Question

The following commentary by Robert B. Reich was published on PROJECT SYNDICATE on April 23, 2020. Read the commentary and answer the questions that follow in your own words. Make sure that you answer each question in one paragraph, not exceeding 100 words.

Resurrect Antitrust

America’s Gilded Age in the late nineteenth century began with a raft of innovations – railroads, steel production, oil extraction – but culminated in mammoth trusts owned by “robber barons” who used their wealth and power to drive out competitors, and then to corrupt American politics.

We are now in a second Gilded Age – ushered in by semiconductors, software, and the Internet – and a handful of technology giants are the new robber barons. Facebook and Google now dominate the online advertising market, while the advertising revenue going to newspapers, network television, and other newsgathering agencies continues to decline.

Google also hosts two-thirds of all Internet searches in the United States, and is so dominant that “to google” has long since become a commonly used verb. In 2006, Google acquired the world’s largest video-hosting site, YouTube. And Facebook, for its part, has acquired more than 70 companies over roughly 15 years, including potential competitors like Instagram and WhatsApp.

Amazon, meanwhile, has become the first stop for one-third of all US consumers seeking to buy anything, including more than half of new books. Amazon’s scale translates into bargains for consumers, but it undermines supplier industries, including author royalties and publisher earnings.

This consolidation at the leading edge of the US economy has created three big problems. The first concerns economic power. Here, the issue is not the classic one of consumer prices being higher than they’d be under competitive conditions; it is that Big Tech is inhibiting innovation. The incumbents’ size, must-use platforms (owing to network effects), wall-to-wall patents and copyrights, and fleets of lawyers to litigate potential rivals into submission have allowed them to create formidable barriers to new entrants.

To be sure, large platforms like Amazon, Google, and Facebook have enabled creators to showcase and introduce new apps, songs, books, videos, and other content. But because of these platforms’ overwhelming bargaining power, they can take a large share of the profits. Partly as a result, the rate at which new job-creating businesses are formed in the US has fallen by half since 2004.

The second problem concerns political influence: massive concentrations of economic power tend to generate political clout that is easily abused. Because of its increasing size, the technology sector provides significant campaign contributions and maintains platoons of lobbyists and lawyers in Washington, DC. Google’s parent company, Alphabet, for example, is the one of the biggest lobbyists in the city.

All this power gets results: tax loopholes, subsidies, regulatory exemptions, and other forms of government largesse that is unavailable to smaller firms. Hence, in 2018, Amazon paid no federal taxes, even as it held an auction to extort billions of dollars from states and cities eager to host its second headquarters. The company has also forced Seattle, its main headquarters, to scrap a plan to tax big corporations. That revenue would have been used to pay for homeless shelters for a growing population that can’t afford sky-high rents caused, in part, by Amazon.

Big Tech’s political power also buys impunity. Facebook executives withheld evidence of malign Russian activity on their platform far longer than previously disclosed, but suffered no consequences. Perhaps more troubling,

they employed a political opposition-research firm to discredit their critics. How long will it be before Facebook uses its own data and platform against its opponents and competitors?

Google, too, has used its power to fend off criticism. It has quietly funded hundreds of university professors to write research papers justifying its market dominance, and it has threatened to cut funding to nonprofit think tanks that have criticized its economic and political power.

The third problem concerns social power: the control over the flows of communications on which people rely to understand the world. The most obvious example is the news itself. By refusing to take responsibility for the accuracy of what appears on their platforms, the Big Tech firms are actively enabling demagogues, hate-mongers, and con artists to exert unprecedented influence over society – perverting political discourse, encouraging bigotry, and even endangering children.

The tech companies’ defense is that they are not publishers, but merely the proprietors of platforms and algorithms. But this claim is belied by their platforms’ powerful network effects. The more people participate, the more necessary the platform becomes for everyone else. If people want to know what’s happening in the world, they increasingly have little choice but to engage with YouTube, Facebook, or Twitter.

Another aspect of Big Tech’s social power is its increasing capacity to pool and analyze data about all aspects of our lives, choices, and movements. This not only undermines our privacy; it challenges our very autonomy. Targeted advertising doesn’t merely respond to consumer needs and wants. It shapes our understanding of ourselves, our communities, and of the world.

These three forms of power – economic, political, and social – are rooted in Big Tech’s increasing dominance over markets, information, and communications. And that dominance is a function of these companies’ size and scope.

America responded to abuses of corporate power in the Gilded Age with antitrust laws that allowed the government to break up concentrated economic power. It is time to use antitrust again. Where breaking up Big Tech companies is impractical, those firms should at least be required to make their proprietary technology and data publicly available, and to share their platforms with smaller competitors.

Such measures would impose few costs on the economy, given that these giants rely on scale rather than innovation. Moreover, the benefits of reducing Big Tech’s concentrated power would be significant. More competition would reduce the major platforms’ market leverage and political clout. It would also give people more choice about how to receive reliable information, and greater control over which aspects of their personal lives they share.

In the second Gilded Age, as in the first, giant firms at the center of the US economy are distorting its market and its politics. Just as the problem is the same, so is the solution.

QUESTIONS:

1. In what ways have Google and Facebook become dominant in the technology sector?
2. How have the Big Tech created barriers to entry and consolidated their market power?

3. What has been the impact of the bargaining power of large platforms on new job-creating businesses?

4. Define the network effects and the positive network externalities. [Refer to Chapter 4 of our textbook here.] Explain why people all over the world would rely increasingly on YouTube, Facebook, or Twitter to reach the information?

5. What would be the new ways of dealing with the monopoly power attained by the Big Tech? [Refer to Chapter 10 of our textbook here.]

Answer 1

Google and Facebook have become most dominant in the Technology Sector as most of the people prefer to use these platforms to receive knowledge about what is happening around the world . Around two third of the total searches of the United States alone are powered by Google search engine while Facebook has become one of the most important medium to stay connected with different people around the world . These companies have become Giants in the online advertising market and continue to grow at an increasing rate as they buy most of the companies that are potential competitors to them.

The pace of innovation of Big Techs was always a matter of concern for the new entrants. In addition to this copyrights, wall-to-wall patents ,and a fleet of lawyers to Resort to a legal action or take a claim dispute against new entrants which has created more barriers to entry for the the new entrants. In addition to this, companies like Facebook have bought Instagram which was a potential Rivals to them thereby claiming and maintaining Undisputed power in the market.

These Big Tech companies received an dispute bargaining power which can result in the form of profit sharing agreement up to 50%. Due to this reason the number of businesses in the United States which were major focal points of job creators have reduced to half since 2004.

Positive effect of Technology and networks are measured by the increasing function of the number of users that are using a certain platform. For example Facebook faces a positive network externalities as it will benefit on a higher level as more and more people use this platform to connect through social media. Network effect explains the externality whether positive or negative that is created when an additional user of a service joins a certain Network and determine the values of that network.

People all over the world have started to increasingly rely on YouTube, Facebook and Twitter as the social media platform has the greatest source of news among all online users and are readily available on everybody smartphone. Easy access to free news with connectivity all around the world on a convenient basis have created sense of connectivity among all users . In addition to this, the preferred news selected through algorithms by the social media platforms helps the user to receive that information which is most useful to them and thus receiving news from social media creates a higher level of utility for the consumers.

There are two simple ways to deal with the Monopoly power attained by the big Tech companies. The first is the introduction of new competitors in the market that would reduce the market leverage of these few companies as users will have more choice about how to receive reliable information through these platforms . Another way to reduce their Undisputed Monopoly power is the intervention of government by forming antitrust laws which will refrain these companies to practice unlawful mergers and business practices which creates strong barriers for the outsiders to enter in the market.