Cries of monopoly are not a new phenomenon for tech, but it seems the mood is changing and there is now an emerging consensus among economists that technology industry’s expansion is exacerbating the problem (see figure above) and competition in the economy has weakened significantly:
The big five platform companies—Alphabet, Amazon, Apple, Facebook and Microsoft—earned $93bn last year and have high market shares, for instance in search and advertising. They are innovative but sometimes behave badly. They have bought 519 firms, often embryonic rivals, in the past decade, and may stifle them. The data they gather can lock customers into their products. They may also allow firms to exert their market power “vertically” up and down the supply chain—think of Amazon using information on what consumers buy to dominate the logistics business. Investors’ sky-high valuations for the platform firms suggest they will, in aggregate, roughly triple in size.
When the big five cannot or do not want to buy successful new firms, it is usually because they are ready to smash them, e.g. Facebook copying not just Snapchat features but its entire vision. In fact, Facebook has become the new (old) Microsoft. Microsoft was found to be a monopoly, but it managed to escape the fate of AT&T in 1984 or Standard Oil in 1911.
Decades of lax antitrust enforcement mean that most industries have grown more concentrated. There hasn’t been a Sherman Act Section 2 anti-monopolization case for 15 years. Many argue that takeovers are evidence that capitalism has become more competitive. In fact it is evidence of the opposite. More of the economy is controlled by large firms.
Monopolies are becoming so powerful that they dictate the roll-out of new technology, and the only things left to invest in are the scraps that fall off the table, e.g. Juicero. Somewhere, Peter Thiel must be laughing out loud. (It is a pity that my friends at CB Insights have not been able to catch him doing it!)
To make things worse, another big trend in American business is the collapse in the number of listed companies:
There were 7,322 in 1996; today there are 3,671. It is important not to confuse this with a shrinking of the stockmarket: the value of listed firms has risen from 105% of GDP in 1996 to 136% now. But a smaller number of older, bigger firms dominate bourses. The average listed firm has a lifespan of 18 years, up from 12 years two decades ago, and is worth four times more. The number of companies doing initial public offerings (IPOs), meanwhile, has fallen from 300 a year on average in the two decades to 2000 to about 100 a year since. Many highly-valued startups, including Lyft, a ride-sharing firm, and Pinterest, a photo-sharing site, stay private for longer.
Fewer listed firms undermines the notion of shareholder democracy:
40 years ago a pension fund could get full exposure to the economy by owning the S&P 500 index and betting on a venture-capital fund to capture returns from startups. Now a fund needs to make lots of investments in private firms and in opaque vehicles that generate fees for bankers and advisers. Ordinary Americans without connections are meanwhile unable directly to own shares in new companies that are active in the fastest-growing parts of the economy.
The problem is what to do about it, because if there is a consensus that competition has weakened, there was little agreement on how to respond. To get some inspiration, this article(1) by Lina Khan (@linamkhan) about Amazon is worth reading. She argues that current antitrust framework is unequipped to deal with the anti-competitive behaviour of platforms in the digital economy (emphasis added).
ABSTRACT. Amazon is the titan of twenty-first century commerce. In addition to being a retailer, it is now a marketing platform, a delivery and logistics network, a payment service, a credit lender, an auction house, a major book publisher, a producer of television and films, a fashion designer, a hardware manufacturer, and a leading host of cloud server space. Although Amazon has clocked staggering growth, it generates meager profits, choosing to price below-cost and expand widely instead. Through this strategy, the company has positioned itself at the center of e-commerce and now serves as essential infrastructure for a host of other businesses that depend upon it. Elements of the firm’s structure and conduct pose anticompetitive concerns—yet it has escaped antitrust scrutiny.
This Note argues that the current framework in antitrust—specifically its pegging competition to “consumer welfare,” defined as short-term price effects—is unequipped to capture the architecture of market power in the modern economy. We cannot cognize the potential harms to competition posed by Amazon’s dominance if we measure competition primarily through price and output. Specifically, current doctrine underappreciates the risk of predatory pricing and how integration across distinct business lines may prove anticompetitive. These concerns are heightened in the context of online platforms for two reasons. First, the economics of platform markets create incentives for a company to pursue growth over profits, a strategy that investors have rewarded. Under these conditions, predatory pricing becomes highly rational—even as existing doctrine treats it as irrational and therefore implausible. Second, because online platforms serve as critical intermediaries, integrating across business lines positions these platforms to control the essential infrastructure on which their rivals depend. This dual role also enables a platform to exploit information collected on companies using its services to undermine them as competitors.
This Note maps out facets of Amazon’s dominance. Doing so enables us to make sense of its business strategy, illuminates anticompetitive aspects of Amazon’s structure and conduct, and underscores deficiencies in current doctrine. The Note closes by considering two potential regimes for addressing Amazon’s power: restoring traditional antitrust and competition policy principles or applying common carrier obligations and duties.
There is life in the old essential facilities doctrine yet!