competing products. These network effects act as a potent
entry barrier and help to sustain these firms’ high profits.
Another aspect of the technology sector that helps to maintain
firms’ market power is the growing importance of “big data.”
Technology firms increasingly rely on their access to data
(most of which is provided for free by their customers) to
identify consumers’ preferences, design their products, and set
prices, often using creative and profitable schemes of price
discrimination. In addition, their data analyses can reveal when
smaller, upstart firms are beginning to pose a competitive
threat—at which point the large technology firm can eliminate
the threat by simply purchasing the rival. Facebook’s recent
purchase of WhatsApp for over $22 billion was widely viewed as
just such a situation. Such corporate acquisitions help to
sustain high market concentration and high business profits.
A Return to the Robber Barons?
It is probably too early to know whether today’s modern “data
economies,” with the large and growing role played by
technology platforms and network effects, will soon resemble
the economies of the late 1800s, with the dramatic
concentration of economic and political power that made the
Robber Barons so famous. But the data certainly suggest a
trend in this direction: Corporate concentration appears to be
rising, business profits are high, and the nature of some of
today’s most popular products can lead to network effects as