Google Isn’t A Monopoly – So Don’t Break It Up Or Regulate It Like One – Forbes
The New York Times carries an OpEd telling us that Google–and some other tech firms are- is a monopoly and thus must either be broken up or regulated as such a monopoly. The slight problem with this idea being that the writer of the piece doesn’t in fact understand the technical words that are being bandied about. Google is not, for example, a natural monopoly, and those areas where it is dominant are nothing at all to do with the utility model of a marketplace. Further, the author doesn’t in fact understand the more basic points about monopolies. It’s only if they are non-contestable that we need to anything about them. If it is possible for people to contest then we simply do not have a problem with the continued market dominance.
What’s really happening here is that people aren’t understanding the thought process which goes into economists worrying about monopolies. We do worry if, then if, then if and then, if this fourth thing is also true, then perhaps we should do something. But the first couple of things happening are not instructions that we then need to act, it’s the whole chain. It’s rather like in reverse those people who tell us that free markets don’t work because perfect information. You know, when we look at the entry level textbook models we see that perfect information is assumed. So, people then say that such perfection is never attained–it ain’t–so therefore free markets don’t work. Which is to confuse the model with reality of course. For when we go out there and test models against that reality we find that we don’t in fact need all that much information for markets to trend, asymptotically of course, to how those simple models actually work. After all, there is a proof, the market for lemons, that we can never have an efficient market in used cars. And yet we do have such a market. You know, despite Janet Yellen’s husband getting his Nobel for the proof.
That. I think, is the sort of thing which is happening here:
Is It Time to Break Up Google?
The proof of dominance is there, most certainly:
They’re all tech companies, and each dominates its corner of the industry: Google has an 88 percent market share in search advertising,
The first question is do we care? Care about the market being dominated that is? I, for example–and presumably until those bots get a bit better–have a monopoly on the production of economic scribbling a la Tim Worstall stylee. No one cares about that at all and I’ll be left alone to break up in my own good time as happens to us all as we reach that three score and ten. Is search advertising something we’re actually worried about being dominated?
While Brandeis generally opposed regulation — which, he worried, inevitably led to the corruption of the regulator — and instead advocated breaking up “bigness,” he made an exception for “natural” monopolies, like telephone, water and power companies and railroads, where it made sense to have one or a few companies in control of an industry.
Could it be that these companies — and Google in particular — have become natural monopolies by supplying an entire market’s demand for a service, at a price lower than what would be offered by two competing firms?
They’re not supplying the entire market. And that someone becomes a natural monopoly through increased efficiency is not something which actually concerns us. What does concern us is that economic efficiency. In fact, we’re quite fine and dandy with someone dominating, monopolising even, a sector of the market through that efficiency. Because, of course, it means that whatever it is is being supplied efficiently and thus we’re richer. In fact, to break someone up because they’re efficient is madness.
We would indeed worry if having dominated the market they then exploited their monopoly. Raised prices just because they can in the absence of competition. At which point our question becomes is the monopoly contestable? As with those Chinese rare earths 7 years back. China really did have a supply monopoly and then they tried to throw that economic weight around. Four years later the monopoly was comprehensively broken as new production entered the market and prices are now below 2010 levels. China’s position was contestable–as, given the amount of capital flowing around Silicon Valley would likely Google’s too.
And if so, is it time to regulate them like public utilities?
Quite why we’d do that is unknown. For they’re not a utility at all. That some utilities are, sometimes, natural monopolies does not mean that monopolies are utilities or that the regulatory structure is correct for them.
We are going to have to decide fairly soon whether Google, Facebook and Amazon are the kinds of natural monopolies that need to be regulated, or whether we allow the status quo to continue, pretending that unfettered monoliths don’t inflict damage on our privacy and democracy.
They’re not natural monopolies, no, they’re all eminently contestable dominant players, that’s all. And precisely because the dominance is contestable they’re unlikely to try to gouge consumers. For if they do then the competition will arise. It’s, again, only if the competition cannot arise that we must do something.
It is impossible to deny that Facebook, Google and Amazon have stymied innovation on a broad scale.
And that’s just ridiculous. Three of the most innovative organisations on the planet are stymiying innovation?
To begin with, the platforms of Google and Facebook are the point of access to all media for the majority of Americans. While profits at Google, Facebook and Amazon have soared, revenues in media businesses like newspaper publishing or the music business have, since 2001, fallen by 70 percent.
That’s not preventing innovation, that’s allowing it, pushing it on. For innovation does indeed mean new ways of doing things, something which will lead to the people using the older ways being pushed out of the marketplace:
According to the Bureau of Labor Statistics, newspaper publishers lost over half their employees between 2001 and 2016. Billions of dollars have been reallocated from creators of content to owners of monopoly platforms.
That’s the very evidence we need of massive innovation as the old purveyors shrink and the new grow. That’s what innovation is. This argument being used here is akin to insisting that Model T’s are anti-innovation because buggy whip makers go bust.
I’m under no delusion that, with libertarian tech moguls like Peter Thiel in President Trump’s inner circle, antitrust regulation of the internet monopolies will be a priority. Ultimately we may have to wait four years, at which time the monopolies will be so dominant that the only remedy will be to break them up. Force Google to sell DoubleClick. Force Facebook to sell WhatsApp and Instagram.
In order to even think about doing anything at all we need to know that Google–and others–have non-contestable monopolies and also that they are exploiting them to our harm. As they don’t and aren’t then there’s nothing we need to do.