It’s Time to Play Tech Monopoly


The NewCo Daily: Today’s Top Stories

An overview of today’s current (and ageless) debate

Ken Teegardin | Flickr

Every 20 years or so, the tech industry suffers a spasm of antitrust fever driven by angry accusations and, eventually, intervention by the Justice Department. In the late ’70s and early ’80s it was all about IBM’s mainframe monopoly. In the late ’90s, Microsoft was the evil monopolist, with its PC operating-system dominance. The latest round features Google. Or, wait, maybe it’s Facebook. Or Apple. Amazon, anyone?

One problem with today’s charges of monopolistic behavior is that there are so many monopolists this time around. And they’re all competing with one another! Google battles Apple in mobile operating systems. Amazon vies with Netflix in streaming/TV content. In music, it’s Spotify vs. Apple. In cloud services, it’s Amazon vs. Microsoft vs. Google.

All this real competition makes the whole concept of tech monopolies — and the antitrust regulations that could be wielded against them — much harder to sell today. But the discussion is heating up anyway. (So far the Feds haven’t joined in (and it’s unlikely they will, though the European Union has.) Here’s the state of the debate.

Where Does One Market End and Another Begin?

“Is It Time to Break Up Google?” The headline on Jonathan Taplin’s New York Times op-ed ends in a question-mark, but Taplin’s affirmative conclusion is unmistakeable. He proposes three possible antitrust clubs the government could wield against Google, Facebook, and Amazon: Stop them from acquiring other companies. Eliminate the safe-harbor law that absolves them from responsibility for user-contributed content. And regulate them as public utilities.

He also admits that, under the Trump administration, none of this is likely to happen.

The problem with Taplin’s argument is that antitrust lawyers need to put boundaries around a market before they can say a company has cornered it. Taplin casts tech’s platform giants as monopolies by narrowly defining the markets they dominate: “Google has an 88 percent market share in search advertising, Facebook (and its subsidiaries Instagram, WhatsApp and Messenger) owns 77 percent of mobile social traffic and Amazon has a 74 percent share in the e-book market.”

But these narrowly-defined markets aren’t really where these companies’ critics pitch their complaints. People who are upset with Google are angry about way more than just search ads. Anyone who wants to regulate Amazon isn’t just aiming to set rules for e-book sales.

When Big Tech Wins, Who Loses?

Beyond proving that a company has cornered a market, antitrust crusaders also have to prove that the resulting monopoly actually hurts consumers. “It is impossible to deny that Facebook, Google and Amazon have stymied innovation on a broad scale,” Taplin maintains. Really? These are all young companies that, over the last decade or two, essentially created the markets they now dominate. If they aren’t innovators, who is?

But yes, each of these companies does wield enormous, and sometimes unchallenged, power. If you want to distribute news and information today, it’s hard to avoid dealing with Facebook. As The New York Times’ Farhad Manjoo writes, Facebook owns “the biggest and most engaged network” of users. It has craftily neutralized recent competitive challenges by either copying their product features (Twitter, Snapchat) or buying them outright (Instagram).

Yet Manjoo doesn’t sound like he’s ready to summon the antitrust police. “Taking someone else’s idea and adding your own spin on it to improve tech for everyone” is old hat in tech, he points out. Microsoft did it to Apple.Apple did it to Xerox’s research lab. And so on. The way Manjoo seems to see it, Facebook won its powerful network by giving users something they want. If it falls down on that job, it will lose its lead.

Introducing the Monopsony

But surely Facebook’s oversize market power must be harming somebody. Creators of intellectual property like news, entertainment, and information goods are suffering because “super-platforms” like Facebook, Google, and Amazon are “monopsonies,” write law professors Ariel Ezrachi and Maurice Stucke (Oxford Law Blog and the Authors Guild). A monopolist becomes the sole seller of a particular good in a market; a monopsonist becomes the sole buyer. Monopsonists use their market power to drive down the prices suppliers can charge. What Walmart does to toothpaste makers, Amazon does to book publishers.

Monopsony is a useful concept that helps us better understand how platform power works today. But you could also argue that it’s self-limiting. As these tech monopsonists harvest profits from their distribution chokeholds, they may well end up funding new suppliers themselves — because they have no choice.

Amazon and Netflix are already buying new TV-show content for their streaming customers. If Amazon kills off old-school publishing (itself an increasingly concentrated industry) book-lovers will surely mourn. But sooner or later, Amazon would then have to reinvent the publishing industry itself, just to keep the goods flowing.

What About the Cable Companies?

The strangest aspect of this new antitrust debate in tech is that so many of its participants ignore the one tech market that really does function as a monopoly in the U.S., in a way that demonstrably hurts consumers: the provision of high-speed internet service. In most communities, Americans have no choice but to go with whichever cable company has the local monopoly.

As Susan Crawford puts it in Backchannel, “We have ended up with a country subject to geographically divided markets, private, unconstrained monopolies, and big holes where internet access is rare and expensive where it exists at all.” The system is lousy and expensive. It’s precisely the sort of situation where antitrust action could make a difference by opening up competition, unleashing innovation, and lowering prices.

But this is where the U.S. government is now moving in reverse. Crawford has kept a close watch on this issue, and last week she rang the alarm on the direction that the Trump administration is going. Trump’s new FCC boss, Ajit Pai, is running as fast as he can from the Obama administration’s efforts to regulate internet service providers and force change. If we’re going to talk tech and antitrust, these companies are probably where we should end up.

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