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Antitrust in the New Economy

Many modem technologies, such as software, have the characteristics of natural monopoly. What does this mean for antitrust enforcement?

For Policymakers, Microsoft Suggests Need to Recast Models

The Microsoft case is just the beginning.

As government policymakcrs grapple with a rapidly changing American marketplace, they are increasingly struck by this fact: In the New Economy, monopoly is becoming the rule, not the exception.

Whether today’s hot companies deal in Web services, business-to-business exchanges, or MP3 songs, many have the look of what economics textbooks used to call natural monopolies.The products and services often involve a relatively big upfront investment. But they cost little or nothing to manufacture and distribute, thanks in part to the ease of spreading digital information over the Internet.

In such a business, it’s inexpensive to expand rapidly into a dominant position, and dangerous not to. Competition of the traditional variety, with multiple firms offering nearly identical products and services, can quickly push prices to zero.

But how, if at all, should the government respond to these new monopolylike busines.Does this mean the government’s antitrust forces will have to get more active, doing to other companies what they have done to Microsoft?

The Clinton administration’s top economist, Treasury Secretary Lawrence Summers, steadfastly refuses to comment on the Microsoft case, as do other administration officials. But he gave an intriguing speech in San Francisco last month, titled The New Wealth of Nations,” that suggested the proliferation of natural monopolies is more good than bad.

In an information-based economy, he said, “the only incentive to produce anything is the possession of temporary monopoly power-because without that power the price will be bid down to the marginal cost and the high fixed costs cannot be recouped. So the constant pursuit of that monopoly power becomes the central driving thrust of the New Economy. And the creative destruct ion that results from all that striving becomes the essential spur of economic growth.

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