Friday, December 28, 2012

Corporate Punishment and Deterrence

Corporations are indispensable and vital in a modern economy, but let's not kid ourselves, they are utterly  amoral. Given the circumstances, almost any publicly-held company will eventually morph into a self-serving, competition-destroying, self-dealing monster. There is an old saying--every business person is champion of free market competition--except in their own industry, where they are more than happy to engage in special pleading, if that advances their interests by securing subsidies, tax breaks or best of all, regulatory barriers to competition.
So it is useful to think about the mechanisms for disciplining corporate excesses. Sometimes, the market and consumer behavior works. Certainly for routine matters such as incremental price increases, the market reaction is the best determinant, much better than any sort regulatory control. But in other situations, especially where uniquely defended market positions exist, such as created by network effects, the issues are more complex, and aren't addressed by a simple vote-with-your-wallet incremental buying decision.
So it is especially heartening to me to read about the backlash against Facebook-Instagram, for their recent gross over-reach. (Even if the NY Post report that "Instagram "may have shed nearly a quarter of its daily active users in the wake of the debacle" is likely way overstated.) 
For every one high-profile consumer-backlash issue, there are hundreds of cases of corporate bullying and self-dealing that go un-sanctioned. Therefore, we must hope that for the few cases that achieve a high profile to serve as effective deterrents, the punishment has to quite severe. If the transgressing companies don't pay a high enough price, on the rare occasion where they are tried in the court of public opinion, then there is little deterrence effect.
Hence, for a severe serial offender like Facebook-Instagram, netizens should all be rooting for major blowback. And hoping that even if (when) Instagram backtracks a little bit, users still stay away.

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