The following is an excerpt from Herbert Hovenkamp’s new book, “Tech Monopoly,” now out at MIT Press.
The subject of this book affects everyone, often in ways that people do not realize. Our lives are shaped big tech. Even the vanishing number of people who have never used a computer or cellular phone are affected by tech products and services, including television and other media, or by family members who use it. Most Americans deal every day with at least one of the five largest tech companies, Amazon, Alphabet (formerly Google), Apple, Meta (formerly Facebook), or Microsoft. All are among the ten largest firms in the world. But the term “big tech” refers to many others as well, including Uber, Tesla, eBay, Samsung, Adobe, Oracle, IBM, Texas Instruments, and Intuit. Some large tech firms deal with other business firms but not so directly with consumers. These include Intel, Qualcomm, AMD, Micron, TSMC (Taiwan Semiconductor), and others. Not to be forgotten are large media or social networking companies whose products are heavily digital, including Netflix, Disney, Viacom, Comcast, MSNBC, Fox, Spotify, X (Twitter), and Tik-Tok. Finally are financial services firms that operate on digital platforms, including Fidelity, Schwab, Paypal, Visa, American Express, and many others.
Virtually every firm today uses tech in some way, so identifying tech firms by use is not helpful. Rather, a tech firm is one that either develops digital technology or that uses it as an important part of its production or distribution. Some firms, such as Spotify, sell digital content exclusively. Others, such as Amazon, Apple, or Texas Instruments, sell a mixture of digital and traditional “tactile” content. For example, Amazon streams music and movies but also sells toasters, bicycles, and wrenches. It will also sell you a movie on DVD if you prefer. Others, such as Uber, sell non-digital services but operate on a digital network for coordinating rides.
The term “monopoly” refers to products, not to firms. Only a few of the products sold by these firms are monopolies. Likely examples are Google Search, which controls as much as 90% of consumer search on personal computers and mobile devices. In addition, Amazon controls nearly 70% of the ebook market, although ebooks are only 20% of the overall book market. Microsoft Windows is the operating system for more than 70% of desktop and laptop computers, but it has a much smaller percentage for tablets, and its market share for smartphones is less than 1%. That market is dominated by Alphabet’s (Google’s) Android and Apple’s iPhone. Meta (Facebook) may or may not be a dominant firm depending on who are included as competitors. Netflix is very large, but it streams programming in competition with Amazon Prime, Disney, Hulu, Apple TV, MAX, and others.
In most cases size is a poor measure of market dominance. Most firms sell multiple products. Amazon in particular sells 12 million of them. That explains why its overall size is very large, while its share of individual products is often quite small. Importantly, you as a customer are typically looking for a single product, and the question for you is the number of realistically available alternative sellers for that product. For example, if you want to buy groceries the fact that Amazon’s market share is 2.5% gives a much better reading of the extent of competition than the fact that it is the largest online retailer. There may be situations in which size is more important, but one needs to be careful. In most cases market share of a particular product tells you much more about competitive alternatives than the absolute size of the seller.
Another important characteristic of big tech is that collectively these firms have produced economic growth about three times greater than the growth rate of the economy as a whole. They are also large employers, with educated workforces, and responsible for similar and outsize growth rates in the job market. Firms in these markets also innovate much more than the economy as a whole. Indeed, in recent years all of the ten firms that obtained the most patents were in tech.
At the same time, big tech firms also have features and practices that have aroused antitrust concern. They are involved in many mergers, although healthcare (including drugs), banking and financial services also have high merger rates. Tech firms also participate in networks, or agreements that involve competitors, more than most other industries. Traditionally antitrust enforcers have been suspicious of agreements among competitors, even though many are economically beneficial.
Tech firms have also displaced many firms that were dedicated to older technologies or methods of doing business. For example, the rise of Amazon has been a brutal experience for main street retailers. Netflix and other video streamers have been devastating for the DVD business and traditional movie theaters. Uber and Lyft have caused serious damage to the traditional taxicab industry. The digital camera killed the film camera, and today the smartphone camera is killing the dedicated digital camera.
How much of this is an antitrust problem is the central subject of this book. Chapter One gives an overview of the history, capabilities, and limits of antitrust. Chapter Two discusses the problem that is sometimes characterized by the press as “bigness.” Should antitrust be concerned about big firms, or rather should it be concerned by high prices in consumer markets, low innovation, or harm to labor markets? Chapter Three then focuses more narrowly on the activities of technology companies themselves: what are the unique threats to competition that they present? A closely related question is how much should these problems be addressed by antitrust law, or when should we turn to other areas of law, which are frequently more specific? Finally, Chapter Four examines the difficult problem of remedies. Once we have decided that Meta (Facebook) or Amazon have been behaving anticompetitively, what should we do about it? Should we break them up? If so, how? Or are there less disruptive or more effective ways of dealing with the problem?
Painting a pretty picture is not an important goal of this book. Antitrust law can be complicated and messy. It sharply divides people by politics and ideology. Some of its answers depend on assumptions that are not universally held. Producing economically and socially acceptable solutions is hard. As with so many complex policy areas, it contains a “core” of principles that tend to produce widespread agreement, but also some principles on both edges that are more controversial.
Reprinted with permission from “Tech Monopoly” by Herbert Hovenkamp, published by MIT Press. © 2024 by MIT Press. All rights reserved.
Articles represent the opinions of their writers, not necessarily those of ProMarket, the University of Chicago, the Booth School of Business, or its faculty.
