economics | January 13, 2013

Are Tech Monopolies Bad For Innovation? Justin Fox In The Atlantic

"Just because the Internet has succeeded in blowing up some of these established communications monopolies and oligopolies [like radio, newspapers and TV]," Justin Fox cautions, "doesn’t mean it won’t create its own." In a new article in The Atlantic, Fox takes a look at some of today's biggest tech companies: the new monopolists. Many of these companies (Facebook and Google, for example) are beginning to take on the characteristics of utilities. Despite not explicitly calling themselves that, they do "attempt to position themselves such that customers can’t get around them, or can’t afford to leave them," Fox notes. And once they become a service users can't live without, they begin to monopolize the market whether they admit it or not.

It is generally agreed that monopolies can stifle innovation. That is, after all, why antitrust laws exist—to promote market competition and advance new product development. Competition between technology companies, however, has become more about competing to own the field than about competing within it. These power players attempt to keep similar products from entering the market, and focus on complete market domination across a variety of mediums. And they do so even if healthy competition is a better option for consumers. Fox recounts the case of Microsoft vs. Netscape as an example. Microsoft copied Netscape's browser software, called it Internet Explorer, and then used their dominance in the market to gain control. But consumers would likely be much better off if the two browsers operated side-by-side, providing a choice for users and driving both companies to continually refine their product.

While he admits that intensive Internet regulation is wrought with problems, Fox argues that we need to have more say in the way the online world develops. In the Microsoft case, the tech giant was sued—and their competitors won. And, as Fox argues: "The spectacular rise of Google and Facebook, and the resurgence of Apple, were possible at least in part because Microsoft didn’t feel free to strangle them as it had Netscape a decade before." While it's arguable that the breakneck speeds at which technology advances lends itself to short-term monopolies, Fox says we should still be cautious of these tech giants seizing complete control of their markets. We shouldn't rely solely on the market to work its magic and promote innovation and fair competition. Instead, we have to make it a priority to be involved as users. Fox is the Editorial Director of the Harvard Business Review Group. He is the bestselling author of The Myth of the Rational Market and is adept at bringing history, politics and economics together to explain the effects that the market has on our lives.

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