Focusing on Facebook, Google’s monopoly misses bigger point

The heads of four of the U.S.’ biggest technology companies — Alphabet, Apple, Facebook and Amazon — appeared before Congress last week to respond to criticism that they have too much market power. The hearing showed that lawmakers are beginning to understand what is and isn’t important when it comes to regulating these large businesses. And it also showed an increased focus on the most important area of antitrust policy — mergers and acquisitions and whether regulators have exercised enough vigilance.

The five biggest tech companies (the four that testified, plus Microsoft) now represent more than onefifth of the market capitalization of the S&P 500. Their value has only risen in the coronavirus pandemic.

When a few companies get this big and dominant, it makes sense to think about how they might be using their size to unfairly control markets.

One typical defense against such allegations is that tech companies are not monopolies. Whether this is true depends on how markets are defined — for example, Google is overwhelmingly dominant among search engines, but has only about a third of digital ad revenues. Facebook CEO Mark Zuckerberg argued that his company faces intense competition in many markets, especially from the other top tech companies.

But focusing on whether a company is a monopoly misses the point. Oligopolies, where a few big companies dominate the market, also tend to wield some degree of market power. In theory, that can allow powerful players to jack up consumer prices, underpay workers and squeeze suppliers.

The biggest worry concerns suppliers. Platform companies depend on a network of third-party companies — merchants who sell on Amazon, websites that run Google ads, app developers who sell on Apple’s App Store and so on. The platforms’ size potentially allows them to extract a lot of value from these smaller companies, demanding a larger share of their revenue or even creating and then favoring their own competing offerings.

It’s a good thing that Congress focused some of its attention on the need to maintain fair relationships between platforms and suppliers. Ultimately, this issue will probably have to be resolved with regulation because breaking up platform companies would eventually cause new platforms to emerge and become dominant.

Another concern is the prices that online service companies charge advertisers. By some estimates, more than half of digital ad spending now goes to either Google or Facebook, with the fastest-rising competitor being Amazon. Advertisers are the true paying customers for free online services for consumers.

Zuckerberg admitted in the hearing that he purchased social networking company Instagram in 2012 as a way to head off a potential competitor. There have been allegations that the company has attempted or threatened to do the same with other young social networks, telling them that if they didn’t accept an offer, Facebook would launch a competing product and drive them out of existence.

Ultimately, that could raise prices for advertisers, if Facebook properties are the only way for them to reach social media users. Those sorts of buyouts and buyout threats could also have a chilling effect on startup formation and economic dynamism because even the threat of competition from a dominant company can deter new entrants. Columbia Law School professor Timothy Wu has argued that such buyouts are illegal under current antitrust law.

So if there’s any case for antitrust action against Big Tech right now, it probably has to do with the acquisition of upstart competitors.

In any case, it’s a very good thing that Congress is beginning to pay more attention to the problems of industrial concentration and oligopoly in the U.S. economy. Big Tech is obviously the most well-known and popular case, but with concentration rising across most industries, these hearings will hopefully be a jumping-off point for a broader reexamination of the value of mega-mergers and huge, dominant companies.