By Jeremy G. Philips
There is a growing drumbeat that the five leading tech behemoths have turned into dangerous monopolies that stifle innovation and harm consumers. Apple, Alphabet, Microsoft, Amazon and Facebook—what the tech columnist Farhad Manjoo calls the Frightful Five—have a combined market capitalization of more than $2.7 trillion and are an increasing part of everyday life.
They are each assembling enormous pools of data about their users—which they use not just to sell more targeted advertising, but to improve and personalize their services, increasing their network advantage against smaller players.
But while these firms are increasingly formidable and deserve scrutiny, over all their market power appears less durable than infrastructure-based monopolies of previous generations. As David Evans and Richard Schmalensee note in Matchmakers, dominant digital platforms are “likely to be more transient than economists and pundits once thought.”
In most tech markets, multiple players reach viable scale. And consumers often have an incentive to switch between competing services, based on convenience and price.
Not only are these titans vulnerable to regular existential threats (recall Microsoft’s unbreakable hegemony over PC software that didn’t translate to mobile computing), they are also all converging—therefore competing—with one another.
All five of these firms are in a broad race to dominate consumers’ digital lives at home and at work. They all offer a suite of connected services—for instance, some combination of music, video and communication services—which increasingly overlap with one another. They are each expanding their market opportunity, but also straying out of their zones of competitive advantage into areas of increasing rivalry. This convergence in strategy, products and tactics is a powerful inoculation to anticompetitive outcomes.
Many of the recent monopoly arguments rely upon narrowly defining markets to make a rhetorical case, as well as hypothetical consumer harm. Ben Thompson, who writes the tech newsletter Stratechery, for instance, argued recently that Facebook has a monopoly in the “content provider market.”
It is easy to see how commentators get worked up about Facebook, given it controls several large, overlapping networks including WhatsApp and Instagram. But the claim that it has a monopoly over content providers, is risible. Even if Facebook were the singular acquirer of content, that would make it a monopsonist, not a monopolist. This distinction is critical because a monopsonist—who is the only buyer for a given set of suppliers—uses its power to squeeze input prices (like the sole employer in a town, keeping wages low). Whereas a monopolist uses its power to raise consumer prices.
Facebook’s importance as a major traffic source for many content sites is self-evident, but publishers still go directly to consumers and use other significant intermediaries—notably Google, which is owned by Alphabet. The woes of the publishing industry are because of the impact of the internet, not Facebook.
Mr. Thompson unconvincingly asserts that Facebook’s power over publishers produces a “dead weight loss” (where monopoly taxation leads to a waste of resources) and that consumers are afflicted by Facebook’s stifling of innovation. But Facebook users are not suffering under the yoke of oppressive masters. On the contrary, they are benefiting from a period of intense competition.
The same applies when it comes to entertainment. Netflix isn’t one of the big five, but it enjoyed a brief honeymoon as a monopoly after it crushed Blockbuster. But just a few years later, it faces intense competition around the globe. While the Netflix chief executive, Reed Hastings, may say that “sleep” is his company’s major rival, in reality, Amazon and Alphabet—not to mention Hulu, HBO and myriad local players—prevent Netflix from running away with the market.
© 2017 The New York Times
Image credits: Jim Wilson/The New York Times