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First, if at all possible, try to neutralize your feelings about Elizabeth Warren (or any politician, for that matter), and concentrate on the data that supports – or undermines – the argument she’s making. Note also that she’s not the first to call attention to the growing technology oligarchy and its effect on innovation, pricing, access – and a host of outcomes that economists and even politicians have described for well over a hundred years.
If you can neutralize your feelings – as visceral as they might (or might not) be – does the Senator have a point? Here’s what the landscape looks like:
- Competition in the technology world is challenging. It’s also challenging in the media world. Real estate? Banking? Energy? It’s hard to find an industry with a truly level playing field.
- In 2018, the five largest companies in the world (by valuation) are Apple, Google, Microsoft, Amazon and Facebook, followed closely by Alibaba, Berkshire Hathaway, Tencent Holdings, JPMorgan Chase, ExxonMobil, Johnson & Johnson and Samsung Electronics.
- Amazon owns around 50% of the e-commerce market followed by eBay (6.6%), Apple (3.9%), Walmart (3.7%) and Home Depot (1.5%).
- Four vendors own close to 75% of the cloud infrastructure market (Amazon Web Services,33%, Microsoft 13%, IBM 8%, Google 6% and Alibaba 4%, as of Q1 2018). Three providers – Amazon Web Services, Microsoft and Google – own 55% of the overall cloud market. (It’s amusing to discuss the cloud container industry as a path to cloud independence, where “independence” means that everyone gets to move from AWS to Microsoft and then back again – and again.)
- Apple cracked the worldwide smartphone 50% market share threshold in 2018.
- Google owns over 90% of the Internet search market.
- Facebook continues to dominate social media, followed by YouTube (Google), WhatsApp (Facebook), Facebook Messenger (Facebook), WeChat (Tencent) and Instagram (Facebook).
- Microsoft owns 36% of the worldwide operating system market, behind Android at 42% (Google and the Open Handset Alliance).
- The same market trends are seen in other industries, like ridesharing, where Uber and Lyft own over 70% of the market.
- AT&T, Time Warner, Disney, Verizon, Comcast own huge chunks of “media” but are under constant attack – you guessed it – from Amazon, Netflix, Apple, Facebook and Google for media market share.
Most of us learned in school that the best capitalist systems protect the right of everyone to compete on level playing fields because competition is good for markets and therefore society. According to Elizabeth Warren, “when someone gets market dominance, they destroy competition. The world that gave them birth, to get the opportunity to go and grow and do something, [the company] has grown big enough to destroy everything around it.” She goes on to say that “Amazon, Facebook, and Google are referred to by venture capitalists as the kill zone … if you try to step a small business into that one of two things happens: it gets bought out before it can show its worth, or it gets wiped out.” Is any of this true? What does the data – not the personalities– tell us?
Let’s start with the most basic question: is competition good or bad? Let’s agree – can we? – that it’s good. It stimulates innovation, competitive pricing, access and a whole list of activities that define a competitive economic system. Maurice Stucke writing in the Journal of Antitrust Enforcement lists the benefits of competition:
- “Lower costs and prices for goods and services
- Better quality
- More choices and variety
- More innovation
- Greater efficiency and productivity
- Economic development and growth
- Greater wealth equality
- A stronger democracy by dispersing economic power
- Greater wellbeing by promoting individual initiative, liberty, and free association”
- “Competition in the marketplace is good for consumers and good for business.
- Competition from many different companies and individuals through free enterprise
and open markets is the basis of the U.S. economy.
- When firms compete with each other, consumers get the best possible prices, quantity, and quality of goods and services. Antitrust laws encourage companies to compete so that both consumers and businesses benefit.
- One important benefit of competition is a boost to innovation. Competition among companies can spur the invention of new or better products, or more efficient processes. Firms may race to be the first to market a new or different technology.
- Innovation also benefits consumers with new and better products, helps drive economic growth and increases standards of living. Products that are commonplace today once were technological breakthroughs: cars, planes, phones, televisions, the personal computer, and modern medicines all show how innovation can change your life, and increase prosperity.
- Competition can lead companies to invent lower-cost manufacturing processes, which can increase their profits and help them compete—and then, pass those savings on to the consumer.
- Competition also can help businesses identify consumers’ needs—and then develop new products or services to meet them.”
Who wants to argue against the benefits of competition?
Because of market dominance, competition in the technology world is shrinking. The power of especially consumer data drives this dominance. A few companies are able to leverage this data to widen and deepen their competitive reach. It’s hard to compete with oligarchies with decades-long leads. Many argue that the US is suffering from too little competition, especially in the technology marketplace. David Wessel writing in the Harvard Business Review is straightforward:
“Despite their undeniable popularity, Apple, Amazon, Google, and Facebook are drawing increasing scrutiny from economists, legal scholars, politicians, and policy wonks, who accuse these firms of using their size and strength to crush potential competitors. (Their clout caught the attention of European regulators long ago.) The tech giants pose unique challenges, but they also represent just one piece of a broader story: a troubling phenomenon of too little competition throughout the U.S. economy.”
- “In 1979, between 11 percent and 18 percent of firms were new in any given industry; by 2014 only 4 percent to 9 percent were. This decline occurred even in high-tech.
- Firms aged 10 and younger employ a considerably smaller share of the labor force (19 percent) than they did a few decades ago (33 percent). This is due both to the declining share of new firms and their declining size relative to older firms.
- College-educated workers are much less likely to be entrepreneurs than they previously were.”
So should the largest technology companies be broken up to encourage greater competition? While the details about how this might work are difficult to describe – and will launch a million vested-interest-based fights – the central question persists: does Elizabeth Warren have a point?
One of the features of corporate governance and market accessibility is its variability over time. Antitrust enforcement was quite different when AT&T, Kodak, Alcoa and Standard Oil were broken up. But this antitrust activity occurred a long time ago – which is the point, isn’t it? What changed?
What might antitrust cases look like today? Russell Brandom lays out the possible cases against Google, Amazon, Uber and Facebook. Adi Robertson describes how the antitrust cases in the 1990s lay some groundwork for possible cases today. Lest we forget, there were real reasons why companies were sued by the government for collusion, price fixing and anticompetitive behavior. Remember the airlines, Microsoft and NewsCorp/Kesmai? There are lots and lots of cases, just not too many recent ones.
Which leads to the “why” question. Why have the standards changed? Why are mergers and acquisitions approved so easily? (Democrats and Republicans both approve mega-mergers, so there’s no reason to attack one party versus the other.)
Poor Liz. She’s on the wrong side of history: the Financial Times reports that US antitrust enforcement has fallen to its slowest rate since the 1970s. But does she have a point?
March 13, 2019 at 01:47PM
Forbes – Entrepreneurs