The Assessment: Economics of the Internet

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Abstract
Seen from the perspective of economics, the Internet has been widely regarded as a major force likely to raise productivity. However, at least so far, the identifiable effects on productivity appear small and largely confined to the USA. Similar scepticism is expressed about the view that the Internet would be naturally highly competitive. On the contrary, economies of scale and scope plus advertising‐intensive reputations create the threat of concentration. As a result, a pro‐competitive stance for policy is required—and in taking such a stance policy must look over the full range of the value chain. Such a pro‐competitive stance is, however, not sufficient. Because of other market failures and because of the need to protect democratic rights, a wider view of policy is essential. The fundamental policy issues facing the Internet are, therefore, whether it can remain open, competitive, and pluralistic in a context increasingly dominated by large corporations.

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