Tech Dominance and the Policeman at the Elbow

Innovation and Economic Growth and Competition Policy and Antitrust

Article Snapshot

Author(s)

Tim Wu

Source

Columbia Public Law Research Paper No. 14-623, 2019

Summary

Over time, dominant tech firms like IBM have been displaced by rivals. Antitrust enforcement spurred changes to IBM’s behavior that enabled the rise of a competitive software and computer industry.

Policy Relevance

Without antitrust enforcement, dominant firms might maintain their dominance.

Main Points

  • Between the 1980s and the 2010s, dominant firms such as IBM were bested by Microsoft, and Microsoft in turn lost market power to firms like Google and Facebook.
     
  • The constantly accelerating technological change that causes dominant firms to lose ground to newcomers might be just a phase, or a function of market structure.
     
  • IBM lost dominance not only because of technological change, but because it was subjected to an antitrust lawsuit; the "policeman at the elbow" of a firm can change the firm's conduct.
     
  • IBM's management was influenced by the investigation; lawyers came to dominate meetings, and discussions of market share or competitors' products was avoided.
     
  • IBM abandoned its practice of bundling software with hardware; unbundling played a significant role in creating an independent software industry.
     
  • Partly because of antitrust concerns, IBM signed a nonexclusive contract with Microsoft to develop the operating system for IBM's personal computers; ultimately, IBM was unable to control the PC market.
     
  • Without antitrust, IBM might have purchased Microsoft or other competitors.
     
  • Antitrust enforcers should consider how a dominant firm might try to influence or control future markets, and they should think about how dependent other firms are on a product or service.
     
  • Antitrust enforcers should seek maximum remedies when they do bring a case, to spur the targeted firm to change.
     

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