Monopolies

Monopolies

The Internet has long been held up as a model for what the free market is supposed to look like—competition in its purest form. So why does it look increasingly like a Monopoly board? Most of the major sectors today are controlled by one dominant company or an oligopoly. Google “owns” search; Facebook, social networking; eBay rules auctions; Apple dominates online content delivery; Amazon, retail; and so on.

I thought the above quote was a very interesting point made by WSJ reporter Tim Wu.  The whole article, “In the Grip of Internet Monopolies” is worth the read if you have a few minutes.  If not, I thought I’d make a couple points.

First, while the statement is true, monopolies on the internet don’t mean what they do in other industries.  As those of us with MBAs would say, the internet has extremely low barriers to entry.  Sure, Facebook has a monopoly on personal social networks right now, but remember when you could have said the same thing about MySpace?  I don’t think we, both as a government and as conscientious customers, need to consciously try to break up these monopolies.  However, I DO think we need to adamantly insist on freedoms that will keep barriers of entry low so that slipping monopolies are quickly replaced by new businesses.

Second, as long as barriers to entry are kept low, these monopolies are a good thing for a maturing information based society.  If Facebook were 15 different sites, each catering to a small group of people, then the adoption curve would be much much slower.  It is easier for everyone to get used to using social networks on the same site and then have the systems diverge (but remain compatible) in the future.

  • Dave Brillhart

    Good point Jon. Google demonstrates the success of a Free Market. They provide an irresistible value for their service niche. We are free to select an alternative provider. We are free to develop and deliver a competing service. The barriers are low.

    The problem many have with another’s success (MS, Google, IBM, Apple, Penn State, Jon Cavell, etc) is often more about the perceived “unfair” advantage of the market share they’ve captured, the innovation they’ve delivered, and the head start they enjoy, and the rewards they’ve earned. That is just sour grapes from armchair quarterbacks who wished they had entered the game earlier, or who have fallen from grace because they didn’t make smart decision along the way.

    As long as the success is fairly acquired and sustained… these perceived giants deserve honor, and hopefully become the shoulders on which the next killer idea stands, from someone brave and smart enough to enter the game.

    • I agree completely with your comment. The only tweak I would make is that even if success is “fairly acquired and sustained” it benefits the market to keep low barriers of entry because a company can always slip up and start making a crappy product after their monopoly is secure (MS).

      Sorry it took me so long to get to this comment. Good luck this weekend!