Is This What Market Failure Looks Like?

by on January 5, 2010 · 12 comments

As the annual Winter Consumer Electronics Show (CES) is set to convene in Las Vegas tomorrow, it will be interesting to see the temper of the policy climate. On the federal and state policy level, the hostility towards every facet of the high-tech sector has done nothing but grow. Not too long ago, politicians were extolling America’s high-tech leadership as the its primary vehicle for continued global economic leadership. Now it seems the entire tech sector, from semiconductors to wireless phones to TV is under attack from the White House, to Congress to state-level bureaucrats.

Just this week, as Adam reported, the left-leaning Free Press has inexplicably gone on the offensive against the idea of pushing TV to wireless devices. Such activists are no doubt emboldened by the example of the current administration, which has launched an antitrust campaign against Intel (just as the European Union was all but surrendering its own),  and continues to press for antitrust action against Google before, as antitrust chief Christine Varney has freely admitted, it is “too late”– that is, the speed of technology change undermines the government’s case, as it did in in the Clinton era Microsoft suit over browser bundling.

Add to this the California Energy Commission’s ban on big screen TVs, the FCC’s push for sweeping new Internet  regulations under the guise of “network neutrality,”and the Internet, in general, being blamed for everything from the decline of newspapers to postal rate increases to weight gain in teenage girls (for more, type “Internet blamed for” into the search engine of your choice), and one might expect the mood at the show, at least in the policy sessions to be dour. Even if I am watching from afar (Adam will descend into the CES maelstrom on our behalf), I await to see if this will be the case.

The Left has been drumbeating about high-tech market failure for more than 10 years (plus ça change: see this rebuttal paper from 2001). The big difference is that today’s Washington technocrats have bought in, despite all the evidence to the contrary.  Berin provided some solid data on mobile OS competition earlier today. Here’s some more data courtesy of Digital Society as to the growth of applications and revenues in this alleged stagnant, failing sector:

– Number of e-mails sent per day in 2000: 12 billion
– Number of e-mails sent per day in 2009: 247 billion
– Revenues from mobile data services in the first half of 2000: $105 million
– Revenues from mobile data services in the first half of 2009: $19.5 billion
– Number of text messages sent in the U.S. per day in June 2000: 400,000
– Number of text messages sent in the U.S. per day in June 2009: 4.5 billion
– Number of pages indexed by Google in 2000: 1 billion
– Number of pages indexed by Google in 2008: 1 trillion
– Amount of hard-disk space $300 could buy in 2000: 20 to 30 gigabytes
– Amount of hard-disk space $300 could buy in 2009: 2,000 gigabytes (2 terabytes)

Metrics such as these are the best weapon against attempts at regulation, especially from an administration keen to find a “market failure” rationale wherever it looks. High-tech consumer electronics remains a bright spot in what has been a down economy. It is best left on its own to thrive.

  • mwendy

    Excellent stuff, y'all. Really.

    I think the DoJ's recent filing with the FCC on the latter's National Broadband Plan reflects this, too – instead of blaming the infrastructure marketplace, one has to look at complementary inputs. Namely, some people just don't want broadband, etc. But, that doesn't mean that the providers have “broken” the market. Or, that they have a stranglehold on it (to use a Ted Nugent term).

    Still, it appears the FCC wants the perfect to be the enemy of the good.

    Permission to innovate, Comrade Julius?

    Wow, I think we're moving there regardless of the facts.

  • waynecrews

    This is a great post, except I doubt that metrics-of-success are usually the best defense against regulation. It’s too often precisely success in markets that attracts demands for regulation by those who didn't achieve that success, or by those who are given power to lord over things.
    Still trying to decide about heading out to CES myself. Loved it the last 3 years.

  • http://srynas.blogspot.com/ Steve R.

    Posting large glossy numbers doesn't prove much. There is a story behind those numbers. Currently the cable companies and the content providers are fighting over subscription fees. The New York Times reports: In a Clash Over Cable, Consumers Lose An unfortunate aspect of the free market working is that it can be brutal at times. I trust that Mr. Titch will post the number of devices that have been discontinued and the dollar cost to society of those failed efforts. Yes, the market is working, but the use of raw statistics does not document whether the market is or is not working.

  • http://srynas.blogspot.com/ Steve R.

    Once again there is a news report that documents that large glossy numbers don't dismiss the issue of market failure. Today, Fox News is reporting that NetFlix and Time-Warner have reached an agreement that would restrict the ability of NewFlix to distribute movies by 28 days. This agreement essentially limits consumer choice and potentially implies the utilization of monopolistic business practices.

    Now, I am not going to claim that we need regulation in this instance. There is a fine line between legitimate business practices and business practices which distort the free market. My point once again, citing large rose-colored numbers, such as the number of DVD rentals or the number of DVD downloads would NOT document that the market is operating efficiently. If we just cite numbers, mainland China would potentially be the most efficient free market in the world!!! One needs to examine the story behind those numbers to understand whether we really have a free market.

    This is not just about regulation, business practices that limit the operation of the free market need to be exposed.

  • mwendy

    And to your point, Steve, the market looks like this (using 2008 numbers from the FCC):

    • 132 million subscribing to broadband – 63% of all American adults, and 130 million more than 10 years ago
    • 87% of zip codes with 5 or more providers, with every U.S. zip code having at least 1 broadband provider
    • Broadband services delivered by –
    - 863 ADSL providers
    - 238 SDSL providers
    - 259 traditional wire line providers
    - 296 cable modem providers
    - 308 fiber providers
    - 4 satellite providers
    - 6 powerline providers
    - 505 fixed wireless providers
    - 24 mobile wireless providers
    • 31% of all adults with wireless smart phones, up from just 1% in 2003, growing approximately 700% in four years, with mobile data projected to grow at 130% per year by 2013.

    More recent Nielsen numbers show that 160.3 million (or 93% of the “195 million active Web users in the U.S.”) access the Internet through broadband connections, a 16% increase over 2008 figures.

    And, if you look at the folowing stories, one could reasonably surnmise that these options could not occur if the broadband market was somehow “broken” (now, or even potentially going forward):

    “Internet-enabled TVs to feature ‘app-stores’,” Chris Nuttall, FT.Com, January 7, 2010, http://www.ft.com/cms/s/0/d5015ae0-fb03-11de-94….

    “Google Opens New Front in Smart Phone Battle,” Jessica E. Vascellaro and Niraj Sheth, Wall Street Journal, January 6, 2010, http://online.wsj.com/article/SB100014240527487….

    “The Future on TV,” Holman W. Jenkins, Wall Street Journal, January 6, 2010, http://online.wsj.com/article/SB100014240527487

  • http://srynas.blogspot.com/ Steve R.

    So? Infoworld reported in January 22, 2007 that: China Mobile subscribers top U.S. population. “The company finished last year with 301.2 million wireless subscribers, just topping the U.S. population, which stood at 300.9 million on New Year's Day, according to an estimate by the U.S. Census Bureau. … China Mobile increased its subscriber count by 53.2 million people last year.. Based on the logic of only using raw numbers, it is clear that mainland China must have a superior free market.

    I wonder what the regulatory environment is like in mainland China? I assume that mainland China would have a highly regulated environment. That would clearly imply that regulation is beneficial to the free market!

  • mwendy

    It has nothing to do with regualtion, and everything to do with that country's new wealth and access to communications tools. Stated differently, they want the stuff because they can now have it, not because of regulation.

  • http://srynas.blogspot.com/ Steve R.

    Exactly, my comment on regulation was sarcasm. Raw numbers by themselves do not prove nor do they disprove the success of the free market. Furthermore, these numbers do not prove nor do they disprove the beneficial/disadvantageous effects of regulation.. All these large rose-colored numbers document is activity. Nothing more.

  • mwendy

    No one disputes that numbers on their own have little meaning…until their story's told. Like with the OECD numbers on broadband, which many in the pro-Net Neutrality camp have used so misleadingly. Employed selectively, as they have – as mere rankings without finer explanation – they only “show” how “poor” US broadband “is”. But, we know better. They're kited / spun. And, when you dig down – as you suggest we should – they are nearly half or more off. Or worse, outright bogus. Other data reveal a far more competitive picture. Even data from the current FCC does so.

    You've been on these pages long enough to see the thread. These numbers aren't without antecedent / explanation.

  • mwendy

    It has nothing to do with regualtion, and everything to do with that country's new wealth and access to communications tools. Stated differently, they want the stuff because they can now have it, not because of regulation.

  • http://srynas.blogspot.com/ Steve R.

    Exactly, my comment on regulation was sarcasm. Raw numbers by themselves do not prove nor do they disprove the success of the free market. Furthermore, these numbers do not prove nor do they disprove the beneficial/disadvantageous effects of regulation.. All these large rose-colored numbers document is activity. Nothing more.

  • mwendy

    No one disputes that numbers on their own have little meaning…until their story's told. Like with the OECD numbers on broadband, which many in the pro-Net Neutrality camp have used so misleadingly. Employed selectively, as they have – as mere rankings without finer explanation – they only “show” how “poor” US broadband “is”. But, we know better. They're kited / spun. And, when you dig down – as you suggest we should – they are nearly half or more off. Or worse, outright bogus. Other data reveal a far more competitive picture. Even data from the current FCC does so.

    You've been on these pages long enough to see the thread. These numbers aren't without antecedent / explanation.

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