Bandwidth Cartels, Public and Private

by on August 1, 2008 · 24 comments

[A guest post from Tim Wu]

Well its always fun to have two people you respect read your work and such is the case with Tim and Adam, though to be honest I probably enjoyed Tim’s analysis a little more.

Adam’s reaction is too strong, and doesn’t really get at the main points in the op-ed. The main point was this: that bandwidth has become an essential input in an economy that depends heavily on moving information. For that reason we must gain a sensitivity to the issues of supply and demand surrounding it. If anyone disagrees with that, I’d love to hear why.

I use the comparison to gas and energy because we all know that when gas prices go up or down, large parts of the economy are affected, from tourism through, say, bowling alleys. What I am saying is that bandwidth may have a similar nature: that if prices are high, it effects all of the information-related markets in interesting ways, from startup video services through google. It is still early in the age of the internet economy, so this may be less obvious at this point.

If you agree with this, you must care about industry structure and government’s role in suppressing or helping competition in that market.

Meanwhile, while the OPEC example may be a tad dramatic, harping on the fact that OPEC is comprised of nation-states, as opposed to firms, is a mistake. From an economic perspective, why do we care if it is, say, a worldwide private conspiracy setting prices as opposed to a conspiracy of nation states? The effect on prices is the same whether its four firms setting food prices (like in the 1990s, with the Archer-Daniel Midlands price-setting cases), as opposed to four foreign governments. It is harder to stop the governments, because they rarely respond to lawsuits — but the economic consequences, so long as the price-fixing conspiracy lasts, is no different.

A point made in the comments is also true – which is that telecom tends to be in the realm of state-supported or regulated monopoly, and so there is some confusion as to whether what we are talking about are really private actors in a pure sense. This is a point Hayek made quite well. If government helps create a monopoly, as it has in cable and telephone markets – then being concerned about the consequences of that monopoly makes much sense.

Finally, on Tim Lee’s post – I take much less issue. I’d just like to point out that I am also an advocate of greater propertization as well as more dedication to the commons—its the stuff in the middle I don’t care for. For example, as Tim knows, I would like to see the development of ways for people to own their own fiber connections (homes with Tails). I also believe that, in broad spectrum reform, there should be more propertization of the airwaves. The only silly position, it seems to me, is to maintain on principle that either a commons or private property is of no use whatsoever.

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