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Tech’s new monopolies

LiveMint logoLiveMint 03-10-2017 David McLaughlin

The rise of global technology superstars such as Amazon, Apple, Facebook and Google is creating new challenges for competition watchdogs. In 2017 they joined Microsoft Corp. to become the five most-valuable companies in the US, a ranking that included only the software company 10 years ago. They dominate their markets, from e-books and smartphones to search advertising and social-media traffic on mobile devices. New research connects the market power of these high-tech behemoths—part of a broader rise in concentration in many industries—with chronic economic problems, including the decline in workers’ share of national income and slower economic expansions. Their dominance is fuelling a global debate over whether it’s time to rein in such winner-take-all companies.

The situation

While the US, the home of the tech superstars, is taking a hands-off approach, other countries are aggressively pursuing them. In June 2017, the European Union fined Alphabet Inc.’s Google $2.7 billion for abusing its search-engine dominance by favouring its own shopping service in search results. As part of its response, Google said in September it would create a standalone unit for the shopping service,which will have to use its own revenue to bid for ads against rival services. The US Federal Trade Commission in 2013 declined to bring a case against Google for the same conduct. The EU says it’s also investigating whether Google pressures mobile-phone manufacturers that use its free Android software to install other Google apps.Germany is separately examining whether Facebook Inc. abuses its market dominance—it now has 2 billion regular users worldwide—by requiring new members to give up privacy rights when agreeing to terms they may not fully understand. Japanese and South Korean watchdogs, meanwhile, are looking at the exclusive control Google and Facebook have over vast amounts of consumer data. China’s tech giants—Alibaba, Baidu and Tencent, which are roughly similar to Amazon, Google and Facebook, respectively—have large market shares, too. China not only hasn’t pursued antitrust actions against them, it protects them from competition by restricting foreign companies.

The background

Amazon, Apple, Facebook and Google have monopoly-sized market shares, but being a monopoly isn’t illegal in the US and most other countries, as regulators long ago stopped equating big with bad. They focus instead on whether a company abuses its market power to thwart competitors who might oer lower-priced products. The number of monopoly cases brought by the US dropped from an average of 15.7 a year from 1970-1999 to just 2.8 a year between 2000 and 2014. The last big case was in 1998, when the US Justice Department successfully challenged Microsoft’s dominance of computer operating systems. US watchdogs have also said little as the tech juggernauts used their profits and big-data advantages to gobble up smaller rivals or to enter new markets. Bloomberg data show they’ve made close to 500 acquisitions worth about $140 billion over the last decade. The ability to easily raise prices, a traditional concern of regulators, often isn’t an issue in such deals. In the case of internet search and social media, the services are free. And as Amazon’s August 2017 purchase of grocery-chain Whole Foods Market Inc. shows, the acquired companies often aren’t direct competitors.

The argument

The tech goliaths say their dominance is hardly durable because barriers to entry are low for new competitors. Google is fond of saying competition is just “one click away”. The companies also say they are successful because of the quality of their offerings, so why punish success? But the 20-year dry spell in US monopoly cases has led economists, lawmakers and even some tech experts to conclude that enforcement has been too timid, with negative economic effects.Some would go beyond the narrow focus on consumer prices and consider the effects of concentration on innovation, job creation and inequality. With some exceptions, the tech giants reap hefty profits from small labour forces, leading to more national income going to fewer workers and stagnating median wages overall. The simultaneous decline of successful start-ups, attributed in some studies to the dominance of existing firms, has dampened innovation and job creation, the critics say. They also cite the power of “network effects”—the idea that an online platform becomes more valuable when more people use it, giving giant incumbents giant advantages—and call for a rethinking of how best to police competition. Other antitrust experts don’t buy this view, arguing that more concentration doesn’t necessarily mean less competition, and that antitrust enforcement can’t solve an economy’s broader ills. Bloomberg Quicktake

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