Arnold Kling

Pitfalls of Smart Products

Arnold Kling, Great Questions of Economics
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Hal Varian notes that companies are using embedded chips to limit the use of their products. He coins a new aphorism.

At the level of bits, censorship and digital-rights management are technologically identical.

Varian points out that by restricting the way that products can be used, manufacturers stifle innovation. In my mind, the question is whether such restrictions will survive in the marketplace. One of the reasons that Apple Computer lost market share in the 1980's was that consumers did not have as much flexibility to adapt other hardware and software to use with the Macintosh.

Going forward, companies will have a choice. They can offer products that are difficult to hack, but which also may stifle innovation. Or they can offer products that are more open to consumer tinkering, but which provide less in the way of centralized control and security. In a competitive market, I would expect that companies that make the best choice will win the most market share.

Discussion Question. Can the market be relied upon to make the right trade-off here, or is there need for government regulation?

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