(Bloomberg) – CEOs of four of the largest technology companies in the United States, Alphabet Inc., Apple Inc. Facebook Inc. and Amazon.com Inc., appeared this week in Congress to respond to criticism from that they have too much market power. The audience showed that lawmakers are beginning to understand what is and what is not important in regulating these large companies. And it also showed a greater focus on the most important area of antitrust policy: mergers and acquisitions, and whether regulators have been vigilant enough.
In recent years, large technology companies have become increasingly important to the United States economy and financial markets. The five largest technology companies (the four that testified, plus Microsoft Corp.) now account for more than a fifth of the S&P 500’s market capitalization. During the coronavirus pandemic, their value has only increased:
When some companies get so big and dominant, it makes sense to think about how they could be using their size to unfairly control the markets.
A typical defense against such allegations is that technology companies are not monopolies. Whether this is true depends on how markets are defined. For example, Google is overwhelmingly dominant among search engines, but it has only about a third of digital advertising revenue. Facebook CEO Mark Zuckerberg argued that his company faces intense competition in many markets, especially from the other major tech companies.
But focusing on whether or not a company is a monopoly is pointless. Oligopolies, where some large companies dominate the market, also tend to exercise some degree of market power. In theory, they can allow powerful actors to raise consumer prices, pay workers less, and pressure suppliers.
For large technology companies, consumer prices are generally not the problem. The services provided to consumers by Google and Facebook tend to be free, while Apple’s big margins are mainly due to consumers’ willingness to pay a lot for the brand value of an iPhone. Wages are a slightly greater concern. Big tech companies have already been caught and fined for agreeing to keep engineer salaries low, and much attention has been paid to the low wages and poor working conditions of Amazon warehouses. But ultimately, big tech companies don’t employ many people, and their proven anti-competitive activities have primarily involved high-paying workers. So while the pay cut from big tech companies deserves to be closely monitored, it’s probably not yet a major threat to the US job markets.
A greater concern concerns providers. Platform companies rely on a network of outside companies: merchants who sell on Amazon, websites that run Google ads, application developers that sell on the Apple App Store, etc. The size of the platforms potentially allows them to extract a lot of value from these smaller companies, demanding more of their income, or even creating and then promoting competition for their own product.
In the long run, as tech editor Tim O’Reilly has argued, big tech companies would likely ossify and ultimately lose by cannibalizing their own third-party ecosystems, but there is always a danger that short-term gains will be too tempting. Therefore, it is good that Congress has focused part of its attention on the need to maintain fair relationships between platforms and providers. Ultimately, this problem will likely have to be solved by regulation, because the separation of platform companies will eventually lead to new platforms emerging and becoming dominant.
Another concern is the prices that online service companies charge advertisers. By some estimates, more than half of digital advertising spending now goes to Google or Facebook, and the fastest growing competitor is Amazon. Advertisers are the true customers who pay for free online services for consumers.
This is one reason why lawmakers are concerned about platforms that buy from the competition. Facebook CEO Zuckerberg admitted in the hearing that he bought social media company Instagram in 2012 as a way to avoid a potential competitor. There have been allegations that the company tried or threatened to do the same with other newer social networks, telling them that if they did not accept an offer, Facebook would launch a product that would compete with them and make them disappear.
Ultimately, prices could rise for advertisers if Facebook properties are the only way they can reach social media users. Such purchases and purchase threats could also have a negative effect on the formation of new companies and economic dynamism, because only the threat of competition from a dominant company can deter new entrants. Columbia Law School professor Timothy Wu has argued that such purchases are illegal under current antitrust law.
So if there is any case for antitrust action against big tech companies right now, it probably has to do with acquiring upstart competitors. Unlike most of the issues surrounding big tech companies, which are complicated and confusing due to the way the effects of the online network change the economy of scale, concern about anti-competitive mergers raising Pricing is very old and very common.
In any case, it is a very good thing that Congress begins to pay more attention to the problems of industrial concentration and oligopoly in the American economy. Obviously, the case of large technology companies is the best known and most popular, but with increasing concentration in most industries, these audiences are expected to be a starting point for a broader re-examination of the value of mega-mergers and large dominant companies.
Original Note: Big Tech Antitrust Scrutiny Should Be Just a Start: Noah Smith
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