Antitrust and Big Tech, and Is Corporate Lobbying A Good or Bad Thing?
SEASON 1 –– EPISODE 13 MAY 17, 2018, After Hours.
Here’s the gem–in a previous episode of “HBS After Hours,” the conversation delved into the increasingly contentious realm of antitrust, particularly as it pertains to the titans of technology. The hosts, Youngme Moon, Mihir Desai, and Felix Oberholzer-Gee, unpacked the implications of large corporations’ market behaviors and the (possibly waning) effectiveness of antitrust as a regulatory mechanism.
Their conversation feels easygoing yet surprisingly rich with insights, perfectly embodying an “After Hours” vibe. It’s the perfect podcast to relax with at night—each discussion is like a nugget of wisdom that’s both enjoyable and thought-provoking.
surprise! in the age of the internet
To begin with, decades ago at the dawn of the age of the internet, people thought that the new information technology will finally makes the perfect competition tale come true. Felix said in the podcast:
[Felix] You remember the day when we all thought that the internet would lead to a super competitive economy. Very difficult to make money because consumers know everything, they know all the products and all the prices.
It’s as if the economics textbook has come alive. Competition would flourish."
But the joke’s on us, or at least the antitrust regulatory authorities:
[Felix] And now, in a way, the opposite seems to have happened. Instead of getting sort of this competition between many, many, many companies, we get these gigantic companies.
There’s a concern that antitrust laws may not be fully equipped to handle modern mega-corporations that leverage scale to dominate markets, potentially leading to higher prices and less innovation. And worst, we’re still on the doorstep of these giant palaces of the unmeasurables of this new economy.
For example, these concentrated businesses’ effect on wages
[Felix] And I think the reason I’m less sure about [antitrust] it is, one, obviously in the most seemingly anti-competitive places like high tech, wages are blowing through the roof. So it’s not exactly clear that that simple story holds up. And then second, I think there are other things going on with wages. So I guess in general, this is like one of those questions where I feel like I’m not exercised enough about it. Maybe I don’t understand exactly what the drama is."
network effect
But the prophecy isn’t entirely incorrect–competition does become fiercer.
[Youngme] As consumers, we have access to more companies than ever before. In other words, the competitive space in just about every industry seems to have gotten more crowded. So there’s more choice, prices have come down, there’s more information symmetry, all the things that you would want in an environment like this.
Alas–the network effect. Uber, instagram, facebook–the more their user, the more attractive these companies’ products becomes. Growth of popularity then leads to more control over the market, so they become bigger and bigger in such feedback loop.
The matter becomes more scary when one takes into account of merger and acquirement. The challenges faced by emerging companies like Snapchat in a market dominated by large tech giants, where decisions about mergers and acquisitions can significantly impact their survival and growth:
[Youngme] Snapchat is a great example. Snapchat had an opportunity to do that [sell themselves to one of the big players]. And there’s this existential moment when they have to decide, do I continue to try to go it alone?
So Instagram decided to sell to Facebook. YouTube sold to Google. Snapchat decided to go it alone. And it’s having a hell of a time because it is competing in a market where there are so many benefits associated to scale on the consumer side that it’s very difficult to sustain itself. Twitter’s having the same problem.
who is the product anyway?
The traditional paradigm of product market, where on one side we have the firms offering products and the other side consumers make purchases. The structure is different
[Felix] So there’s that old saying that if you’re getting a service that feels like it’s free, then you’re the product.
That’s essentially what all of these companies are doing. So they are owning the relationship with you. You’re getting very low prices. You’re getting a huge amount of benefit. But as a result of owning that relationship, they can then turn around and they can take advantage of everybody else on the other side of that business model. And as a result of having this sort of inverted business model, they can expand into any new vertical they want. They can essentially circumvent all antitrust laws.
conclusion
The dialogue on antitrust must evolve to address these complexities, considering not only the immediate effects on prices and consumer welfare but also the richer structure of the internet economy, that these tech giants raises broader impacts on innovation, market entry, and labor conditions.
Moving forward, policymakers, businesses, and consumers alike will need to engage in more nuanced discussions and possibly reframe antitrust laws to better suit the realities of a digital, interconnected economy. This ongoing conversation is crucial as we navigate the fine line between fostering healthy competition and preventing market dominance that can stifle economic diversity and innovation.