The attention of American and European policymakers to the five major technology giants Alphabet, Amazon, Apple, Facebook and Microsoft has steadily increased. Regulators are increasingly concerned about the size of these companies and their potentially negative impact on market competition. On July 29, 2020, the CEOs of Alphabet, Amazon, Apple and Facebook faced a joint antitrust hearing in Congress for the first time in history (The Economist, 2020). You have been asked to respond to various allegations of anti-competitive behavior. Apple had to justify the 30% fee for its online shop. Instead, Google had to defend itself against allegations of abuse of dominance in connection with online. Amazon responded to an unfair use of merchant data. Eventually, Facebook was called to take over Instagram. At the same time, Slack Technologies filed a competition complaint against Microsoft with the European Commission (ibid).
Although both the American Republican and Democratic parties propose different approaches, they express bipartisan concerns about large tech companies (Lee and Shubber 2020). On the other side of the Atlantic, however, policymakers seem willing to go a step further. Europe, France and the Netherlands have proposed a document to the European Commission highlighting the need to take action against tech giants (Espinoza and Khan 2020). Such a document includes, among the various measures proposed, the possibility of a drastic “dissolution” of these companies. Overall, the decline in competition in the USA has been documented by several studies across several sectors and using different measures (e.g. Gutierrez and Philippon 2018, Autor et al. 2020, De Loecker et al. 2020). Nonetheless, these papers conducted a multi-sector analysis without specifically focusing on technology companies. In this context, this short article attempts to partially fill this gap by presenting data on the Big Five and the industries in which they operate.
Figure 1 shows the relative changes in the share of sales of the four largest companies in a specific industry (CR4 indicator). As we can see, the concentration has increased in industries that include the Big Five alongside Facebook.
At the level of the individual companies, the market shares of the Big Five have risen sharply (Figure 2). In 2019, their market shares are substantial, especially at Apple, which generates nearly 75% of its industry revenue. These data show that the industries analyzed are more like oligopolies than competitive markets. For this reason, these trends should be the first alarm bell to sound for regulators.
However, industry concentration is only one measure of competition that needs to be examined in conjunction with other statistics. Another metric that is often used to evaluate the market power of companies is markups, which are calculated as the ratio between prices and marginal costs. In an ideal, perfectly competitive market in which companies are price takers, the prices are equal to marginal costs and therefore the markups are equal to one. Of course, the perfectly competitive market of classic economics is more of an abstraction than a reality, but markups are still valid indicators for capturing the market power of large companies.
In the industries in which Amazon and Apple operate, markups have remained relatively stable throughout the period under review, while in Microsoft’s they ultimately declined. On the contrary, in the alphabet industry we see an initial spike in premiums and then relatively stable behavior. Perhaps the most surprising case is that of Facebook, where the relative change in premiums peaked at more than 800% in 2017 after rising steadily. Given their relative weight, it’s not surprising that the trends in premiums for the Big Five companies reflect industry-wide developments (Figure 4). In short, the picture seems less dramatic from a markup point of view with respect to competition than what emerges from analyzing concentration and market share.
The question that naturally arises is: how should regulators react to this data? Deviating from pure economic theory, the answer is by no means clear and depends on the preferences that shaped the views of the political decision-makers of the time. In general, the regulators’ preference for antitrust and competition policy can be divided into two macro-categories: company-related and market-based. Such ideal preference categories are not fixed and can change over time (Peinert 2020). The company-based approach, which is derived from the so-called Chicago tradition, does not see industry concentration per se as a problem as long as the well-being of the consumer is not impaired (Ergen and Kohl 2019). Building on this tradition, policy-making should be guided by changes in premiums rather than by concentration indices. The reason lies directly in one of the milestones in the economy: The first law of welfare. Since the welfare of society is maximized and no profits are made in a world of price companies, the higher the markups, the further from the Pareto optimum we are, with the lower the consumer welfare. On the other hand, the market-based approach is also mentioned Ordoliberaldeals with maintaining free and competitive markets, ideally populated by a few very large companies and many small and medium-sized companies, thereby enhancing the principles of economic freedom (ibid). It follows logically from this that among these preferences, a high concentration of industries and large market shares are grounds for action.
These different approaches arguably make up the Atlantic divide between American and European policymakers: the former take the business-based approach, while the latter take the market-based approach. The American company-based approach can be reflected in the US regulators’ milder focus on large companies and the loosely blocking of dominance mergers vis-à-vis European colleagues (Kwoka and White 2008, Bergman et al. 2010). During the Bush administration, US antitrust law was relaxed and the Justice Department changed its guidelines to make it more difficult to sue large corporations for anti-competitive measures (Cassidy 2013). Instead, the market-oriented approach of the European authorities can be found in the more aggressive antitrust policy towards large technology companies, exemplified by the Google shopping Decision of the European Commission, in which Google was punished for abuse of dominance (Portugal 2020). It is interesting that both approaches belong to the neoliberal thought, but at the same time reflect an internal contradiction in the core of this school. ONE Let go Corporate attitudes, an axiom of neoliberalism, increase market concentration and thereby distort competition, which is another fundamental milestone. This contradiction is captured by the question that Crouch (2009, p. 395) posed in his prominent article: “[Neoliberalism] is it about markets or giant companies? “
Beyond purely economic criteria is another light under which the valuation of giant tech companies that operate is political. In this respect, Lindblom’s words (1977: xxxvi-xxxvii) embody this idea: “The large private company strangely fits into democratic theory. In fact it doesn’t fit ”. Lobbying spend can be used as a proxy to capture this additional dimension. As shown in Figure 5, the Big Five lobby whooping cough funds ranged from $ 6 million to $ 22 million in 2018, and all of them are in the top 1% of the distribution of lobbying spending in the United States. Lobbying spending is clearly an incomplete measure of a company’s ability to influence the political process. At the same time, it is natural to ask why so much is being spent if there is no tangible benefit. Concerns about the political power of tech companies are captured by a recent poll by the Pew Research Center, in which 72% of adults in the US responded that social media companies have too much political influence (Anderson 2020). These figures show that large corporations are not only economic but also political actors, making it difficult to separate the political and economic spheres when discussing their activities (Crouch, 2009).
In this scenario, three main proposals for policy makers on both sides of the Atlantic were individualized. The first is not to focus on the concentration itself, but to assess it against a wide range of indicators and factors, such as the creation of barriers preventing the entry of new competitors and the real impact on consumers. In addition, less competition can be tolerated to some extent if it is the result of superior productivity and can encourage innovation (Aghion and Howitt 1992). Second, there is a need to develop transnational cooperation between regulatory authorities, as suggested by Büthe (2015). The reason for this argument is that these companies acquire an increasingly global dimension, the national regulator, even if its scope of jurisdiction is large – as in the case of the US and Europe – and this can prove insufficient in a democratic context. In addition, increased cooperation between national regulatory authorities can lead to a more homogeneous enforcement of competition and antitrust policy, which is currently lacking. After all, large companies should be evaluated not only in terms of their economic but also their political weight. The goal of regulators and policymakers in this regard should be to minimize the preferential access of technology giants to politics through their superior financial resources. This is not about competition, but about democracy.
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