The early 20th century is replete with examples of the close, uneasy kinship between monopoly and innovation. Take telecommunications. When Bell’s early patents expired in 1894, many new operators entered the market. Prices were driven down, and telecommunications became accessible. Every drop of possible use was squeezed out of the existing infrastructure, to the immediate advantage of consumers. In other words, the infrastructure was exploited efficiently. At the same time, technology stagnated. Operators did not invest in complex new long-distance infrastructure or switching technology, because to maximize the usefulness of such innovations, and also satisfy pro-competition local regulators, they would have had to provide connectivity to rival operators, without these rivals having to have incurred any of the upfront costs. Gradually, it became clear that although there were fairly obvious ways to improve telecommunications technology, no one was doing it.
The landscape shifted in the financial crisis of 1907 when AT&T, financed by J.P. Morgan, bought up many small telecommunications operators. This gave it an effective monopoly over long-distance lines, which it then swiftly improved, researching and developing many complementary technological upgrades along the way. All this put it in a position to charge consumers exorbitant prices, which it also did.
Threatened by the U.S. Attorney General with antitrust action, in 1913 AT&T agreed to the so-called “Kingsbury Commitment,” promising to permit smaller operators to buy the use of its long-distance lines. In the bargain, it secured what amounted to legal approval of its monopoly — and promptly accelerated its technological pathbreaking. In 1914, AT&T built the first coast-to-coast line.
With AT&T now in a comfortably exclusive position to profit from advanced telecommunications, it spent subsequent years investing in advanced automatic switching research. In 1925, AT&T founded Bell Labs, an incubator enabling top research technologists to work while insulated from market pressures, which eventually gave birth to the personal computing revolution. This overall picture is paradoxical, complex and discomfiting. It is simultaneously reasonable to doubt that AT&T’s monopoly served the public interest, and also difficult to dispute that it accelerated investment in knowledge.
The kinship between monopoly and innovation is structural and timeless. To put it in the simplest possible terms: information is valuable only as far as it can be controlled, and it is hard to control. As the writer Stewart Brand said, it “wants to be free.” This means that to transform information into profit, you need something like hard power. You need to have exclusive dominion over some part of the system. Being “just-another-vendor-in-the-marketplace” does not cut it.