W. Brian Arthur speaks!
InfoWorld
Copyright (c) InfoWorld 1998
Monday, June 1, 1998
Vol. 20, Issue 22
INTRANETS & I-COMMERCE
W. Brian Arthur says increasing returns equal success in the high-tech
marketplace
Lynda Radosevich
W. Brian Arthur, an economist at the Santa Fe Institute, in Santa Fe,
N.M., espouses a theory of increasing returns. This theory states that,
as opposed to the traditional commodity market, software market success
breeds further market success, leading to natural monopolies. Arthur is
credited with influencing U.S. Assistant Attorney General Joel Klein.
InfoWorld: In your opinion, has Microsoft been motivated by
competition to be innovative?
Arthur: The history in high tech is that companies that dominate don't
have as much incentive to innovate. When Microsoft dominated with
MS-DOS, we got stuck with DOS for about 10 years. So it's not that they
don't innovate at all, it's just that we have to wait for them to bring
on the next thing in their own good time. They're not known as being
technology trail-blazers, and there are good reasons: When you have
locked in a market, you don't have to innovate, not at least until the
next wave of technology drives you forward.
InfoWorld: How do you see the Department of Justice and state
government antitrust cases against Microsoft affecting the high-tech
industry overall in the next five to 10 years?
Arthur: So far, the high-tech sector in America has been a wild and
woolly free-for-all, like Dodge City in the 1880s: It has had very few
rules. The problem is one gang has come into town and taken over Main
Street, so finally we're about to get some rules. The issue is
important. It's not just about Microsoft, it has to do with how
innovation happens in the American economy, and that's what I believe is
driving America's edge at the moment over Europe and Japan.
There's a big difference between the government trying to regulate or
micromanage products, browsers, companies, or even large monopolies and
the government setting rules. It's a little like saying the government
shouldn't be out on the rink hitting the hockey puck. But the
government is to set down sensible rules, where there is a reasonably
fair chance for new companies to enter new industries that are opening
up, as a very good incentive for companies to continue to innovate.
This is where a very subtle point arises, but it's crucial. The
chance of dominating a market, the chance of being a monopoly, that's
the prize that drives innovation in high tech. The problem is if you
lock in too much for too long, then your incentives to innovate go way
down.
So the government has to tread a very subtle path. It doesn't want to
wipe out monopoly -- that's the prize -- but for very entrenched
monopolies that are not acting fairly, we need some rules of the game.
InfoWorld: Are the government's proposed remedies, such as making
Microsoft include the Netscape browser, sensible ones?
Arthur: The government's objective seems to be that as new
subindustries open up in high tech [they try] to make sure that several
players have a reasonable chance at dominating a new market. Given that
that's what they're trying to do, it makes a great deal of sense. As
new markets open, they shouldn't just be rolled over by some
juggernaut.
InfoWorld: Are the Sherman and Clayton Acts -- which prohibit
monopolies and tying of additional products to a monopoly product --
sufficient for assuring competition in the high-tech sector, or does the
high-tech sector require new guidelines?
Arthur: I'd side with the latter. High tech is a different ball game
for two reasons. One, the markets are dominated by increasing rather
than diminishing returns. These markets work differently, so we should
expect monopolies. The question is to make sure everyone lines up
behind the same starting line. Nothing against the Sherman Act, but the
economics are different, so we need to rethink the antitrust rules.
Second, in the old economy of standard commodities, the goal is to
make sure pricing is fair for the consumer. But in high tech, the
prices keep falling, so the issue is whether innovation grinds to a
halt. If you say, 'Does it really matter if we had to wait 10 years to
get Windows while we all struggled with DOS?' my answer is in a world
of high-tech competitors in Europe and Japan, yes, it does. Innovation
matters a great deal. So the government, rightly, is paying great
attention to innovation and fairness.
|
