Success, By Itself, Is Not A Monopoly

from the don't-make-this-mistake dept

Lots of folks have been sending in Tim Wu's Wall Street Journal opinion piece about the rise of "internet monopolies." As with many of Wu's works, it's a worthwhile read, that I think gets some things quite right -- and others quite wrong. For example, Adam Thierer correctly notes that Wu is redefining "monopoly," in a way that does not make much sense. Basically, Wu is pointing out that certain firms seem to dominate certain markets: Google for search, Facebook for social networking, Amazon for shopping, etc. But (and while folks in Europe would likely disagree), domination of a market, by itself, does not create a monopoly, nor does it necessarily create a problem.

The problem with monopolies is when they limit the ability of others to compete overall. But there is little to stop serious competition from entering most of the spaces that Wu talks about. Yes, Google dominates search, but just a decade ago, people talked about how Google was ridiculous for entering a market so dominated by Alta Vista and Lycos. For years, Yahoo and Microsoft dominated webmail, until Google introduced Gmail. And Wu plays down just how dominant Friendster was in the early days. He claims there were lots of other social networks at the time -- but there are lots of other social networks today too. When Friendster was on top it was totally dominant. The fact is these markets change and most of the services that Wu talks about involve situations where the cost for users to move elsewhere is not that high. Yes, inertia keeps many people still, but if things really got that bad, it would just open up an opportunity for others to jump in.

Wu's larger concerns are that, in the long run, those dominant in these spaces today will then seek to hinder competition. They'll run to the government and seek to pass regulations favorable to them:
Declining information monopolists often find a lifeline of last resort in the form of Uncle Sam. The government has conferred its blessing on monopolies in information industries with unusual frequency. Sometimes this protection has yielded reciprocal benefits, with the owner of an information network offering the state something valuable in return, like warrantless wiretaps.
And, indeed, that could be a potential problem, if the government gives in to them. Certainly, watching the telcos and the entertainment industry embrace regulatory capture and abuse the regulatory process to protect their own businesses suggests this does happen. But the answer isn't to condemn the mis-identified concept of "information monopolies," but to increase openness and diligence against such abuses of the regulatory process.

The downsides to market domination are when those who are dominant abuse their position. We shouldn't condemn dominance for the sake of dominance, and we shouldn't automatically assume that dominance must equal abuse. Conflating the two makes it more difficult to detail actual abuse. When there is abuse -- it should absolutely be called out, but we need to be careful to focus on actual abuse, rather than pretending that success automatically means abuse.


Reader Comments (rss)

(Flattened / Threaded)

  1.  
    identicon
    out_of_the_blue, Nov 15th, 2010 @ 4:49am

    Monopoly is *always* abused.

    No matter how you try to re-phrase your assertions, you've only the hollow old fallacy that *we* have *good* monopolies because we're *good* people, we're doing just fine with the *best* monopolies and we can trust them to serve us faithfully, *no* need to worry about the future. Baloney.

    And as ever, "little to stop serious competition from entering most of the spaces", completely overlooks the fact that's exactly the purpose of anti-trust! And it must be CONTINUED! IF IBM hadn't been hampered by anti-trust, Microsoft would have stayed micro, and all the activity you so dote on today simply wouldn't exist.

     

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  2.  
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    seamusmccauley (profile), Nov 15th, 2010 @ 5:17am

    The Internet resists monopolies at least as often as it creates them

    Tim Wu's article has plenty to like, but the examples are pretty selective. The idea that, eg, Facebook owns the social space when it's not the biggest player in many key markets (Orkut for Brazil and India, Mixi for Japan) or verticals (LinkedIn for work, Flickr for photos) means there's a big leap being made from "large company with a significant network effect" to "monopoly".

     

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  3.  
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    Alatar, Nov 15th, 2010 @ 5:42am

    Still the same anti-Europe obsession

    "But (and while folks in Europe would likely disagree), domination of a market, by itself, does not create a monopoly, nor does it necessarily create a problem. "

    Again, Mike, the EU fining Microsoft is legitimate. Why the heck can't I (due to Microsoft's pressure on manufacturers) buy a PC without being force-fed a Windows licence, although I will never use it and I already own many of them due to previous purchases AND a MSDNAA-affiliated university I attend?
    The problem is there is no option on ANY online reseller (try HP, Dell, and all online stores in your country) to buy a PC without that "Microsoft tax". I can't ask "hey, you reseller/manufacturer, can't I get the PC for $150 cheaper and have no win licence with it?". When I do so, I am getting answered, AT BEST "buy the PC, as soon as you receive it send it to us (you pay the fee) through the mail, we'll remove win and send it back to you, plus a $30 check for that win7 home premium".
    This is a true competition problem.

     

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  4.  
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    Richard (profile), Nov 15th, 2010 @ 5:55am

    Re: Monopoly is *always* abused.

    Power corrupts, absolute power corrupts absolutely.

    This applies to market power just as much as political power.

    If you arrive at a monopoly position it does not mean that you must be evil - but it certainly increases the probability that you will become evil...

     

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  5.  
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    btrussell (profile), Nov 15th, 2010 @ 5:57am

    Re: Still the same anti-Europe obsession

    HP told me it would cost more to get the PC without MS pre-installed.
    That is a true competition problem and I am upset that our Canadian laws allow this.

     

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  6.  
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    NullOp, Nov 15th, 2010 @ 6:05am

    Monopolies

    One thing that plagues monopolies is trying to stay a monopoly. The devil in monopoly is the maintenance of whatever got you the monopoly in the first place, e.g. best prices. Every company at the top of the heap has to worry about staying there. Google and Microsoft have enjoyed long stays at the top, how long can they stay there?

     

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  7.  
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    harbingerofdoom (profile), Nov 15th, 2010 @ 6:22am

    Re: Monopoly is *always* abused.

    yes, youre right, monopolies are always abused.

    but that wasnt the point of the article to begin with so maybe im not understanding your point?

     

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  8.  
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    JEDIDIAH, Nov 15th, 2010 @ 6:33am

    Hotel California

    The only relevant question is: Can I leave?

    That is where the a monopoly is actually destructive. It destroys competitive pressure and eliminates new and presumably more innovative rivals.

    It's the anti-competitive behaivor that is ultimately the problem and what gets a lot of companies smeared with the monopoly label. If I can easily dump the accused monopoly for another product, then the accusation probably isn't valid.

    Microsoft's dominance is about not being able to leave. Google's is not. Neither is Facebook's. Whereas Apple's market position could be partially attributed to exit barriers.

     

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  9.  
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    The Groove Tiger (profile), Nov 15th, 2010 @ 6:47am

    Re: Monopoly is *always* abused.

    Reading comprehension fail.

    Success/dominance does not automatically mean monopoly. It means that your competitors just aren't good enough.

    It's in the damn title.

     

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  10.  
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    David Sanger (profile), Nov 15th, 2010 @ 6:57am

    Also to consider is that there may be economies of scale and a public benefit in the comprehensive coverage that Google, for example, provides in search.

    In this manner, we might, when appropriate, consider Google as somewhat of a public utility, at least insofar as it has some responsibility for the public good.

    For example, were Google unilaterally to shut down its mail, search and map servers tomorrow across the world, this would certainly disrupt the economy and threaten the public good (even national security perhaps) and most likely invite a rapid government response.

    With Google's size comes responsibility for fairness, transparency and reliability.

     

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  11.  
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    out_of_the_blue, Nov 15th, 2010 @ 6:59am

    Re: Re: Monopoly is *always* abused.

    First, I'm not bound by the limits Mike wishes to place on discussion, or the premises he tries to plant in pieces.

    2nd, Mike clearly has no problems with monopoly as such: "But (and while folks in Europe would likely disagree), domination of a market, by itself, does not create a monopoly, nor does it necessarily create a problem. (paragraph) The problem with monopolies is when they limit the ability of others to compete overall." -- BUT I DO oppose monopolies as such, see? -- Based on *observation* and history, not assertions.

    If you agree that "monopolies are always abused", then you *can't* agree with the conclusion he worms in: "We shouldn't condemn dominance for the sake of dominance, and we shouldn't automatically assume that dominance must equal abuse." -- It's a *pernicious* assertion, that REEKS of "benevolent dictatorship" at best, goes against his prior warnings in the piece, and is completely unfounded in history. -- So I think it's you who missed the point of the piece.

     

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  12.  
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    out_of_the_blue, Nov 15th, 2010 @ 7:01am

    Re: Re: Monopoly is *always* abused.

    Geez, another one who can't get beyond the premise in the title! -- I DON'T AGREE WITH IT.

     

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  13.  
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    Hymie, Nov 15th, 2010 @ 7:04am

    Re: Still the same anti-Europe obsession

    Your story is only the 'tip of the iceberg'. A friend that markets a game for windows was asked to port his game over to Unix/Linux/Mac OS10. He replied that "Microsoft won't let me". It seems that microsnot has prohibited any windows provider from supplying other OS's with their product at the risk of being cut off completely. Certain BIG players get exempt from this rule by making very BIG payoffs to king Windoze.

    Bring back OS2,,,,,,

     

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  14.  
    identicon
    fb, Nov 15th, 2010 @ 7:14am

    Some additions from Wu

    Erick Schonfeld at TechCrunch found out from Wu that there were a couple of paragraphs deleted from the WSJ piece about the potential durability of these monopolies, which line up with the "monopolies aren't necessarily bad" idea:

    "Are today’s internet monopolies really comparable to the info monopolies of other ages, like AT&T, the Hollywood studios, and NBC? Informed by the apostle of creative destruction Joseph Schumpeter, some agree that Internet monopolies are inevitable, but insists also that they are also inherently vulnerable and ephemeral. Just wait and today’s monopolies will be reshaped or destroyed by disruptive market forces. Bing may have had a slow start, but it may still run over Google, and if not, perhaps the rise of mobile Apps will make search engines irrelevant altogether. The theory is based, in part, on an inescapeable truth: all things change.

    It is possible that we are living with a free market a very different kind than that envisioned by Adam Smith. He believed that a free market would mean many firms competing to sell their product at the lower price. It is a vision of successive industrial empires who stay in power only as long as they enjoy Heaven’s mandate. And indeed if, say, Facebook’s rule over any social networking were somehow limited to, say, 10 years, or better, ended the moment the firm lost its technical superiority, the very idea of monopoly might seem quite wholesome."

    http://techcrunch.com/2010/11/13/information-monopolies-internet/

     

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  15.  
    icon
    HymieS (profile), Nov 15th, 2010 @ 7:18am

    Re: Still the same anti-Europe obsession

    I'm Sorry,,, I forgot to mention,,, I order my PC's WITHOUT a hard drive. I get some static at first but I tell them if they must put a hard drive in the system, make sure it's completely blank and new and not 'erased'. I tell the supplier that the system is going into a Top Secret environment and Windows is not allowed (this happens to be true). Fujitsu and Toshiba will do this on their laptops for me. So far only Dell will sell me a PC this way.

     

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  16.  
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    redrum, Nov 15th, 2010 @ 7:41am

    #10 - No, Google does not have "some responsibility for the public good". Not at all. Fail. Google has responsibility to it's shareholders and owners, and it must comply with local laws, that's it.

    Freakin hippy!

     

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  17.  
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    Floyd (profile), Nov 15th, 2010 @ 8:00am

    Monopolies are...

    ...government grants of privilege to be the sole operator in a market. That's it. Without the force of law behind it, there is no way a company can legally keep competitors from entering the market.
    In the US, (at least) large companies use lobbyists, IP, and regulatory capture to keep competitors out and protect incumbents. Unfortunately, there isn't a way for large companies to avoid this, as any company which is successful but doesn't pay up to the politicians will have anti-trust probes, etc. launched against them.
    The problem isn't the companies, it's the government and greedy politicians who seek to use political power for their own gain.

     

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  18.  
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    Travis, Nov 15th, 2010 @ 8:04am

    Re: Re: Still the same anti-Europe obsession

    I worked at HP, that is correct, they DO charge more for PC's w/o windows on them, sadly.

     

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  19.  
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    crade (profile), Nov 15th, 2010 @ 8:08am

    Re: Re: Re: Monopoly is *always* abused.

    No where does mike say he is ok with monopolies in any form. The whole point is that domination a market does not require a monopoly. A monopoly is when there is no competition, not just when you are better than the competition. If you disagree and think any time anyone is clearly superior to their competition, that means they have a monopoly then maybe you should say that, otherwise you just sound like you are talking nonsense.

     

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  20.  
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    The Groove Tiger (profile), Nov 15th, 2010 @ 8:23am

    Re: Re: Re: Monopoly is *always* abused.

    You say that all monopolies are bad. Yet you don't actually show that the things that are being discussed here are monopolies. The point of the article is that they are not monopolies (a monopoly has a definition, look it up). Just because one business is the biggest, does not make it a monopoly.

     

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  21.  
    identicon
    Anonymous Coward, Nov 15th, 2010 @ 8:35am

    "The government has conferred its blessing on monopolies in information industries with unusual frequency. "

    You mean like how Microsoft constantly asks the govt to investigate Google for alleged anti trust violations because Microsoft needs government assistance.

    Seriously, why does everyone target Google for doing nothing wrong but they never target all the wrong things that everyone else does?

     

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  22.  
    identicon
    Anonymous Coward, Nov 15th, 2010 @ 8:52am

    Re: Monopoly is *always* abused.

    "IF IBM hadn't been hampered by anti-trust, Microsoft would have stayed micro"

    So lets see, IBM was mostly open platform, they were very innovative, yes they did some things that were very wrong (ie: the whole exposing pregnant women to chemicals that they know can hurt their child and not telling them of these potential dangers so they stay at work. That deserves serious punishment there), they are pro linux, and they mostly served the public interest. You're saying that Microsoft, a closed platform resource, is an improvement?

    Sure, operating systems improved since then, but that's only because things improve over time (and much of that improvement is due to hardware advances), not because Microsoft is an improvement of what IBM had to offer or would have to offer today if it were given the opportunity and not crushed by a government that only wants to serve rent seekers that are willing to contribute some of their economic rent towards campaigns. IBM itself improved technology a lot and many of its advancements were copied by Microsoft and others.

    Not saying Microsoft is the worst company in the world, they're not all that bad (and they're not perfect either), just that I think much of the anti trust laws used against IBM were misdirected, kinda like how many of the anti trust laws used against Google are misdirected. It's just that back then the media wasn't as open as it is now and so it was much easier for the media to get away with bad logic and bias and it was much harder for others to point it out and give dissenting opinions.

     

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  23.  
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    Anonymous Coward, Nov 15th, 2010 @ 8:57am

    Re: Re: Monopoly is *always* abused.

    (or was the whole pregnant women fiasco done by Intel? Now I can't remember, I'm pretty sure it was IBM but it might have been Intel. I remember some of the children were born with birth defects as a result).

     

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  24.  
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    nasch (profile), Nov 15th, 2010 @ 9:25am

    Re: Monopolies

    If you have to keep prices low to maintain the monopoly, I would argue it's not really a monopoly. A monopoly is when you control the market to an extent that you can keep competitors out (to a large degree, it doesn't have to be complete), even if your prices aren't low.

     

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  25.  
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    nasch (profile), Nov 15th, 2010 @ 9:29am

    Re:

    For example, were Google unilaterally to shut down its mail, search and map servers tomorrow across the world, this would certainly disrupt the economy and threaten the public good (even national security perhaps) and most likely invite a rapid government response.

    National security? Our national security depends on google? I knew it was getting bad, but wow, I sure hope that is complete hooey. As for the government response, you may be right, but I hope it would be in the form of "please turn your services back on," because I don't see how the government could legitimately force Google to restore services.

     

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  26.  
    identicon
    Bengie, Nov 15th, 2010 @ 10:15am

    Small village analogy

    The whole point of anti-trust is to keep companies from being anti-competitive.

    Show me Google messing with search results to hurt Bing.

    Even Chrome gives an option on installation to use Bing as the default search.

    You can use Hotmail/Yahoo OpenID to use Google services.

    Google is extremely open. You shouldn't be punished to adding value to society because you're good at giving people what they want. You *should* be punished if you use your power to restrict customers from having options.

     

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  27.  
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    Richard (profile), Nov 15th, 2010 @ 11:04am

    Re:

    #10 - No, Google does not have "some responsibility for the public good". Not at all. Fail. Google has responsibility to it's shareholders and owners, and it must comply with local laws, that's it.

    Until such time as the service provided by Google is regarded as indispensable. At that point it becomes a de-facto nationalised enterprise and the government will step in to make sure it continues.
    This has happened to many industries eg railways, power generation, banks etc etc. Of course the government has re-privatised these from time to time - but this is really only cosmetic - in reality these are all public enterprises.

     

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  28.  
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    Gwiz, Nov 15th, 2010 @ 1:26pm

    Re: Re:

    Not sure about our national security - but it appears that Costa Rica's does - lol.

     

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  29.  
    identicon
    Tim Wu, Nov 16th, 2010 @ 12:14am

    MONOPOLY

    This is Tim Wu. I'd appreciate if you post this response somewhere visible.

    A firm that dominates a market is a monopoly. End of story. That is the definition of a monopoly. It is not necessarily an illegal monopoly, or a problem, but that's a different issue. It is, however, clearly a monopoly by any standard definition.

     

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  30.  
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    packrat (profile), Nov 16th, 2010 @ 4:35am

    mono

    sole soure, single issue, monoculture. (censorship, filtering, throttling, etc of inovation)

    clouds, anyone? specialized means a FAST death. instant disposible service burnouts.

    onward.

    packrat

     

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  31.  
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    nasch (profile), Nov 16th, 2010 @ 6:54am

    Re: MONOPOLY

    I like this definition: "In economics, a monopoly exists when a specific individual or an enterprise has sufficient control over a particular product or service to determine significantly the terms on which other individuals shall have access to it."

    There's also this one that explicitly points out that dominance may or may not be monopolistic: "control of supply of a product or service to a particular market. In its pure form this would mean a single supplier, but his rarely occurs. Highly dominant suppliers can however exert monopolistic controls in certain circumstances."

    In looking through the definitions I immediately found I saw two basic flavors: a monopoly is a single exclusive provider to a market, or a seller with so much control over the market as to dictate terms to buyers. I couldn't find any definition that equates any market dominance with monopoly.

    I didn't look very long though, so feel free to link to any definitions supporting your position.

     

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  32.  
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    RobShaver (profile), Nov 16th, 2010 @ 1:54pm

    Monopolies can be avoided ...

    "Forgoing Google and Amazon is just inconvenient; forgoing Facebook or Twitter means giving up whole categories of activity."

    I'm on both Facebook and Twitter but I go weeks at a time without looking at them. I've found little utility in either.

    "harder than bypassing Starbucks, Wal-Mart ... "

    I've set foot in neither in months. I guess monopolies don't affect everyone the same.

     

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  33.  
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    RobShaver (profile), Nov 16th, 2010 @ 2:22pm

    Re: MONOPOLY

    @Tim Wu ... okay, now define "dominates a market".

    From Wikipedia:

    In economics, a monopoly (from Greek monos / μονος (alone or single) + polein / πωλειν (to sell)) exists when a specific individual or an enterprise has sufficient control over a particular product or service to determine significantly the terms on which other individuals shall have access to it.

    Or

    (economics) a market in which there are many buyers but only one seller; "a monopoly on silver"; "when you have a monopoly you can ask any price you like"

    These are the "standard" definitions I find and they don't seem to match yours.

    When we had one phone company in the USA, Bell Telephone, that was a monopoly ... single seller. Apple has a monopoly on OS-X and Microsoft on Windows but I don't thing that's the same thing exactly.

    So I looked for a legal definition and found this:

    http://legal-dictionary.thefreedictionary.com/monopoly

    monopoly n. A business or inter-related group of businesses which controls so much of the production or sale of a product or kind of product to control the market, including prices and distribution. Business practices, combinations, and/or acquisitions which tend to create a monopoly may violate various federal statutes which regulate or prohibit business trusts and monopolies, or prohibit restraint of trade. However, limited monopolies granted by a manufacturer to a wholesaler in a particular area are usually legal, since it is like a "license." Public utilities such as electric, gas and water companies may also hold a monopoly in a particular geographic area since it is the only practical way to provide the public service, and they are regulated by state public utility commissions.

    Still I'm not sure I'm clear on what your "dominates a market" definition really means. I think clear definitions facilitate any discourse and would love to see some clarification on this.

    Peace,

    Rob:-]

     

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  34.  
    identicon
    Daniel Berninger, Nov 18th, 2010 @ 9:58am

    Solution to "monopoly" is the rise of distributed options

    AOL dominated content circa 1990 until the distributed content option known as the web emerged with the help of the web browser after 1991. Sadly, after the Internet went fully commercial in 1995, the new applications have all be AOL style walled gardens. We saw this with IM. Facebook, Twitter, and Skype represent recent examples. The Internet community needs to recognize quality of life will not improve until the routine mode of deployment returns to the distributed model ala joindiaspora.com in social network, status.net in microblogging, and siptosip.net in VoIP.

    The general approach is outlined as "free addressing" at http://e-caller.com/2010/11/the-power-of-free-addressing/

     

    reply to this | link to this | view in thread ]


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