Blockchain and competition policy poses challenges for defining dominance, anticipating practices, and imposing sanctions. The document discusses these challenges and proposes options for defining dominance based on decentralization, legal status, market power, governance, and applications. It finds public blockchains less prone to anti-competitive practices due to transparency, while private blockchains pose high risks. Predatory innovation could alter technical elements to limit competition. Regulators should enter blockchain cautiously with rules of good conduct and safe harbors to promote innovation over unwarranted intervention.

1. BLOCKCHAIN AND
UNILATERAL CONDUCTS
Dr. Thibault SCHREPEL
Ph.D., LL.M.
OECD, 8 June 2018
Blockchain and competition policy

2. 2
Three questions…
1. How to define dominance?
2. What practices to expect?
3. What sanctions to impose?
… 'answered' through 5 points.

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1. Code is law1. Dominance

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• 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?
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• 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
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1. Code is law2. Governance

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Are blockchains governed: a pilot on the plane?
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• 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

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1. Code is law3. Public vs private

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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)

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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)

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1. Code is law4. Predatory innovation

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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

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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!

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1. Code is law5. Regulatory infiltration

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Is there a "blockchain fortress"?
——————————

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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

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Regulation as a way to enter the blockchain
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© Thibault Schrepel

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Regulatory humility
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• 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

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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

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To sum up:
5 key ideas

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1. Defining
dominance: a
puzzle
2. Governance:
still a new topic
3. Private & public
: different issues
4. Predatory innovation
for all
5. Regulatory
infiltration