Setting The Record Straight: Stiglitz Misses Competitive Dynamics And Economic Benefits Of Tech Sector
In a recent piece in Scientific American, economist Joseph Stiglitz writes that weak antitrust laws underpin the rise of inequality, arguing, “Their enforcement has weakened—at a time when, if anything, the laws themselves should have been strengthened.”
Concentration has modestly increased across all industries measured at the national level. Yet, companies are increasingly competing in global markets, leveraging economies of scale, and this national trend has led to more—not less—choice and competition for consumers in local markets.
Specifically, on his tech critiques, Stiglitz’s essay misses five key facts:
1. Stiglitz’s argument that the rich are shaping the “rules of the game in ways that favor them” ignores the risk that moving away from the consumer welfare standard will politicize antitrust policy.
AAG Makan Delrahim points out the current antitrust approach guards against the very real risk that antitrust becomes politically motivated. “Nor is that a small risk or merely a theoretical proposition. For example, when we were preparing our complaint in the AT&T/Time Warner case, we received a curious request from a state antitrust enforcer. They told us they would only join our case if we provided written assurances that no divestiture would go to Fox or to Rupert Murdoch. They actually wanted to direct the divestiture based on the viewpoint of the buyer, not on what benefits competition or consumers, as defined by the consumer welfare standard. We, of course, rejected the request, because it would have been unconstitutional to accede to it.”
Maureen Ohlhausen, former FTC Commissioner: Disregarding consumer benefits in favor of another approach is concerning. “Given the clear consumer benefits of technology-driven innovation, I am concerned about the push to adopt an approach that will disregard consumer benefits in the pursuit of other perhaps even conflicting goals. But believing that consumer welfare is the appropriate goal of antitrust does not mean being passive or embracing the view that antitrust in the pursuit of consumer welfare cannot be improved. Antitrust law has changed as our understanding of market dynamics has gotten more sophisticated, and it should continue to evolve as we refine our predictive tools. If those tools suggest that competition will be harmed and consumers made worse off from the behavior of any firm, even a platform, antitrust enforcers should act.”
2. While rising concentration in some industries has coincided with falling labor share, reduced investment, and unhappy consumers, the opposite is true in the tech sector.
In the technology sector, labor share is up and gross margins are down, per research by PPI’s Michael Mandel:
Recode reported that the tech industry leads in R&D spending:
Consumers feel positively about tech and trust companies to do right by consumers per a Springboard survey earlier this year:
3. Stiglitz writes, “Technological changes have concentrated market power in the hands of a few global players, in part because of so-called network effects,” but network effects guarantee nothing.
MIT’s Catherine Tucker explains that network effects “are not the guarantor of market dominance that antitrust analysts had initially feared.” “Shifts in the nature of technology away from hardware towards purely digital platforms reduce the likelihood of a positive feedback loop that can reinforce incumbency. Network effects no longer imply entrenchment but instead can lead to instability.”
4. Stiglitz argues that “entry is hard and risky” and says fixed costs make entrance to the market prohibitive. But this ignores that leading services give new entrants a leg up.
NetChoice’s Carl Szabo and Steve DelBianco write that leading tech platforms help small businesses reach more consumers. “Anti-business advocates claim that ‘big is bad.’ But for America’s small and mid-size businesses, the bigger the platform the better for trying to reach larger audiences. Consider the local custom furniture store. Just fifteen years ago businesses like this one could barely afford to place an ad in a local newspaper, let alone on TV or radio. But now, thanks to large online platforms, for less than ten dollars small-business can reach thousands of potential customers and target them more accurately than ever.”
5. Stiglitz’s claim that a firm, once established, “is hard to dislodge” overlooks the competition and churn of the tech sector.
Economists David Evans and Richard Schmalensee: “Multihoming” leads to high churn in the tech sector. “People can use multiple online communications platforms, what economists call ‘multihoming.’ A few people in a social network try a new platform. If enough do so and like it, then eventually all network members could use it and even drop their initial platform. This process has happened repeatedly. AOL, MSN Messenger, Friendster, MySpace, and Orkut all rose to great heights and then rapidly declined, while Facebook, Snap, WhatsApp, Line, and others quickly rose.”
Evans has previously noted that leading tech services compete against one another in 27 different categories.