The monopoly is as old as capitalism itself. It is logical that a system built on the premise of private profit makes having complete control over supply or trade of a commodity attractive; this way you would maximise profits by simply being the sole recipient of all revenue. Despite this, monopolies have been warned against, viewed with suspicion and seen as eradicators of the competition the free market is supposed to thrive on. Today the Internet is home to some of the largest and most complete monopolies in capitalism’s history, – think Google, Facebook and Amazon – behemoths dominating their respective markets, yet convenience seems to have overpowered caution in consumers’ eyes.
Today the Internet is home to some of the largest and most complete monopolies in capitalism’s history
According to the New York Times, Google rules the market of search advertising with an 88 percent share; this isn’t unusual, since all the monopoly giants like Facebook, Amazon, or Alibaba often command 60-90 percent of their respective markets. The strategy for making it big is no longer direct competition with incumbent companies; rather it is being able to find a niche market, then raise capital by taking advantage of existing Internet and mobile infrastructure, and spread across the globe like Uber has. Another approach companies use once they have capital is buying up the competition – think Facebook with Instagram and Whatsapp.
Monopolies are not explicitly illegal
Monopolies are not explicitly illegal, and those who don’t use dishonest practices to become monopolies are viewed as innocent or natural monopolies. Something about the Internet seems to tend towards the emergence of natural monopolies, the most textbook example being Google. Google had first comer’s advantage – by providing a slightly superior product at a time when Internet membership grew exponentially, it gained a foothold it has not lost since then. Its search services these days are not objectively much more superior than those of Bing. Yet, despite the cash Microsoft has invested in the engine, the underdog has failed to catch up, even becoming a running joke.
Once the foot is in, the Network Effect of the Internet causes exponential growth. In real life if your friend buys a fancy car, you don’t need to buy the same brand of fancy car to get most of the same coolness properties. On the net however, if all your friends are on Facebook, you don’t want to be all alone on MySpace; therefore services who have more users attract more users. This way these services also have the means to become better. Google now has the massive advantage of troves of information it has already gathered from users; the same goes for Amazon and Facebook, allowing them to keep their algorithms intelligent. Thus when they have become so large and efficient, the complacency of the user sets in, making most people unwilling to click over to a competitor when the main provider does the job free and easy.
Some, like Paypal’s cofounder Peter Thiel, hold the opinion that some monopolies are good. They claim that when a company is the best at providing a service, competition is nothing but disruptive. Monopolies may be both more secure in their power and have more capital to innovate, than smaller companies locked in competition with others. This has been partially true of Amazon whose investors have taken its constant growth as a good sign; as such, the company has focused on reinvesting profits in innovation and further growth rather than profit returns for shareholders. In some areas monopolies make sense because the service provided benefits from consistency. Such areas are mostly public utilities like the telephone, water, power and rail. However, it is crucial to note that, whilst these are monopolies, they are also regulated where Internet monopolies are not.
when a company is the best at providing a service, competition is nothing but disruptive
While it is always good to give dissenting opinions, we shouldn’t lose sight of why monopolies are so feared in the first place. With control over the market comes great power. By killing off the competition, monopolies often engage in price-fixing where they raise prices for the commodity, also leading to higher inflation. Less competition means less drive to innovate but also fewer incentives to provide high quality products – because at the end of the day, where are people going to go?
Becoming an Internet monopoly may be natural; keeping your monopoly often requires shifty practices and causes damage to consumers and small competitors. Whilst some users don’t realize the cost they pay with their personal information, even those that do, have no choice since there are no major Internet services that do not save, store, and analyze your data. They suffocate small content creators by gobbling up advertising dollars. As a result, ad-dependent creators must negotiate with them to stay alive, often paying extortionate prices for ads. Another indirect network effect allows these companies to charge producers whatever they like for use of their platform since theirs is the most widespread amongst the audience the producers are trying to reach.
Google has notoriously been in trouble for promoting its own services at the top of its search results. Through its “Featured Snippets” it scraps info from other sources (sometimes without crediting them), and features them on the search results page, taking clicks and thus revenue from other providers. Some claim that since it is Google’s search engine, they may do what they please. Others worry that the giant, which is spreading into other areas like health care and self-driving cars, may become the supreme digital monopoly to the detriment of the consumer, the competitor, and democracy itself. This may sound dramatic but the recent 2016 election “fake news” fiasco Facebook was involved in by allowing and promoting false stories, shows the power that information monopolies hold has over our collective consciousness. Not to mention the lobbying power they have amassed due to sheer size.
it may seem like nothing can be done but history proves this wrong
It may seem like nothing can be done but history proves this wrong. AT&T, the telecommunications monopoly in America is allowed to exist but has its rates and percentage of profits spent on research and development regulated. An argument could be made that Google is a public utility and needs to be regulated in a similar manner. We could go the traditional route and force monopolies to sell their smaller companies – like the decision to break up Standard Oil in the early 1900s – but this wouldn’t be a long-term solution.
We could require Google to license out patents for its algorithms and innovations so competitors can survive, whilst perhaps preventing already giant conglomerates from acquiring more companies. Another slow-down tactic that doubles as a content-control measure would be changing “safe harbor” laws that currently allow companies like Google, Facebook and Twitter not to assume responsibility for controversial content produced by others (that is simultaneously earning them money by being on their platform); this could encompass graphic content as well as “fake news”. Users could be given ownership over their “social graph” which is all their connections to other users, and allowed to move these graphs over to competing platform; at the moment if you are a Facebook user, your connections belong to Facebook. There are possibly dozens of other options to rein these colossal companies in and give them some responsibility; what we shouldn’t do is nothing.