One of my favourite economists, Lynne Kiesling, has written on why the regulators and bureaucracies really should worry a great deal less about the possibility of monopolies in the tech space. A basic point is that the whole field is simply changing too quickly. She also links to this well argued piece on the fleeting nature of the monopolies that are being worried about.
No one actually gets a monopoly for long enough to be able to fleece consumers through having that monopoly. This is as true of Facebook as it is of Google, Microsoft or Apple.
I would go further on two points. The first is that given the speed with which these markets move bureaucracy and the law just isn?t the correct method of dealing with the problem even if it does exist. It is almost impossible to imagine any governmental organisation spotting a problem, working out what to do about it and then crafting the solution in a period under two or three years. Do recall that this is about the period of time since the release of the iPad itself. Quite: if the iPad had been noted as a monopolistic product right on the day of first issue we?d be expecting a bureaucracy to be just about ready to do something about it today. Which does suggest that bureaucracy isn?t the way to deal with any problems we might have in this sort of technological space.
The second point is slightly more theoretical. The current government and legal attitude towards monopoly is that if you?ve got great market power then you might indeed be a monopoly and thus you?re subject to special rules. Investigations, constraints on how you can leverage that market power and so on come into play. The argument being that if you?ve this market power you might deploy it to the detriment of the consumer.
There?s a slight problem with this though: economists have gone one stage further in considering monopolies. It?s not a wholly agreed point but there?s a decent level of consensus. Having market power, even having a monopoly, isn?t sufficient to induce firms to act against consumer interests. Having uncontestable market power, an uncontestable monopoly, might well be: but the crucial point is whether they are contestable or not. Possessors of contestable market power or monopoly can be assumed to either not act against consumer interest or to be about to lose said market power or monopoly.
Think of it this way. Assume that one company, just for the sake of argument we?ll call it Apple, had all the patents necessary to stop anyone else making a smartphone of any kind at all. They launch the iPhone and no one is allowed to produce anything even remotely similar: there?s no Android, Windows Phone, Firefox cannot even play with their OS and so on. We would indeed be worried about Apple creaming monopoly profits off the top of that market for the next decade or so that those patents are valid. We might indeed want to curtail what they can do.
Now consider our actual world: yes, there are still patent fights. But they are about minor details of the implementation of how you build and operate a smartphone (well, OK, rectangles with rounded corners aside) not about the very concept of one at all. There are a number of operating systems for smartphones, there is a larger number of manufacturers of them. We do see Apple with great market power (which is why they?re making the vast majority of the profits in the sector) but it is obviously true that Apple?s position is contestable. Given this contestability Apple cannot simply rest on its laurels and bleed the consumers dry. It must continue to develop the iPhone, improve the consumer experience or it will lose that predominant position. If they stumble for a year or two Microsoft and Nokia, or maybe Google and Samsung, or some as yet unknown competitor, will come and eat their lunch.
So we don?t really need to worry about Apple?s market position because the contestability of it, the precariousness of it, means that they cannot act like a monopoly and hope to hold on to that position. And it is not market power, nor even monopoly, that we are actually worried about but the misuse of it.
The same logic applies to Microsoft and browsers. To Facebook and social networking. Amazon and e-books and yes, even to Google and search engine placement. Anyone who tries to abuse a dominant market position is very quickly going to lose that position. Simply because all of these monopolies are contestable. There are enough other firms vying for the space (and it?s never been easier to raise the VC money to attack such spaces if you want to create a new rival) that even those who have achieved market dominance cannot exploit it. And given that it?s the exploitation, not the market dominance, which is the potential problem there isn?t in fact much of a problem.
There are economists who would say that a true monopoly without government action to support it is impossible. I wouldn?t go as far as that hardline position. I think there can indeed be monopolies for other reasons like network effects, to say nothing of patent rules. But I do think that some of the current worries about monopolies in the tech space are overdone. Purely and simply because they?re contestable monopolies and thus not really exploitable in the sense that we worry about when considering the very idea of monopoly.
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