Are Big Tech firms like Google, Facebook, and Apple monopolies? Do they crush competition by preemptively acquiring start-ups? Does antitrust serve as a viable solution for Americans’ fears regarding the digital economy? I recently discussed these questions, and many more, with Nicolas Petit.
Nicolas is a professor of competition law at both the European University Institute and the College of Europe in Bruges. He is the author of the recently released book, Big Tech and the Digital Economy: The Moligopoly Scenario.
Below is an abbreviated transcript of our conversation. You can read our full discussion here. You can also subscribe to my podcast on Apple Podcasts or Stitcher, or download the podcast on Ricochet.
Pethokoukis: Are these Big Tech companies monopolies?
Petit: No, I say they are “moligopolies” — a mashup of monopoly and oligopoly — because you cannot understand these firms just by looking at their share of outputs in narrow markets, like search for Google or e-commerce for Amazon. All of these firms compete as oligopolies in a wide area of market segments, and it would be foolish to just look at the segment in which they have a large market share.
Google, for instance, is very dominant in search but at the same time competes with Apple for attention on mobile devices by placing its operating system in Androids, with Microsoft in software and productivity applications like docs and spreadsheets, and so on. And you cannot make sense of what Google is doing in search without making sense of what it’s doing in the other markets and how these dynamics work together.
Also, the behavior of these companies is inconsistent with monopoly behavior. A monopoly is a lazy company that doesn’t invest in R&D or marketing. But Big Tech firms generally invest in demand expansion at a level that is orders of magnitude higher than standard monopolies.
What do you mean by “investing in demand expansion”?
These firms are constantly investing in complementary products that increase value for users connected to the ecosystem. For instance, when Google adds emails, calendar functionality, and navigation functionality to the search engine, Google’s search provides increased utility to me because these complements work together to generate even more value. Similarly, Apple’s AirPods work seamlessly with the iPhone, which works seamlessly with the iMac, and so on. These ecosystems of complementary products raise utility for consumers.
Also, the set of ecosystems that we will be using as consumers is not finite — there may be new ecosystems of applications that will rise, because it’s a very dynamic environment. Think of what happened with Zoom during the pandemic, as an example. Also, B2B middleware markets — companies like Stripe, Salesforce, Slack, Nextdoor, Twilio, Shopify — did not exist 20 years ago. And driverless cars are a big low-hanging fruit.
Are you concerned about these companies purchasing all of these smaller companies in order to prevent competition? Was Facebook buying Instagram a telling example of these firms buying up would-be competitors whose full potential we’ll never see?
Actually, if we were to put an end to these acquisitions by Big Tech, this would have a lot of counter-incentive effects on entrepreneurship and innovation. Most venture capitalists which fund these small startups really expect acquisitions to take place two-thirds or three-fourths of the time. They don’t expect most startups to receive IPOs. So you certainly do not want to kill the acquisition routes for the startups to exit.
People talk all the time about Facebook acquiring Instagram as the canonical example of something that went wrong. But people tend to forget: When Facebook acquired Instagram, Facebook was a very young company with a lot of uncertainty around it. And Facebook didn’t kill Instagram — it actually scaled Instagram to become really, really big. The capabilities of Instagram have increased to a huge extent under Facebook ownership. So this is a bad example of how acquisitions are a problem.
It’s unclear to me how breaking up these Big Tech firms would actually address concerns about privacy or “fake news.” Do you see a relationship between the most common critiques of these companies and antitrust as the solution?
No, I agree with you. I think the argument for breaking up these companies is emotional to some extent — some people are angry with these big companies, and a break-up is a vindictive, punitive way to show muscle and act on frustration.
There’s also the more analytical idea that breaking companies into multiple units creates competition by rivalry, which will lead to better outcomes because competition is generally a good thing. But this ignores two problems. First, if you create rivalry, you’re going to raise the number of outputs, which could end up increasing the volume of personalized advertisements and fake news, for instance. Second, these firms enjoy large network effects on the supply and the demand side, and so you’re going to lose a lot of efficiency if you break these companies into multiple business units.
These Big Tech companies are American companies. Why aren’t half of the biggest tech companies European companies?
For one, Europeans are generally more risk-averse than American entrepreneurs. Also, we Europeans don’t really have a single market, contrary to what people often say. For instance, very trivial things, like opening a bank account from one country to another in Europe, are very difficult. So imagine how much of a hurdle there is for a startup willing to expand the number of geographic markets in which it’s operating in Europe.
There’s also the Brussels effect: Even as the European Union dictates norms and standards for the worldwide community, it also is trying to create innovation through legislation. In particular, they deeply believe competition creates innovation. And I think this belief has a lot of truth to it, but I think that it’s probably more true that innovation creates competition. And Brussels is too much into the “competition creates innovation” paradigm and not enough into the “innovation creates competition” one.
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