Short-Termism and Antitrust's Innovation Paradox

Abstract

This Essay argues that there is an underappreciated link between the reasons large technology firms appear immune from the pressures of short-termism and the reasons Neo-Brandeisian antitrust advocates suggest breaking them up. The corporate short-termism hypothesis holds that short-term shareholder pressure depresses long-term investment because corporate managers are more concerned with meeting quarterly earnings targets than long-term growth. On this view, the reason “big tech” firms are immune from this dynamic is that they hold dominant positions in concentrated markets, with high cash flows and low capital intensity. As a result, their investor bases permit them to make significant long-term investments that divert cash from other uses.

On the other side of the coin, Neo-Brandeisians argue big tech firms should be broken up for largely the same reasons: their dominant positions and high cash flows. My argument is that, given pervasive short-termism, if big tech’s unusual investment is systemically important for innovation and productivity growth, breaking them up poses an underappreciated macroeconomic risk. I conclude that this investment must be replaced by significant public R&D to alleviate this risk or that less disruptive alternatives should be considered to avoid harming long-term innovation.

Keywords: antitrust, Neo-Brandeisian, big tech, technology breakup, innovation, investment, short-termism