 This week, BlackBerry, once the world's largest maker of smartphones, announced that it was going private in a transaction worth about $5 billion. That may sound like a lot, but this company at its peak was worth about $83 billion and was the company that practically defined the smartphone market. Now BlackBerry has something like 2-3% of the smartphone market in the US and has really been blown out of the water by Apple, which introduced the iPhone in 2007, and then devices running Google's Android operating system. What went wrong? Well, BlackBerry made excellent products with these physical keyboards that many of its users liked. It had strong brand loyalty and strong support from enterprise customers. When Apple introduced the iPhone, it introduced not only a new type of device, a larger device with a bigger screen and a touchscreen, but also a new business model, a whole ecosystem with not only the hardware and the software on the phone, but most importantly, the apps. Consumers loved apps, and BlackBerry simply didn't have very many apps available. BlackBerry tried to make a comeback last year with a new line of phones. This is the Z10, which is a phone that is very much like an iPhone about the same size with similar capabilities. In fact, it's a very, very good phone for basic functions like messaging, web browsing, etc. But it doesn't have much of an app store. And that's why BlackBerry has failed to make a comeback in the consumer market because it simply doesn't have the apps. Well, it's kind of a chicken and egg problem. Consumers don't want to buy the phone because it doesn't have a lot of apps, and app developers don't want to design apps for a phone that doesn't have many users. But what can you do? This phenomenon has been described, economists have called it the phenomenon of network effects. And the network effect is present where the value of having something or using something depends not only on the intrinsic qualities of the good or service itself, but the number of people who are also using that good and service, kind of a bandwagon effect. You want to use the same thing that lots of other people use because there's support and community and complementary products that are available and so forth. If you don't have that community, it's hard to get it building from scratch. Some economists have claimed that these kind of network effects represent market failure, that in the technology sector we can't count on the best products winning the day. For idiosyncratic reasons, we may end up stuck with one particular bundle of hardware and software and services like the Apple ecosystem, even if it isn't really objectively the best kind of system. Therefore, say these critics, we need the government to step in and regulate technology markets to make sure that the best technologies always win. Well, just a few moments of reflection can show that this is not at all a good idea, that the government is in no position to make these decisions ex-ante. The government doesn't know what technologies will end up being the most popular, which technologies will end up satisfying consumers in the greatest way. It's far better to let entrepreneurs, investors, designers who have skin in the game make these decisions about what technologies to try, hoping that they will be able to get it right. Blackberry's demise raises a larger issue. In many markets and industries, we see companies being very large and successful, having a large share of the market, a dominant piece of the market, and critics of the market say, well, this is a bad thing. We need the government to break them up or to regulate them. In fact, even now, there are some critics who think that Google should be regulated like a public utility, that having access to Google's search engine is just as important as having access to water and electricity, and we shouldn't let a private seeking company have control over the gateway to the world's collection of knowledge. Well, this would be crazy too. Why would we think that government would be in a position to regulate or control the technology sector? Why would it be any better there than it is in regulating and controlling any other sector? Now, finally, there's a broader lesson here with Blackberry. Even the largest, most powerful, most successful companies are always in a precarious position. There is innovation and entrepreneurship from the outside. Consumers taste change in ways that are difficult to predict. So just because a company is large and successful today is no guarantee that it will be able to maintain that position. So we don't need to worry that large corporations in a free market would take over, would reduce innovation, or would harm the interests of consumers. No, as long as we have free and open competition among firms, both existing firms, and new firms, we can always rest assured that consumers will get the best available products. As Ludwig von Mises said, in under capitalism, free market capitalism, the consumer is at the helm of the ship. Let's keep it that way and not try to put government at the helm instead.