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ANALYSIS: Big Tech Isn’t A Monopoly — It’s Worse

(Photo by JUSTIN TALLIS/AFP via Getty Images)

Bradley Devlin General Assignment & Analysis Reporter
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Big Tech corporations that have come to dominate the internet function as an oligopoly, despite frequently being characterized as having a “monopoly.” An oligopoly is worse, and most American policy is addressed specifically to breaking up monopolies.

A monopoly is a single company that produces goods with no close substitute (and thus, controls the price). An oligopoly is when a small number of firms produce comparable goods, as noted by Investopedia. They then can engage in blatant, or sometimes hidden, collusion, and use their market power to set prices, according to Investopedia. Beyond setting prices, this cartel action can insulate from competitive forces and slow innovation, Investopedia reported.

WASHINGTON, DC – OCT. 28: CEO of Alphabet Inc. and its subsidiary Google LLC, Sundar Pichai, appears on a monitor as he testifies remotely during the Senate Commerce, Science, and Transportation Committee hearing ‘Does Section 230’s Sweeping Immunity Enable Big Tech Bad Behavior?’, on Capitol Hill, Oct. 28, 2020 in Washington, DC. CEO of Twitter Jack Dorsey; CEO of Alphabet Inc. and its subsidiary Google LLC, Sundar Pichai; and CEO of Facebook Mark Zuckerberg all testified virtually at the hearing. Section 230 of the Communications Decency Act guarantees that tech companies can not be sued for content on their platforms, but the Justice Department has suggested limiting this legislation. (Photo by Michael Reynolds-Pool/Getty Images)

Certain market indicators show that an oligopoly holds inordinate amounts of control of the internet, as well as the e-commerce and social networking performed on it. In terms of cloud services, Amazon’s Amazon Web Services (AWS) has 33% of the market share, according to Forbes. Microsoft takes second place with 18% and Google third with 9%, according to Forbes. Add them together, and 60% of the internet is controlled by these three companies alone. By itself, Amazon was the recipient of just over one-fifth of all online retail sales in the third quarter of 2020, according to Digital Commerce 360. As of February 2021, Google controlled more than 85% of the search engine industry, according to Statista. (RELATED: They Deeply Want To Annihilate Dissent — These 3 Components Are Key To Their Success)

Beyond these tech giants, mass media could also be considered an oligopoly, as 90% of U.S. media outlets are owned by just five corporations: Walt Disney (DIS), Time Warner (TWX), Viacom CBS, NBC Universal and News Corporation (NWSA), Investopedia noted. These companies are quickly swooping in to capture their market share of streaming content, an industry that in its fledgling stage was considered a could-be competitor. Netflix, the original popular streaming service, is now trying to keep up with Disney+, Discovery+ and similar programs.

Like oligopolies, monopolies can also use their power to increase barriers to entry, but are often more obvious than oligopolies — as seen in the Gilded Age examples of John D. Rockefeller’s Standard Oil Company, and the American Tobacco Company. Their market power prompted the passage of the Sherman Antitrust Act of 1890, and both were broken up in the early 20th century, Britannica noted.

Oligopolies are often harder to identify than monopolies because incentives still exist for members of the group to cheat or violate the spoken or unspoken agreements between firms, according to Investopedia. These infractions allow market mechanisms to help set a lower price closer to market equilibrium for a period of time, presenting consumers and governing entities with a veneer of competition as consumer welfare increases. But even in these conditions, firms can still wield disproportionate market power and work to ensure continued dominance.

These traits of oligopolies create problems for policymakers because the United States’ policy is so monopoly-oriented. As Columbia Law School professor Tim Wu noted in a 2013 piece for The New Yorker, “Our current approach, focused near-exclusively on monopoly, fails to address the serious problems posed by highly concentrated industries.”

“When companies act in parallel,” Wu continued, “the consumer is in the same position as if he were dealing with just one big firm. There is, in short, a major blind spot in our nation’s oversight of private power, one that affects both consumers and competition.”

One of the examples of companies acting in parallel Wu employed in his piece was “parallel exclusion,” where the firms within the oligopoly raise barriers to entry and attempt to keep out other competitors from the market. What Amazon, Apple and Google did to the social media upstart Parler might fall under this category of coordinated behavior. After Amazon Web Services suspended Parler from hosting its service on its web infrastructure, Apple and Google banned it from their application stores.

Industry factors can also aid in the creation of oligopolies or monopolies. High entry costs in technology, capital and labor (like software engineers and complex servers), can even make a well-functioning and competitive market in an industry difficult to enter, Investopedia noted.

Furthermore, certain industries quickly gravitate towards oligopolies because its products are more desirable when centralized. This might seem confusing because of the early anarcho-libertarianism of early Silicon Valley capitalists and the early internet age ethos that championed a free internet owned by no one.

The first time Clinton Treasury Secretary Robert Rubin allegedly saw an internet browser, he asked who owned it, according to historian Margaret O’Mara. He was baffled when the response he got was, “No one.” Ask the average person the same question today and you’re bound to get a name of some kind, whether it’s Amazon founder Jeff Bezos, Facebook founder Mark Zuckerberg, or Google’s Larry Page (the really savvy might even say Sergey Brin, the head of Alphabet Inc.’s board, which is Google’s parent company). 

But former President Barack Obama’s Council of Economic Advisers noted that “network effects” might tend to consolidate market power in an April 2016 report.

“Some newer technology markets are also characterized by network effects, with large positive spillovers from having many consumers use the same product. Markets in which network effects are important, such as social media sites, may come to be dominated by one firm,” the report said.

This makes quite a bit of sense, especially when it comes to tech and social media, because the ability to find nearly anyone on the social networking firms of Twitter and Facebook or find search results for nearly any topic or product on Amazon and Google is of intrinsic value to consumers of these products.

However, the question policy makers face now is whether the centralization and the accumulation of market power among these tech giants in order to serve certain benefits to consumers does or can serve America’s interest or the common good of the people.