The Monopolies That Dominate the Internet 342
Tim Wu has a piece up at the Wall Street Journal pointing out that the free-market, open Internet — "competition in its purest form" — has evolved to be dominated by monopolies. Wu argues that this is nothing new, and that each wave of information technology in the US has followed a similar pattern. "Today's Internet borders will probably change eventually, especially as new markets appear. But it's hard to avoid the conclusion that we are living in an age of large information monopolies. Could it be that the free market on the Internet actually tends toward monopolies? Could it even be that demand, of all things, is actually winnowing the online free market — that Americans, so diverse and individualistic, actually love these monopolies? ... Info-monopolies tend to be good-to-great in the short term and bad-to-terrible in the long term."
Well, duh! (Score:2, Interesting)
"Could it be that the free market ... actually tends toward monopolies?"
That's economics 101: economy of scale means that a pure free market tends to monopoly. Why anyone should expect the Internet to be different escapes me. The usual argument is that the role of the government in a free market economy is to provide regulation to limit this tendency: first, by preventing the abuse of the monopoly (to prevent competition, or to take over related fields), and second, by limiting the maximum size of companies, if necessary, by breaking them up.
The recent banking mess is a good illustration of the failure of modern governments. They should never allow companies to become "too big to fail". If a company has achieved such a size, the government has failed its regulatory responsibility - at the cost we all saw: hundreds of billions of dollars/euros of your tax money used to prop up companies whose mistakes should have simply bankrupted them.
Re:Nope. It's the credit supply (Score:2, Interesting)
It's not just credit, but all forms of investment where the investor -- who is not involved in the actual production of goods and services -- supplies capital with the expectation to receive profit later. (And that profit has to be skimmed off the top of the productivity of the people who are actually doing the work, so that they can never receive the full value of their labor.)
In other word, capitalism -- which, despite the confusion its apologists like to engender, is a very different thing than free markets -- is at fault. If you get the backing of the investment class, you can push others out of the market, even if their product is superior
Re:god. (Score:2, Interesting)
businesses do not have police power ? what do you think the private security firms are ? hell, in the last decade, that even reached private ARMY scale. blackwater is better equipped than any united states army platoon. already many companies take care of 'security' in their holdings ...
such naivete ...
You are using Blackwater, in their capacity as a GOVERNMENT contractor, all of their "police powers" coming from the government, demanded from the government even, as an example? HA!
Re:Its not 'internet'. its 'free market'. (Score:4, Interesting)
Something I've come to see and realize over the years (yeah I'm getting a little older) is that as long as the market is free, there will always be competition. Always. No matter how big, no matter how dominant a company might seem, there is always some other equally big and successful company - usually in a slightly different market and looking for new opportunities.
And they are particularly attracted when a market has "fat" in it - which is usually the case when de facto cartels or monopolies have formed. But even in low-margin businesses, it remains the case. People are always scared that some big company is going to take over everything. The free market can seem 'scary' in that regard - but isn't.
Competition acts a bit slower than we'd usually like, but it always acts.
I find the article a bit ridiculous actually, and its basic premises are completely false ... the author claims there is monopoly domination, and proceeds to "prove" this by giving a long list of all strong companies that compete with one another, some fiercely. Apple, Google, Microsoft, all fierce competitors, all quite capable of providing similar services to the others. And the very existence of both Google and Facebook ARE textbook cases of how the Internet has allowed one or two 'garage coders' to become billionaires and compete with the other major players practically overnight. Apple, also started in a garage in the first place, was also almost dead very recently, and re-started itself afresh. These companies are proof of how incredibly competitive the industry is, and how easy it is for new small players to get in and grow.
Facebook had competition even when it launched, from services like MySpace and Friendster, both still going, and would step in in a minute. Google Buzz is another potential competitor to Facebook. They are everywhere. If Facebook disappeared, users would simply migrate to another service.
Re:Nope. It's the credit supply (Score:3, Interesting)
Start with The Wealth of Nations [gutenberg.org]. Keep in mind while reading that he was writing about a very different world. Consider his examples and how they are changed in a world where corporations far more common (in his day it was possible for an individual to never do business with a corporation without even trying).
Then search on Adam Smith market regulation. Have a pound of salt handy, you'll find everything from insightful analysis to the worst sort of economic fundamentalism.
IMHO, we need to replace the web of small regulations with a few big ones. Do away with corporate personhood entirely and enforce corporate charter being contingent upon the public interest. Then we should probably enshrine in law that being "too big to fail" is intrinsically against the public interest.
Re:'Free market' means muddled thinking (Score:3, Interesting)
The "market" has no lobbyists or campaign contributions, the market is not a player, it is the field on which the players compete. Blaming the market itself for the actions of would-be monopolists is nonsensical. Like claiming the field is at fault when players cheat. The field is an inanimate object, it cannot be at fault in any meaningful sense. But the umpires - the umpires who have tremendous power and the obligation to use that power fairly, justly - they may be at fault. The umpires in the market are created by the state - no other organisation has that power.
Not for taking *our* bribes but for taking *their* bribes, thank you, and yes, the root of the problem is clearly on the government side.
It's a CEO's job to look after the business. If paying bribes is necessary to continue doing business, of course the CEO will be paying bribes. He didnt create the distorted market, he is just playing on the field he finds himself. It is NOT his job to look out for the general welfare, and even if he wants to he isnt in a position to do so.
It is the state, not the commercial enterprise, which is tasked with looking out for the general welfare, and which has the power to do so. It is the state alone which has the power to "regulate" the market, for good or ill. If the state chooses to use that power to seek bribes, and to rig the market against those who do not pay them, this is no failure of the market, and it is no failure of the businesses who do what they must in order to compete.
Re:'Free market' means muddled thinking (Score:2, Interesting)
A good response.
Do note that I used the quotation marks on "market" for a reason. Of course the market is inanimate.
The point I am trying to make is that the same people who blame the politicians for effectively taking corporate "bribes" turn around and complain that regulation is an unfair infringement on free markets. The whole point is that free markets cannot be simultaneously competitive and unregulated. You seem to recognize this, because you are saying that it is the responsibility of politicians to make sure that CEOs can't, for example, make bribes (that is, that the government, like an umpire, needs to put limits on players in the game...i.e. regulation). Every game has rules.
BTW the same arguments you make to apologize for inscrupulous CEOs can be applied to less-than-ethical politicians. Politics is an expensive and dirty game, you can't get by without monetary contributions. That line of reasoning could be used to excuse any common crook ("He's just trying to make his way through this tough game of life. He didn't create this distorted situation, so he has no ethical obligations.")...it's just really weak logic.
I believe you are saying that in an ideal world the free market should work perfectly and monopolies would not occur. Maybe!! But in an ideal world communism would work, too. There are variables like human nature which prevent either of these ideal situations from working in real life. IRL, free markets cannot be both competitive and unregulated.
Re:Slashdot Economics (Score:3, Interesting)
First, oligopoly is a far cry from monopoly. Barring collusion (which is illegal under anti-trust law) oligopoly markets can be extremely competitive, leading to razor-thin profit margins, low prices, rapid technological change, and consumer choice: compare the current mobile OS market to Windows in the 90s, or even the cell phone service market to pre-1980s AT&T.
Second, successful companies continue to grow to achieve scale efficiencies, but at some point, 'bigger' starts to bring its own problems of lack of agility and innovation and uncoordinated management. Anyone who watched Microsoft or Detroit's big three stumble can see this. So there's a limit to how large a company can/should grow based on the nature of its business.
Third, whether a market becomes an oligopoly or not depends on the overall size of the market relative to the efficient size of a company. The extreme case of a natural monopoly happens when the size of the market is smaller than the efficient size of the company (so there's room for only one), but in most cases, the market is large enough to accommodate several firms of efficient size.
Finally, just because a market is an oligopoly doesn't mean the same players remain successful and continue to control the market. Changing technology and innovation create a lot of churn (Schumpeter's creative destruction). This is particularly true in the IT world where leaders can quickly lose their edge to small upstarts and the game is changing at break-neck speed. A few years ago, Asus was a name known only to geeks, now it's a household name churning out millions of netbooks each year. A year ago, nobody gave a shit about 'tablets', now it's the rage with a few unlikely names poised for success (Samsung?!). There's still plenty of room for 'garage' innovation here, and lots of venture capital to see it through to commercial success.