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.

Filed Under: information, monopolies, regulatory capture, tim wu
Companies: facebook, google

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  1. identicon
    fb, 15 Nov 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."

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