06/01/19 POKING HOLES IN A NET ANALYSIS

POKING HOLES IN A NET ANALYSIS

Although Barnes & Noble Inc. competes with Amazon.com, this doesn't sap anyone's incentive to bring out good reads, such as Cold Mountain and The Color of Water. And even though we are now able to buy cars through the Internet, the Big Three are no less eager to produce models that catch consumers' fancy (''The Net: A market too perfect for profits,'' Economic Viewpoint, May 11).
The point is, the kind of temporary monopoly that results from offering goods of unique quality also yields returns that the Internet can't undermine. In fact, by obliterating the profits that can be gotten from exploiting imperfect markets, the Net might even spur business to greater heights of product innovation.

Gene Epstein
New York

Echoing Marxists past and present, Robert Kuttner sees the Net as an emerging institution doomed to failure from contradictions within. Marx was wrong, and so is Kuttner. Kuttner first claims that the Net, with its free flow of information, would result in ''fierce price competition'' and ''vanishing brand loyalty,'' in particular. His example of Amazon.com, however, shows not vanishing brand loyalty on the Net but the power of it.
The still-nascent Net has already created some powerful brand names, such as Amazon.com and Yahoo! Would Kuttner have ever even heard of a Seattle bookstore called Amazon--much less imagine it would ever be in a position to challenge the well-established Barnes & Noble--without the emergence of the Net? No one can guarantee that any brand will last forever, and perhaps Amazon.com will disappear. But that will be due to the competitiveness of Barnes & Noble.
If I set up my own bookstore off my Web page, Podunk Books, would you buy from me? If I started selling homemade routers, would you switch from Cisco Systems Inc.? Probably not. The point is, a powerful system for exchange, such as the Net, can create and enhance, in addition to weakening, brand names. [Yet] not even the Net can replace the assurance of a brand name. No surprise, then, that the best brands on the Net, such as Microsoft Corp. or CNN, are great brands outside it as well.
The greatest invention of our time (so far) is the Internet, a revolution in the ability of humans to communicate and exchange. No one can predict with certainty what specifics will come to define this institution. Only change is certain, and change is the stuff innovators thrive on and profit from.

Gary Li
Cambridge, Mass.

Robert Kuttner gives a flawed analysis of the Internet. More to the point is that the Net is what economists call a ''public good,'' that is, there is no additional cost involved in its use by an additional consumer, and, if accessible to one, it is accessible to all. Anyone with a properly equipped computer and provider has access to it. This is why public-finance specialists say public goods have to be provided by the government and funded from taxes: The private sector, unable to make a profit, will not provide them.
As other telecommunications have shown, however, certain public goods have room for profit. Take the case of TV shows. Although there are no additional costs with extra viewers and anyone with a TV set can watch, Seinfeld is handsomely financed by advertisers who find it a profitable way to reach their markets.
The Internet gives vendors a convenient, cheap, and direct means of selling their wares to a wide and growing audience. Profit margins will reflect keen competition and what the consuming public is willing to pay. At the same time, cyberspace is an ideal place for not-for-profit people and institutions, not only to make their personal or mission statements but also to provide that invaluable public good, information, for society at large.

Ruben P. Mendez
New York