Any time someone advocates barriers/moats/etc in a market, I immediate ask myself, does the redistribution of profits this causes outweigh the efficiencies gained?
The small town vendor story is instructive:
Walmart destroys downtowns, but it also saves the (oftentimes poor) locals hundreds or thousands of dollars a year. In some communities, this has been a huge boon to standards of living, even though it closed the local hardware shop. In other towns, it has turned them into a wasteland of low wage jobs in strip-malls and broken a big chunk of the local economy.
The same question can be put to the web markets: Going with one or two big providers will almost certainly add to efficiency gains, and thus lower prices. Is trading away the competition worth it?
Edit: Sometimes equilibria is two or three providers, or one dominant and a few smaller (think search). In my mind the best case market is probably US coffee, where you have one dominating chain (Starbucks) that opens up the market for lots of smaller one-offs.
I think that the Walmart issue creates benefit more through drawing money out of cities and into developing countries, and detriment through carrying money out of small towns. The decreased price of goods is often counteracted by lower incomes to local stores, and ends up doing more harm than good. This is basically a type of arbitrage and is often very helpful to the world economy, but I'm not sure the analogy carries over on the internet. Large companies do not help new developing communities join the internet marketplace like Walmart does for developing countries. So while I often do opt for a natural self regulating approach, large dominant companies would not be like Walmart in the future of internet culture. And the problem may correct itself in time, as big companies may not find their natural niche like Walmart did, and just become latent, new company gobblers. If this were the case, we may find that the internet doesn't have any use for dominant companies, and big companies will be consistently replaced one after another for years to come.
The small town vendor story is instructive:
Walmart destroys downtowns, but it also saves the (oftentimes poor) locals hundreds or thousands of dollars a year. In some communities, this has been a huge boon to standards of living, even though it closed the local hardware shop. In other towns, it has turned them into a wasteland of low wage jobs in strip-malls and broken a big chunk of the local economy.
The same question can be put to the web markets: Going with one or two big providers will almost certainly add to efficiency gains, and thus lower prices. Is trading away the competition worth it?
Edit: Sometimes equilibria is two or three providers, or one dominant and a few smaller (think search). In my mind the best case market is probably US coffee, where you have one dominating chain (Starbucks) that opens up the market for lots of smaller one-offs.