[pjrule]

Yeah, Hanson phrases this idea poorly. It might be better to say that creating large backroom software has something of a high barrier to entry. For instance, popular packages like DynamoDB (internal to Amazon.com before public release) and TensorFlow (internal to Google before public release) make certain types of work easier and more efficient; they’re also large enough that they couldn’t easily be reproduced by smaller competitors. Those companies had to pay the said “large fixed cost,” as well as a continuous cost for maintenance, to develop those tools. Economies of scale play a related role here—the more engineers you can afford to hire, the less you have to outsource and the more you can create in-house solutions that can be reused companywide and ultimately give you a competitive advantage long-term.

In fairness to Hanson, a natural monopoly is distinct from a “monopoly” in the popular sense. Public utilities are often natural monopolies—for instance, a city might have only one power company because it doesn’t make sense to build the redundant infrastructure for two power companies. Doing so would incur a high, unnecessary fixed cost. [1] I think Hanson’s trying to draw an analogy to such firms, though I find it a bit loose.

[1] https://en.m.wikipedia.org/wiki/Natural_monopoly