Regulation and the Internet: Public Choice Insights for Business Organizations

Abstract

Business regulation is greatly shaped by a theory from economics and political science called choice. Public choice argues that regulation is sought by existing business organizations as a means to create barriers to entry for new competitors, something incumbent firms cannot do alone in the competitive environment. The Internet introduces different, and more complex, relationships between business and regulatory institutions as the territorial jurisdiction of traditional governmental agencies erodes and control over technology standards by business and non-governmental organizations arises. With some important caveats, public choice theory offers important insights into exchange relationships between regulatory institutions and firms operating on the Internet. This article examines a specific application of public choice to the case of the Linux Standards Base, an Internet-based governing board for the open source operating system. The Linux Standards Base provides an example of regulation where the regulatory institution is a non-governmental entity.