Increasing returns, competition and diversity

Information and communication technology hardware and software tools often offer an added value that grows with the number of people who use them. This is not only a matter of economy of scale leading to reduced costs: the value of owning a fax machine is very low if nobody has one and on the contrary high if everyone uses one. The same can be true for operating systems, word processors, graphical user interfaces and other software tools. The ease of exchanging documents, the certainty of finding similar tools in a variety of environments, or the fact that one has already learned to use one can very well compensate for severe shortcomings in a dominant product. This, together with very low marginal cost for intangibles leads to markets acting as amplifiers of unbalance promoting monopolies rather than open competition. If at an initial stage it can favour the dissemination of some innovation, when the dominant situation is installed it can lead to strong interest in delaying new innovation, or re-projecting it into existing products rather than having it lead to new well-differentiated product. Dominant players are also likely to emulate innovations by creating permanent change in their products without clear user benefits. This permanent change in turn makes it very difficult for innovators to invest in new developments that can be doomed instantly by a simple opportunity decision from a monopolistic player, or will be salvable only through costly adaptation. Policies and non-dominant industry players have tried to promote both the ground for diversity and some minimum degree of foreseeable nature for the technology infrastructure. This has been tackled both by support to standardisation and by innovation in open inter-operability layers. There has been debate on whether stronger intervention would be necessary to achieve significant results in front of such powerful trends.

Back to issue
Back to index