One of my strongest impressions when I visited the Internet Governance Forum in Istanbul last August, was the firm belief in the market forces. There was hardly an issue in the online world that would not be fixed by free competition. That belief, of course, rests on such things as transparency, informed customers, absence of information assymetries and not least pluralism of offers. In theory, there may be markets that actually work like this, but most, if not all, economists will agree that most real world markets display none of these traits, in fact the case is often the opposite (sellers may seek information advantages for example). If there was ever a time when the internet was a perfect market like in theory, that is long gone. The network effects that give users little choice but to join the dominant service in a particular niche (think online auctions, social networks, ad listings etc), have created very strong gatekeepers. When those niche dominants and gatekeepers are global almost-monopolies, the free market forces look like a distant hope at best. Yes, not all big services have survived. MySpace got beat by newer and better social media services, but today’s challengers are acquired by the global players, not beating them. Never is this more obvious than in the case of Google, with its near absolute dominance on search in many markets and its appetite for data from a multitude of sources giving the company an information upper hand to pretty much anyone it does business with. (If you want to do business with Google, you don’t negotiate, you tick a box to accept their terms – granted this is also true for the other internet skyscrapers.) Some have suggested that Google separate offers should be broken up in several companies, as has often been the method in anti-trust cases historically. That would be a disaster for Google, whose success relies on the method of taking data generated from one service (such as free e-mail) and monetising it through advert sales on another (such as search). Another view would be that internet search is a natural monopoly, like a gas network, water pipes or the city port – in that view it should be treated as a public utility, where competition is irrelevant and completely different checks and balances apply. The European Commission seems to be committed to protect the classic market economics, the legislator stepping in at the point of market failure, but basically supporting the idea of free competition. It is similar to the view I took away from the Internet Governance Forum, but with the addition of active regulation. This view is perfectly normal, we have health inspectors checking restaurants for food safety, there are tight rules on what sort of cosmetics can be put onto the market, building codes decide the terms for the construction sector etc. The question remains if the internet works as a normal market. Some argue that it is a brave new world, a completely new paradigm where the old rules don’t apply. Perhaps there is a need for a completely different form of regulation than for traditional offline markets? As of yesterday, it is clear that The European Commission is about to find out and Netopia can only wish it good luck.
COMM vs Google – will anti-trust law work online?
One of my strongest impressions when I visited the Internet Governance Forum in Istanbul last August, was the firm belief in the market forces. There was hardly an issue in the online world that would not be fixed by free competition. That belief, of course, rests on such things as transparency, informed customers, absence of information assymetries and not least pluralism of offers. In theory, there may be markets that actually work like this, but most, if not all, economists will agree that most real world markets display none of these traits, in fact the case is often the opposite (sellers may seek information advantages for example). If there was ever a time when the internet was a perfect market like in theory, that is long gone. The network effects that give users little choice but to join the dominant service in a particular niche (think online auctions, social networks, ad listings etc), have created very strong gatekeepers. When those niche dominants and gatekeepers are global almost-monopolies, the free market forces look like a distant hope at best. Yes, not all big services have survived. MySpace got beat by newer and better social media services, but today’s challengers are acquired by the global players, not beating them. Never is this more obvious than in the case of Google, with its near absolute dominance on search in many markets and its appetite for data from a multitude of sources giving the company an information upper hand to pretty much anyone it does business with. (If you want to do business with Google, you don’t negotiate, you tick a box to accept their terms – granted this is also true for the other internet skyscrapers.) Some have suggested that Google separate offers should be broken up in several companies, as has often been the method in anti-trust cases historically. That would be a disaster for Google, whose success relies on the method of taking data generated from one service (such as free e-mail) and monetising it through advert sales on another (such as search). Another view would be that internet search is a natural monopoly, like a gas network, water pipes or the city port – in that view it should be treated as a public utility, where competition is irrelevant and completely different checks and balances apply. The European Commission seems to be committed to protect the classic market economics, the legislator stepping in at the point of market failure, but basically supporting the idea of free competition. It is similar to the view I took away from the Internet Governance Forum, but with the addition of active regulation. This view is perfectly normal, we have health inspectors checking restaurants for food safety, there are tight rules on what sort of cosmetics can be put onto the market, building codes decide the terms for the construction sector etc. The question remains if the internet works as a normal market. Some argue that it is a brave new world, a completely new paradigm where the old rules don’t apply. Perhaps there is a need for a completely different form of regulation than for traditional offline markets. As of yesterday, it is clear that The European Commission is about to find out and Netopia can only wish it good luck.
