March 27, 2022acorninformation agetechnology

Misgivings about hardware subscriptions

Hardware-as-a-service can disconnect individuals from means of economic production and concentrate market power into the hands of tech giants.

The Takshashila thinktankis are having an interesting discussion this weekend on Apple’s proposed hardware subscription service.

My fast brain reaction to the news was one of several misgivings:

  1. Undermining private ownership of the primary means of access and production in the Information Age is worrisome. Agrarian societies with a few landlords and lot of landless peasants were deeply oppressive and illiberal. Industrial societies that restricted people from owning machines (Communist countries, for example) are not great role models either. There is a link between ownership societies, economic prosperity and egalitarian culture.

  2. To Pranay Kotasthane’s question of whether there is a market failure in hardware, Avinash Mani Tripathi referred to Ronald Coase’s work on durable goods:

    In economics, we have something called the durable goods monopolist problem. As the name suggests, a durable good lasts for a long time. Ronald Coase pointed out one interesting fact about such goods. A durable goods monopolist has considerably less market power than what appears at first glance. The reason being that the goods produced by the monopolist in different time periods are near substitutes and hence competing products. To put it differently, a mobile phone produced by the Apple is competing not only against Android but also against the future versions of itself.

    Anyway, his broader point that durability of goods limits the market power of producer came to be known as Coase conjecture.

  3. After witnessing the behaviour of global tech giants in the Ukraine war, any subscription model — hardware or software — entails catastrophic political risks. What if Apple were able to brick all the iPhones and Macs in a country that Washington decides to punish? To mitigate this Saurabh Chandra proposed an escrow model that might work.

Back in 2002, I would have supported a laissez faire approach to hardware subscriptions. But we are in 2022 and have seen how industry economics favours concentration of market power into a few companies. Furthermore, market power in the information industry is effectively political power. I would tend towards a cautious policy approach designed to prevent massive oligopolies.



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