Monika Balavakaite, Analyst at Unicast Entertainment
Introductory economics courses often discuss monopolies as insightful models on the extreme end of the market structure spectrum, with limited applicability to the real world. Although this is true to an extent, and instead we often see oligopolistic competition, the growth of large economic entities has allowed a handful of firms to cultivate immense power and gain near monopoly status; subsequently raising concerns about how this affects democracy. The technology sector is a prime example of this. The unceasing growth of tech giants has been complemented by rising scrutiny due to the profusion of market power they’ve accumulated and the vital need to monitor it. But why is the intensifying influence of tech firms a cause for concern?
Technological firms have control of the most used platforms today, which are designed to continuously expand due to network effects. For instance, Google, which could arguably be described as a near natural monopoly, continues to cultivate increasing returns to scale because their search results improve as the number of users rises, triggering a continuous cycle of the platform’s growth. Similar algorithms have given tech monopolies the title of ‘self-strengthening’ as their dominance expands with each new consumer. The growing use of such platforms has allowed tech giants to gather a plethora of information on each user, which as we’ve recently seen, can unlawfully be used against us.
In 2018, the co-founder and CEO of Facebook, Mark Zuckerberg, was questioned by the US senate after the unfolding of the Cambridge Analytica scandal, which saw the data of millions of Facebook users being exploited to build targeted political advertisements. This urged conversations regarding tighter regulation within Facebook and the tech sector as a whole, as such a breach of privacy shouldn’t have gone unnoticed. The case reiterated that when a limited number of firms have an abundance of power, it can very easily be abused, which may not only affect consumers, but can also restrain employees, potential rivals, and even government bodies.
The COVID-19 pandemic has further raised pressures for adequate regulation of the tech sector as our increased reliance on technology has substantially helped leading corporations. Over a year of restrictions and the consequent shift of both work and leisure to online platforms has inevitably accelerated the market capitalisation of the ‘Big Five’ (Alphabet, Amazon, Facebook, Apple, Microsoft) to a combined total of $7.8 trillion. As consumers, we might struggle to see the full dangers of this. After all, we have access to a wider range of goods, and they can conveniently arrive at our doorstep in just 24-hours thanks to Amazon Prime. However, along with these supposed benefits we’re seeing concerning consequences: greater job insecurity, stagnating wages, expanding inequality, and a growing number of struggling small businesses. Additionally, and arguably most importantly, the relationship between market power and political power is becoming increasingly prominent. In 2020 alone, large corporations spent $3.53 billion on lobbying US Congress and federal agencies; influential multinationals are ultimately able to force through policies that deliberately act in their self-interest and spur their exponential growth.
In an interview with Unicast Entertainment, Pankaj Sharma, Regulatory Consulting partner at EY, discussed the difficulties of implementing the correct laws to accompany the escalating influence of tech as “regulations also stifle innovation, and if you stifle innovation, we will not get the benefits of technology”. This has been an ongoing debate between supporters of free market policies and advocates of economic interventionism because the evolution of technology has undeniably helped us, but will government intervention suppress the benefits we can reap going forward? Fundamentally, policy makers must implement appropriate guidelines to protect consumers and the underlying elements of democracy, but doing so without causing major ripple effects in other markets is going to be a challenge.
Moreover, it’s important to point out that although a lot of media attention has been concentrated on the dominance of tech leaders, it’s becoming an increasingly common trend in numerous industries. From airlines to agriculture to telecommunications, few firms have been able to gain control of large markets; allowing this unchecked power to grow across different sectors will inescapably continue to obstruct democracy and have negative economic and social long-term implications.
For further insight on the effects of regulation of markets and more, watch https://youtu.be/tRJ-w3MnnyA
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