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Google And Facebook Are Dominant But Not Monopolies

This article is more than 6 years old.

One of the latest little economic stories being fed into our ears is that Google and Facebook are monopolies, even natural monopolies, and that they thus need to be regulated. Regulated as utilities perhaps, but definitely the politicians should get to have a large say in what they do and how they do it. One source of this is Jonathan Taplin, author of the new "Move Fast and Break Things." The problem here is that Taplin doesn't seem to understand what a monopoly is. Further, he's unaware of the fact that we don't in fact regulate monopolies just because they are such even when they do exist. The important decision is whether they are trying to exercise, exploit, monopoly power or even market dominance. And that is only possible if the monopoly, or the market power, is secure, is not contestable. Contestable monopolies we can leave to the normal effects of competition to tame.

As an example of this, from an interview with Taplin:

Q: Do you think that without regulatory capture, antitrust charges would have been brought against Google?

Oh yeah. An 88 percent market share in search advertising? That is by definition a monopoly.

Umm, no, it isn't. Mono has the same meaning as "one" here and if there are other companies out there with 12% of said market then it's simply not a monopoly. Google may very well be market dominant but that again is not the same thing as a monopoly. So the basic definition being used is wrong. But then there's a greater error:

Q: At the Stigler Center conference on concentration, you called Google “the closest thing to a natural monopoly I’ve seen in my lifetime.” Can you elaborate?

I would say Google is as close to a natural monopoly as the Bell System was in 1956. If you came to me and said “Hey, I want to start a company to compete with Google in search,” I would say you’re out of your mind and don’t waste your energy or your time or your money, there’s just no way. Classic economics would say that if there’s a business in which there are 35 percent net margins, that would attract a huge amount of new capital to capture some of that, and none of that has happened. That tells you there’s something wrong.

Amazingly, Microsoft has devoted a considerable amount of money to competing with Google in search. OK, it's called Bing, it's so underground even hipsters haven't heard of it yet but it is there. And there are other competitors too. For example, some aren't all that fond of the way that Google sucks data in. Great, go use Duck Duck Go then. That not many people do doesn't detract from the fact that the choice is there. And that not many do rather shows that not many care about the manner in which Google sucks data in and thus that practice, it being something that not many demonstrably care about, does not need to be regulated.

But yes, it gets worse:

Q: Some, like Peter Thiel, argue that bigness is an essential part of the digital economy, that network effects are key to providing better services.

If Snapchat could really compete on an equal basis with Facebook that would be okay, but every time Snapchat introduces some new innovation, Facebook knocks it off shortly thereafter so that they won’t have any differentiation.

Because that's truly ridiculous. The reason we don't like monopoly is because it restrains, prevents even, innovation. The proof being used here that monopoly exists is that innovation is being accelerated. As soon as Snapchat does it then Facebook adds the new feature--this is accelerating innovation, not restraining it.

That is, Facebook certainly sees Snapchat as a threat to its market position. So, in the face of that threat Facebook constantly advances the services it offers. We are not seeing a slow down in innovation, far from it. And further, we can see that Facebook considers its market dominance to be contestable. And contestable monopolies, contestable market dominance, do not need to be regulated because we can leave that competition and contesting to do the regulation for us.

The entire idea that Facebook and Google need to be regulated, perhaps as utilities, is based upon an ignorance of the very subject under discussion. And if we're honest about it incoherence isn't a great basis for public policy.