Breaking up big companies and market power concentration


2019/04/29 16:02

Senator Elizabeth Warren proposes the break-up of big tech companies. A report for the UK government presents another approach for regulating the digital economy. And IMF research serves as a reminder that concentration of market power extends beyond digital. This blog reviews the debate.


On March 8th, US senator Elizabeth Warren published an essay outlining her proposal to break up the country’s big tech companies, specifically naming Amazon, Google and Facebook. These companies, Warren maintains, have amassed excessive power: “Nearly half of all e-commerce goes through Amazon”, while “more than 70% of all Internet traffic goes through sites owned or operated by Google or Facebook”.

3月8日,美国参议员伊丽莎白•沃伦(Elizabeth Warren)发表了一篇文章,概述了她提出的拆分美国大型科技公司的提议,特别提到了亚马逊(Amazon)、谷歌和Facebook。沃伦认为,这些公司积聚了过多的权力:“近一半的电子商务是通过亚马逊进行的”,而“超过70%的互联网流量是通过谷歌或Facebook拥有或运营的网站进行的”。

What’s more, they have used this power to stifle competitors and limit innovation.  Warren blames “weak antitrust enforcement” for a “dramatic reduction in competition and innovation” in the sector, noting that “the number of tech startups has slumped, there are fewer high-growth young firms typical of the tech industry, and first financing rounds for tech startups have declined 22% since 2012”.


This reduction in competition and innovation, the argument goes, is taking place through two channels: acquiring potential competitors; and competing in a marketplace they own. Hence, the proposal to break-up big tech companies in fact consists of two distinct proposals for separation. First, to address the conflict of interest, companies that “offer to the public an online marketplace, an exchange, or a platform for connecting third parties” and generate annual global revenue above $25 billion would have to choose between owning the “Platform Utility” or participating in it.[1] Second, to re-establish a competitive landscape, Warren would appoint regulators tasked with reversing anti-competitive mergers using existing antitrust laws. She explicitly mentions the following mergers: Amazon with Whole Foods and Zappos; Facebook with Whatsapp and Instagram; Google with Waze, Nest and DoubleClick.

他们认为,竞争和创新的减少通过两个渠道进行:收购潜在的竞争对手;在他们自己的市场上竞争。因此,拆分大型科技公司的提议实际上包括两项截然不同的拆分提议。首先,为了解决利益冲突,那些“向公众提供在线市场、交易所或连接第三方的平台”、年收入超过250亿美元的公司将不得不在拥有“平台公用事业”和参与其中之间做出选择。第二,为了重建竞争格局,沃伦将任命监管机构,负责利用现有的反垄断法,逆转反竞争并购。她明确提到了以下合并:亚马逊与Whole Foods和Zappos;使用Whatsapp和Instagram的Facebook;谷歌与Waze, Nest和DoubleClick。

“America has a long tradition of breaking up companies when they have become too big and dominant,” says Warren. She recalls that when, in the 1990s, Microsoft “was trying to parlay its dominance in computer operating systems into dominance in the new area of web browsing”, the government brought an antitrust case against it that “helped clear a path for Internet companies like Google and Facebook to emerge” in the first place.


Warren is not alone in evoking examples from US antirust history to argue her position. Tyler Cowen, however, finds more similarities to an antitrust case brought against IBM in 1969 and takes the opposite view. The US government tried to break up the company when it “controlled nearly 70 per cent” of the computing-for-businesses market. “The suit ran on for 13 years, costing IBM and the government alike millions of dollars, not to mention the attention of IBM innovators,” writes Cowen. He adds that “the antitrust case arguably made IBM less able to identify the market shift toward personal computers” and contributed to a collapse of IBM’s market share and record losses.

沃伦并不是唯一一个从美国防锈史上举出例子来证明自己立场的人。然而,泰勒•考恩(Tyler Cowen)发现,这与1969年针对IBM的反垄断案件有更多相似之处,并持相反观点。当该公司“控制了企业电脑市场近70%的份额”时,美国政府试图分拆该公司。“这场官司持续了13年,IBM和政府都损失了数百万美元,更不用说IBM创新者的关注了,”考恩写道。他补充称,“可以说,这起反垄断案件降低了IBM识别市场向个人电脑转移的能力”,并导致IBM的市场份额暴跌,录得创纪录的亏损。

In Cowen’s opinion, major tech companies have been very effective innovators, and the proposed break-up could similarly distract and weaken them, thus ultimately hurting innovation. In fact, Cowen credits big tech companies for what others often accuse them: rather than using acquisitions to eliminate potentially threatening competitors, they have enabled the rise of their acquisitions through their vast means. He cites Alphabet’s (Google’s parent company) acquisition of YouTube and Android, and subsequent investment in and upgrade of their content and services, as prime examples of that.


Cowen also challenges the idea that big tech companies form true monopolies. In the social network space, Facebook still competes with a large numbers of alternatives, digital or not, and adds that “it’s easy to imagine Facebook becoming less of a major player with time”. In advertising, Google and Facebook may be leaders in the space but are still competing against each other, as well as other conventional players (e.g. television). Cowen also argues that when it comes to advertising, Google “is fundamentally a price-lowering institution for small and niche businesses that can now afford more reach for less than ever before”, which actually enables competition in other sectors. Therefore, although he is not “suggesting that all is well in the online world, and some critics make entirely valid points”, “vigorous antitrust response hasty and harmful”.


By contrast, Kenneth Rogoff sides with Warren and remarks that “the debate about how to regulate the sector is eerily reminiscent of the debate over financial regulation in the early 2000s”.  Much like in finance then, supporters of a light regulatory touch cite the tech sector’s complexity to justify it, powerful companies can afford very high salaries that attract talent away from regulatory bodies, and the role of US regulators is “outsize”. Thus, although “ideas for regulating Big Tech are just sketches, and of course more serious analysis is warranted”, Rogoff “could not agree more that something needs to done, especially when it comes to Big Tech’s ability to buy out potential competitors and use their platform dominance to move into other lines of business”.

相比之下,肯尼斯•罗格夫(Kenneth Rogoff)站在沃伦一边,他表示,“有关如何监管该行业的辩论,令人诡异地回想起本世纪初有关金融监管的辩论”。就像当时的金融业一样,支持放松监管的人士认为,科技行业的复杂性是合理的,实力强大的公司能够支付非常高的薪资,吸引人才离开监管机构,而美国监管机构的角色是“超大型的”。因此,尽管“的想法调节大型科技只是草图,当然更严重的分析是必要的”,罗格夫”不能同意,需要做更多的工作,特别是在大型科技收购潜在竞争对手的能力和使用他们的平台优势进入其他业务线”。

Published only five days after Warren’s essay, the ‘Report of the Digital Competition Expert Panel’ is yet another proposal for what should be done. The Economist summarises this report, prepared for the British government by a team led by Jason Furman, former chief economist to US President Obama.  The report’s authors argue that concentration is intrinsic to the digital economy because of network effects, and that sustained dominance can lead to higher prices, less choice and innovation.

在沃伦的文章发表仅五天之后,《数字竞争专家小组报告》(Report of the Digital Competition Expert Panel)就提出了应该采取的另一项措施。《经济学人》总结了这份由美国总统奥巴马的前首席经济学家贾森•弗曼领导的团队为英国政府准备的报告。该报告的作者认为,由于网络效应,集中度是数字经济的内在特征,持续的主导地位可能导致更高的价格、更少的选择和创新。

However, they reject the breaking-up of digital companies or regulating them with capped profits and tight supervision, like water or power utilities. Instead, the report suggests that government action should focus on stimulating competition and choice. One such action is introducing a code of conduct on competitive behaviour on big platforms, echoing another element of the Warren proposal. This code of conduct would, “for example, prevent an online marketplace such as Amazon from favouring its own products over those of a rival in a search result shown to a consumer”. Another measure is “data mobility”, which would reduce switching costs. With data mobility “individual customers could move their search and purchasing histories from one platform to another. Social-media users could post their messages to friends, regardless of the networking site those friends use. And anonymised bulk data gathered by one firm would be made available to new entrants with safeguards for privacy”.


The article describes the report as “balanced” and “first rate”, but also offers some scepticism. It wonders how “data mobility” will work in practice. It also questions the impact the report could have. To quote, “even if Britain were to adopt its recommendations, the tech titans are global in scope and American by nationality. Ultimately America and the EU (which Britain is due to leave soon) are the powers that will decide their destiny”.


This line hints at the bigger picture: regulation of big tech goes beyond competition and innovation, and touches on politics, both domestic and international. In tabling her proposal Warren aims, among other things, to “restore the balance of power in our democracy” by ensuring the privacy of users’ data and reducing the leverage companies have in demanding “massive taxpayer handouts in exchange for doing business” vis-à-vis local administrations.


For the tech sector, Ken Rogoff thinks “it is a problem that cannot be overcome without addressing fundamental questions about the role of the state, privacy, and how US firms can compete globally against China, where the government is using domestic tech companies to collect data on its citizens at an exponential pace”. More generally, Joseph Stiglitz remarks that “as corporate behemoths’ market power has increased, so, too, has their ability to influence America’s money-driven politics”. Since “the challenge, as always, is political”, Stiglitz expresses doubt that “the American political system is up to the task of reform” and believes that “it is clear that Europe will have to take the lead”.

科技行业,肯•罗格夫认为“这是一个无法克服的问题没有解决根本问题国家的作用,隐私,以及美国公司如何对中国参与全球竞争,政府使用国内科技公司收集公民的数据以指数的速度”。更广泛地说,约瑟夫•斯蒂格利茨(Joseph Stiglitz)评论道,“随着企业巨头的市场实力增强,它们影响美国金钱驱动的政治的能力也增强了。”由于“挑战一如既往地是政治性的”,斯蒂格利茨对“美国的政治体制能否胜任改革的任务”表示怀疑,并认为“很明显,欧洲将必须发挥带头作用”。

In one of its briefings The Economist goes even further, arguing that “if you want to understand where the world’s most powerful industry is heading, look not to Washington and California, but to Brussels and Berlin”. Not only is the EU more likely to be more objective owing to its lack of big tech firms; it is also where Alphabet, Amazon, Apple, Facebook and Microsoft have a quarter of sales and the world’s biggest economic block, meaning that its standards are often copied in the emerging world. What’s more, the EU has what the article calls “a distinct tech doctrine” which, similarly to the approach of the “Report of the Digital Competition Expert Panel”, rejects break-ups and utilities-style regulation and is rather based on equal treatment for rivals who use a platform and individuals’ sovereignty over their data. On the latter, the EU’s General Data Protection Regulation (GDPR) is to be followed by allowing interoperability, and thus customer switching, between digital service providers.


However, rising concentration is a problem that extends beyond the digital economy according to Federico Díez and Romain Duval of the IMF. Looking at product’s price to cost ratio, or markup, for nearly 1m companies from 27 advanced and emerging-market economies, they conclude that from 2000 to 2015 it increased on average by 6%. The increase is more pronounced in advanced economies and outside the manufacturing sector, including of course the digital economy. Importantly, the bulk of the increase in markups has come from those companies that had the highest markups to begin with. This top 10% of companies are more profitable, more productive and use more intangible assets than the rest. Díez and Duval argue that the rising power of the most productive and innovative companies has been helped by their superior ability to exploit proprietory intangible assets, network effects, and economies of scale, creating a “winner-takes-most” dynamic.

然而,国际货币基金组织(IMF)的费德里科•迪兹(Federico Diez)和罗曼•杜瓦尔(Romain Duval)表示,集中度不断上升是一个问题,它已经超出了数字经济的范畴。从27个发达国家和新兴市场经济体的近100万家公司的产品价格成本比来看,他们得出的结论是,从2000年到2015年,产品价格成本比平均增长了6%。这种增长在发达经济体和制造业以外地区更为明显,当然也包括数字经济。重要的是,大部分加价的增长来自那些加价最高的公司。这10%的公司比其他公司利润更高,生产效率更高,使用的无形资产也更多。Diez和Duval认为,最具生产力和创新性的公司的崛起得益于它们利用自有无形资产、网络效应和规模经济的卓越能力,创造了一种“赢者最赢”的动态。

The authors write that this rise in market power has had non-negligible effects in reducing investment and the labour share in income. “If markups had remained at their 2000 levels, the stock of capital goods today would be on average about 3 percent higher and GDP about 1 percent higher”. Furthermore, “increased market power since 2000 has also accounted for at least 10 percent of the overall decline (0.2 out of 2 percentage points) in the share of national income paid to workers in advanced economies”.


But above all, Díez and Duval identify weaker incentives for innovation and the potential attempt of market-dominant companies to erect barriers to entry as reasons for policymakers to be vigilant for the future. To be sure, they propose a diversified policy toolkit: lower domestic barriers to entry, lower barriers to trade and foreign direct investment in services, stronger competition law and policies, corporate tax reform and intellectual property rights that “encourage groundbreaking innovations more than incremental ones”.


[1] Companies would also need to meet a standard of “fair, reasonable, and nondiscriminatory dealing with users” and not allowed to transfer or share data with third parties. Platforms with lower revenue would also be required to meet this standard.


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