MLI61C630 - Academic Writing, Lecture, 30.10.2023-17.11.2023

Google, Facebook, Amazon, Apple and Microsoft recently surpassed a combined valuation 4 trillion dollars, and nobody batted an eye. These companies have grown to gobble up the digital market as a whole, all at the expense of consumers and smaller competitors: but how?

The big tech companies have been able to benefit from economies of scale, and network (bandwagon) effects, which have enabled them to leverage their size to become even larger. In the cases where smaller entrants have been able to carve out a slice of the market (Instagram, YouTube, LinkedIn), bigger players have outright bought the competitors out.

Concentrated markets are harmful for consumers because they offer low quality products and limited innovation. Without competitors, Big Tech has been able to provide low quality content filled to the brim with advertisements, while also offering little innovation for consumers. These harms are borne by consumers and it is time for governments to stand up and protect them.

I propose radical legal and regulatory innovation, including the imposition of mandatory data sharing and tearing down barriers to entry, in order to counteract the harmful effects of concentration on consumers and the market. Courage from regulators and policymakers is required to enact these changes.

There will be resistance from Big Tech, who will be willing to wield their vast economic and political power in order to counter any proposals that affect their bottom line. They have already responded to actions by European regulators with thinly veiled threats of “instant repercussions”.

However, these threats should not be taken seriously; Big Tech has always relied on the complacency of governments around the world for their growth. Now that this complacency is finally coming to an end, Big Tech is lashing out. This should only increase our resolve to act and not let Big Tech use its oversized role in society to avoid scrutiny. 

Abstract

The concentration of digital markets has been, until recently, an overlooked topic in academia. Even when experts acknowledged this concentration, they argued that the market would self-correct and failed to propose actions for governments to take to counteract it. This report focuses on digital platforms, such as Google, Amazon and Facebook, because concentration, and its causes and effects, manifest themselves clearly in the platform markets. The report found that digital platform markets have high economies of scope and scale because of low marginal costs and high returns on data. Furthermore, consumers’ irrational behavior helps to concentrate the market, and digital platforms are able to find and benefit from this behavior on an unprecedented scale. Network effects also play a strong role in concentrating these markets. The concentration caused by these market characteristics leads to low quality services and a slower pace of innovation; both harms borne by consumers. In order to counteract the harmful concentration, the report proposes that regulators take steps to counteract the causes of the concentration: the market characteristics themselves. Firstly, in order to counteract the high returns on data and the network effects, regulators should mandate that platforms share data. Regulators should also use nudges in order to lessen the effect of irrational consumers and help them make decisions that are in their own best interests. Finally, to counteract network effects more specifically, regulators should bring down barriers to multi-homing, which is when consumers use multiple platforms in tandem. These actions will bring in new entrants and make it feasible to compete with large platforms. If the policy recommendations in the report are implemented, consumers will no longer have to deal with low quality content and the lack of innovation in the digital market. This report hopes to move the debate past whether any action should be taken to dilute power in the digital markets and instead move it towards what kinds of actions should be taken.

Keywords: Platforms, Big Tech, Concentration