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This article from two students at Altrincham Grammar School for Girls won the 2023 FT/Royal Economic Society competition, part of the free FT Schools programme. Details/sign up here.
Big assets. Big market cap. Big influence. That’s right, this is Big Industry. Tropes of big industry first emerged two centuries ago in America’s Gilded Age: a time of economic growth, industrialisation but also wealth inequality and social movement. Now an economic recurrence has come to overshadow the modern era in the form of “Big Tech”.
“Big Tech” refers to the five technologically leading companies Microsoft, Alphabet (formerly Google), Meta, Amazon and Apple (or collectively Mamaa). The issues of Big Tech are overwhelmingly significant and have permeated popular culture, to the extent that a bipartisan consensus has been reached.
The conclusion is simple: Big Tech holds too much power. In 2022, Mamaa achieved a market cap of $9.1tn. To put this into perspective, the total is greater than the combined GDP of Canada, France and the UK — three of the largest economies in the world.
This accumulation of wealth and capital has insulated Mamaa from any real competitive threat, and resulted in the technology market being anti-competitive, due to the construction of unnatural barriers to entry.
Typically, the threats posed by monopolies can be characterised by the restriction of market output, reduction in consumer sovereignty and stifling of competition, allowing monopolies to make supernormal profits. And this is exactly the case for Big Tech.
As US Senator Elizabeth Warren simply puts it: “They’ve bulldozed competition.” Over the period 2013-17, the five giant technologically leading firms acquired 275 companies from small start-ups to billion-dollar deals. This acquisition of competitors has further entrenched the power of Mamaa and their influence on the market.
By stifling competition, they’ve enabled themselves to be price makers, as there are no “close” substitutes. At its core, large mergers and acquisitions hold serious implications for markets but also risks for consumers and consumer welfare.
As well as harming consumers economically, Big Tech can harm consumers’ social and political values, through regulatory capture. Such a view has been entertained by American internet activist Eli Pariser who argues we have become trapped in “filter bubbles”, an algorithmic bias which entrenches our personal ideologies by only showing news that conforms to them and nothing external, confining us to an insular political bubble.
If we use a behavioural economics framework, these echo-chambers that are perpetuated by Big Tech’s algorithmic bias play on the idea of confirmation bias by only showing users content that aligns with their own beliefs.
Just look at how Facebook swung the 2016 presidential election. Facebook executive Andrew Bosworth told the BBC that it was not so-called Russian forces that led to Trump’s presidency but rather his elaborate social media campaign on sites like Facebook.
There are a few ways we can consider regulation to solve the issue. First, bodies like the Federal Trade Commission in the USA and the Competition and Markets Authority in the UK should be more strict on mergers and acquisitions, especially ones that can affect commerce in countries such as the US and the UK.
Stopping mergers and acquisitions would prevent the stifling of competition, therefore allowing competition to flourish, and to restore consumer sovereignty.
The phrase “Let’s break up Big Tech” offers a viable regulatory route. But what does it actually mean? In 1911, under President Theodore Roosevelt’s administration, an antitrust suit was filed against the Standard Oil company, which at the time had cornered 90 per cent of oil production and distribution. As a result of the Supreme Court ruling, it was broken up back into its former regional companies to foster competition.
We can do something similar in Big Tech. Breaking it down would firstly make the respective companies easier to regulate, as they would no longer be multi-industry. Secondly, it would prevent power being centralised within one company with a disproportionate amount of market share. Instead, there would be a large number of independent companies which would promote healthy competition.
An approach would be to break Meta back into Facebook, WhatsApp and Instagram. A similar notion was suggested in the 1998 case of US vs Microsoft, which suggested the group should be redivided into Microsoft and Windows.
Although this outcome was ultimately overturned, it shows the necessary measures we may need to diminish the power of Big Tech. Ultimately, as long as we adhere to the current economic system, big industry monopolies like Standard Oil and Big Tech will always be inevitable.
Therefore, it is of the utmost importance that policymakers and regulators take a pragmatic approach and chop down the beanstalk at its root. Even though Big Tech may just seem like the goose that lays the golden egg, how we respond and appropriately set up regulation will dictate whether or not we all get political and economic salmonella.
