Understanding Monopolization through Socio-Economic Research
by Melike Arslan
There has been much discussion in recent socio-economic scholarship on the rising wealth inequality around the world (discussion around Piketty 2017 being exemplary). One important dimension of this phenomenon has recently attracted more attention: the rise of monopolization, especially in the US (Philippon 2019; De Loecker and Eeckhout 2017). Domination by two or three companies has become more common across many sectors of the economy directly affecting consumers, including airlines, phone services, medicines, hospitals, supermarkets, and even movie theaters (Lynn 2009; Stoller 2019). But particular attention has been given to monopolization in the digital economy. A handful of “platform firms” (Culpepper and Thelen 2020), mainly Google, Facebook, Amazon, and Apple, have harnessed tremendous market power by dominating the online marketplaces where buyers and sellers meet and exchange goods and services. In order to understand growing wealth inequality, we must also understand how the current level of monopolization has come about and been sustained, what institutional conditions enable it, what problems it creates for consumers, laborers and democracies, and lastly, what can be done to eliminate or prevent it. This piece intends to sketch an analysis of the topic of monopolization in light of socio-economic scholarship, using the example of the online platform monopolies.
Monopolies are producers that have the ability to dictate the prices and terms of sale for specific products, thanks to ineffective competition from other producers. This gives them the ability to extract wealth from their consumers, laborers, and smaller competitors, more so than the average producers in competitive markets. Monopolies also hold more political power: they can protect their wealth and economic advantages by affecting the regulations and laws in their environment. Some economists suggest that monopolization in platform economies is a natural consequence of economic “network effects” (Evans and Schmalensee 2013), which means that an increase in users also increases the value of a good or service. However, a closer look at the history of this sector reveals that monopolization has emerged and grown as a result of human design and social institutions.
A number of antitrust (also called competition law) cases demonstrate that platforms’ corporate decision makers have employed exclusionary and exploitative business strategies to eliminate competitors and expand their dominance. For example, in the 1998 antitrust case against Microsoft, the US courts found that Microsoft expelled its competitor’s browsing application (Netscape) from the market by tying its own browser to its Windows operating system.[1] A more recent European Union competition law case similarly found that Google excluded its browsing and search engine competitors by requiring the installation of its own search engine on Android operated phones.[2] Google has also been accused of systematically ranking its competitors’ shopping, maps, images, and travel booking apps lower in its search results.[3] Amazon too has been accused by antitrust experts of using its platform privileges to increase the visibility of its own merchandise (Khan 2016). Besides these exclusionary practices, the platform firms have also engaged in numerous mergers and acquisitions to buy out their competition. For example, from 2004 to 2014, Google spent almost $23 billion to buy 145 smaller tech firms, while Facebook acquired over 80 competing social media and texting service providers.[4]
These corporate decisions were not made in isolation, rather they were shaped by their institutional and legal environments (Fligstein 2002; Edelman and Suchman 1997). Most directly, the “coding” of digital technologies as capital through intellectual property (IP) rights (Pistor 2020) gives these firms monopoly rights over their products. IP rights have been strengthened in the last three decades through trade agreements – like the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) of 1994 – with the argument that they are necessary for incentivizing innovations (Sell 2003). At the same time, the monopoly-friendly turn in US antitrust law and policy since the 1980s has allowed companies to pursue these exclusionary strategies (Christophers 2016). The growing influence of the Chicago School of Law and Economics has led the US courts and antitrust authorities to accept “consumer welfare” as the only goal of antitrust policy and perceive most monopolistic conduct favorably (Davies 2010). Moreover, the growing role of economic experts and expertise in antitrust enforcement has allowed large corporations to win cases by outspending public authorities and smaller competitor plaintiffs in antitrust cases (Eisner 1991). Lastly, the disproportionate weight given to demonstrable and sustained price increases as evidence of monopolistic harm ignores the other harms created by digital monopolies that do not have a price tag.
Monopolization by platform firms is at the core of many problems experienced in online services and the tech industry today. Most consumers do not pay for accessing these digital services with their wallets: they pay with their data. Consequently, most harmful effects of monopolization are felt in how consumer data is harnessed and monetized. For example, when previously there were multiple social media services, Facebook offered better quality services, data security, and respect for users’ privacy. However, since it has become a monopoly, Facebook rolled back on quality by increasing the number of advertisements and requiring users to grant more access to their private and commercially valuable information (Srinivasan 2019). The lack of accountability in how platforms collect consumer data became a hotly debated issue when Facebook gave a political consultancy access to its users’ data to be used for political campaigns during the 2016 US presidential elections.[5] Furthermore, while most of the problems with misinformation, counterfeit products, and extremist propaganda on these platforms stem from the lack of public regulations over third-party content[6], monopolistic strategies certainly contribute to the tolerance for this harmful content, since it serves to expand control over digital advertising markets by prolonging consumer engagement.[7] Lastly, monopolistic tech companies are often also “monopsonies”, which means they can control the price and terms of purchase of their inputs, including labor. Consequently, the mistreatment and underpayment of contract workers (also called gig workers) have become chronic problems in the tech industry.[8]
These problems have provoked substantial public mobilization in recent years from progressive journals and investigative journalists, civil society organizations, grassroots organizations, think-tanks, and research institutes, who aim to raise awareness about these issues and pressure governments for policy changes. For example, the “Freedom from Facebook” campaign (which later expanded to include Google), consists of a coalition of twelve think-tanks and organizations that lobby in Washington and publish ads to highlight Big Tech’s abuses in social media.[9] A coalition of restaurant owners across the US is pressuring cities and states to enact regulations on the practices of food delivery apps, which is a sector that has increased in concentration in recent years through mergers and is currently dominated by four companies.[10] These efforts may seem small compared to the Big Tech’s political donations, lobbying, and investment in friendly think-tanks to protect their interests[11], but they have succeeded in creating cracks in what seemed like an impregnable barrier just a few years ago.
Policy makers have started to pay attention as well, and they are already evaluating their policy options to deal with these platform monopolies. Among the numerous solutions being discussed is a new set of regulations on the third-party content published on online platforms, regulations regarding how consumer data can be collected and used, and an expansion of the rights of gig workers. Another potential solution is to treat digital platforms as “essential facilities”, like transportation networks or energy utilities, and impose special requirements on dominant firms in these sectors to give indiscriminate access to their services to other providers, even competitors.[12] Among all the possible solutions, most policy attention has been focused on “breaking up” the Big Tech through antitrust. The House Antitrust Subcommittee has just wrapped up a 16-month long investigation into Amazon, Apple, Facebook, and Google with bipartisan support[13], and published a report that calls for breaking up these tech monopolies.[14] Following this, a collection of state attorneys, in collaboration with federal antitrust authorities, filed antitrust complaints against Google and Facebook.[15] If these complaints succeed, they can overturn the existing US antitrust law precedence that narrowly interprets antitrust rules, which can then be expanded to tackle monopolization in other sectors of the economy.
Monopolization as a socio-economic topic has multiple facets that require attention, especially in the current moment of increased public attention and potential for policy changes. This brief sketch sought to show the usefulness of the theoretical and empirical lenses of socio-economic scholarship in evaluating the monopolization phenomena. Some possible directions for future research include questions around how corporations make monopolistic decisions and strategies, how these decisions are shaped by political institutions and laws, how the social and economic problems of monopolization incite political and social mobilization, and what social and economic policies would be more effective in dealing with these problems.
Bibliography
Christophers, Brett. 2016. The Great Leveler. Harvard University Press.
Culpepper, Pepper D., and Kathleen Thelen. 2020. “Are We All Amazon Primed? Consumers and the Politics of Platform Power.” Comparative Political Studies 53 (2): 288–318.
Davies, William. 2010. “Economics and the ‘Nonsense’of Law: The Case of the Chicago Antitrust Revolution.” Economy and Society 39 (1): 64–83.
De Loecker, Jan, and Jan Eeckhout. 2017. “The Rise of Market Power and the Macroeconomic Implications.” National Bureau of Economic Research.
Edelman, Lauren B., and Mark C. Suchman. 1997. “The Legal Environments of Organizations.” Annual Review of Sociology 23 (1): 479–515.
Eisner, Marc Allen. 1991. Antitrust and the Triumph of Economics: Institutions, Expertise, and Policy Change. UNC Press Books.
Evans, David S., and Richard Schmalensee. 2013. “The Antitrust Analysis of Multi-Sided Platform Businesses.” National Bureau of Economic Research.
Fligstein, Neil. 2002. The Architecture of Markets: An Economic Sociology of Twenty-First-Century Capitalist Societies. Princeton University Press.
Khan, Lina M. 2016. “Amazon’s Antitrust Paradox.” Yale LJ 126: 710.
Lynn, Barry C. 2009. Cornered: The New Monopoly Capitalism and the Economics of Destruction. John Wiley & Sons.
Philippon, Thomas. 2019. The Great Reversal: How America Gave up on Free Markets. Harvard University Press.
Piketty, Thomas. 2017. Capital in the Twenty-First Century. Harvard University Press.
Pistor, Katharina. 2020. The Code of Capital: How the Law Creates Wealth and Inequality. Princeton University Press.
Sell, Susan K. 2003. “Private Power, Public Law.” Cambridge University Press.
Srinivasan, Dina. 2019. “The Antitrust Case against Facebook: A Monopolist’s Journey towards Pervasive Surveillance in Spite of Consumers’ Preference for Privacy.” Berkeley Bus. LJ 16: 39.
Stoller, Matt. 2019. Goliath: The 100-Year War Between Monopoly Power and Democracy. Simon and Schuster.
Footnotes
[1] United States v. Microsoft Corp., 253 F.3d 34
[2] https://money.cnn.com/2018/07/18/technology/google-eu-fine-android/index.html
[5] https://www.wired.com/story/cambridge-analytica-facebook-privacy-awakening/
[6] Section 230 of the US Communications Decency Act states: “No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider”, which absolves digital platforms from any content posted on their platform, which includes any hate speech by radical political groups, fraudulent advertisements, and selling of counterfeit.
[8] For Amazon’s treatment of its workers, see: https://www.theguardian.com/technology/2020/feb/05/amazon-workers-protest-unsafe-grueling-conditions-warehouse. For Uber and Lyft drivers see: https://www.npr.org/2019/05/08/721333408/uber-and-lyft-drivers-are-striking-and-call-on-passengers-to-boycott
[9] https://www.wired.com/story/freedom-from-facebook-open-markets-institute/
[10] https://forgeorganizing.org/article/organizing-strategies-fight-corporate-power
[11] For an example of how Big Tech exert influence over think tanks through donations see: https://www.nytimes.com/2017/08/30/us/politics/eric-schmidt-google-new-america.html
[12] Perhaps it’s important to note that Amazon has already been treated as an essential service provider under the pandemic and received special exemptions from the lockdown measures.
[13] The growing bipartisan support in the US Congress to divide up the four largest platform monopolies point out to the unique potential of the antimonopoly agenda in uniting right- and left-wing political ideologies even under growing political polarization.
[14] https://prospect.org/power/triumphant-return-of-congress-big-tech-antitrust-hearing/
[15] Google complaint: https://www.wsj.com/articles/california-seeks-to-join-justice-department-antitrust-case-against-google-11607719192?mod=e2tw, Facebook complaint: https://www.nytimes.com/2020/12/10/technology/facebook-antitrust-suits-hurdles.html