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Where’s the Real Harm from Google, Amazon, Facebook and Apple?

June 18, 2019 in Economics

By Ryan Bourne

Ryan Bourne

If you use Facebook, Amazon, Google or an Apple iPhone, then
Congress and federal agencies fear you could be a victim of
anticompetitive business behavior. The House Judiciary Committee
has announced a “top-to-bottom review of the market power held by giant tech
platforms
.” The
Justice Department and the Federal Trade Commission
likewise
are divvying these companies up for their own investigations.

These inquiries will generate a host of claims and
counter-claims about supposed economic harms, or potential for
them, from these firms. But given current debates, politicians and
regulators risk making two huge mistakes in their analysis:
mis-defining the markets these huge firms operate in, and
overhauling policy based on highly speculative predictions about
the future.

Behind Microsoft, the four major tech firms are the biggest U.S.
companies by market capitalization. They operate across a range of
sectors, and most people interact with at least one of them on a
near-daily basis. As a result, they occupy “psychological
monopoly” status in our public discourse. So synonymous are
they with their primary industries — social networks, online
retail, search engines and phones — that it’s hard for
people to imagine meaningful competition to them.

Sloppy economic thinking
is behind the push for antitrust action.

But a first step in assessing whether the firms are actually
engaging anticompetitively is to define the contours of their
markets. This is surprisingly difficult. Is Google
GOOG, +0.11%
GOOGL, +0.02% competing
in the market for advertising revenue (given advertisers are its
paying customers), digital advertising revenue, or in search
engines?

Should Facebook FB, +0.20% be thought of
as an advertising space seller or a social network? Might we, as
Facebook’s Nick Clegg suggests, consider it
as competing in sub-markets, such as messaging, photo sharing,
contact storage and more? Is Amazon AMZN, +0.01% a retailer
in individual product lines, a digital retailer, or a marketplace
platform? Or all three?

And is Apple AAPL, +0.08% primarily
run as a phone company, or a platform for app producers?

How one answers these questions determines how
“dominant” the companies seem. Even then, the size of a
company tells us little about consumer welfare. Network effects
(the value of a service growing with the number of users),
economies of scale and extensive user data can create markets where
consumers actually benefit from one firm dominating for a time,
albeit with new technologies and firms offering competition over
longer periods.

Absent strong evidence these firms currently harm consumers,
proponents of breaking up or regulating them instead claim these
economic phenomena might create barriers to entry that give these
firms damaging monopoly power in future. In her …read more

Source: OP-EDS

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