Online Monopolies: Virtue or Vice

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Session Date: April 13, 2009

Organized by: ADK and DAL

Topic: Online Monopolies Virtue or Vice

Featuring: Professor Jonathan Zittrain and special guest Peter Thiel with closing remarks provided by Professor Terry Fisher

Content: Video of the session is here: Can Monopolies Save The Internet? hosted by Big Think. back to syllabus

Technology + Incentives = High Quality Content

The premise of our session was that quality content can be created by the using right technology and incentives irrespective of the content. Please edit the below formula if you find improvements in the future.

There are 6 main ingredients in this equation:

1) An interesting topic with two reasonable viewpoints

2) Two intelligent and articulate discussion leaders

3) An engaged classroom. 3 sub-ingredients:

a) No Laptops

b) Name placards.

c) Required preparation with threat of "cold-calling". (Note: we did not have to resort to "cold-calling" because the class was engaged and prepared).

i) To execute cold-calling, we suggest a random-name generator designed in Microsoft Excel with the following formula:

=VLOOKUP(RANDBETWEEN(StudentNum1,StudentNumN),StudentNum1:StudentNamesN,2) <--- This function then refers to a two column list. StudentNum = List of #'s 1 to N (N = # of students). StudentNames = List of student names.

MS Excel Template for Name Generator Random Name Generator

4) Live video streaming. (We recommend: UStream)

5) Live Twittering. 4 students "tweeted" on Twitter throughout the class to engage the outside audience. This yielded participation and comments in the Q+A period.

6) Course Format: 10 Minutes Introduction; 30 Minutes Debate; 40 Minutes Question & Answer; 10 Minutes Closing

Topic - Online Monopolies: Virtue or Vice


  • Numerous examples of Monopoly Power exist on the Internet: Facebook, Google, Skype, PayPal, Amazon

Find a Powerpoint Presentation summarizing these monopolies here: Monopoly Power on Scribd

  • Issue: What should be done to help or hinder these Online Monopolies? Overall are they more of a virtue or a vice?

Class Takeaways

Peter Thiel

  • Globalization happens through technology

o Globalization often results in greater inequality, not greater equality

- Globalization does not necessarily mean that the world will become increasingly flat

o Globalization often results in massive financial bubbles

- South Sea bubble

- Railroad, car, and radio bubbles (20th century)

- Technology bubble (early 21st century)

o Most recently, globalization fostered three bubbles

- Housing

- Finance
- Emerging markets

o Recent history demonstrates that markets are not necessarily getting more efficient

  • The Internet as a mission-critical 21st century technology

o The U.S. government should massively subsidize the Internet in any and all imaginable ways

- The U.S. government should foster the Internet in a manner that is analogous to the role it played in massively subsidizing the mission to put a man on the moon

- Bailing out Internet companies after the technology bust in the early 21st century would have been far more profitable for America and the American peopleon a dollar-by-dollar basisthan the trillions of dollars that the government is currently spending to bail out financial services companies

# The U.S. government failed to develop or slowed innovation among promising Internet companies by not bailing out the industry in the early 21st century

# Instead, the U.S. government created a nation of professionals instead of a nation of entrepreneurs

+The financial services companies get the bailout because the nation is run by finance professionals and not by technology entrepreneurs

o The Internet has become a key strategic asset that is essential to the U.S. competing more effectively with the world

- The U.S. would be wise to not handicap through regulation a key, strategic industry in which it has a competitive advantage

  • Internet companies like Google and Facebook are effectively competing against governments that are trying to regulate them

o Bigger Internet companies have more power to push back against corrupt, human rights-violating governments

o Enormous economies of scale to Internet companies and their profitability

  • Anti-trust law should be less stringently applied to Internet companiescompared to more stale industriesbecause there is more innovation and disruption in the Internet space

o A car company monopoly (or monopoly that requires significant capital expenditure) is more socially harmful (in terms of deterring innovation) than an Internet company monopoly

o By the time that government becomes aware of Internet monopolies and attempts to regulate them, the problem is likely passed vis-à-vis disruptive innovation
o In order for America to remain a technology leader in the 21st century it either must allow companies to achieve significant profits or it must subsidize companies that produce strategically important technologies

Jonathan Zittrain

  • Unintended consequences of business v. unintended consequences of government planning

o Unintended consequences of business = innovation

o Unintended consequences of government planning = negative externalities

  • Instead of having monopoly power Internet companies, perhaps there is more social utility and just as much profitability in promoting Internet companies that aggregate small tail transactions in a more federated model

o Facebook owns the platform = inhibits innovation through its monopoly power because of the tremendous network effects that are inherent in its business

o Creative Commons = does not own the platform = acts as an aggregator = encourages innovation

William Fisher

  • History demonstrates our inability to predict economic booms and busts

o According to economic historians, economic crashes occur every 19-years

o These 19-year cycles may be the result of sun spots, which also occur in 19-year cycles

- Sun spots affects harvests which, in turn, affects economic productivity!

* Should we subsidize Internet businesses because of their technologically transformative characteristics?

o There is a stronger subsidization argument for Internet infrastructure (e.g., fiber optic lines, public WiFi) as opposed to Internet superstructure (e.g., Facebook)

o There is precedent for government subsidization of infrastructure in the transportation, communication, etc. industries

- Infrastructure can help supply fundamental human needs

o Natural economies of scale → acquire disproportional bargaining power

  • What action should government take in regulating mission-critical Internet companies?

o Rather than simply breaking up all monopolies, historical analogies recognize the economies of scale efficiencies of large businesses while simultaneously draping them in requirements that promote competition and innovation; examples include

- Common carriage and interoperability requirements in telecommunications

- Regulation of pharmaceutical prices
- Privacy protections or disclosure obligations


Required Readings

In preparation for our class discussion, please do the following required readings: The Optimistic Thought Experiment - By Peter Thiel The Quiet Coup - By Simon Johnson

News items/blog posts on Facebook and monopoly power/anti-trust issues:

Suggested Background and Readings

In addition,

Old Outline

Prior to the class, students had access to this outline: The Internet, Industry and Investing. The original framework for the course discussion was broader, but in planning the course we realized that narrowing the discussion would be beneficial