54 Economics brief The EconomistAugust 8th 2020
2 published paper by David Autor and John
Van Reenen of mit, David Dorn of the Uni-
versity of Zurich, Lawrence Katz of Harvard
and Christina Patterson of the University of
Chicago argues that globalisation and tech-
nological advances have concentrated eco-
nomic activity in a small number of “super-
star firms”. Because these firms are more
productive, the industries which have seen
the most of this concentration have also
seen the fastest productivity growth.
It is when they are applied to technol-
ogy giants that these arguments get most
heated. In America the Department of Jus-
tice, the Federal Trade Commission, Con-
gress and many states are investigating
whether Amazon’s dominant position in
online shopping, Apple’s immense profit-
ability or the duopoly that Facebook and
Google enjoy in online advertising can be
seen as involving the abuse of the giants’
market power. Google has been the subject
of three separate competition investiga-
tions by the euand fined €8.2bn ($9.7bn).Competition in, or competition for?
Businesses built on “platforms”, as Ama-
zon, Facebook and Google are, raise partic-
ular issues when it comes to competition
because they have two separate sets of cus-
tomers. Amazon deals with both retailers
and consumers, Facebook and Google with
both users and advertisers. In the 2000s
Jean Tirole and Jean-Charles Rochet, two
French economists, laid out an economic
framework for looking at such platform
businesses which showed that their opti-
mal strategy will often be to provide cheap
access to one side of the platform and
charge steeply on the other. Consumers en-
joy free Google searching and Facebook so-
cialising; advertisers pay through the nose
to reach them as they do so.
Platforms existed before big technology
firms: television, newspapers and credit
cards are all platforms of sorts. But the in-
ternet has provided vast scale and reach.
Adding users is cheap, and it is often the
case that the more users a platform has themore attractive it becomes to those yet to
sign up. A firm that attains critical mass be-
comes overwhelmingly dominant: winner
takes all.
Does it matter if the winning platforms
dominate the digital economy? In terms of
consumer welfare it seems, on the face of
it, a sweet deal: users get stuff which is of
real value to them at a price—zero—to
which no one can object. But on the other
side of the platforms things look more wor-
rying. A recent investigation by Britain’s
Competition and Markets Authority found
that the cost of digital advertising for firms
was worth £500 ($650) per household per
year. Were the market less concentrated,
those costs might fall—and some of the
savings would be passed on to consumers
in the form of lower prices.
Another potential worry is that there
are conflicts of interest in many big-tech
business models, such as when Apple sells
through its app-store software which com-
petes with its own, or when Amazon col-
lects data about the sales of third-party
products with which it competes.
Perhaps concentration would be tolera-
ble if the big firms lived in fear of usurpa-
tion by a hot new entrant. But startup plat-
forms face growing barriers to entry. One is
amassing the reams of data which enable
firms to tailor their services to individual
users. Another is that in the digital econ-
omy it is relatively easy for an incumbent
to see what it is that users like about what a
startup offers, provide something similar
and push it out to millions (if not billions)
of existing users. That reduces the incen-
tive to innovate in the first place. A final
worry is that wealthy incumbents can close
off the possibility of competition by buying
new entrants before they pose a real threat,
as when Facebook bought Instagram in
2012 and WhatsApp in 2014. In the decade
to 2019 the five largest technology firms
made over 400 acquisitions with scant in-
tervention by competition authorities.
There are, broadly speaking, two sets of
ideas for reforming competition econom-ics and antitrust enforcement in response
to these worries. Adherents of the more
radical call themselves “neo-Brandeisians”
after Louis Brandeis, an early-20th-century
American Supreme Court justice who
thought the overarching purpose of gov-
ernment antitrust action should be to pre-
vent any one firm from exerting too much
power over the economy. Neo-Brandeis-
ians such as Lina Khan of Columbia Law
School and Matt Stoller of the American
Economic Liberties Project, a think-tank,
want to broaden the purpose of antitrust
investigations beyond promoting consum-
er welfare. Governments, they argue,
should not fear breaking up the tech giants;
they should fear leaving them be. In this
view the companies’ size and power are a
threat not just to consumers and workers
but to democracy itself.Each time I roam...
To its Chicago-school critics, Neo-Brandei-
sianism is “hipster antitrust”, replacing a
transparent and rigorous methodology
with an ill-defined set of social goals. It
might disempower technology firms, but it
would empower regulators. If concentra-
tions of market power should be viewed
with suspicion, so should concentrations
of regulatory power: they bring the risk of
arbitrary and unaccountable decision-
making. In America, its home territory, this
debate is predictably partisan: neo-Bran-
deisians are listened to only by Democrats.
The second set of ideas for reform is
more incremental. It seeks not to abolish
the consumer-welfare standard but to re-
interpret it. Carl Shapiro of the University
of California, Berkeley, has suggested call-
ing it the “protecting competition stan-
dard” to make clear that it takes into ac-
count all the harm that anti-competitive
practices might do to consumer welfare,
including that which is indirect or diffuse.
Applying this interpretation of the con-
sumer-welfare standard to digital plat-
forms means accepting that in some situa-
tions firms will naturally grow large,
meaning that at any point in time there will
be little “competition in the market”. But
there can still be “competition for the mar-
ket” if a new, better product has a chance to
disrupt the status quo. That might mean
blocking more of the sort of early acquisi-
tions which snuff out potential competi-
tors, or reversing the burden of proof in
such cases, so that the merging companies
have to show that their plans will benefit
consumers. It also might mean forcing in-
cumbents to share some of their data, or at
least making it easier for users to switch
easily between platforms.
This agenda might not do much to satis-
fy neo-Brandeisian complaints about the
political power of tech titans today. But it
could succeed at making life at the top
slightly more precarious. 7Biggermarketshares,biggersuperstarsSources:OECDandEconomistestimates;“IndustryconcentrationinEuropeandNorthAmerica”,
byM.Bajgar,G.Berlingieri,S.Calligaris,C.Criscuolo,J. Timmis;DatastreamfromRefinitivShareprices,May18th2012=100*Averageof all industriesBigfirms’shareoftotalsales*,%2030402535152000 02 04 06 08 10 12 14EU,topfour
NorthAmerica,topfourNorthAmerica,topeight
EU, top eight1,5001,200900600300201816142012S&P 500 100AlphabetAmazonFacebookMicrosoftApple