The Rise and Limits of Self-Regulation
New Horizons in Competition Law and Economics series
Chapter 2: The proliferation of IPRs and the rise of standards
It has been claimed that the information economy is populated with temporary monopolies. Hardware and software firms hold monopolies today knowing that a new technology will emerge that will topple their technology and, thus, overtake their monopoly position. In comparison, the industrial economy was, and still is, populated by stable oligopolies. The central difference between these two economies is that they have fundamentally different approaches to being successful: the driver in industrial economics is economy of scale, while the driver for the information economy is network effect. Network effects are now an old idea. We all know what it is, and can point to certain networks. The term was invented at the time of Microsoft and Intel's great success and was a way to describe Wintel's success on the PC market compared to the suffering of Apple. As Wintel's share on the PC market grew, users found Wintel more and more attractive and eventually the market 'tipped' to the advantage of Wintel. Network effects or network externalities imply that demand drives the economy. The value of a network or a technology (a standard) depends on the demand for the same. Other things being equal, it is better as a consumer or customer to be connected to a bigger network than a smaller network. Some economists argue that monopoly power in these cases is desirable.
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