ICYMI: Economist Timothy Taylor: “It’s Not Enough To Rave Against The Size Of Big Tech”
Economist and managing editor of the Journal of Economic Perspectives Timothy Taylor argued, “It’s not enough to rave against the size of Big Tech” and, in the context of calls for antitrust action, pointed out that “while it’s easy to sketch in the air an argument about network effects, the question of how network effects work in reality isn’t a simple one.”
Citing research from a number of economists, Taylor argued:
Despite network effects and potential data advantages, the technology sector has always experienced high rates of churn. Taylor cited David Evans of the Global Economic Group, who pointed out that multihoming – consumers’ use of multiple online platforms – has led to the demise of many companies over the years.
Aggressive antitrust action against leading tech services is not only unnecessary, but could stifle competition and innovation. Taylor reminded readers that when it comes to antitrust law, “it’s necessary to get specific.” When these tech companies are providing customers with free services and products, overzealous regulation would harm consumer welfare, and could even cement incumbents’ position against startups.
There Has Consistently Been High Churn In The Technology Sector, And Network Effects Have Existed For Centuries
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.” (Timothy Taylor, “Network Effects, Big Data, And Antitrust Issues For Big Tech,” Conversable Economist, 2/13/18)
Economist Timothy Taylor: Network Effects Are Not Isolated To The Technology Industry – They Have Been Around For Centuries. “The idea that an already-popular meeting place has an advantage isn’t limited to the virtual world: many shopping malls and downtown areas rely on a version of network effects, too, as to stock markets, flea markets, and bazaars.” (Timothy Taylor, “Network Effects, Big Data, And Antitrust Issues For Big Tech,” Conversable Economist, 2/13/18)
Excessive Antitrust Action Is Unnecessary And Would Actually Hurt Competition
Economist Timothy Taylor: Unnecessary Regulation Against Leading Tech Services “Could Close Off New Competitors.” “It’s not enough to rave against the size of Big Tech. It’s necessary to get specific: for example, about how public policy should view network effects or online buyer-and-seller platforms, and about the collection, use, sharing, and privacy protections for data. We certainly don’t want the current big tech companies to stifle new competition or abuse consumers. But in pushing back against the existing firms, we don’t want regulators to set rules that could close off new competitors, either.” (Timothy Taylor, “Network Effects, Big Data, And Antitrust Issues For Big Tech,” Conversable Economist, 2/13/18)
Economist Timothy Taylor: Being Profitable Is Not Illegal, Especially When Providing Consumers With Free Services. “At least under modern US law, being a monopoly (or a near-monopoly) is not illegal. Nor is making high profits illegal, especially when it is accomplished by providing services that are free to consumers and making money through advertising. Antitrust kicks in when anticompetitive behavior is involved: that is, a situation in which a firm takes actions which have the effect of blocking actual or potential competitors.” (Timothy Taylor, “Network Effects, Big Data, And Antitrust Issues For Big Tech,” Conversable Economist, 2/13/18)