Big tech and monopoly power: Patience is a virtue, antitrust is a Vice
Kimberlee Josephson , American Institute for Economic Research
Mar 26, 2023
At the start of 2023, many in the tech sector and the venture capital world were coming to terms with lost money due to the hyper-growth strategies they’d employed over the past few years. It seems some IPO’d too soon, expanded too much, or were in need of a pivot to alternative revenue streams.
As the saying goes, the future ages quickly in the world of tech; and apparently so do CEOs. Mark Zuckerberg, CEO of Meta, signaled to stockholders that a more mature take on management strategies would be employed going forward. He dubbed 2023 the ‘Year of Efficiency.’ Zuckerberg conveyed that focus would be centered on “becoming a stronger and more nimble organization,” and while this may be an attractive stance for easing investor worries, it is less appealing for industry dynamism. Organizational efficiency doesn’t necessarily promote an environment for innovation and risk taking.
Google has also been reeling with growing pains, having missed the boat at the start of the new year with advancing its status in the search engine sector. In shooting for the moon (literally) rather than focusing on investments for artificial intelligence (AI), Google’s spot as the go-to search site may be up for debate.
The diffusion of ChatGPT is truly astonishing, with an adoption rate surpassing any other consumer application in history. This is exciting news for Google’s rival Microsoft, given the integration of ChatGPT with Bing.
Attempting to play catch up, Google introduced its AI-powered chatbot Bard in early February, but the unveiling was largely unimpressive and shares of Alphabet fell by almost 10 percent shortly thereafter.
Signals of insecurity for Alphabet’s stock prices and a more meticulous management of Meta are perfect examples of why the market matters more than political interference. Indeed, although Congress loves to hammer Big Tech, time and attention could be better spent elsewhere, as any concerns raised on the Hill tend to be about temporary matters.
It was less than a decade ago, for example, that Congress rallied against the FANG stock phenomenon, representing those within the tech sector accused of having monopoly power. Politicians honed in on the realms of social media (Facebook), e-commerce (Amazon), streaming entertainment (Netflix), and search engine services (Google) with intentions to break up these power players.
In reality, however, congressional hearings hurt rather than helped, by creating opportunities for regulatory capture, diverting financial resources towards lobbying expenses rather than industry investments, and fostering a media-hype bandwagon effect of bashing Big Tech.
Although the FANG firms achieved their success by means of mostly free offerings to a vibrant and willing consumer base, little attention was given by bureaucrats to the net benefits and positive spillover effects these businesses had on enabling and advancing the economy overall.
Big Tech has helped many small firms tap into new supplier and consumer markets by empowering them to harness social media messaging, establish free business pages, enable searches and transactions, and develop networks and connections.
Big Tech has also been a big benefit to consumers. It is hard to imagine life without the ability to connect, search, stream, or shop online. Nevertheless, congressional members on both sides of the party line continue to make antitrust arguments against Big Tech, which just goes to show that those working in politics desperately need a refresher course in economics.
For starters, a monopoly only occurs when the freedom of exchange is impeded by the forced absence of alternative options. Accordingly, whenever the possibility for an alternative to come about is present, a monopoly in its truest sense is not occurring, even if there are no other options present for consumers.
As such, monopolies are a non-issue in a free market economy, since entrepreneurs must respond to demand to maintain their success and, if demand is being met, it would be inefficient to force new entrants to compete with firms who are already fulfilling market needs. If demand is not being met, however, competition tends to arise and occur whenever it is worth the risk and investment, provided entry barriers are kept minimal.
It is also important to note that even if industry leaders stand alone in what they offer (without competition), they certainly do not stand alone regarding production practices. Derived demand and intermediate goods are important elements of a vibrant economy, and result in market diversification and competition within supply chain networks. So even though options may be limited for consumers, competition will abound between producers.
This is the beauty of a free market system, and although the US has a mixed economic system, rather than a free market, competitive pressures still seem to find a way — and no one knows this better than Netflix (the ‘N’ part of the FANG stocks).
Despite previous concerns being raised over Netflix’s monopoly status, the streaming service now faces a plethora of steep competition from the likes of Apple TV Plus, Disney+, Hulu, HBO, Paramount Plus, Peacock, Prime Video, Starz, and so on. What is even more telling is how rivalry is heating up from indirect competitors, such as YouTube.
YouTube is currently the most recognized and relevant brand for GenZ, which is why Alphabet is seizing the moment to capitalize on new service offerings. The social media landscape can shift quickly and Congress never seems able to keep up.
Current concerns over what to do about TikTok are dominating discussions on the Hill, but YouTube usage rates leave TikTok in the dust. According to a Pew Research study, 95 percent of teens use YouTube “almost constantly,” while only 67 percent frequent TikTok. Throughout 2022, YouTube had about 70 percent more active users on a monthly basis as compared to TikTok. So, perhaps in addition to an economics lesson, politicians could benefit from taking a few consumer behavior courses.
At the end of the day, Big Tech firms will always face disruptions by advancements and new entrants, as well as changes in consumer interests. Web3 technology is currently making waves, as virtual communities and content providers learn to control what they curate online.
Thanks to Web3, online users and marketers will no longer be ‘building their house on rented land,’ which means they won’t need to rely on the decisions of the power players at Facebook and Twitter. Web3 will allow for greater autonomy in the management of digital assets and interactions — it will be the users who will control use (as it should be).
To be sure, success is often short-lived in competitive capitalist-based systems, as has been proven time and time again. So, whether it’s Lina Khan at the FTC or Sens. Amy Klobuchar and Elizabeth Warren in Congress, antitrust advocates should take a hard look in the mirror. The only true monopoly within the US marketplace is where these politicians are fulfilling their posts.
This article was originally published by AIER and is republished here under the Creative Commons Licence 4.0