Saturday, April 26, 2014

Monopoly kills efficiency and innovation yet again.....

Yesterday, the Wall Street Journal
reported that the FCC is about to release proposed regulations that
would allow broadband providers to charge additional fees to content
providers (like Netflix) in exchange for access to a faster tier of
service, so long as those fees are “commercially reasonable.”... Jon Brodkin of Ars Technica
has a fairly detailed yet readable explanation of why this is bad for
the Internet—meaning bad for the choices available to ordinary consumers
and bad for the pace of innovation in new types of content and
services. Basically it’s a license to the cable providers to exploit a
new revenue source, with no commitment to use those revenues to actually
upgrade service. (With an effective monopoly in many metropolitan areas
and speeds already faster than satellite, the local cable provider has
no market pressure to upgrade service, at least not until fiber becomes
more widespread.) The need to pay access fees will make it harder for
new entrants on the content and services side; in the long run, these
fees could actually be good for Netflix, since it won’t have to worry as
much about competition. The ultimate result will be to lock in the
current set of incumbents that control the Internet, ushering in the era
of big, fat, incompetent monopolies.

How did this happen?  The FCC is run by a former industry lobbyist; the big lobby firms are run by fromer FCC regulators and so forth. 

I’m Shocked, Shocked! | The Baseline Scenario


  1. It is an interesting article and ties back in to a point you made during class with the charts you put up in class regarding monopolies. Everyone wants to be in a monopoly situation because that is where big profits are made. That is the incentive, big profits, not innovation and better products. Companies are compensated well when they have a monopoly, and it they do not receive any compensation for upgrading their product or service. Clearly the system is flawed.

  2. It will be interesting to see which broadband providers take advantage of this opportunity. If all broadband providers start charging additional fees to content providers, profits would rise and innovation would slow down. On the other hand, if some broadband providers avoid charging content providers, they would become more attractive to such providers, encouraging them to avoid providers who charge additional fees and disrupt the competition.

  3. Here is a WSJ opinion article on the issue:

  4. I think Tyler makes an interesting point--ideally companies would start competing against each other by not charging "fast-lane" tariffs. I'm not terribly optimistic though--the major telecom groups more or less appear to operate like cartels--not just monopolies.

    I think the situation is very bleak, to be honest, and moreover Obama couldn't have dropped the ball harder on this one: he promised in his campaign to ensure Net Neutrality wouldn't be harmed. What a fat load of crap that was.

  5. I agree with Mark on this issue. The proposed merge of Comcast and the Time Warner cable will present a huge opportunity for the merged venture to dominate. As the merge will result in online video content providers to pay more to access the Comcast or the merged customers. Here, they will not just have monopoly in one market but there is a possibility of monopoly in the online video content provider market as well.

  6. I will not argue about monopolies being harmful to innovation. I wonder if this market could be unique in that major content providers could just more aggressively seek to engulf smaller niche innovative businesses that can't circumvent the barriers of entry to continue pleasing their consumers