Market Power Is Permanent, and Technological Competition Does Not Remove It
Contrary to the longstanding conventional wisdom, the monopoly power conferred by new technologies is neither short-lived nor is it a small price to pay for the associated benefits. Rising market power leads to all kinds of economic, social, and political problems – many of which have become all too visible in American today.
STANFORD – Economists and policymakers agree that technological improvements are crucial to economic growth. The information technology (IT) revolution of the last four decades has driven the economy forward, and very few people would want to stop it. But since the 1980s, as that revolution has taken root, the US economy has experienced a sharp rise in firms’ market power, defined predominantly as their ability to affect pricing.
Rising productivity and rising market power are the twin outcomes of the innovation process. Both result from the private ownership of technology, and from the legal powers conferred by patents or trade secrets. When an innovation wave like the IT revolution takes off, market power rapidly accumulates and becomes a significant force, with profound economic and political implications. In my recent book, I call this unique force the “market power of technology.”
Although economists have long recognized the dangers of such market power, the universal view has been that it is short-lived because competition will erode it, patents will expire, and trade secrets cannot be kept secret for long. Allowing innovators some market power thus has been considered a small price to pay for the great benefits of rising productivity.