On monopolies: Thiel, Tirole and Tolstoy By Andrew McAfee

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Andrew McAfeeI’m digging into Peter Thiel‘s new book Zero to One, which is as smart and contrarian as its author in its discussion of the rhetoric and reality of competition. Thiel points out that monopolists tend to downplay their status and talk about how competitive their markets are, while businesses in truly competitive, undifferentiated sectors highlight their uniqueness. The book encourages prospective entrepreneurs not to be copycats (a process Thiel calls going from “one to n”) and instead to try to build the next great technology monopoly in a new field – to go from “zero to one”.

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This sounds obvious but the high tech industries too often don’t work this way. I have heard (as I’m sure Thiel has) way too many pitches that are explicitly about going from “one to n”: building another ad-serving engine, for instance, but one that is natively social, mobile and location-based. This may or may not become a profitable business, but Thiel’s point is that it will not be the next big deal. It’s a point I like very much.

My biggest quibble so far with Zero to One is its statement that, “To an economist, every monopoly looks the same, whether it deviously eliminates rivals, secures a licence from the state, or innovates its way to the top.” That is not true for at least one prominent economist – so prominent, in fact, that he won this year’s Nobel Prize in the field.

Throughout his justly-celebrated career, Jean Tirole has been studying monopolies and his overarching conclusion about them is – to paraphrase the opening of Anna Karenina – while perfectly competitive markets might all look alike to an economist, each monopolist is monopolistic in its own way.

Some are devious bullies. Some, like utilities, are granted exclusive rights by the government (because we don’t want multiple rival companies tearing up the streets to lay gas lines). Others come to control a necessary standard through brilliance, luck or some such combination. Still others build platform businesses that are subject to strong network effects and so tend toward winner-take-all dynamics – such as Facebook. And still others, like Google, just build something novel, gain an advantage and work to preserve and extend it over time.

Tirole’s work shows that these are emphatically different. He is adamant that we must analyse each monopoly separately if we’re interested in maximising the benefits to society (as we should be). For an academic economist, he is chronically circumspect: reluctant to generalise or to speak about situations he has not studied deeply.

On the topic of net neutrality, considered a no-brainer by many industry observers (I’m not so sure on this, but that’s a topic for another column), Tirole says simply, “I haven’t worked on net neutrality … I follow it from afar.” Later in the same interview, he pleads, “Let’s not talk specifically. I’m worried that my new state might mean that people take everything I say seriously.” I’m worried that he might not use his new status to say enough.

This is not a worry with Thiel, who is willing to talk specifically, generally and confidently. His provocation in Zero to One is that tech monopolies are generally good news since they spend heavily to keep innovating (and sometimes do cool things unrelated to their main businesses such as building driverless cars) and these innovations benefit all of us. If they stop investing and innovating, or if they miss something big, they quickly become irrelevant.

For example, Microsoft’s dominance of the PC industry was once so worrying the US government went after it in an antitrust battle that lasted two decades. Microsoft still controls more than 75 per cent of the market for desktop operating systems today, but nobody is now worried about the company’s ability to stifle tech innovation. Thiel paraphrases Leo Tolstoy’s most famous sentence: “All happy companies are different: each one earns a monopoly by solving a unique problem. All failed companies are the same: they failed to escape competition.”

I like Thiel’s attempt to calm the worries about today’s tech giants. Big does not always mean bad and, in the high-tech industries, big today certainly does not guarantee big tomorrow. But I’m not as blithe about monopolies as Thiel. The US cable company Comcast qualifies as a tech monopoly (it’s my only choice for a fast internet service provider) and I struggle mightily to perceive any benefit to consumers and society from its power. And there are other legitimate concerns about monopsonists (monopoly buyers), media ownership concentration and so on.

I once heard the Yale law professor Stephen Carter lay down a general rule: we should be vigilant about all great concentrations of power. We won’t need to take action against all of them but nor should we assume that they’ll always operate to our benefit. On balance, therefore, I prefer Tirole’s circumspection about tech monopolies to Thiel’s blitheness.

And I’d really like to see the two of them debate.

Babatunde Akinsola
Babatunde Akinsolahttps://naija247news.com
Babatunde Akinsola is aNaija247news' Southwest editor. He's based in Lagos and writes on the Yoruba Nation political issues, news and investigative reports

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