A question of choice
Politicians have failed to prove that consumers lose out to giant companies Ryan Bourne
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