barriers to entry competition policy public policy

Innovation, not monopolisation, should be the measure of CEOs

So what is the art of managing a monopoly? John Cassidy hints at an answer in a post published in the New Yorker, where he appraises Steve Ballmer’s tenure as the CEO of Microsoft. The article strikes an uncomfortable tone in discussing the incentives that a monopolist faces but it ultimately comes down on the side of competition with an acknowledgement that the US competition authorities were correct in pursuing Microsoft for its anti-competitive practises. Had its actions in the market gone unchallenged, most analysts agree that the Internet economy would not be what it is today. Cassidy goes as far as to argue that Google would not exist had the US government not challenged Microsoft’s attempt to monopolise the internet browser market, a monopoly that it would have extended all the way to internet search.
During an interview on Power Perspectives, Lawrence Tlhabane asked me if, in essence, abuse of dominance is not what business is also about (I am paraphrasing him). The case of Microsoft reminds us that competition law (anti-trust as our American counterparts call it) has an important role in ensuring the dynamism of markets. A new entrant can shake an industry up through innovation, but there gets to a point that it becomes a bumbling bureaucracy that is concerned more about avoiding cannibalisation rather than trying new things (as Matt Yglesias argues here). This is how many economies lose their way.This also makes the case for judicious competition policy enforcement that does not discourage robust competition from dominant companies, but that sanctions those strategies that seek to stifle competition.
What’s disturbing about the tone of Cassidy’s post is that it takes it for granted that Ballmer should have been judged by how well he entrenched Microsoft’s monopoly. In Ballmer’s view there are two types of tech competitors, those who are trying to win the lottery and those who have won. His level of aspiration for those who have won the lottery is pretty low as it’s all about defending a position and not seeking new areas of growth.


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