Setting The Record Straight: The Economist Misses The Mark On Technology Policy
Last week, The Economist opened a story about attacks on leading technology services by conceding “much of this techlash is misguided.” The piece dismantles the cliche “big is bad” argument, claiming “the presumption that big businesses must necessarily be wicked is plain wrong. Many online services would be worse if their providers were smaller.”
Unfortunately, the article then devotes 1,200 words to the very same unfounded claims. Leading technology services are among the most popular companies in the world, in part because they provide users with fantastic products at little to no cost. The piece goes on to compare the platforms to Standard Oil and AT&T, without being able to point to any instances of consumer harm.
Further, the article gets the facts wrong on intermediary liability, claiming the Digital Millennium Copyright Act has bolstered more established companies at the expense of newer entrants. But the liability protections were created specifically to safeguard newer companies from burdensome litigation that would crush their business models and stifle innovation.
Finally, the piece falsely asserts leading technology services’ growth has impeded startups and entrepreneurs, when in fact the opposite is true. Google and Facebook have enabled small companies to reach markets previously unbeknownst to them.
Leading Tech Services Operate In Highly Competitive Markets That Have Created Consumer Wins
Regular Polling By Morning Consult Found That, Despite Policymakers’ Increasing Antagonism Towards Tech Companies, Users Have Remained Steady In Their Appreciation For The Platforms. “Some policy makers want to curb companies they say have grown too powerful. You’d never know it by asking the American people. Amazon, Facebook, and Google have all held steady in daily favorability polls conducted by research firm Morning Consult over the past year, through Tuesday. The ratings wiggle a bit from week to week, but the companies haven’t seen any decline.” (Klint Finley, “What Tech Backlash? Google, Facebook Still Rank High In Polls,” Wired, 10/12/17)
University Of Florida Economist Mark Jamison Argues “Tech Companies Become Large Because Customers Choose Them,” Highlighting That No Company Blocks Consumers From Going To Rivals. “Successful tech companies become large because customers choose them. Facebook does not compel anyone to sign up, Google does not divert searches from Bing or DuckDuckGo to www.google.com, nor does Amazon block people from driving to Books-A-Million. In fact, at least two of these companies became successful by surpassing other companies that pundits once described as controlling their markets — namely Myspace and Yahoo!. And the National Retail Federation ranks Amazon as only seventh in the US in retail sales for 2017.” (Mark Jamison, “Five Myths That Cloud People’s Thinking About Tech Markets,” AEI, 12/19/17)
Economist David Evans Argues Compared To Physical Networks, Today’s Platforms Are Susceptible To Attacks From New Entrants Thanks To Lower Barriers To Entry, Zero Switching Costs, And Multi-Homing. “Third, online platforms are more susceptible to attack by entrants than network industries of a century ago. Network effects and sunk costs made the natural monopolies around the turn of 20th century difficult to challenge. Rivals had to sink massive amounts of capital into duplicating physical networks such as railroad tracks and telephone lines. Using multiple networks, or switching between them, was expensive for customers, even if a second network was available. However, online platforms can leverage the Internet to provide wired and wireless connections globally. People find it generally easy, and often costless, to use multiple online platforms, and many often do. The ease and prevalence of multihoming have enabled new firms, as well as cross-platform entrants, to attract significant numbers of users and secure critical mass necessary for growth. Incumbent platforms then face serious competitive pressure from new entrants—startups or other online platforms—because their network effects are reversible. Sleepy firms risk a death spiral, as Yahoo! learned.” (David Evans, “Why The Dynamics Of Competition For Online Platforms Leads To Sleepless Nights, But Not Sleepy Monopolies,” SSRN, 7/23/17)
Economists David Evans And Richard Schmalansee Note History Shows Network Effects Have Dismantled Quickly In The Recent Past. “Google’s and Facebook’s access to that data and network effects might seem like an impregnable barrier, but the same appeared to be true of America Online’s membership, Yahoo!’s search engine and Apple’s iTunes store, note two economists, David Evans and Richard Schmalensee, in a recent paper. All saw their dominance recede in the face of disruptive competition. If someone launched a clearly superior search engine, social network or online store, consumers could switch more easily than they could telephone or oil companies a century ago. Microsoft has long dominated desktop operating systems but has failed to extend that dominance to internet search or to mobile operating systems.” (Greg Ip, “The Antitrust Case Against Facebook, Google, Amazon And Apple,” Wall Street Journal, 1/16/18)
Economists David Balto And Brendan Coffman Point Out That In 2012 Bing Had The Same Search Volume As Google In 2008, Suggesting Scale Economies Are Not An Insurmountable Challenge. “Bing currently has approximately 50% of Google’s query volume, and about as much as Google had in 2008. There are no scale economies or other network effect that prohibits Bing from matching Google’s efficacy in search results.” (Brendan Coffman And David Balto, “Using Antitrust Enforcement Prudently In High-Tech Markets,” DC Antitrust Law, 2012)
University Of Florida Professor Sokol And CUFE’s Jingyuan Ma Say Little, If Any, User Data Is Required As A Starting Point For Most Online Services. “The examples above suggest an important policy lesson–low entry barriers are a common attribute in online data markets. The data requirements of new competitors are far more modest and qualitatively different than those of more established markets. Little, if any, user data is required as a starting point for most online services. Instead, firms may enter with innovative new products that skillfully address customer needs, and quickly collect data from users, which can then be used towards further product improvement and success.” (Daniel D. Sokol And Jingyuan Ma, “Understanding Online Markets And Antitrust Analysis,” Northwestern Journal Of Technology And Intellectual Property, 10/12/17)
Technology Platforms Are Jumpstarting Entrepreneurship, Injecting More Competition In Our Economy
Center For Democracy And Technology Points Out That Because “Small Companies And Start-Ups Often Cannot Afford The Expense Of Compliance Staff And Legal Defense Teams,” Safe Harbors Are Critical To Enabling Innovation. “Intermediary liability and gatekeeping obligations discourage innovation in the information and communications technology (ICT) industry. Small companies and start-ups often cannot afford the expense of compliance staff and legal defense teams. The risk of major future liability based on the possible actions of users deters investment in the development of new ICT products and services. So does the prospect of bearing significant financial costs for content policing, licensing, or enforcement activities.” (Kevin Bankston, “Shielding The Messengers: Protecting Platforms For Expression And Innovation,” Center For Democracy And Technology, 12/12)
McKinsey Global Institute: “While Large Enterprises And National Economies Have Reaped Major Benefits From This Technological Revolution, Individual Consumers And Small, Upstart Entrepreneurs Have Been Some Of The Greatest Beneficiaries From The Internet’s Empowering Influence.” (James Manyika And Charles Roxburgh, “The Great Transformer: The Impact Of The Internet On Economic Growth And Prosperity,” McKinsey Global Institute, 10/11)
UC-Berkeley Antitrust Economist Carl Shapiro: Tech Startups Would Suffer Without The Network Effects Of Leading Companies. “Any call to break up large tech firms based on economic considerations needs to address the concern that dismembering some of our most successful companies will significantly reduce economic efficiency. We know that firms vary greatly in their efficiencies within an industry, and we know that the more efficient firms tend to grow relative to others, at least until they run into diseconomies of scale. On this basis alone, breaking up the largest and most successful firms makes me rather nervous. On top of that, we know that there are substantial economies of scale of various types in the technology sector, including network effects and the economies of scale resulting from the fixed costs associated with developing new products, especially software and content.” (Carl Shapiro, “Antitrust In A Time Of Populism,” SSRN, 10/25/17)