With increase in the prevalence and pervasiveness of networked industries in our lives, there is an increasingly involved debate on regulation of big technological companies. Both from the economic left and the right, there are voices that raise alarm about the size and scope that the firms in these industries are attaining. While some have suggested breaking up of these companies into smaller ones, others have advocated for wise regulation.

Despite the muddled nature of this debate, this much is clear: The concern for market structure, which had given way to focus on prices as the object of regulation, is back. Tendencies of monopolization are no longer being assumed to be benign or natural as had been the case for the past few decades.

The network effects, the economies of scale and scope as well as the reduction of redundancies that monopolization can bring into a networked industry, does not discount the fact that it bestows an unparalleled power to the owners of the network. The question then becomes how do we think about this power and what to do about it.

In this context, here are a few questions that may be relevant:

1. If monopoly isn’t illegal, how does one decide if it is “natural”?
2. What are the supply side (cost) characteristics of the market that can be used to justify a natural monopoly? How is such a legal monopoly to be regulated?
3. What are the demand side properties that justify the tendency of a firm to monopolize an industry?
4. If monopolization is an acceptable tendency in an industry, how far can we allow the market power to grow? Is the regulation then to be focused on Price? Service quality? Distribution? Efficiency? Social welfare?
5. What if regulation is more costly than monopolization?
6. How do we respond to competitive pressures generated by technological change on monopolies?
7. How do we evaluate the desirability to introduce competition in an already monopoly market?
8. In terms of regulation, is there a possibility of better information exchange between regulator and the regulated so as to make decisions efficient?
9. What are the assumptions that get built into the economy with introduction of competition or with changed regulation? How does that change?
10. If there is only a partial introduction of competition into auxiliary business opportunities of incumbent monopolies, doesn’t that still leave the new entrants in these fields vulnerable to the willingness of the incumbent to share access?
11. Even so, what are the terms and conditions of this access?

References:

Joskow, P., Regulation of natural monopolies, Handbook of Law and Economics (2007)