Market Failure in the New Economy
There is something peculiar about the "New Economy," at least in the eyes of most economists. On one hand, the data seem incontrovertible: high employment, low inflation, and rapid productivity advances all signal new and better times. But on the other hand, much of the economic analysis of the New Economy has focused on market failure. How is it possible for the economy to be doing so well when that most essential capitalist institution, the market, is failing? Clearly something is amiss-unless market failures are less common than we think. This is the view held by Stan J. Liebowitz and Stephen E. Margolis in their important and highly acclaimed recent book, Winners, Losers, and Microsoft: Competition and Antitrust in High Technology. In a nutshell, Liebowitz and Margolis believe that the extent of market failure in the high-tech, New Economy has been grossly exaggerated. To make this point, they use standard neoclassical economics and Ii number of case studies. Their book is well written and raises a number of interesting issues, but much of their analysis is flawed.