decision to grant should be made by striking a balance between the costs and the benefits of granting access, in a process whereby both the entrant and the incumbent share the burden of proof - the essentiality-justification mechanism. Cost-benefit analysis, case studies, information system study, game theory, expected utility and probability assessment are the toolkit in this research.