How a break-up of Google could transform tech

Articles like these frustrate me because they seem to distort the economic discourse. I think the author, and some of the academics and industry experts they quote, have misinformed opinions. I genuinely can't tell if these experts are getting their quotes taken out of context, if they are making arguments that are bad faith, or if they actually believe the things they claim.

Before I begin, I recognize these experts quoted don't have the space to give a nuanced take on these issues in articles, and I do. But I also think that if you actually have faith in the nuanced take, your abbreviated, unnuanced take should be the best approximation of the nuanced take. I don't think that's what's happened here.

“Monopolisation cases are difficult to win, but even harder to remedy,” says David Balto, an antitrust lawyer and former Federal Trade Commission official. “It’s very, very hard to change the nature of a market.” That is particularly the case, he adds, in businesses with network effects, where “there are natural reasons why you end up with dominant firms” — something common to many tech markets.

"The nature of the market" is the fundamental idea I have issue with, which makes me so frustrated. There is no natural state of the market. Economies are emergent properties of consumer behaviors, producer behaviors, and the rules set forth by the government. We don't have a natural market, we have a market produced by years of government protecting corporations but failing to protect consumers. The use of "nature of the market" is especially aggravating coming from a former FTC official, since it seems explicitly engineered to absolve the government of responsibility when anti-consumer markets exist.

“If the court broke up Google, it wouldn’t change these monopolistic conditions,” says Michael Cusumano, a management professor at the Massachusetts Institute of Technology. A break-up would also be an overly harsh punishment for a company that has achieved much of its success through its search innovations, he adds.

"Monopolistic conditions" is probably a better term than "nature of the market", but it still disempowers the government in this context. The key idea for both of these experts seems to be the idea that in some markets, it is easier for a company to gain a monopoly. I absolutely agree, but it's worth repeating that every company wants to have a monopoly. Ostensibly, there may be some companies that are pro-competition, but every company could reduce costs (read: salaries), reduce friction for both their operations and their consumers, and increase profits by monopolizing their markets. Which means every company is incentivzed to create monopolistic conditions in a market if they can be the monopoly.

To me, there seem to be two things that are both independently sufficient for monopolistic conditions, (and these two things are really two sides of the same coin). First, there's high startup costs; if there's a lot of upfront investment required to enter a market, the first firm to do so will achieve a monopoly. Second, there's innovation; if a company does something better than its competition, and wins a majority of consumers in this way, they can leverage their user base to create a monopoly.

Realistically, every instance of high startup costs is an instance of innovation, but there are instances of innovation where there are low startup costs, and in this case, it is fairly easy for competition to replicate the innovation, and end the monopoly. In this scenario, companies use trade secrets (government protection to reduce corporate espionage), non-compete contracts (government protection to reduce monetization of people as assets), patents (government protection to incentivize R&D), and other tools to maintain their monopoly. More recently, we've seen regulatory capture become a new tool, where companies R&D without any government oversight (see self-driving), and once they've developed a safe solution, lobby for regulation so that no other company can replicate their innovation.

Most forms of monopolistic conditions are forms of government protection. There are some instances where companies try to monopolize by outcompeting with subsidization (selling a product for cheaper than its costs to maintain a monopoly and leverage network effects). My opinion is that companies need to actively leverage many different forms of "monopolistic conditions" to maintain a monopoly.

See Youtube, which maintains a dominant market share via regulatory capture, network effects, high startup costs, trade secrets, and subsidization (Youtube's data informs Google's ad business). And there is still competition (streaming services, Nebula, etc.).

The point is that monopolies are primarily protected by the government and legal system. When government takes steps to increase competition, evolution works its magic. Companies are justifiably terrified of competition, since they could die. Competition always benefits the consumer. Sometimes, it doesn't benefit society (patents incentivize R&D, sometimes governments regulate monopolies to reduce duplication of infrastructure, etc.), but it always benefits the individual consumer.

What irritates me is that this is not new or novel economics. This has been known since at least the era of FDR. Companies (and apparently industry experts) like to pretend these are new problems with hard solutions, but they've existed forever, and they are solved with a change in government action (I say change because they are always acting). I hope one day we can invent a passive solution to disincentivize monopolization without damaging society. Until then, godspeed to Lina Khan and the FTC.