Is the Internet a Free Market or a Haven for Monopolies?

The Internet and its innovative companies are often referred to as the Wild West, but does this description truly fit? In fact, the Internet looks like much of the rest of America, that is, a landscape dominated by monopolies.

They’re easy to name: Amazon, Apple, Ebay, Facebook, Google, PayPal, Skype, and Twitter. In fact, it’s no doubt easier to avoid Target than it is Amazon, to shop somewhere besides WalMart than it is to sell your auction item someplace besides Ebay.

Just why, when there are so many choices, do people gravitate toward monopolies? Microsoft’s “Bing, launched last year by a giant with $40 billion in cash on hand, has captured a mere 3.25% of query volume (Google retains 83%),” as noted by the Wall Street Journal. Once there were plenty of search engines: AltaVista, Lycos, Excite, and Bigfoot. Today, there is the behemoth, Google.

In short, people gravitate to good products and services. In many cases, companies that come to dominate do so for good reason. “A single firm can dominate the market if the product becomes more valuable to each user as the number of users rises,” notes the Wall Street Journal. There’s no sinister plan in the beginning, just a competitive edge and a herd mentality. Simply going with the flow tends to create a monopoly.

And that’s not all bad in the beginning. Golden ages in American business development were built on monopolies (until the government saw their anti-trust behavior causing harm later).

In short, it works like this: “All of those individually rational decisions to sign on to the same sites yield…a result that no one desires in principle—a world with fewer options.” Worse, what seems great in the beginning invariably leads to a lack of innovation later on, when power becomes the dominating motivation of the monopolistic company.

“The problem is that dominant firms are like congressional incumbents and African dictators: They rarely give up even when they are clearly past their prime. Facing decline, they do everything possible to stay in power. And that's when the rest of us suffer.”