Hein (fub) wrote,
Hein
fub

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"Let the market decide!"

The past few months, the debate has been raging about Network Neutrality. In short, some ISPs want to charge Google for the transport of packets from Google's servers to your machine. Right now, the network doesn't care where a packet comes from and where it is headed, with respect to charges or priority -- the network is a neutral transport layer.

Doing away with network neutrality is a preposterous idea (I already pay for my bandwidth!), but that's besides the point.

There are people for and people against maintaining network neutrality. Some of the people who are in favor of network neutrality want to introduce legislation that enforces network neutrality. In response, some people say that they should 'let the market decide'.
The idea is that legislation is bad, and that customers will leave ISPs that do away with network neutrality, and sign up with other ISPs. While this is a good idea in principle, it won't work in practicality.

You see, there is a limited number of ISPs. As a consumer, your choice is limited. Where I live, I have the choice of three carriers: UPC (cable), BBned and KPN (both ADSL). There is a plethora of ISPs who offer services over the networks of BBned and KPN, but that's more of a VPN connection than a physical cable running from your phone to the ISPs server.
If all three decide to do away with network neutrality, I am hosed -- I can't choose an ISP that keeps its network neutral.

"Ah!" the capitalists shout, "But that niche can be filled by another player!"
Therein lies the problem: it can not. Well, theoretically it can, but the cost of entry is incredibly high. You have to run a network cable (something fast) from all of the local telephone switching points to your own servers, which means digging cables. Which means you have to bother with permits etcetera. Not something you can do lightheartedly.
Capitalism works great if the cost of entry to a market is low. If the existing players slack off, a lean and mean operation can enter the market and start earning money that used to go to the established parties in that market.
Internet ventures have a ridiculously low cost of entry -- all you need is a decent colocated server, and some PCs to code on, and you're set. This is why Flickr, Digg and all those other sites work quite nicely: they have to, or else their niche will be taken by a better product or site. Capitalism works there.

But if you need a lot of buildings, or need to do a lot of investments, capitalism doesn't work, because the choice of the consumer is limited.

Consider the market for operating systems. Here, the cost of entry is incredibly high -- it takes a lot of talented engineers to build an OS from scratch. The market is divided amongst a few players: Microsoft, Apple, Sun, Novell... That's about it. (Sure, there is a host of Linux- or BSD-based OS distributions, but those don't count, because the vendors of those don't have complete control of their product.)
What happens if you deregulate that market? Sure enough, monopolies start being abused. Vendors start to use their market share to up the cost of entry for other parties -- proprietary file formats, patents that hinder interoperability, the works. Then, if they have secured their space in the market, they start to use their resources to forcefully enter other markets. Leveraging their monopolies, they start to up the cost of entry to that second market and forcing their competition to play ball or get out of the market.

Pure, unregulated capitalism begets monopolies. And monopolies are bad for the workings of 'the market'. Deregulation can not be the answer to everything that ails society.
Tags: rant, society
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