Jan 26 2011

Creative Destruction: Google, Apple, Facebook and the future of competition in the market for our minds…

I have recently been showing my AP and IB Econ classes the following New Yorker interview with Columbia Professor Tim Wu, the man who coined the phrase “net neutrality”. Wu shares his views on the “cycles” of competition in the communications industry, from radio, telephone and television in the 20th century to the internet and the “mobile web” today.

I find it a useful video for starting discussions about the pros and cons of perfectly competitive markets (represented by the “chaotic” period of any new communications technology) and imperfectly, more monopolistic industries (represented by the period later in the cycle of any communications technology when market power becomes concentrated among a few large firms).

Watch the video and pause it along the way to discuss some of the questions below.

Currents: Tim Wu on Communication, Chaos, and Control : The New Yorker

Discussion Questions:

  1. Why are new communications industries often characterized by “chaos” in their early years? How did the internet industry reflect the perfectly competitive characteristics in its early days, or even 10 years ago?
  2. How are consumers affected as communications industries go from “chaos” to control under big companies like Apple and Google?
  3. How does the behavior of firms like Google and Apple demonstrate the concept of non-price competition?
  4. Would the technology industry be more efficient if it were more competitive?
  5. Can you envision a world in which all of our online activities are done through one company, i.e. the “Googlenet” or the “Facebooknet” instead of the “Internet”? Would that world be better or worse than what we have now? Why?
  6. How is the communications industry today similar to the telephone industry 30 years ago? How is it different?
  7. Tim Wu suggest that in the future there will be no internet. Discuss as a class what you envision as a possible successor to the internet.
  8. If you had a time machine and could travel back to 1970, how would you try to explain to someone on the stree how we communicate with one another in 2011. How would you have tried to explain the internet and smart phones? Do you think someone from 1970 would believe your descriptions of products like Skype, like Google, like a phone you could watch movies on, like video chat, like “Google goggles”, etc…?
  9. If someone from 40 years in the future arrived in 2011 and tried to explain to you how humans are communicating in 2050, do you think you would believe them?
  10. Economist Joseph Schumpeter referred to capitalism as a system driven by a system of “creative destruction”. How does the history of the communications industry demonstrate the concept of “creative destruction”?

Imperfect competition in the News: After watching the video and discussion the questions with your class, go to Welker’s Wikinomics Universe and follow the link to the “Econ News” tab.  Browse the headlines from the various news feeds and look for articles that you think may be about non-price competition between firms in a monopolistically competitive or an oligopolistic market.

When you’ve found one good article, open your Diigo toolbar and add highlights to the lines in the article that you think demonstrate non-price competition between the firms described. Add one or two sticky notes using the Diigo toolbar, and when you’ve added your own thoughts, bookmark the article. Be sure to share it to your class’s group before bookmarking it so your classmates can view your highlights and sticky notes online.

If there is time left in class, log into your Diigo account and visit our class group. Read some of the highlights from your classmates’ articles and discuss with the people around you the various types of non-price competition described.


About the author:  Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course. Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this author

136 responses so far

136 Responses to “Creative Destruction: Google, Apple, Facebook and the future of competition in the market for our minds…”

  1. xhuanfon 08 Feb 2013 at 10:25 pm

    1. Why are new communications industries often characterized by “chaos” in their early years? How did the internet industry reflect the perfectly competitive characteristics in its early days, or even 10 years ago?
    In the early years the new method of communication was new and not a lot of people have access to it. For example when phone was invented, it wasn’t like everybody had a phone until 20 years later AT&T brought phone to everyone. When the internet was invented there was many companies of internet, but it wasn’t used widely. Then one or two firms see the opportunity and tried to centralize the industry, like Google and Apple. They brought Internet to everybody but they also crushed other firms. Today if we search something it is basically Google. There are not a lot of other searching engine companies. Google is starting to monopolize, same to Apple and Facebook and some other firms.
    2. How are consumers affected as communications industries go from “chaos” to control under big companies like Apple and Google?
    There are 3 periods. At first most consumers are not able to get the new communication and people communicate the old way. Then firms like AT&T and Google start to get bigger and gave everybody the communication, which did benefit the consumers and it was a good thing. But when the firms are able to monopoly, they keep everything the same, they don’t make anything new and try to block the new technology of communication. They also rise the price. The consumers are not enjoy the new communication and suffer the high price.
    3. How does the behavior of firms like Google and Apple demonstrate the concept of non-price competition?
    The way they compete is not by making price lower. They try to get the whole market and let nobody else enter. For example Apple is taking over the market of smartphone and Google is becoming the most used searching engine.
    4. Would the technology industry be more efficient if it were more competitive?
    Definetly. If the industry is not controlled by one or two firms, the whole industry will be more competitive and new technology will be invented faster, which will make communication even easier and benefit consumers.
    5. Can you envision a world in which all of our online activities are done through one company, i.e. the “Googlenet” or the “Facebooknet” instead of the “Internet”? Would that world be better or worse than what we have now? Why?
    It will be worse than what we have now. The company will be able to control what people can hear and see, people can only know something if the company accepted it. Therefore, people will not be able to know a lot of things.
    6. How is the communications industry today similar to the telephone industry 30 years ago? How is it different?
    30 years ago telephone was controlled by AT&T, no other firms could compete. Today there are also firms taking control of communication: Google controls searching engine, Facebook taking over online network (although there are Twitter and other firms). It isn’t that similar because we didn’t have the total monopoly, and we still have new devices coming such as ipad.
    7. What do you envision as a possible successor to the internet?
    As a successor I think the generation of internet might reach its highest point, and then it will be over. In ten or twenty years smartphone and Ipad will dominate the communication, and internet is used by people every second. But a new stage of communication much faster than internet might be invented, and then internet will not be used anymore.

  2. irizarryon 08 Feb 2013 at 10:26 pm

    1.Why are new communications industries often characterized by “chaos” in their early years? How did the internet industry reflect the perfectly competitive characteristics in its early days, or even 10 years ago?
    2.How are consumers affected as communications industries go from “chaos” to control under big companies like Apple and Google?
    3.How does the behavior of firms like Google and Apple demonstrate the concept of non-price competition?
    4.Would the technology industry be more efficient if it were more competitive?
    5.Can you envision a world in which all of our online activities are done through one company, i.e. the “Googlenet” or the “Facebooknet” instead of the “Internet”? Would that world be better or worse than what we have now? Why?
    6.How is the communications industry today similar to the telephone industry 30 years ago? How is it different?
    7.Tim Wu suggest that in the future there will be no internet. Discuss as a class what you envision as a possible successor to the internet.
    8.If you had a time machine and could travel back to 1970, how would you try to explain to someone on the stree how we communicate with one another in 2011. How would you have tried to explain the internet and smart phones? Do you think someone from 1970 would believe your descriptions of products like Skype, like Google, like a phone you could watch movies on, like video chat, like “Google goggles”, etc…?
    9.If someone from 40 years in the future arrived in 2011 and tried to explain to you how humans are communicating in 2050, do you think you would believe them?
    10.Economist Joseph Schumpeter referred to capitalism as a system driven by a system of “creative destruction”. How does the history of the communications industry demonstrate the concept of “creative destruction”?

    1. Everything was still under research and development. There were lots of emerging companies during the begining years and lots of competition. The Internet industry show how they are perfectly competitive characteristics in its early days or even 10 years ago because there are many different online shops competing each other.

    2. Big companies are the price givers because they are well a known brand name.

    3. They focus on promotion and advertisement. They make sure to put it into the minds of consumers that there product is worth the money that is spent on.

    4. Yes because competitions would encourage producers to innovate and improve the products they sell.
    5. It would not be good because consumers will not be able to choose what they want to purchase. They also have to pay the price that is charged for because there is no substitutes for the item being bought.
    6. The communications industry is now become a “controlling” business, which is similar to when telephone industry first appeared.

    7. I don’t really know. Its hard to thinking of something that would be better then the Internet.

  3. xhuanfon 08 Feb 2013 at 10:33 pm

    Response to jlamuno:
    I really like your comment. But for question 2 I think when industry goes from chaos to controlled under big firms, consumers also get benefit. In the chaotic period most people could not enjoy the technology. These big firms brought people the new communication, so people are benefited by these firms. Indeed, people also lose their choice of getting service, but people also get benefit from these companies.

  4. Jazzyon 19 Feb 2013 at 12:43 pm

    Why are new communications industries often characterized by “chaos” in their early years? How did the internet industry reflect the perfectly competitive characteristics in its early days, or even 10 years ago?

    Everything was new, it just arose. There was still place for development and even more research. The internet industry showed how they were perfectly competitive, because as soon as this new technology came out, many knew that this would be a area in the future where profit would be made, so therefore many companies emerged at once but the best ones became the dominant.

    How are consumers affected as communications industries go from “chaos” to control under big companies like Apple and Google?

    Consumers would buy them because the big companies are the dominant ones. They rule the market, and when a consumer hears Google or Apple we believe that it is great quality and it is under control.

    How does the behavior of firms like Google and Apple demonstrate the concept of non-price competition?

    They use advertisement as a tool, to make sure that consumers are aware of a product by the big companies.

    Would the technology industry be more efficient if it were more competitive?

    I believe so, because then the inventors would be encouraged and would have to make products which are better than other brands. Rather than now, where companies are just taking ideas from each other.

    Can you envision a world in which all of our online activities are done through one company, i.e. the “Googlenet” or the “Facebooknet” instead of the “Internet”? Would that world be better or worse than what we have now? Why?

    I believe it would be worse, because consumers would not have opportunity cost. The choice to choose between one brand and the other. We all like different things, some people might like Microsoft instead of Apple, therefore it good that there are substitutes of a product even though the product is homogenous.

    How is the communications industry today similar to the telephone industry 30 years ago? How is it different?

    At that time, the new outburst of technology was telephones while now humans have developed technology even more and the new outburst of technology is communications. Therefore, the telephone inudustry is the same as the communications industry, just for another era.

    What do you envision as a possible successor to the internet?

    It is hard to tell what the successor to the internet will be, I believe that it would be something that includes aspects of the internet but the difference will be that it would be used on a better and more developed gadget.

  5. Jazzyon 19 Feb 2013 at 12:48 pm

    Response to irizarry:

    I really like your answers because they are straight forward, though the answer to Q2, I would rather say that it is because consumers will feel that they can trust the bigger brand more rather than a small brand. Therefore, they will feel more comfortable to buy such a product from a known brand than a new brand

  6. mchastanet2on 23 Feb 2013 at 6:21 pm

    1/ Why are new communications industries often characterized by “chaos” in their early years?

    Because in the early stage, there were no Internet entry barriers, everyone had access. Every company were fighting against each other just to make some profit. Everyone could enter and leave it whenever they wanted. No one had a real control of the Internet.

    2/ How are consumers affected as communications industries go from “chaos” to control under big companies like Apple and Google?

    Consumers are left with less choice since all, the small business had to shut down against the large companies like Google or apple. So fewer products are available. Also since those big companies have the monopoly they can choose to increase their prices. So consumers also have to deal with higher prices.

    3/ How does the behaviour of firms like Google and Apple demonstrate the concept of non-price competition??

    Those companies have total control sot hey can make the best products that everyone is willing to have. So even with high prices this leaves no chance to smaller business. Those big companies make advertisement all over the globe to show that no one can compete with them. They act like the Alpha of a herd.

    4/ Would the technology industry be more efficient if it were more competitive? ?

    I think that right now efficiency is still increasing, since technology is new and only one invention can makes you rich. Also because since there is still competition like; Samsung, Apple, Android, Google, those companies still try to get the biggest share of the cake. But once only one or two will be left the efficiency will greatly decrease because those companies will know that they don’t need to revise perfectly their products in order to stay and have the monopoly of the market.

    5/ Can you envision a world in which all of our online activities are done through one company, i.e. the “Google net” or the “Facebook net” instead of the “Internet”?

    It would get bad because one company could see every information’s stored on Internet, so we would have less privacy. The company would have a total control over every Internet users. Also the time to get what you want would be much longer since every information’s will have to be analysed buy one company.

    6/ How is the communications industry today similar to the telephone industry 30 years ago?

    It is similar because it was monopolised by a few companies. Each fighting against each other. It is different because the technology industry is much bigger now. You have much more choices nowadays; you can have many objects stored into your phones like a clock calendar, which 30 years ago you would have had to buy separately.

    7/ What do you envision as a possible successor to the Internet? ?

    I honestly have not many ideas, maybe a virtual world.

  7. mchastanet2on 23 Feb 2013 at 6:25 pm

    # rkang

    Hey ! I totally agree with your responses. Mainly the last one, i don’t think that internet will disapear for a very long time because internet is new and there is many new things we can do with it that we still haven’t discovered.

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