Modularity Theory and Internet Regulation

Modularity is often cited as one of the foundations for the Internet’s success. Unfortunately, academic discussions about modularity appearing in the literature on Internet policy are undertheorized. The persistence of nonmodular architectures for some technologies underscores the need for some theoretical basis for determining when modularity is the preferred approach. Even when modularity is desirable, theory must provide some basis for making key design decisions, such as the number of modules, the location of the interfaces between the modules, and the information included in those interfaces. The literature on innovation indicates that modules should be determined by the nature of task interdependencies and the variety inherent in the external environment. Moreover, modularity designs interfaces to ensure that modules operate independently, with all information about processes that adjacent modules should not take into account being hidden within the module. These insights in turn offer a number of important implications. They mark a return to a more technological vision of vertical integration that deviates from the transaction-cost oriented vision that now dominates the literature. They also reveal how modularity necessarily limits the functionality of any particular architecture. In addition, although the independence fostered by modularity remains one of its primary virtues, it can also create coordination problems in which actors operating within each module optimize based on local conditions in ways that can lead to suboptimal outcomes for the system as a whole. Lastly, like any design hierarchy, modular systems can resist technological change. These insights shed new light on unbundling of telecommunications networks, network neutrality, calls for open APIs, and clean-slate redesign proposals