Big Tech and Antitrust Discussions: Will Network Impact Overcome Competition Concerns?

The combined market capitalization of Facebook, Amazon, Apple, Microsoft and Google (FAAMG) accounts for approximately 22% of the total S&P 500 Index. Big Tech’s relative dominance reflects the modern American economy. Pandemics may have strengthened and amplified the role of big tech in our society as we become more and more dependent on their services for communication, shopping, education and entertainment. Big Tech’s ever-expanding role and extraordinary market power create legitimate legal, political, social, and business concerns.

Policy makers face a dilemma when trying to lock in technology giants. First you need to address certain basic questions. Is the rise of Big Tech due to market forces or other factors? Has the rise of Big Tech caused anti-competitive behavior and impeded the pace of innovation in the US economy? Is Big Tech’s growing dominance in the digital market jeopardizing consumer interests? Economic insights help policy makers better understand the complexities involved in addressing these types of questions.

The existence of network effects is often touted as a fundamental driver of market concentration in the technology sector. The logic of network effects is based on the notion that the value of a particular product, a typical example including fax machines and Microsoft Office software, depends on the size of the user base. Basically, the more users you have, the more valuable your product is. Additional aspects related to network effectiveness are relevant to today’s big tech companies acting as key platform providers. The ability to attract large numbers of buyers and sellers (Amazon) or viewers and content providers (YouTube) is self-enhancing, as new buyers/sellers and viewers/content generators are likely to converge on major platforms Create a mechanism to experiment with new entrants and small competitors. It also describes the global smartphone market, where network effects are concentrated on two operating systems (Apple iOS and Google Android) and two app purchase/download gatekeepers (Apple App store and Google Play store). I will.

Although network effects clearly impact the market structure of the technology sector, it is important to recognize that they do not guarantee lasting control of incumbent leaders. (At one point, Blackberry, Yahoo, and AOL seemed to be the dominant and powerful companies with a bright future.) Preference changed, and the new platform could completely overturn the old model. Also, the technology sector is becoming increasingly global, with overseas competitors potentially offering popular alternatives in the future.

So, if limiting natural monopoly power resulting from network influences is not a top priority, are there other issues associated with Big Tech that are causing greater concern?

There are actually some nasty aspects associated with FAAMG’s current superiority. First, the recent acquisition of Big Techs has begun to hinder innovation. A recent study suggests that when Big Tech gets a startup or app, it creates a kill zone, hindering further innovation in that area. This can negatively impact the long-term power and vitality of the innovation economy.

Second, in an increasingly digital-centric economy, the sheer volume of data in the hands of some companies poses a serious threat on multiple fronts. Large companies are engaged in a huge amount of data collection work (Cloud computing is also dominated by Amazon, Microsoft, Google), which will develop new technologies (machine learning and artificial intelligence) that rely heavily on access You can be at the forefront of the competition. To big data. Moreover, the potential misuse of Big Techs vaults (surveillance or violation of civil liberties) poses serious risks.

Third, there is clear evidence that business dynamism (including the high-tech sector) has declined in the United States in recent decades. The main cause of this trend is patent hoarding by already dominant companies, which seems to limit the spread of knowledge between leaders and lagers.

Finally, with the presence of Big Tech, the competitive landscape seems increasingly leaning. High-tech giants such as Amazon can create unequal competition terms because they are often both the owner and the owner of the platform. The asymmetric power dynamics between the technology giant and its customers leads to poor negotiations and less competitive results.

While there are some defenders at the moment, the consensus seems to be shifting towards taking steps to strengthen competition and reduce market concentration in the digital space. However, there are certain nuances that policy makers and regulators need to evaluate. Robert Volks’s influential work is often acknowledged by shifting the attention of antitrust regulators away from consideration of market concentration/industry dominance towards the goal of improved economic efficiency and consumer welfare. It is possible.

Recently, criticisms of this approach have highlighted its weaknesses, especially when dealing with big tech. Policymakers need to be aware that data is the dominant currency in the world of technology, and Big Tech may collect excessive or unnecessary information or collect data without proper consent. You need to make sure that it does not harm the interests of the consumer. compensation.

Moreover, instead of rushing to disband the technology giant, legislators may want to consider limiting new acquisitions of startups and promising start-ups. Reforming the patent system and enforcing mandatory terms and conditions may also boost innovation and create new challengers.

Vivekanand Jayakumar is an associate professor of economics at the University of Tampa.

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