Tim Wu Insists That Market Domination Is A Monopoly

from the um,-no dept

So we recently posted about Tim Wu's claims that the internet is filled with "monopolies," by noting that just being successful and dominating a market does not, in fact, create a monopoly on that market. Wu himself appears to have stopped by and made the following comment, which he asks us to "post... somewhere visible." Hopefully a new post will do the trick:

A firm that dominates a market is a monopoly. End of story. That is the definition of a monopoly. It is not necessarily an illegal monopoly, or a problem, but that's a different issue. It is, however, clearly a monopoly by any standard definition.

Now, I like Tim and agree with a lot of the stuff he says. But sometimes he goes out on a limb, and this is one time where I think he's just wrong. If we look at the basic definition of monopoly, you see that it's about having an exclusive situation -- being the only seller in the market, or having exclusive control. If that's the definition of monopoly, then Wu's claims that Google and Facebook are monopolies is clearly wrong. Neither company is the exclusive seller or has exclusive control over the markets they're in. And yet, I think most people agree that both companies "dominate" their markets.

In looking through some other definitions of monopoly as well, I only found one that included the word "dominate" and it's from Wiktionary, stating: " To dominate something by excluding everyone else." So that's a case where dominate is in the definition of monopoly, but it's conditional. It's not saying all domination of a market is a monopoly, but if you dominate by excluding everyone else. Again, I don't see how Google and Facebook are excluding anyone.

There are plenty of "monopolies" to be concerned about these days. But I think Wu is making a mistake in claiming that these services are monopolies.

Filed Under: competition, information, monopolies, tim wu

Success, By Itself, Is Not A Monopoly

from the don't-make-this-mistake dept

Lots of folks have been sending in Tim Wu's Wall Street Journal opinion piece about the rise of "internet monopolies." As with many of Wu's works, it's a worthwhile read, that I think gets some things quite right -- and others quite wrong. For example, Adam Thierer correctly notes that Wu is redefining "monopoly," in a way that does not make much sense. Basically, Wu is pointing out that certain firms seem to dominate certain markets: Google for search, Facebook for social networking, Amazon for shopping, etc. But (and while folks in Europe would likely disagree), domination of a market, by itself, does not create a monopoly, nor does it necessarily create a problem.

The problem with monopolies is when they limit the ability of others to compete overall. But there is little to stop serious competition from entering most of the spaces that Wu talks about. Yes, Google dominates search, but just a decade ago, people talked about how Google was ridiculous for entering a market so dominated by Alta Vista and Lycos. For years, Yahoo and Microsoft dominated webmail, until Google introduced Gmail. And Wu plays down just how dominant Friendster was in the early days. He claims there were lots of other social networks at the time -- but there are lots of other social networks today too. When Friendster was on top it was totally dominant. The fact is these markets change and most of the services that Wu talks about involve situations where the cost for users to move elsewhere is not that high. Yes, inertia keeps many people still, but if things really got that bad, it would just open up an opportunity for others to jump in.

Wu's larger concerns are that, in the long run, those dominant in these spaces today will then seek to hinder competition. They'll run to the government and seek to pass regulations favorable to them:

Declining information monopolists often find a lifeline of last resort in the form of Uncle Sam. The government has conferred its blessing on monopolies in information industries with unusual frequency. Sometimes this protection has yielded reciprocal benefits, with the owner of an information network offering the state something valuable in return, like warrantless wiretaps.

And, indeed, that could be a potential problem, if the government gives in to them. Certainly, watching the telcos and the entertainment industry embrace regulatory capture and abuse the regulatory process to protect their own businesses suggests this does happen. But the answer isn't to condemn the mis-identified concept of "information monopolies," but to increase openness and diligence against such abuses of the regulatory process.

The downsides to market domination are when those who are dominant abuse their position. We shouldn't condemn dominance for the sake of dominance, and we shouldn't automatically assume that dominance must equal abuse. Conflating the two makes it more difficult to detail actual abuse. When there is abuse -- it should absolutely be called out, but we need to be careful to focus on actual abuse, rather than pretending that success automatically means abuse.

Filed Under: information, monopolies, regulatory capture, tim wu
Companies: facebook, google

The March Of Mobile Phone Progress Isn't Always Smooth Or Direct

from the be-patient dept

Tim Wu is discouraged. Writing in Slate last week, the telecom expert lamented the terms he's facing as an aspiring iPhone 2 owner: a two-year AT&T contract thanks to the handset's newfound inability to be unlocked and a move toward a more conventional subsidized handset model. Wu sees this as emblematic of a shift in the mobile industry:

The fact that someone like me is switching to AT&T is a sign of the times in the telephone world. The wireless industry was once and is still sometimes called a "poster child for competition." That kind of talk needs to end.

He's right -- but then, that kind of talk shouldn't have been started in the first place. The mobile market was defined by long contracts, locked handsets and a lack of prepaid options long before Apple arrived on the scene. Now it appears that it'll remain that way long after Apple.

Admittedly, this is a disappointment. Many looked at Apple's choice of a second-rate carrier -- one they could bully around -- as a sign that everything was about to change. Finally a handset manufacturer had arisen that was powerful enough to break the industry's self-serving revenue model and empower consumers! With the recent declaration of the iPhone 2's retreat toward conventional industry shadiness, those counting on Apple's benevolent technological dictatorship have found themselves disappointed (as they have before, and no doubt will again). They were fooling themselves anyway: did anyone really think Apple was going to tolerate phone unlocking forever?

But the outlook isn't all grim. As Wu notes, the Google-led Open Handset Alliance is trying to follow in Apple's footsteps with its own game-changing, must-have handsets -- only this time there seems to be a more expressly ideological slant to the effort. And Verizon's Open Development Initiative, while less than perfect, is perhaps even more encouraging in that it shows the industry has begun to acknowledge the market's need for more flexibility in data services.

And that's the real reason for hope: the march of progress. Anyone who tries to paint the mobile industry as the picture of efficient market competition is either in denial or deeply dishonest. But wireless services will inevitably become more important and more available, whether thanks to WiMAX, revived municipal wifi projects (now without capital costs, thanks to the magic of bankruptcy!), spectrum freed by digital broadcasting, or some other wireless technology. The mobile carriers haven't been great at competing amongst themselves, but you can bet they'll begin responding once consumers have reasonable alternatives.

Filed Under: competition, markets, mobile phones, monopolies, tim wu

NBC Universal Explains Why ISPs Should Filter Copyrighted Works

from the because-they're-BIG dept

The NY Times "debate" between law professor Tim Wu and NBC Universal General Counsel Rick Cotton that began Monday now continues. It's actually not much of a "debate" because each are simply answering the questions posed by the moderator, Saul Hansell. However, the latest concerns whether it makes sense to require third party companies, such as ISPs or consumer electronics firms to filter or block content in an effort to protect copyright holders from unauthorized use of their content. Wu's answer focuses on a slightly different question: whether it makes sense for the government to step in and mandate such solutions, and provides a reasonable answer questioning why the government should be protecting one industry's business model at the expense of others'. Cotton's response is quite similar to the one he gave last week at CES. Effectively, it's "there's so much piracy going on, that we need to have others step in and protect our business model."

I'm curious if Cotton believes that automobiles should have been forced to go 3 mph with people walking in front of them waving red flags, for the sake of protecting the market for horse-drawn carriage makers? Or, should consumer electronics companies been forced not to allow VCRs to record TV? Both examples involved "big" problems that were seen as "threats" to an existing business model. Yet, rather than being actual threats (after some bogus lobbying/court cases), companies realized that these were actually huge opportunities to expand markets and make even more money. So why is it this time it's suddenly a big threat and not an opportunity? And even if it is a threat, why should it be seen as something that a third party needs to handle? What happens when the required filtering in the US means that foreign consumer electronics makers come up with the next great innovation that isn't possible in the US and we fall behind in terms of the next important innovation? None of that seems to be of concern to Cotton, whose sole focus is on preserving a business model that is certainly not the most efficient nor effective for the industry. I recognize that it is Cotton's job at NBC Universal to make these kinds of statements, but it should be his fiduciary responsibility to the company to suggest that there are better paths to adapting to the changing market place, rather than clinging to an obsolete business model and dragging down other industries with it.

Filed Under: copyright, rick cotton, tim wu
Companies: nbc universal

NBC Universal Argues That Copy Protection Is Necessary

from the good-luck-with-that-plan dept

The NY Times is running an ongoing "debate" all week concerning issues having to do with copyright. Defending the entertainment industry's strategy is Rick Cotton, General Counsel of NBC Universal, and well known around here for various questionable comments made to support NBC's position of demanding that the government act to enforce NBC's obsolete business model (our favorite remains his argument that corn farmers are hurt by piracy, since fewer people will go to movies, meaning fewer people will buy popcorn). On the flip side is law professor Tim Wu, who we believe has an excellent grasp on copyright issues (though, we don't always agree with him on telecom regulation).

The first part of the debate discusses whether or not copy protection is necessary. Not surprisingly, Cotton takes the "yes" position. While he comes up with a list of 7 reasons, none are close to convincing. He gets off on the wrong foot (and suggests either that he's willfully misleading or simply ignorant) by suggesting that infringement is no different than theft. It's tough to have a serious discussion on copyright and business models when you stake out that obviously incorrect position (theft involves something going missing, infringement does not -- even if both are illegal). The rest of his argument seems to revolve around two key points: that technology can be effective in stopping unauthorized file sharing and that the industry needs to stop unauthorized file sharing. Both points are wrong. He seems to be confusing two points on that first one. It may be true that copy protection can make it more difficult for an individual or some people to upload an infringing file, but it will never be possible to stop everyone -- and the second a single file is available for others, it no longer matters, because that one file is universally available to be copied. As for the argument that the industry needs to stop unauthorized file sharing, that's only true if the industry cannot come up with business models that embrace unauthorized file sharing and use it to its advantage. As we've already discussed, not only is this possible, it's already happening, and it's helping content creators to recognize business models where they can make more money than before.

Wu's response focuses in on some of that, by noting that it really is a business model issue, and that Cotton seems to ignore that. As Wu says: "digital locks are no substitute for a good business model." However, where Wu could be even stronger is in pointing to evidence, both historical and current, that other business models can actually be much better for content creators. Overall, though, it's a good response, and most of the commenters seem to side with Wu rather than Cotton. It will be interesting to see if Cotton actually responds to Wu's points (hopefully without just falling back on the talking points from his original answer), or if the debate just moves on to the next topic.

Filed Under: copyright, rick cotton, tim wu