A working paper(1) by Joseph Stiglitz this week, puts into perspective nearly a half century of research, including recent advances in understanding the implications of imperfect information. It is a worth reading review of some of the ideas which earned him a Nobel Prize in Economics. There are a few interesting remarks in the final “looking forward” section:
At one time, there was a hope that advances in technology, including the internet, would increase competition, by lowering search costs. This is true in some areas, where there is a homogeneous or well-specified commodities and manufactured goods. But new technology has also increased the ability to exploit—increasing asymmetries of information and market power of those who have differential access to information.
Network effects and increasing role of knowledge may naturally lead to more scale economies. When there are strong network effects, there is a natural monopoly. (…) As Europe as taken a closer look at their practices and found them anti-competitive, the US has complained about the EU taking an anti-American position. This is wrong. It is partially because of the political influence of these American near-monopolies that the US has not taken actions.
The abuse of their market power is especially likely and troublesome. (…) Understanding of behavioral economics and the theory of discrimination (based on the economics of asymmetric information) plus access to enormous amounts of new data enhances their ability to exploit their market power. Even more troublesome is that their access to and ability to exploit data on individuals raises deep questions about rights to privacy and the nature of our society.
Schumpeter argued that we should not be much worried about monopolies. One monopoly will be succeeded by another, and competition to be that monopolist incentivizes innovation. Those ideas have now been discredited.
This is not new, but so far we have been turning a blind eye to it, repeating once and again how useful and convenient are the services that these near monopolists are providing to all of us. This general see-no-evil attitude might be finally reaching an end.
The new corporate leviathans that used to be seen as bright new avatars of American innovation are increasingly portrayed as sinister new centers of unaccountable power, a transformation likely to have major consequences for the industry and for American politics.
(1) Stiglitz, Joseph. 2017. ‘The Revolution of Information Economics: The Past and the Future’. w23780. Cambridge, MA: National Bureau of Economic Research. doi:10.3386/w23780.