![Lina Khan, Chair of the Federal Trade Commission (FTC), testifies on May 15, 2024 in Washington DC. Khan, a Biden appointee, is a stern critic of Big Tech companies](/https/www.telegraph.co.uk/content/dam/news/2024/06/18/TELEMMGLPICT000377748847_17187220279200_trans_NvBQzQNjv4BqZHrTyqqLjLkPKjc3TsrXSQkXbXF73exa4CG7A9Mc8D8.jpeg?imwidth=680)
![Lina Khan, Chair of the Federal Trade Commission (FTC), testifies on May 15, 2024 in Washington DC. Khan, a Biden appointee, is a stern critic of Big Tech companies](/https/www.telegraph.co.uk/content/dam/news/2024/06/18/TELEMMGLPICT000377748847_17187220279200_trans_NvBQzQNjv4BqZHrTyqqLjLkPKjc3TsrXSQkXbXF73exa4CG7A9Mc8D8.jpeg?imwidth=680)
Big Tech has been an important driver of recent US economic growth and commentators are becoming increasingly optimistic about its potential contribution to economic growth and innovation over the next few years. This might seem paradoxical and surprising, however. After all, the US government, along with its counterparts in the EU and UK, are pursuing a number of anti-trust actions against the alleged monopoly power of Big Tech firms. Reports for these authorities have suggested that the market power of these companies has been increasing in recent years.
Don’t monopolists restrict the quantities produced (to force up the price) and aren’t they famously less driven to innovate (because they face less competitive pressure threatening their survival)? So how can they both be increasing their market power and be drivers of growth?
There are three parts to the answer. First, monopolies can arise even in rapidly-growing markets. However, it is important to recognise that even when there may be monopolists as a growing market matures, it can be a struggle to work out in advance which the monopolists actually are (or are going to be) under such circumstances, and it’s easy to get it wrong. A notorious example of this is some of the discussion about the social networking company MySpace. A Guardian article in early 2007 noted that “it may already be too late for competitors to dislodge MySpace”. Facebook had been opened to the general public five months earlier.
Second, monopoly can enable and speed innovation; it’s isn’t always an impediment. The profits that monopolists generate can be used to innovate, so as to keep the monopolist in the dominant position. Those innovations can add value, leading to the total value of the output of the monopolist rising.
Third, and perhaps most importantly the characterisation of Big Tech firms as being in general monopolists (as opposed to having significant market power in a relatively small number of narrow markets) is probably wrong. It is undisputable that there have been, and presumably continue to be, competition issues in the Big Tech sector. Notorious cases have included Microsoft’s anticompetitive behaviour towards Netscape and there will doubtless be others in future.
But competition authorities have recently gone beyond investigating specific instances of anti-competitive behaviour to a more general designation of certain Big Tech firms as automatically monopolists by their nature. These include Google, Apple, Meta, Microsoft, Amazon and Nvidia, referred to as the GAMMAN.
The claim is that certain characteristics of tech markets, including in particular network effects (e.g. users of a social media platform such as Facebook get more value from it if there are more other users; the bigger the network the bigger the gain), lead such markets to “tip” such that once a firm gets vested as the biggest player it cannot be replaced. The Big Tech firms are then all regarded as monopolists. Furthermore, if such firms try to extend their activities from their existing markets into new markets, that is regarded as anti-competitive leveraging of a monopoly in one market into market power in other markets.
This analysis misses many important features of tech sectors. In particular, it misses what economists call “supply-side substitution” and new entry via vertical extension. Supply-side substitution occurs when a firm that sells one product is able to use its production tools for that product to instead make and sell a different product. In the tech sector a famous recent example of this is Meta’s Instagram Threads network. Instagram was focused on videos and pictures. But when Elon Musk’s Twitter (now called X) seemed vulnerable, Meta adapted its Instagram offering to include an option to post text and missed text/image/video content, like Twitter.
Vertical extension is where a firm selling at one level in a supply chain (e.g. wholesale) extends its offering to another part of that same supply chain. An example of this would be a firm like Amazon that supplies cloud computing services to AI providers then creating its own AI foundation model (Amazon’s is called Titan).
On the anti-tech politicians’ way of thinking about things, this is either impossible (supply-side substitution typically isn’t recognised as a concept at all) or anti-competitive. Yet how does it make sense to say that if another Big Tech firm has an 80 percent market share in some sector, then if a Big Tech rival enters that market to create a new, significant alternative (like Threads as an alternative to Twitter), that is anti-competitive?
There have been significant competition issues in the tech sector and will be in future. But politicians and regulators need to be careful not to kill the golden goose in seeking to address them. AI and other emerging technologies are key to developed countries escaping the growth malaise they have experienced since the Global Financial Crisis. Big Tech firms mustn’t be too stifled in their attempts to help us all achieve that escape.
Big Tech firms are powering the US economy. Politicians shouldn’t stop them
Developed countries need to escape the growth malaise we’re in