In love with your iPhone, but irritated that the marvelous gadget works only on AT&T’s network? Join the crowd. But don’t jump to the conclusion that Apple’s exclusive marketing agreement with AT&T – or any other handset maker’s exclusive agreement with a network provider – undermines competition in the market for smartphone service.
That’s the message from Robert Hahn (yes, regulation2point0’s Hahn) and Hal Singer (Navigant Consulting) in the latest issue of the Milken Institute Review (yes, the quarterly journal of economic policy edited by Passell). [Download Here] Competition in smartphones – and other markets in which innovation trumps efforts to create monopoly power – thrives on exclusive marketing agreements, which facilitate close cooperation in technological development and allows the innovators to reap the full rewards from their investments.
“While regulators look askance at virtually any vertical restraint that leaves rivals out in the cold,” Hahn and Singer argue, “the burden of proof should rest with those who claim that consumers (as well as rivals) will be harmed. It is very hard to predict the impact of changing technology or consumer taste, especially in markets in which innovation has a way of redefining the product. And in a world in which economic growth so depends on innovation, the stakes are just too high for regulators to guess.”