Trustbusters or Business‐​Busters?

Jeffrey Miron and Pedro Braga Soares

In a recent opinion piece, Senator Josh Hawley claims that America’s economy is witnessing a widespread take‐​over from monopolies – big tech, big pharma, big finance, and more. These companies, the story goes, then harness their market power to foist ideological progressive agendas on an unwilling public.

This narrative is misleading at best. First, big is not synonymous with bad. Concentration can arise out of competitive markets for legitimate reasons. Innovative companies can – and should – expand their market share by delivering better products at lower costs. Indeed, a 2017 paper found that recent rising industry concentration trends are associated with more innovation and productivity growth.

Second, monopolies exercise economic power by restricting quantities to push up prices. In many cases, this is the opposite of what we see. Google and Facebook offer a limitless supply of services at no cost to consumers. Even if Google used its alleged monopoly power to obtain rents not from consumers, but from advertisers, this would mean advertisers pay more, while consumers see fewer ads.

Third, evidence for rising concentration is not clear‐​cut. A recent paper points out that, even though concentration has been rising in national product‐​markets, it is mostly going down at the local level. The findings suggest that as large firms expanded, they entered previously concentrated local markets, increasing competition; think about Amazon reaching small towns once served by one or two mom‐​and‐​pop stores.

Some of the figures cited are also highly misleading. The senator claims that Facebook and Google account for 60 percent of the digital advertisement market. But he forgets to mention that digital advertisement represents only half of advertising expenditures in the United States. Narrowly defined markets will yield high concentration figures, though these often do not represent relevant competition margins. The digital ad market share of both companies has also seen a slight downward trend in recent years.

If the diagnosis is wrong, the proposed treatment is unlikely to make the patient any better. Senator Hawley proposes to break up big tech companies, downsize corporations, and loosen standards to characterize anticompetitive behavior.

Breaking up big tech is likely to harm consumers and innovation. Big tech companies are U.S. leaders in R&D expenditures, and their scale likely enables their free‐​of‐​charge business model. As we have seen, downsizing at whatever cost is also a misplaced idea, since big is not a good proxy for bad. Finally, loosening court standards to characterize anticompetitive behavior is a recipe for political interference. In the days before the consumer welfare standard, Nobel laureate in economics Ronald Coase quipped that if firms raise prices, this was evidence of monopoly. If they lowered them, it was predatory pricing. And if prices remained the same, then it was tacit collusion.

The focus on industries perceived to have an anti‐​conservative bias makes one wonder whether political considerations have taken over economic ones. The Republican senator aims the antitrust arsenal at the tech sector, but concentration trends across high level sectors show that manufacturing is the most concentrated, while retail has seen the largest increase.

In any case, if the senator is concerned with excessive market power and competition, better approaches abound. Slashing tariffs and enhancing foreign competition would be one way to go. Reducing occupational licensing requirements would also make it easier for new entrants to displace incumbents. Finally, deregulation measures could bolster competition in several markets.