The arguments against monopolies in a free market apply, here. A big ISP which set out to squash little ISPs would run up its own costs trying, thereby losing to other big ISPs which didn’t do this. If there was only one big ISP, they’d eventually fail if they kept this up, since it would be in the interest of all the little ISPs to peer with each other, and they’d eventually have most of the market, collectively. Economies of scale can be really useful, but unless your firm is able to use force, much of the savings will go to the consumers through competition.
Of course, in the real world, we’re awash in force, so perhaps this isn’t very useful. :(
A big ISP which set out to squash little ISPs would run up its own costs trying, thereby losing to other big ISPs which didn’t do this. If there was only one big ISP, they’d eventually fail if they kept this up, since it would be in the interest of all the little ISPs to peer with each other, and they’d eventually have most of the market, collectively.
But in the meantime, very many small ISPs would go out of business trying to compete before they collectively pull down the big ISP, which likely has other advantages beyond competing on price, such as having a lot of friends and influence among the set of people who could possibly invest funding into a new ISP.
At some point people are going to realize that getting into the ISP market is a recipe for disaster, and if this happens before the big ISP runs out of slack, competition dries up and the big ISP gets to continue being a monopoly.
So yes, if you assume that significant numbers of people will make irrational decisions and take large personal losses starting businesses that are very likely to fail it might work out, but I’m not sure that’s justified.
Honestly, most of the arguments about why monopolies would never survive in a truly free market are glaring examples of how irrational hard-line free market ideas are, usually because people turn the idea of an unregulated market itself into a terminal value and then start rationalizing why it will obviously produce ideal results.
Check out the startup market sometime. Most startups fail, yet there always seems to be money for new ones, because every now and then there’s a Google. You seem to be assuming that people won’t do what they’re actually doing.
Technology startups generally have relatively low entry costs and aren’t trying to jump into an established market with substantial network effect and force out an entrenched larger player.
How many startups do you see trying to, say, go toe-to-toe with Microsoft in the desktop OS or office suite market, and how successful are those?
It’s a fallacy to point to the lack of direct competition from startups in the desktop OS or office suite market and claim that as proof that natural monopolies exist. Companies that dominate an industry for a period often lose their dominance when new technologies come along that make their dominance irrelevant.
Companies that dominated telecommunications when fixed land lines were the only game in town now compete against cellular phone networks and Internet telephony. Microsoft’s dominance in the desktop OS space is becoming less and less relevant as more of people’s day to day computing needs move into the cloud. Google Docs is a potential challenger to Office in the future and has its roots partly in a startup (Writely).
Technological innovation has a way of undermining monopolies that are not protected by government regulation. Sometimes it even manages to undermine protected monopolies—the process of updating legislation to maintain profitable monopoly privileges in the face of technological change is fortunately slow enough that the rent seeking entities can be beaten by faster moving companies.
The arguments against monopolies in a free market apply, here. A big ISP which set out to squash little ISPs would run up its own costs trying, thereby losing to other big ISPs which didn’t do this. If there was only one big ISP, they’d eventually fail if they kept this up, since it would be in the interest of all the little ISPs to peer with each other, and they’d eventually have most of the market, collectively. Economies of scale can be really useful, but unless your firm is able to use force, much of the savings will go to the consumers through competition.
Of course, in the real world, we’re awash in force, so perhaps this isn’t very useful. :(
But in the meantime, very many small ISPs would go out of business trying to compete before they collectively pull down the big ISP, which likely has other advantages beyond competing on price, such as having a lot of friends and influence among the set of people who could possibly invest funding into a new ISP.
At some point people are going to realize that getting into the ISP market is a recipe for disaster, and if this happens before the big ISP runs out of slack, competition dries up and the big ISP gets to continue being a monopoly.
So yes, if you assume that significant numbers of people will make irrational decisions and take large personal losses starting businesses that are very likely to fail it might work out, but I’m not sure that’s justified.
Honestly, most of the arguments about why monopolies would never survive in a truly free market are glaring examples of how irrational hard-line free market ideas are, usually because people turn the idea of an unregulated market itself into a terminal value and then start rationalizing why it will obviously produce ideal results.
Check out the startup market sometime. Most startups fail, yet there always seems to be money for new ones, because every now and then there’s a Google. You seem to be assuming that people won’t do what they’re actually doing.
Technology startups generally have relatively low entry costs and aren’t trying to jump into an established market with substantial network effect and force out an entrenched larger player.
How many startups do you see trying to, say, go toe-to-toe with Microsoft in the desktop OS or office suite market, and how successful are those?
It’s a fallacy to point to the lack of direct competition from startups in the desktop OS or office suite market and claim that as proof that natural monopolies exist. Companies that dominate an industry for a period often lose their dominance when new technologies come along that make their dominance irrelevant.
Companies that dominated telecommunications when fixed land lines were the only game in town now compete against cellular phone networks and Internet telephony. Microsoft’s dominance in the desktop OS space is becoming less and less relevant as more of people’s day to day computing needs move into the cloud. Google Docs is a potential challenger to Office in the future and has its roots partly in a startup (Writely).
Technological innovation has a way of undermining monopolies that are not protected by government regulation. Sometimes it even manages to undermine protected monopolies—the process of updating legislation to maintain profitable monopoly privileges in the face of technological change is fortunately slow enough that the rent seeking entities can be beaten by faster moving companies.