The Monopolies That Dominate the Internet

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."

Comments

Its not 'internet'. its 'free market'.

[unity100]

free market is what tends towards monopolies eventually. because there is competition, and nothing to prevent the big players from getting bigger, unless they make a HUGE mistake, all 'free' markets only function as free for all initial chaos environments until a hierarchy and order is established. as per the below post :

http://slashdot.org/comments.pl?sid=1847700&cid=34083272

Re:Its not 'internet'. its 'free market'.

[Drasil]

Agreed. In a dog-eat-dog world you eventually end up with one very fat dog.

Re:Its not 'internet'. its 'free market'.

[arivanov]

That _WAS_ the case.

It took a couple of millions to start a let's say router company 10 years ago. Now you need 100M to just consider it.

It took a couple of millions to start a network management company 10 years ago. Now you need 30-50M.

It took a couple of millions to start an ISP 10 years ago. Now you need something on the order of a few 100M.

The "several guys in the garage making the next big thing" is the norm in any market in the beginning. HP was started in a garage. Apple was started in a garage. You cannot however start a computer company in a garage today. The Internet is quickly approaching that stage. The number of areas where there are still breakthroughs of garage companies is small and decreasing and this is normal for the development of the market.

Re:Its not 'internet'. its 'free market'.

[Anthony Mouse]

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.

The example I like to use in refutation of this is agriculture. Assume for a moment a world without antitrust laws. The most successful agribusiness corporation decides that it should reinvest all of its profits into buying more farmland, if necessary by buying its competitors outright. Some number of years later it owns all the arable farmland. All. As in people are planning to knock down buildings in order to have a place to start a small farm to compete with them, except that every time they do, the company offers them five times the value of the land so they can keep their monopoly.

How is that monopoly, once established, ever going to end without government intervention?

And it's hardly limited to farmland. Any time government grants a property right in a scarce resource, that is the long-term consequence: Land, wireless spectrum, copyright, patents, it doesn't matter. Someone with enough money can buy up all of the resources and use the government-granted monopoly on the resource as a cash cow and leverage market dominance into other industries.

Look at the wireless industry: A few major companies own all the spectrum allocated for consumer wireless. When more goes up for auction, the incumbents buy all of it -- and right now we're at a point when spectrum is being reallocated. Once it's gone, it's gone; at least as long as the government doesn't intervene by revoking their licenses. No opportunity would be left for a new wireless company. And so the oligopolists do their thing: Discouraging unlocked phones, preventing use of 802.11 to make VOIP phone calls, mandatory updates, you can't have root on your own phone and if you do you're a criminal, etc.

The trouble is that if a resource is scarce and treated as property, sooner or later a single entity will attempt and succeed at buying all of it. And that situation, once reached, is exceptionally stable. Having a monopoly on a resource raises its value to the monopolist since it allows monopoly prices to be charged, which means the monopolist never has an incentive to sell part of the resource to a prospective competitor.

And antitrust as it is today isn't much more than a band aid. It stops AT&T from merging with Verizon, but it doesn't allow a third party to start a new wireless carrier once all the spectrum is allocated to the incumbents.

But the "monopolies" from TFA are different: They aren't property-based monopolies, they're network effects-based. In theory those work more like what you're imagining -- especially if the government doesn't "interfere" by allowing e.g. Facebook to sue someone who copies all of the data out of a user's Facebook account with the user's permission and imports it into a competing service, or by granting thousands of stupid patents that allow incumbents to sue anyone who makes any competing products whatsoever. Not that we're so lucky.

Perhaps there are reasons unrelated to monpolies

[whoever57]

Microsoft's Bing, launched last year by a giant with $40 billion in cash on hand, has captured a mere 3.25% of query volume

Apparently, according to the author, MS's failure in search is purely down to Google's monopoly and completely unrelated to the fact that MS has in the past chosen to skew search results and hence proven itself to be an untrustworthy search provider? The "$40B cash on hand" number is meaningless, because MS hasn't chosen to spend $40B on entering the search market. Perhaps the difference is simply that Google has been able to develop and maintain a better product?

How hard?

[RightSaidFred99]

How hard would it be to go a week without Google? Or, to up the ante, without Facebook, Amazon, Skype, Twitter, Apple, eBay and Google?

Pretty fucking easy, actually. My God what are we becoming when people think this shit is so important?

Back in my day (well, ok, my grandfather's) we worried about important shit like steel, or oil. Hell, even telephone wire - it's physical, someone owns it, and they control it completely. Those are monopolies - you're strangled by one provider.

Facebook? Apple? Amazon? Give me a fucking break. Oh noesies, I can't go read about something cute one of some guy I barely know's brat kids did! Oh no, I have to buy a less expensive version that functions just as well of some gadget I don't need! Uh oh, I have to walk my fat ass to Target or order from one of the other billion internet stores!

Author makes common mistake of confusing a monopoly with most successful provider of something that one could, if one wanted, get from 20 other places.

Re:How hard?

[catbutt]

The issue has little to do with how "necessary" or "important" the service is. Ok, so you can survive without facebook, as can I. So? What does that have to do with anything?

Regardless, the difference here is that, with the internet vs. "physical things", network effects are in full play. Just as Ma Bell had a network monopoly (who's going to sign up for Joe's Phone Company when they can't call anyone because everyone else is on the Bell System?), and Microsoft had/has a certain sort of monopoly (who's going to get an alternative operating system when most of the apps they want to run are Windows-only, and who's going to write an app for that alternative operating system when most of the users are on Windows?)

How is that true with steel or oil? It's a lot harder for someone to control all steel production. Possible, I suppose, but a lot harder. Eventually, everything tends toward monopoly if you don't have antitrust law being enforced, but with "network" sorts of things (which includes things like proprietary API's), the situation is a lot more pronounced.

Re:How hard?

[kaladorn]

Whereas I agree we can survive without social networking and entertainment products, I'm not sure Internet search is so easily dispensed with.

Certainly, my job as a software developer would become approximately 5x more inefficient - the Internet is a treasure trove of problem solutions and basic and advanced reference information that is easily located.

In the old days (which I still remember), I'd have to order (often sight unseen) a bunch of books and hope they had the reference material I needed in them and I'd possibly have had to spend significant time resolving problems others had solved (but I had no easy access to their solutions).

Fast Internet search with much useful information available freely is a huge mulitplier to productivity in my work.

Many people use the internet for productive purposes, both at work and in their personal lives (finding out about government services, locating services more effectively than a phonebook, getting directions to places without having to go out and find and buy a map, filing forms online, doing research, etc). Remove that and you make peoples' personal and work lives in many cases far less efficient. That has a clear cost in terms of productivity, dollars, and time.

I remember the early days of the Net. I remember how limited the information available was and the challenges of trying to locate the information that was there in a format that was useful. I also remmeber some of the early balkanization of the corporate parts of the Internet... Compuserve wasn't exactly cheap back in the day, as one very trivial example. Access was expensive and it took a long time to locate and longer to acquire useful information.

Google, when it came along and put the smackdown on the other search companies which, in their day, had been big steps forward, created a net productivity gain for pretty much anyone whose job requires finding things out in a fast and efficient manner. Unsurprisingly, this spills over into people's private lives as well.

So, as much as your comment is far on social networking and entertainment, it is blatant tripe when it comes to fast, broad Internet search. Yes, we would not immediately keel over dead if we didn't have it, but make no mistake, it would cost our economy tens or hundreds of millions of dollars *per day*. That's a serious impact.

Re:How hard?

[SEE]

Yahoo!, Bing, Ask, etc. are all still out there. Not quite as good as Google, but serviceable. The only way Google can keep its market share is by continuing to be better, because it's trivial to switch. There's no monopoly lock-in.

Nope. It's the credit supply

[Colin Smith]

It's a feature of the supply of credit to the market. You make money by pushing your competitors out of the market and taking their business. Credit is what allows you to do that.

In addition, the fact that you have loans to pay means you are largely required by your creditors to grow.
 

Re:Nope. It's the credit supply

[jc42]

Adam Smith pointed out the need for regulation to avoid exactly that fate.

can you provide a link to a source. it would be great to clear out some misconceptions in future discussions.

Nah; it wouldn't clear up anything. I've read the Adam Smith comments on the topic in other /. discussions and in numerous other forums. It never has any effect. The True Believers never accept that Smith wrote such things, and others Who Knew It All Along just skim over them and go onto more interesting things. Quoting him once again won't have any more effect than it did elsewhere.

Let's face it, very few of the Free Market types have ever bothered to read Adam Smith. It's a lot like the way that most people who "believe" other religious texts like the Bible or Koran don't bother with reading them, or don't keep their minds in gear while reading them. All they need to know is that the sacred texts support their beliefs.

Quoting actual passages from the sacred texts rarely if ever affects the believers.

Re:What a shocker

[0123456]

In the absence of regulation, free markets always end up as monopolies. Not sometimes but always.

Name three.

Back in the real world, actual, real monopolies can only exist if:

a) the monopoly is more efficient than any competitor, thereby providing better service to their customers.

or:

b) the government keeps competitors out of the market.

In many cases in communications, governments built the initial infrastructure using its powers to take land from its owners at gunpoint, and then handed it over to private companies, which no new company can easily compete with since they don't have such powers. Similarly, big business loves regulation (or, at least, the 'right kind' of regulation as produced by its lobbyists and their tame politicians) as it raises the barriers of entry and keeps new competitors out of their market.

It's crashing the economy

[copponex]

Our current market economy depends on finite supply, and with limited production capacity per person in order to employ people and pay them wages so they can also be consumers. As automation and robotics take over the means of production, only societies that can cope with overproduction with more socially shared resources will be able to thrive.

In other words, China and Europe will continue to eat our lunch.

Re:It's crashing the economy

[Anonymous Coward]

wow. Even by the (frankly bizarre) standards of the US that's a fairly extreme viewpoint. Whilst I don't want to feed the (very dedicated) troll too much, a few points:

1. You seem to think that the reason that China is producing is lack of government interference. Firstly that is simply not true as many industries in China are effectively nationalised. Secondly, some level of government regulation is generally recognised as a Good Thing, to try and reduce excessive pollution and other externalities. Growing the economy has to be balanced with keeping your cities inhabitable. Judging by the air quality in many big Chinese cities, some might say they haven't got the balance right yet.

2. The idea that if the government would only stop interfering then everything would be great is demonstrably wrong. For one thing, you can look at countries where there is little to no governance (Yemen for example) to see that things are far from great. Whilst less government interference can indeed lead to great gains for some, the experience has too often been that the majority of people experience something very different. The industrial revolution brought great gains, but in the short term the life expectancy of the UK dropped. Yearning to return to a Dickensian age where great industrialists make lots of money whilst the majority live in grinding poverty seems somewhat perverse.

3. Monopolies have tended to spring up around many new industries: railways, Bell telephone, Standard Oil etc. By and large these have started as unregulated businesses, but economies of scale have tended to benefit the largest companies. This then leads to a small number of companies dominating the field. Often it has been up to governments to step in and break up companies (Bell, Standard), and is why competition commissions have been set up to try and maintain a competitive market by breaking up cartels.

4. You seem to have a pet peeve about income tax. I realise this is a matter of personal conviction, but one of the jobs of government is to try and correct what we (the people / voters) perceive as inequalities or injustices in the (mainly) free market system. Whilst you might be perfectly happy with huge inequalities, I think most people prefer a world in which there was some sort of safety net, and in which losing your job doesn't mean living on the street. If only for the selfish reason that those on benefits/welfare are probably less likely to rob you out of desperation.

More sensationalist meaningless drivel

[siddesu]

This article is full of sensationalist bullshit.

Facebook, Amazon, Skype, Twitter, Apple, eBay and Google

Yes, one can do comfortably without all these. I don't shop at Amazon, instead, I shop at several other places, which vigorously compete with Amazon.

I've never used online auction site, and still manage to buy shit online cheaply.

I check my facebook account once a week if that, and I still manage.

I switch between several search engines, and I think they've gone more or less on par.

Twitter and Apple? Monopolies? Lolwut.

It seems the author isn't very well versed in economics and uses words like "monopoly" and "free market" colloquially.

Also, he has his bearings wrong. The only thing that allows any kind of "monopoly" in information is the government and its fucked up system of copyright and related rights, which is being tended by lawyers who are probably students of the author in the quagmire of "Intellectual property". Now, this is the REAL danger, but he somehow misses it altogether.

Not impressive at all.

Maybe the professor should concentrate on his studies in law, and not venture with superficial sensationalism in areas he doesn't know much about -- like economics -- before learning the basics.

Re:De facto, or de jure?

[owlnation]

"Google is a de facto monopoly because they're pretty awesome."

That's not true at all.

Google is a monopoly because there is currently no better alternative. Altavista was a monopoly for exactly the same reasons, until Google came along.

Ironically in fact, 13 years on, Google is currently no better that Altavista was. Since every POS on Earth has figured out how to game Google, the number of link-farm results in the first page is becoming as overwhelming as the tag-spammed results in Altavsita once was.

The difference between a virtual monopoly and a physical one is that the price of entry in the market is much lower. Google busted Altavsita with a good idea, a few employees and cobbled together gear. Someone can do that again. It won't be another monopolistic big corp like MS to do it, because they are too bureaucratic to innovate as much as is Google now.

Google's monopoly could crash and burn in a year by the actions of a couple of guys with a good idea. And, by god, we really need that to happen. Search is currently no better than it was 10, 15, 20 years ago.

I quit reading TFA at;

[forgottenusername]

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

I don't use facebook or twitter, but use google on a daily basis & amazon on a weekly basis.

Anyone that claims to not be able to live without twitter/facebook is not someone I wanna hang out with regularly. Or read what they have to say about tech :P

'Free market' means muddled thinking

[ShanghaiBill]

The term "free market" is used to mean "competitive market" and is also used to mean "un-regulated market", despite the fact that few markets are both competitive and un-regulated. When someone uses the term "free market" with out clarifying which they mean, they are either confused, or they are trying to confuse you.

Re:'Free market' means muddled thinking

[timeOday]

No. All unregulated markets devolve into monopolies - ultimately, political as well as economic. That's why dictatorship is the norm throughout human history.

The political innovation that made markets work so well is to counterbalance them with democracy, where the guiding principle is "one person one vote" (i.e. votes can't be traded away - the opposite of markets).

Governments are associated with monopolies when market forces overcome democratic forces within the government. Then you get illicit market activity, such as kickbacks, blackmail, and unwarranted granting of monopolies.

Re:'Free market' means muddled thinking

[next_ghost]

When a monopoly grows big enough, it becomes the effective government. No support from formal government is required. Free market alone has no means to break down huge monopolies that have reached the stage of effective government. This stage of monopoly is impervious even to ridiculous amounts of internal incompetence which could bring down earlier stages quite easily. If you disagree, please tell me just one feature of the free market that is capable of bringing monopoly in this stage down that doesn't require existence of another monopoly of similar size and explain how this feature works while interacting with said monopoly.

Re:'Free market' means muddled thinking

[Suki I]

When a monopoly grows big enough, it becomes the effective government. No support from formal government is required. Free market alone has no means to break down huge monopolies that have reached the stage of effective government. This stage of monopoly is impervious even to ridiculous amounts of internal incompetence which could bring down earlier stages quite easily. If you disagree, please tell me just one feature of the free market that is capable of bringing monopoly in this stage down that doesn't require existence of another monopoly of similar size and explain how this feature works while interacting with said monopoly.

Oh PLEASE stop with this business that the 'corporations' are really the government! (Some of the) People who own them can vote in elections, the shares don't vote for politicians. In a truly free market, the government is not erecting barriers to competition. Even Standard Oil was getting competition back before they were 'broken up' (if you want to call it that) from companies out west. The phone company was ONLY a monopoly when the government made it a monopoly. If YOU want to argue, rather than lie, YOU show an example of a monopoly that survived without the government protecting it.

Re:'Free market' means muddled thinking

[poopdeville]

A market isn't functioning, let alone "free", if there is a monopoly player in it. A monopoly is a market failure, and cannot be solved by the market. This is because the market for a monopoly product is a monopoly and its consumers.

You should study economics instead of Libertarianism. The differences are vast.

Re:What a shocker

[sourcerror]

Maybe you should look up the East India Company.

Re:De facto, or de jure?

[bmo]

Search is currently no better than it was 10, 15, 20 years ago.

20 years ago?

Really?

--
BMO

Re:What a shocker

[poopdeville]

The idea is that to make a higher profit, to be more efficient, one has to serve the demands of the customer to gain the business required to make a higher profit.

This is not what economic efficiency means.

And the idea is wrong.

A monopoly will be economically inefficient, specifically because it maximizes profits, and is in a position to control prices. That means that the prices it sets will be greater than the marginal cost of production.

In a competitive market, the marginal cost of production equals the marginal benefit equals the price. No one firm has the ability to set prices, because others will eat their lunches. On the other hand, a larger business can easily grind away smaller businesses by providing exactly the same quality of service and price on a large scale, because its cost of capital will typically be lower. This means that markets tend toward monopolies.

god.

[unity100]

dear fool, WHAT identifies a government, and a corporation ?

if, a private entity owns all rights to a vast swath of land, all the resources and amenities that come from that swath of land, any rights that can be conceived over that land, arent they de facto ruler of that land ?

so, if someone owns a vast swath of land as large as idaho or arkansas, then arent they de facto the government of that land ? because they own all rights to it.

it is even the case today. the ONLY thing that is limiting their sovereignty there, are the laws that GOVERNMENT put out. if those laws had not been there, they would be able to do anything with that tract of land. its as simple as that. if they said that 'no people will drink water in this land, without paying to us', everyone would have to abide. if they said 'noone will be able to make homes in hilltops', they would have the right to it. if they said 'we are going to sell all the iron in this land to pygmies', it would happen.

so, if you take the government out of the picture, any owner of anything becomes RULERS of what they own. its as simple as that. there is no discussing this. this was the historical foundation of feudalism and aristocracy. im not even saying this is a fact - this is the way things, societal dynamics work. if you let anything happen, you will eventually see some parties overpower others, and rule over them, in any manner conceivable.



read some history, and less right wing bullshit.

Bullshit

[copponex]

3. I don't care if ANYBODY thinks gov't regulations is a 'good thing'. Gov't is terrible from my perspective for every single one thing completely and fully.

So, children should still be working underground until they die from exposure to their working conditions? Workers should be born into debt to the company hospital? Slavery should still exist if it's economically viable?

Really, no one takes you seriously except for yourself.

Slashdot Economics

[tabdelgawad]

Only on slashdot would such economic bullshit (and the socioeconomic bullshit referenced within) get modded +5 insightful and repeated ad-nauseum. Free markets do NOT tend towards monopolies eventually. The vast majority of markets are not monopolies and are in no danger of becoming so, regardless of government intervention or regulation. The evidence on this is so overwhelming I wouldn't know where to begin. In fact, there are so few examples of natural/existing monopolies (where the efficient scale of production exceeds the size of the market) that we tend to use the same examples over and over in classrooms and textbooks (public utilities).

The internet and information goods have some interesting characteristics (e.g. network effects) that tend to encourage consolidation, but even in this area, changing technology and consumer preferences tend to overthrow dominant firms (e.g. Microsoft).

And yes, I'm an economist.

Re:Slashdot Economics

[shutdown -p now]

In fact, there are so few examples of natural/existing monopolies (where the efficient scale of production exceeds the size of the market)

According to libertarian party line, there is no free market today, and there has, in fact, never been a true free market before (when the failure of the markets in 19th century which lead to the Gilded Age is pointed out, they're quick to say that it was still not free). So the low number of monopolies is entirely consistent with the claim that government regulation is required to keep it that way.

And yes, I'm an economist ... Imposing Libertarian views

That does not speak well of your credentials as an economist, then. It's like saying "I'm a physicist, promoting luminiferous aether".