In Case You Missed It: Tech & Competition Good Reads From The Holidays
After the whirlwind of a festive December and the start of a new year, here are a few good reads on leading tech services, competition, and the economics behind firm concentration.
More below.
“How Much Is Social Media Worth? Estimating The Value Of Facebook By Paying Users To Stop Using It,” from economists Jay Corrigan, Saleem Alhabash, Matthew Rousu, and Sean Cash
How much is social media worth to users? Apparently, for Facebook, it’s worth $1,000 a year to its 2 billion consumers. “Though the populations sampled and the auction design differ across the experiments, we consistently find the average Facebook user would require more than $1000 to deactivate their account for one year. While the measurable impact Facebook and other free online services have on the economy may be small, our results show that the benefits these services provide for their users are large.”
The findings confirm that the vast majority of benefits go to users, not the inventors. “As noted previously, Facebook reached a market capitalization of $542 billion in May 2018. At 2.20 billion active users in March 2018, this suggests a value to investors of almost $250 per user, which is less than one fourth of the annual value of Facebook access from any of our samples. This reinforces the idea that the vast majority of benefits of new inventions go not to the inventors but to the users.”
“From Population Growth To Firm Demographics: Implications For Concentration, Entrepreneurship And The Labor Share,” from economists Hugo Hopenhayn, Julian Neira, and Rish Singhania
Population and firm demographics can account for much of recent trends in increasing concentration and decreasing firm entry rates and aggregate labor share. “Recent decades have witnessed an increase of concentration, a decline in firm entry rates, and a decline of the aggregate labor share. We show that the interplay of population and firm demographics can account for much of these trends. We study the transitional dynamics generated by feeding observed labor force growth rates through a standard general equilibrium firm dynamics model. We emphasize the role of firm demographics as well as the role of the rise of labor force from the 1940s to 1970s in amplifying susbsequent [sic] changes in aggregate trends. Overall, our paper provides a unified quantitative explanation for a set of apparently disparate trends.”
The researchers model the increase in employment concentration “is entirely due to changes in firm demographics.” “Our analysis begins by highlighting the importance of firm demographics in driving these aggregate trends. We first document that the increase in employment concentration is entirely due to changes in firm demographics: an aging firm distribution combined with heterogeneity in employment concentration by firm age. The data shows that there has been no change in employment concentration within firm-age categories. However, across age-categories, older firms have higher employment concentration. Therefore a shift in the age distribution towards older firms drives the increase in concentration.”
“American Tech Giants Are Fiercely Competitive Monopolies,” from law professor and economist Nicolas Petit
Leading tech services compete against non-consumption — that is, a consumers’ inability to buy a product; in this, services compete to create markets. “Competition against the non-consumption often leads moligopolists to compete against other FAANG and non-FAANG firms.The concept of ‘competition against the non-consumption’ is an invention of Business-Strategy Professor Clay Christensen (better known for his work on the theory of disruptive innovation). The key point made by Christensen is that some firms essentially try to serve potential purchases that are not made by customers, because existing products or services are ‘too expensive or too complicated’ or try to deliver ‘new market applications for entirely new customers’.”
Petit proposes a framework for evaluating competition among leading tech services. “If the firm under scrutiny is a moligopolist subject to fierce multi-dimensional rivalry, this should be the end of the antitrust or regulatory inquiry. For consumers, this will ensure that a steady flow of innovative products will continue reaching the market. If the multi-dimensional, moligopoly competition is insufficient, the antitrust inquiry should focus in priority on conduct that elevates barriers on entrepreneurial resources, which are the engine of competition in digital markets.”
Petit’s moligopolists face many competitive pressures. “They [two datasets analyzed] offer a new picture of the FAANG firms’ competition. One in which each FAANG takes competition from other FAANGs, non-FAANGs (like AT&T, DELL, IBM and Oracle), foreign tech firms (like Spotify, Baidu and Tencent), and related companies (like Facebook versus Instagram or Google Maps versus Google Waze). Once this is understood, it is possible to see a lot of variations across FAANGs, and doubts that one-size-fits-all regulatory proposals are in order.”
“Talent, Tech Trends, And Culture,” from Marc Andreessen and Ben Horowitz of a16z and economist Tyler Cowen
Marc Andreessen notes the abundance of innovative technology. “The ideas are getting bigger, technologies are getting more disruptive, the companies that win are getting much larger, technology is more central in everyone’s lives. By the way, there’s more competition than ever; there are more tech services than ever. And so the kind of very special person who’s gonna conceive of an original idea and then be able to build a team and be able to prosecute the idea is going to be a very extreme person. So a lot of [venture funding] is discovery and then partnering with these extreme people.”