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Against Monopoly

defending the right to innovate

Monopoly corrupts. Absolute monopoly corrupts absolutely.





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Patents and copyrights worsen natural monopolies

David Leonhardt reviews a new book, titled THE MASTER SWITCH The Rise and Fall of Information Empires by Tim Wu link here. The theme of the book is that "History shows a typical progression of information  technologies from somebody's hobby to somebody's industry;  from jury-rigged contraption to slick production marvel; from a freely  accessible channel to one strictly controlled by a single corporation or  cartel from open to closed system."

When we criticize the copyright and patent laws, the criticisms are right but we are missing the point and fighting a losing battle against the latest new thing. We are up against a world where innovation creates natural monopolies, aided and abetted by patents and copyrights.

Steve Pearlstein takes a look at the same subject and lays out a view that challenges Wu's seeming acceptance of these monopolies link here. Wu would defend his view, I suppose, by arguing that during their formative periods, these natural monopolies succeed only if they provide consumer value.

Pearlstein argues, "In theory, antitrust laws were meant to restrict such acquisitions by a monopolist. In practice, however, it hasn't worked out that way. Decades of cramped judicial opinions have so limited application of antitrust laws that each transaction can be considered only in terms of how it affects the narrowly defined niche market that an acquiring company hopes to enter."

Nevertheless, Pearlstein argues for strong antitrust action, "aggressive enforcement of the antitrust laws has been a crucial part of the history of technological innovation in this country, enforcement that allowed AT&T to be supplanted by IBM, IBM by Microsoft and Microsoft by Google. It's easy to see why Google would want to use well-chosen acquisitions to try to delay or prevent that next round of creative destruction. What's harder to understand is why we would let them do it.' An artful aid in preventing that would be to cut back on the granting of patents and copyrights.


Comments

There is no such thing as a natural monopoly. The only monopolies are government-granted ones. Contrary to Pearlstein, Google doesn't have a monopoly on anything, and isn't a monopolist. (Ditto for Microsoft, contrary to Soviet-style Do"J" bureaucrats. His last statement that enforcement of the antitrust laws caused IBM to "supplant" AT&T, Microsoft to "supplant" IBM, and Google to "supplant" Microsoft is absurd. What happened is that IBM, Microsoft, and Google innovated new technologies and business methods that enabled them to outcompete established rivals. AT&T was hobbled by the fact that it had a government-granted monopoly, which caused its "innovation gene" to suffer an innovation-stifling "mutation."
Actually microsoft does have a monopoly on windows by virtue of being the copyright holder and distribute it under resrictive terms.
Without looking it up, I believe economists hypothesize that there are natural monopolies, that is, enterprises with scale advantages which make it possible for them to take over or dominate an industry. Microsoft is one such--there are real advantages to Microsoft because Windows and Word are so widely used that most people do not consider an alternative--those are the software they learned and is installed on lots of other computers. I have considered shifting to Linux for example, but won't--too much trouble and Windows has a whole lot of add-on apps.

I think Google has a natural monopoly as well. It is dominant in search and online advertising and is moving into other services. Others are trying to compete but the first actor advantage is now overwhelming.

We might push for breaking them up in order to introduce more competition, but for most people, it is too easy to go with the big guys.

Browsers, in contrast, do compete. I have Firefox, Opera, Google Chrome, and Internet Explorer on my computer. I continue to use Firefox by far the most because I have been able to modify it to do what I want it to do. I can't do the same things with the others, but keep them because each has one or two apps that I need from time to time.

Monopoly in the "natural monopoly" context means single supplier. To the extent it has a monopoly on anything, it's because of the monopolies known as copyright and patent. There are alternatives to Windows and Word--doesn't Google apps have a competitor to Word? Lotus Notes (I think that's a Word competitor) and Apple. I assume there are others. Being dominant in something (e.g. search) is not the same thing as having a monopoly. Google is very far from having anything approaching a monopoly in advertizing even if it is a big player in that field. I see zillions of ads for salespeople in advertizing at companies that don't begin with the letter "G".
There are natural monopolies. Each (unique) individual has a natural monopoly over their work. No-one but Fred Carpenter can supply "Bespoke chairs handmade by Fred Carpenter". Others can purchase and resell them, or make imitations, but they can't provide the same.

Only Elvis Presley can sell new recordings of himself singing. Now that he is dead, no-one can supply them. Impersonators can sell imitations and copies, but that's not the same.

If you want Crosbie Fitch to comment on your blog you'll have to come to me. I have the monopoly over the supply of such comments. And that's true with or without copyright. Probably truer without it, given that copyright's 'privilege creep' suggests authorship as something that can be transferred, bought and sold.


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