Digital Monopoly without Regret

Abstract

Attacks on Amazon, Google, and Facebook have tended to ignore a key lesson of the theory of monopolistic competition: that big is not always bad. A monopolist grows large because consumers prefer the firm’s products. The only question for the antitrust laws is whether consumers prefer the monopolist’s products because the monopolist has improved its products relative to those of competitors, or because the monopolist has degraded the products of competitors without improving its own. Only product-degrading conduct is socially harmful and violative of the antitrust laws. Although a complete accounting of conduct by Amazon, Google or Facebook is not yet available, examples of conduct highlighted by the press of late build a case against Facebook alone. Amazon’s biased promotion of its own products over those of third-party sellers makes Amazon better, by helping consumers avoid fakes sold by third parties on Amazon’s website. Google’s use of information gleaned from its publishing platform to offer the best prices for ad placement via the company’s advertising exchange improves Google’s advertising exchange. But Facebook’s termination of competing apps’ access to friend lists does appear to have degraded the quality of competing apps without improving Facebook’s own social media products, suggesting both harm to society and the possibility of antitrust liability.

Keywords: antitrust, monopolization, tech giants, refusal to deal

JEL Classification: L41