Internet Economics: Writing on the Virtual Wall

Abstract

Most economic literature on the internet views the internet through the lens of private markets. However, the internet, concretely, as a collection of software protocols, is intrinsically a public good, as economists define them. The article reviews a selection of conventional approaches to the internet; the focus of which, on markets, is an example of Alfred North Whitehead’s fallacy of misplaced concreteness. On closer analysis, these markets turn out to be traditional business activities enabled by internet applications, which are themselves not market “goods.” An alternative analogy is that of a virtual public square, the walls of which are used as a communal bulletin board. This image is actually a close representation of the way that the early internet was developed. A number of policy conclusions are drawn from this contrasting approach. The public good character of the internet needs to be protected against private interests, including the current group of internet oligarchs. In line with Thomas Piketty’s work on the extreme levels of income and wealth inequality that have evolved in the global economy, some small measure of correction can be assisted by making the private appropriators of the public good pay for the services that the internet provides to them.

Keywords:

• internet
• public goods
• services
• regulation
• policy

JEL Classification Codes:

• H4
• H32
• L5
• L9

Disclosure Statement

No potential competing interest was reported by the author.

Notes

1 Elon Musk has referred to Twitter (now “X”) as the “public square” during the current takeover controversy. As argued here, without minimizing Twitter’s importance, it is the entire internet that is the “public square.”

2 The power of analogy is best illustrated by the analogy of the World as Machine, which, arguably, transformed society as it took root in thought of Western society. See, inter alia, Sally Goerner (1999) and Roger Faber (1986); for the definitive scholarly treatment, see E. J. Dijksterhuis (1961).

3 It is worth noting the particular nature of these auctions relative to public goods in general. There are a very limited number of potential bidders. This is very different from typical public goods such as public education, policing, roads, bridges, streetlighting etc. The auctions of the electromagnetic spectrum of the Federal Communications Commission (FCC) have allowed an oligopoly to control the spectrum thereby creating, as per Joseph Bain (1972), a barrier to entry which has become the basis of the oligopolists’ ability to extract rents from wireless customers. I acknowledge the insights of an anonymous referee in this regard.

4 There is an irony in this formulation. Paul Romer’s work on endogenous growth theory (Romer 1990) shows that if we treat knowledge as an endogenous variable in the growth model for the economy then the economy must be dominated by monopolistic competition (because of the public nature of knowledge). Pricing under monopolistic competition is different than under the assumptions of the analysis of Hallgren and McAdams.

5 HTML is an instance of Standard General Markup Language (SGML); increasingly another instance, eXtensible markup language, xml, has become very widespread (e.g., the Ontario energy Electronic Business Transactions (EBT) system is built on xml).

6 I am grateful to an anonymous reviewer for making me aware of Allan Schmid’s work.

7 I thank an anonymous review for a summary of the U.S. situation and for suggesting many improvements to the article.

8 This analogy was inspired by the author’s membership in an “electronic bulletin board” service that predated W3’s release of http.

9 This includes emerging electronic tolls such as Highway 407 in Ontario. Users do pay according to their use but the tariffs are entirely arbitrary.

10 I thank an anonymous reviewer for this succinct clarification.

11 There are often legal texts associated with downloads, usually in the form of popups, but everyone ignores them.

12 More generally, Electronic Business Transactions (EBT) standards and rules govern a great deal of B2B commerce. The author was involved in the successful development of EBT standards for the Ontario electricity and, to a lesser extent, natural gas sectors.

13 Neglecting environmental costs.

14 The value of global courier services is now estimated at $370B annually with a growth rate of 6% from 2015-2020 (IBIS World 2021)

15 Hence, measured GDP is too low and conventional measures of productivity (e.g., output per hour worked) are also too low. However, this increase in measured productivity cannot be attributed with any certainty to computers. This would require that growth in computer labor is less than growth in (revised) aggregate output (once output. This is not a small matter since the undervaluation of software includes the lack of recognition of the many hours programmers spend in creating software that do not show up in official statistics. My research note was intended to encourage those with more resources to study these matters in detail.

16 See Google (n.d.).

17 I am grateful for the advice of an anonymous reviewer on this point.

18 For example, see Commissioner Clyburn’s Statement on Key Decisions during her tenure, June 6, 2018 (Clyburn 2018).

19 See Anthony Rotkowski (2020)

20 Depending on the jurisdiction, the way such charges are formulated legally will vary. In the United States, the 1998 Internet Tax Freedom Act (codified as the Trade Facilitation and Trade Enforcement Act of 2015) prohibits any tax on access to the internet. For a discussion of the legal issues see Steven Maguire and Nonna Noto (2007). Without dismissing the importance of legal formulation, conceptually there is no difference between bridge tolls and tolling the public space on the internet, jurisdictional complications (e.g., state versus federal) notwithstanding.

21 The quote is from William Faulkner. The full quote is: “What matters is at the end of life, when you’re about to pass into oblivion, that you’ve at least scratched ‘Kilroy was here,’ on the last wall of the universe” (quoted in Merriweather 1980).

Additional information

Notes on contributors

Russell William Houldin

Russell William Houldin is at the University of Toronto.