A ques­tion of choice

Politi­cians have failed to prove that con­sumers lose out to gi­ant com­pa­nies Ryan Bourne

The Daily Telegraph - Business - - Front Page - RYAN BOURNE Ryan Bourne holds the R Evan Scharf chair for the public un­der­stand­ing of eco­nom­ics at the Cato In­sti­tute

US politi­cians grilled the chief ex­ec­u­tives of Face­book, Google, Ap­ple and Ama­zon in Congress on Wed­nes­day over fears the com­pa­nies en­gage in an­ti­com­pet­i­tive be­hav­iour. The ex­tra­or­di­nary spec­ta­cle fol­lowed a re­cent UK Com­pe­ti­tion and Mar­kets Au­thor­ity re­port con­clud­ing that Face­book and Google un­fairly dom­i­nate com­po­nents of the dig­i­tal ad­ver­tis­ing mar­ket. Some pol­i­cy­mak­ers now seem de­ter­mined to “take on” Big Tech – whether by break­ing up com­pa­nies, en­forc­ing di­vest­ment, or di­rectly reg­u­lat­ing them.

Yet watch­ing the grand­stand­ing law­mak­ers and pars­ing the CMA re­port, an ob­vi­ous prob­lem be­comes clear. Nei­ther has any ro­bust ev­i­dence that con­sumers are harmed by tech com­pa­nies’ cur­rent ac­tions. In­stead, it is as­sumed that com­peti­tors’ com­plaints about tech com­pa­nies’ busi­ness prac­tices are syn­ony­mous with com­pe­ti­tion be­ing un­der­mined.

Given their sheer size and preva­lence, “Big Tech” firms cer­tainly oc­cupy a “psy­cho­log­i­cal mo­nop­oly” sta­tus in to­day’s land­scape. Yet economists know that big need not be bad for cus­tomers, es­pe­cially when high user num­bers en­hance the ser­vice or com­pany size re­flects de­vel­op­ing the best prod­uct.

All th­ese busi­nesses com­pete with each other across nu­mer­ous do­mains, from dig­i­tal as­sis­tants to de­vices and stream­ing. What mat­ters from a com­pe­ti­tion per­spec­tive is whether each dom­i­nates any rel­e­vant prod­uct mar­ket, re­strict­ing com­pe­ti­tion to con­sumers’ detri­ment.

Defin­ing that rel­e­vant mar­ket is eas­ier said than done. Google be­gan as a user search engine, yet com­petes for paid cus­tom in dig­i­tal ad­ver­tis­ing. In­creas­ingly peo­ple don’t use Google to search for web­sites, but to get quick in­for­ma­tion or see a des­ti­na­tion they’re look­ing for, in­clud­ing via maps, flight book­ings, videos and more. Th­ese are sub-sec­tors with many com­peti­tors.

Face­book ar­guably faces more com­plex strands of com­pet­i­tive pres­sure. It com­petes with any web­site spoiling for users’ time – in­clud­ing in mes­sag­ing, tele­coms, news­feeds, con­nec­tion apps, re­view web­sites and more. Its pay­ing cus­tomers are, again, ad­ver­tis­ers, who en­joy a range of op­tions for plac­ing ads, as shown by a re­cent Face­book boy­cott by some ad­ver­tis­ing com­pa­nies.

Ama­zon and Ap­ple have more ob­vi­ous “core” mar­kets. But even be­yond op­er­at­ing in the re­tail and phone sec­tors, the pair com­pete across other prod­ucts, from e-books to op­er­at­ing sys­tems. Both have de­vel­oped rich dig­i­tal ecosys­tems that al­low third par­ties to sell goods or apps, ac­tively broad­en­ing com­pe­ti­tion in many sec­tors.

It’s cer­tainly true that Big Tech com­pa­nies, while pro­vid­ing open­ings for small busi­nesses, have dis­rupted many oth­ers, from news­pa­pers to high street shops. But that’s con­sumer-led cap­i­tal­ism, as pointed out in Ama­zon owner Jeff Be­zos’s open­ing state­ment. Govern­ment shouldn’t use com­pe­ti­tion pol­icy to pro­tect in­cum­bents from prod­ucts or ser­vices con­sumers pre­fer. Its job should be to pro­tect the wel­fare of cus­tomers who ben­e­fit from dy­namic com­pe­ti­tion.

Here, the big pic­ture shows a boon for users and ad­ver­tis­ers. Ama­zon de­liv­ers goods to us more ef­fi­ciently than ever. Ap­ple has trail-blazed with smart­phones and apps. Face­book and Google pro­vide us with valu­able ser­vices free at the point of use. Dig­i­tal ad­ver­tis­ing costs over­all have fallen by 40pc in the past decade, with bet­ter tar­get­ing. In­stant mes­sag­ing is free. All this has im­proved our re­silience in the pan­demic.

To say Big Tech en­gages in harm­ful, an­ti­com­pet­i­tive con­duct then you have to make the more spec­u­la­tive case that all th­ese ben­e­fits we’ve en­joyed would have been de­liv­ered in more frag­mented mar­kets. That, if just a few more so­cial me­dia com­pa­nies, app plat­forms, search en­gines and on­line retailers ex­isted, we’d have seen lower prices still, lower ad­ver­tis­ing costs, bet­ter pri­vacy and more in­no­va­tion.

Such spec­u­la­tive hy­po­thet­i­cals have proved nec­es­sary in the ab­sence of real ev­i­dence of con­sumer harm. The CMA re­port, for ex­am­ple, used the term “could be” 91 times, “we be­lieve” 27 times, and “might” 76 times. As NetChoice’s Christo­pher March­ese con­cluded, such spec­u­la­tion might be ex­pected when an­nounc­ing a com­pe­ti­tion re­view, but not in a re­port jus­ti­fy­ing huge govern­ment in­ter­ven­tions in the func­tion­ing of the world’s big­gest com­pa­nies.

The US politi­cians’ fo­cus on the im­pact of Big Tech on com­peti­tors high­lighted the lack of ev­i­dence of harm to con­sumers. A lot ex­pressed wor­ries about the ef­fects of sup­pos­edly ag­gres­sive tech merg­ers and ac­qui­si­tions on the com­pet­i­tive land­scape – in­clud­ing Google’s pur­chase of YouTube and Face­book’s of What­sApp and In­sta­gram.

Yet as Face­book founder Mark Zucker­berg ex­plained, th­ese merg­ers en­hanced real-world com­pe­ti­tion by strength­en­ing com­pe­ti­tion to tra­di­tional TV and mo­bile com­pa­nies. While in hind­sight th­ese merg­ers might look like tech com­pa­nies snuff­ing out pos­si­ble com­pe­ti­tion to their own ser­vices that pre­sumes ac­quired com­pa­nies would have done as well with­out the in­vest­ment and ex­per­tise of their pur­chasers. One could hardly claim con­sumers have suf­fered worse or fewer ser­vices as a re­sult, re­gard­less.

Con­fus­ingly, other times the politi­cians com­plained about hav­ing more com­peti­tors in mar­kets,

‘This has served a use­ful pur­pose in ex­pos­ing the paucity of any com­pe­ti­tion case against th­ese com­pa­nies’

be­moan­ing in­stances where Ama­zon and Google used data they’d ac­quired to en­ter new prod­uct lines. Ap­par­ently, Big Tech com­pa­nies com­pet­ing with ex­ist­ing busi­nesses through lower priced own-brand prod­ucts is a bad thing.

The lack of ev­i­dence about con­sumer wel­fare, how­ever, was prob­a­bly best ex­em­pli­fied by how many ques­tions at­tacked the com­pa­nies for non-eco­nomic rea­sons, such as al­leged fail­ures in fight­ing on­line harms, or con­tent mod­er­a­tion choices. Yet th­ese have lit­tle to do with mar­ket struc­ture and com­pe­ti­tion. There’s no rea­son to think smaller com­pa­nies would do bet­ter polic­ing crim­i­nal ac­tiv­ity or pro­tect­ing speech.

In all then, the con­gres­sional tes­ti­mony, like the CMA re­port, served a use­ful pur­pose in ex­pos­ing the paucity of any com­pe­ti­tion case against th­ese com­pa­nies. Yes, they are big and hold hard-earned in­cum­bency ad­van­tages, whether on user num­bers or data. But their suc­cess over­whelm­ingly comes from con­sumers valu­ing their ser­vices.

If you think sus­tained dom­i­nance for th­ese com­pa­nies is just as­sured, how­ever, with­out them en­gag­ing in con­tin­ual in­no­va­tion to stay on top, you should check out how well MyS­pace, AOL In­stant Mes­sen­ger and Mi­crosoft In­ter­net Ex­plorer are do­ing to­day.

Jeff Be­zos, the Ama­zon boss, tes­ti­fies on Capi­tol Hill in Washington

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