On Monopoly (and a little bit of net neutrality)

Writing recently here, I got a chance to write on a subject I've been thinking a lot about lately, that being the subject of monopoly.  Allow me to be post-modern for a moment and quote myself:

One reason this (Ed: a Microsoft monopoly) isn't likely is that security software doesn't lend itself to a natural monopoly the way an OS does (not to mention the fact that the vaunted Windows monopoly itself is seen as weakening). On the issue of future investment in the area, this too seems like a red herring. Microsoft's monopoly hasn't killed innovation; in fact it prompted entrepreneurs and investors to pursue a radical new envisioning of how software could be developed and distributed using the web. Getting the government to preserve the status quo in the security space would be the last way to ensure a dynamic, innovative market.

For some reason it's tough for people to talk about monopoly disinterestedly, so there's a lot of faulty reasoning on the subject.  Somehow the idea that if a company has a monopoly in an area, there will be no investment in the space has taken hold.  That's what we were told for years by the anti-Microsoft crowd in the 90's -- now that there's every reason to believe that the monopoly has been broken (no thanks to the government), will they apologize or admit that they're wrong?  Probably not, since even Google (a company doing the trust-busting) has argued that it should be illegal for Microsoft to include a searchbar with a Live.com default in its upcoming browser.

The irony is that the people arguing that, say, the government should breakup monopolies in the name of innovation tend to be plagued by a lack of imagination.  They couldn't imagine that anything beyond the desktop OS would matter in computing.  If they had seen a future whereby the web might supersede the desktop, they might not have worried.  On a personal note, I wouldn't argue that I have any foresight whatsoever, but hindsight works just fine.  Simply looking at history should be enough to realize that one company can't dominate and seek rents on a market for too long.  Simply the act of exploiting a dominant position prompts more effort and energy in the direction of beating it.

And on that note, let me segue into the current arguments about net neutrality, and why I suspect that legislating the principle would be a bad idea.  If the telcos really do try to stifle what happens on the internet, there will be a lot of effort put forth to try and circumvent their grip.  Julian Sanchez at Reason puts it as such:

If that duopoly were a given, though—a permanent fact about how we connect to the Internet—the case for mandating net neutrality would be much stronger. But while some academics believe that even in a competitive market, ISPs would have ample incentive to attempt to extract rents through net discrimination, most net neutrality proponents stress the relatively captive markets local cable and DSL providers enjoy. Yet there are a wide range of looming alternatives to the Big Two (or, more accurately, many local moderately-sized twos): free space optics cellular broadband, broadband over power lines, WiMAX, and satellite broadband, to name a few. And ironically, encouraging the emergence of those alternative broadband venues may depend on not mandating net neutrality.

Just as the anti-Softies didn't see a way around the OS, so too is the Save The Internet crowd unable (or unwilling) to look at the next generation of service options.

On the other hand, suppose legislation were passed, and it didn't turn out well.  Imagine that the government telling the ISPs how to manage their networks doesn't turn out as intended (yeah, I know, real unlikely), how do you circumvent that?  Does anyone really imagine that a few years down the road, the congress might repeal the law?  They just repealed a phone tax that was initially to finance the Spanish-American war.  They're still enforcing contributions to the Universal Service Fund, even on VoIP providers.  So while I like the open internet, I like the emergent internet better.  Better to take the risk that things will shake out well than play legislation roulette in hopes that yet another government regulation of communications will make things better.

Comments

[Tim Swanson]

Regulation caused the problem in the first place (e.g. geographical monopolies, subsidies), yet reregulation is being lauded as the silver bullet.

See also: What To Think About Reregulation?

[jpmist]

"Yet there are a wide range of looming alternatives to the Big Two (or, more accurately, many local moderately-sized twos): free space optics cellular broadband, broadband over power lines, WiMAX, and satellite broadband, to name a few. And ironically, encouraging the emergence of those alternative broadband venues may depend on not mandating net neutrality."

The flaw in that argument is that all of the above connect to the internet network trunklines that the telco's maintain. . .

[jcotati]

Stalwart,

You are correct that monopolies are not necessarily bad and correct that MS's monopoly in operating systems was a good thing - a broadly adopted OS lowered the cost of entry into the software market for many companies.

However, recall that MS did not get into trouble by having a monopoly in the OS market but instead because they leveraged that monopoly to gain an unfair advantage over competitive application software providers! Web browsers and office applications, etc.

In the same vain those concerned with net neutrality would argue that they are concerned with the big telephone companies using their monopoly in broadband access to gain unfair advantage over competitive content providers. It is important to note these Telephone companies want to be in the broadband access and content businesses – just like Microsoft.

This bill is about the big telephone companies providing broadcast television services - although not internet sourced content it is a form of content. Now, how do you think they will react if consumers choose say YouTube or iTunes over the telephone company’s video offering? My guess is they may degrade or charge a premium to users for that - and as a monopoly where else are consumers going to go?

I think your analogy between Microsoft and (re-)granting Telephone companies a monopoly for broadband access is valid yet the conclusion is not.

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