Innovation Kills Monopolies Faster Than Governments Can

Do government antitrust measures help break up monopolies and increase innovation? Not according to new research from the Technology Policy Institute, which looked at the high-profile antitrust investigations of IBM (s ibm), AT&T (s t) and Microsoft (s msft). The research found that in each case, the innovation that changed the industry did not come as a result of government intervention, but from sources that regulators could not possibly have predicted. This is likely to be music to the ears of Google (s goog), which has come under increasing pressure from both regulators and critics as it expands beyond search into other areas — including a controversial acquisition offer for travel industry player ITA that is currently under review.

The research (the full version of which is available as a PDF here) was done by Robert Crandall — a senior fellow in economics at the Brookings Institute — and Charles Jackson, a computer science professor at George Washington University. They found that despite the years of political and legal work that went into these high-profile antitrust cases, in the end, technological change was what had the most impact on the market, not government antitrust remedies.

  • IBM. The pioneering computer maker was never actually sanctioned by the government, despite the fact that an antitrust case against it — originally filed in 1969 — continued for 13 years. In fact, the government eventually asked the courts to dismiss the case because even it admitted that the market had changed so much as to make the case moot. The authors say the competitive structure of the computer market eventually changed “because rapid technological change led to the development of personal computers connected to the Internet and using services provided by servers (minicomputers), something the government never envisioned when it filed its suit.”
  • AT&T. Although the splitting up of the telecom conglomerate after the Justice Department’s antitrust decree, and the implementation of “equal access” did have an effect on the competitive landscape, the authors argue that the arrival of high-speed Internet access and competition from wireless players and cable television had far more dramatic and long-lasting effects on both AT&T itself and the market as a whole than anything the government did as a result of the antitrust case.
  • Microsoft. Despite the DoJ’s antitrust decree and the European Union order in 2004 that forced the company to unbundle Internet Explorer from Windows, the researchers note that Microsoft remains dominant in desktop operating systems — but it’s under fire from significant forces such as cloud computing, virtual appliances and the rise of mobile computing. The authors note that “there is little evidence that these emerging technologies were a result of antitrust remedies,” although the rise of Firefox — particularly in Europe — appears to be an offshoot of the EU order.

In each of the cases, the authors say:

[T]he ultimate source of major changes in the competitive landscape appears to have been innovation and new technology – technology that was apparently not unleashed by the antitrust litigation. In each case, the government did not and probably could not see how technology would develop over time. Therefore, it was difficult for the government to design remedies that would accelerate competition when this competition developed from new technologies.

Adam Thierer, a research fellow at George Mason University and former director of telecommunications studies at the Cato Institute, says the paper highlights the clash between those who see the technology industry as a dynamic and evolving marketplace with a high degree of unpredictability, and those in government who see the market as a static thing that can be manipulated by regulators to achieve certain outcomes.

There’s another case that arguably fits the research thesis: Intel (s intc). The chip giant has also been the subject of antitrust investigation by the FTC due to its dominance, but the evolution of the industry — including the rise of specialized graphics chips from Nvidia (s NVDA) and others — along with the success of ARM (s ARMH) chips in the rapidly-growing mobile market, effectively made Intel’s monopoly moot even before the FTC started getting involved. As Stacey noted in her story yesterday, the chip giant has more or less been forced to settle outstanding litigation with Nvidia because it is no longer in a position to dictate terms to the rest of the chip market.

What the research suggests is that forces we may not even fully understand or appreciate yet could have more to do with blunting the power of Google than anything the Department of Justice or the FTC decide to do.

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Post and thumbnail photo courtesy of Flickr user Mark Strozier