Coopting Disruption

Lemley, Mark A. and Wansley, Matthew, Coopting Disruption (February 1, 2024). Available at SSRN: https://ssrn.com/abstract=4713845

Abstract: Our economy is dominated by five aging tech giants – Alphabet, Amazon, Apple, Meta, and Microsoft. In the last twenty years, no company has commercialized a new technology in a way that threatens them. Why?

We argue that the tech giants have learned how to coopt disruption. They identify potentially disruptive technologies, use their money to influence the startups developing them, strategically dole out access to the resources the startups need to grow, and seek regulation that makes it harder for the startups to compete. When a threat emerges, they buy it off. And after they acquire a startup, they redirect its people and assets to their own innovation needs. These seemingly unrelated behaviors work together to enable the tech giants to maintain their dominance in the face of disruptive innovations.

We show how three important new technologies – artificial intelligence, virtual reality, and automated driving – are being coopted right now. And we argue that, even though consumers sometimes benefit when startups partner with incumbents, coopting disruption is bad for both competition and innovation in the long run. At best, consumers receive incremental improvements to the tech giants’ existing products. They miss out on the more fundamental innovations that an independent company would have developed – both innovations that threaten an incumbent’s core business and those that a company locked into an existing mindset (and revenue stream) might simply not appreciate. Cooption cements incumbency, undermining the Schumpeterian competition that drove innovation in the tech industry throughout the 20th century.

We propose reforms that would make it harder to coopt disruption. We can revitalize a century-old law that prevents people from serving as officers or directors of their competitors, extending it to prevent incumbents from controlling the direction of startups. We can prohibit incumbent monopolies from discriminating in the access they provide to their data or networks based on whether the company is a competitive threat. We can ensure incumbents cannot use regulation as a mechanism to undercut competition. And we can make it presumptively illegal for incumbent monopolies to acquire startups that might compete with them.

Here's an Xcursus by Cory Doctorow:

Before "disruption" turned into a punchline, it was a genuinely exciting idea. Using technology, we could connect people to one another and allow them to collaborate, share, and cooperate to make great things happen.

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— Cory Doctorow @pluralistic@mamot.fr (@doctorow) February 8, 2024