The Internet: Still Wide Open and Competitive?
Eli M. Noam
Columbia Business School - Finance and Economics
University of Oxford - Department of Economics
Michael R. Baye
Indiana University Bloomington - Department of Business Economics & Public Policy
University of California, Berkeley - Economic Analysis & Policy Group
August 1, 2003
OII Internet Issue Brief No. 1
For many years now, the Internet seemed to be open, free, and competitive. Internet entrepreneurialism was high, financing easy, entry barriers low. But now, in the wake of the Internet's bursting bubble, the reality of that competitiveness deserves a second look: Is the Internet still as open and competitive as it used to be, or is it becoming concentrated and dominated by a few firms with market power? To even ask this question raises emotional responses, so deeply held is the Internet's self-image of openness and competitiveness, in contrast to the stodginess of the telecom, print, and TV industries.
Many people even have difficulty with the very concept of looking at the Internet as an industry. The early phases of the medium were indeed dominated by government, universities, and non-profit entities, all operating outside of private markets. But even when the Internet became commercialized, it was frequently asserted that the new 'bit economy' operated on fundamentally different principles than the traditional 'atom economy'.
Today, a more balanced perspective has become possible and necessary. This starts with the recognition that the Internet is a set of interacting activities provided by a variety of business firms, operating in interacting sub-markets. The structure of those markets affect, in the classic paradigm of industrial economics, the behavior and hence the performance of these firms. A prime measure for market structure is the extent of market concentration; it is an indicator and predictor of competitive behavior. Since the Internet has been arguably the major force for economic, societal, and cultural innovation in society in recent years, the extent of the competitive forces driving it is significant far beyond the sector itself.
Number of Pages in PDF File: 19
Keywords: internet, competition, market power, openness, bit economy, innovationworking papers series
Date posted: December 1, 2008 ; Last revised: August 14, 2011
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