March 24, 2022
The Judiciary Committee's final report gave the Democrats what they wanted:
excuses to pursue antitrust action against Big Tech. But there's a big glitch: the tech giants' alleged offenses don't rise to the standard required under current antitrust law. So to actually follow through, the Democrats are compelled to legislate a major revision of the antitrust code.
Illicit market power enables firms to steal trillions from consumers, but Big Tech is not the problem. The tech giants are poor antitrust targets for two reasons.
1. Antitrust is the wrong remedy. Without a doubt big digital platforms operate in ways that are potentially dangerous, but the danger is sociopolitical not economic. It stems from algorithms that curate and steer information in a way that promotes polarization, reinforces absurdities and could tilt the outcome of an election. But antitrust law, whose bailiwick is economic behavior, is the wrong medicine for a sociopolitical cancer. That's why smart policy-wonks like Francis Fukuyama recommend a regulatory framework.
2. Google, Amazon and Facebook (GAF) benefit consumers enormously! Under current law, prosecution requires evidence of harm to consumer welfare, usually manifest as extortionate pricing. But GAF are distinguished by the exact opposite: they furnish users a smorgasbord of valuable services at a ZERO price, i.e., FOR FREE. This boost in consumer welfare makes them very unlikely targets for antitrust action.
Furthermore, the value of those services is enhanced by their huge scale, thanks to "network effects." After all, "sharing" is not worth very much when the number of people in the network is small. Similarly, the quality of Google Search gets better as more people use it; and that improvement, in turn, attracts more users. The same virtuous cycle applies to Amazon: more choices in the Amazon marketplace attract more shoppers, and more shoppers attract more sellers.
The value of GAF's Freebies is huge.
To estimate the magnitude of the boost in consumer welfare, researchers at MIT measured the "surplus value" of digital services, i.e., the difference between the price users are willing to pay and the actual (zero) price. Their research finds that consumers are enormously better off because of those free services.
For example, Google's freebies -- search, email, maps, and video -- provided US users with almost $6 trillion in surplus value in 2019. On top of that, users of Facebook and Amazon Marketplace gained surplus value worth $192 billion, for a grand total $6.15 trillion.
It's worth noting that 88% of that total is generated by Search and Gmail alone, which testifies to how indispensable they have become in all domains of life, including work.
How monopolistic are they, really?
if Big Tech's accusers applied the conventional textbook definition of monopoly power they would be forced to admit that the Tech Giants really don't measure up. This definition emphasizes pricing power: monopoly power exists when deficient competition enables the dominant firm to charge its paying customers an excessive price.
In the case of GAF, the paying customers are not the users, but the advertisers who bid for access to the users' eyeballs. In other words, GAF are purveyors of ad-space in the advertising market, and in that market they have little monopoly power.
Google and Facebook's share of the advertising market is 20% and 12% respectively. In other words, 68% of advertising spending is captured by their competitors: TV, radio, print, and other online venues. If the duo actually exercised monopoly power, we would expect the price of advertising to go up. But in fact, their ascendance in that market has actually pushed Ad prices down.
Amazon's online retail operation is not a monopoly either. True, in 2018 Amazon commanded a healthy 37% of online sales, but it also competes with brick& mortar. So, Amazon's share of total retail sales was only 6%, which is less than Walmart's.
From the users' side of the market, aren't Facebook and Google monopolies?
If the market is narrowly defined, such as the Internet Search Market, then Google looks monopolistic. After all, it is used 15 times more often than Bing. Likewise, in the narrow social network domain, Facebook dominates Snapchat and Tik-Tok.
So, according to the antitrust crusaders, the duo's dominance in those narrow markets guarantees that consumers will miss-out on the wonderful innovations that might materialize if there were more competition. Deficient competition makes them complacent and sclerotic.
But that argument is undercut by the fact that Facebook and Google also compete in the wider mass media market, which is dominated by formidable rivals, such as cable TV, video streaming, gaming, and even print media. They are all competing for eyeballs, or more precisely, for a piece of the consumer's discretionary attention, the average supply of which is fixed at about 6 hours/day. A company's success in commanding eyeball-time depends on the value of the content it offers users. In this regard the average American spends 2.84 hrs. per day watching TV but only 0.63 hours on social media. The evidence suggests that eyeball-time on Facebook has already reached the top of the S-curve, as young people gravitate elsewhere.
So, contrary to the crusaders, Facebook and Google are compelled to innovate and improve, because the only way they can grow is to lure eyeball-time away from those formidable rivals. That's the point of Zuckerberg's "metaverse;" an innovative experience that commands more eyeballs.
The point is, the Democrats' obsession with auspicious tech giants is a missed opportunity to expose the real masters of rapacious market power.
The worst of those profiteers is the relentless billing machine known as the "healthcare industry." Its pricing power is the main reason that the average American spends $5000 more on healthcare per year than equally wealthy Europeans.
Extensive pricing power derives not only from firm size, but from a host of flaws in the operation of markets, such as information asymmetry, misaligned incentives, restrictive certification requirements, regulatory loopholes and regulatory capture. And the healthcare industry exploits them all!
Some examples: the AMA and other guilds limit the supply of physicians through their influence over the licensing pipeline; drug companies with expiring patents pay generic manufacturers to delay production; hospital mergers create local monopolies; and those that don't merge engage in a costly "technology arms race."
So, while the healthcare industry's excessive prices extract at least $800 billion from the pockets of consumers each year, "progressive" Democrats demonize digital platforms whose excess profits amount to $15 billion. Is it possible the politicians were impressed by the $310 billion the healthcare industry contributed to political campaigns in 2015-16, compared to the paltry $21 billion from GAF.
The political calculus behind politicians' twisted priorities.
Blowback from major innovations.
GAF exemplify creative destruction; successful innovations create winners and losers. While Amazon nibbles away at brick & mortar retail, Google and Facebook suck advertising revenue from local print newspapers. Many others feel threatened and disadvantaged.
So its no surprise that lobbying by malcontents has mobilized a political reaction against the winners. As evidence of GAF's abuse of power, the Judicial Committee marshaled complaints from smaller firms about how Big Tech's dominance hurts their bottom line or treats them unfairly.
Oddly, many complaints refer to normal competitive business practices that are construed as an abuse when done by Big Tech. For example, it's perfectly fair for a firm to copy non-patented features of a competitor's product... but not when Amazon does it. Also, paid product placement is accepted practice in supermarkets and TV shows, but somehow it's unfair when Google Search does the same.
Channeling the late Senator Wright Patman, the Committee appears to believe that small firms have a fundamental right to endure, even when the giant competitor is more efficient and creates more value for consumers. When Patman championed this "right" in 1939, the Goliath was the A&P supermarket chain and the small firms were local grocers, butchers, and bakers. He attempted to legislate a progressive tax designed to cripple big supermarket chains. The bill never passed, but if it had, do you think consumers, especially those of modest means, would be better-off?
The political elite wants to protect its authority from the content unleashed by social media.
Thanks to the likes of Facebook, Twitter and Google, the sources of information available to the public has exploded. The normal hierarchical flow of information has been disrupted by a multitude of skeptical voices - bloggers, videographers, and twitter feeds.
According to Martin Gurri, "as the amount of information available to the public increases, the authoritativeness of any one source decreases." More sources of information means more ways to discredit the folks in power. Once the politician's control of information is lost, so too is our trust.
The Democrats learned the hard way that the ramifications of social media's babble were unpredictable, and could come back to bite them. Their incredibly successful use of social media in the 2008 presidential election suffered a reversal of fortune in the 2015-16 campaign. First, the DNC's blatant treachery against Bernie Sanders was exposed by Wikileaks. Meanwhile, the Democrats were outdone by Trump's use of social media to mobilize a fanatically enthusiastic following and drag them to the polls. Clearly, social media's freewheeling circulation of information jeopardized the politicians' control of the narrative and hence their authority.
So, in June 2019 the Democrat led Judiciary Committee launched its investigation which included public interrogation of Bezos, Zuckerberg and Google’s Pichai. In reality the investigation functioned as a degradation ceremony designed to make the digital oligarchs more compliant with the interests of the political elite.
Did it work? Well, not only did the tech giants double their campaign contributions from 2016 to 2020, but on the eve of the 2020 election Facebook and Twitter censored the New York Post's explosive Hunter Biden laptop story; and they dutifully amplified the Democratic falsehood that the story was "Russian disinformation." Then, when it was clear that the Democrats would take power, Facebook and Twitter permanently canceled Donald Trump.
In case you haven't been paying attention, the Post's original story was corroborated by the New York Times in March 2022.
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