Note: This is an updated version of a post I first published on “The Scholarly Kitchen” in July 2018. I’m going to revisit some of these older posts occasionally because a few of them are turning out to be relevant today. In this case, we have Google, Facebook, and other large companies being investigated for exercising monopoly power that is more structural, which signals an embrace of a new definition of “monopoly” by regulators — an approach some have disparaged or celebrated as “hipster anti-trust.”
I hope you find this valuable and interesting.
The term “monopoly” gets thrown around in scholarly publishing with relative abandon. Some have created phrases like “monopoly copyright,” ignoring the fact that copyright expires, has limited scope, and is really an ownership right. Ownership is not a monopoly. I may own my computer, but I don’t have a monopoly on all Mac Pros. Not even Apple has a monopoly on those, in the sense that it has trademarks, patents, and copyrights, and from these creates a unique machine others can’t duplicate without running afoul of a trademark, patent, or copyright — that is, an ownership right. HP can make something very similar from a different configuration of trademarks, patents, and copyrights, and compete effectively with Apple. Nobody has a monopoly on laptops.
In fact, copyright disposed of the monopolies realized in the early days of printing, which were put in place by patents and printing press ownership. Transitioning control to authors and away from printers, and time-limiting the ownership rights, eliminated monopoly power over information. In a historical and practical sense, the phrase “monopoly copyright” is nonsensical.
Even the term “monopoly” may be something we should reach for sparingly. It’s a loaded term that is relatively imprecise.
Traditionally, a monopoly has been understood to be a market-spanning power over a service or commodity allowing dominant actors to coordinate more easily, more stealthily, or more often, either explicitly or via winks and nods. The fear was that this would invariably lead to artificial pricing power — either to maintain prices while decreasing quality, or to artificially inflate prices by virtue of the leverage created by the monopoly. In short, the concern was about market structure.
In the 1970s and 1980s, a group of economists associated with the University of Chicago asserted that a monopoly could only be defined if market control resulted in, or threatened to result in, higher prices for consumers. It was the “no harm, no foul” equivalent of regulation. The economic thinking was that if market control resulted in lower prices for consumers, it was a good thing, and should be tolerated, even encouraged. Hence, price became the measure of monopoly — if prices held or fell, there was little to concern regulators.
The Chicago School thinking downplayed or ignored the health of producers or the market as a whole, focusing nearly entirely on short-term consumer prices as its litmus test. This sparked the Gordon Gekko age of mergers and acquisitions many associate with the 1980s, and has led over the years to a laissez-faire attitude toward mergers and acquisitions among regulators.
But new thinking is emerging about what constitutes a monopoly today, and it’s a fairly interesting and updated perspective. A 2018 article in the Atlantic gave a nice overview of what some are calling the “hipster antitrust” movement. This movement was sparked by Lina Khan, whose January 2017 article in the Yale Law Journal entitled, “Amazon’s Antitrust Paradox,” lays out the core concerns of the movement — structural dominance.
According to recent reports, Khan is now gaining traction as a candidate to fill one of the commissioner roles at the Federal Trade Commission under President Joe Biden.
We’ve seen concerns about the structural dominance of technology companies before, most notably in Microsoft’s antitrust travails in the late 1990s, when the company attempted to bundle Internet Explorer into its operating system on Intel-based computers, an anti-competitive tactic that resulted in a settlement in 2001 (finalized in 2004) in which Microsoft agreed to open its application programming interfaces (APIs) to third parties, while providing an oversight panel access to its code to ensure it complied with other elements of the settlement.
The structural dominance of today comes in the guise of what Khan and others term “predatory pricing” and integration across business lines. For Amazon, that means being willing and able to sustain losses for a long period of time, and cross-subsidize new market entry, resulting in lower prices for consumers and incredible scale for Amazon. The result of this was captured when she visited a Whole Foods, as told in the Atlantic article:
As Khan and I entered the sprawling Whole Foods three stories below Amazon Books, we noticed a tower of avocados. A sign bragged that, thanks to the Amazon merger, a single avocado now cost $1.49, down from $2.49. Khan cracked up. “This is peak myself,” she aid. “This is hipster antitrust, right here.”
The Wikipedia page listing Amazon’s mergers and acquisitions give you a flavor of what hit Khan’s radar. Just on the book front, Amazon owns BookSurge, a print-on-demand company; Audible.com for audiobooks; LibraryThing (40% stake); Bookfinder.com; and Goodreads. More recently, it acquired the podcasting platform Wondery. Integrating across these, it can publish a book in print, e-book, or audio, help it get discovered, and have insights into how it’s reviewed.
Amazon has done similar things in the entertainment space, the apparel space, and the gaming space. While Amazon claims it is a minority player in nearly every market it inhabits, it has incredible power (49%+ of all e-commerce flows through Amazon currently). In the books space, for example, Amazon has essentially made bookselling far more difficult by taking the price premium of the hardcover blockbuster away from publishers, gutting the mid-market, and dominating the low-end market via self-publishing. And they play hardball, even having at one point something called “The Gazelle Project,” to denote approaching small publishers “the way a cheetah would a sickly gazelle.”
Amazon is now being accused of price fixing around its e-books via anti-competitive agreements with the nation’s five largest publishers.
Through structural dominance and predatory pricing, Amazon has irrevocably changed the book industry, and not for the better. The ecosystem is less diverse and less robust than it was before. But books are cheaper for consumers as a result, so the Chicago School mindset would claim nothing is wrong from an antitrust standpoint. Khan’s Yale Law Journal paper states in its abstract that:
. . . the current framework in antitrust — specifically its pegging competition to “consumer welfare,” defined as short-term price effects — is unequipped to capture the architecture of market power in the modern economy. We cannot cognize the potential harms to competition posed by Amazon’s dominance if we measure competition primarily through price and output.
The structural dominance Khan and others point to is the dominance of platforms like Amazon, Facebook, Google, Twitter, Alibaba, and others. As Khan writes:
. . . because online platforms serve as critical intermediaries, integrating across business lines positions these platforms to control the essential infrastructure on which their rivals depend.
However, in 2018, the EU fined Google $10 billion for anti-competitive practices, but left further remedies to Google. Not only was the fine too small, but Google used this latitude to charge competitors to access its Android OS.
The Microsoft case taught tech companies some lessons, particularly on the PR front. Google, Facebook, and Amazon have been far more savvy than Microsoft was at the time. As Microsoft’s President Brad Smith said in an interview at the Code 2018 Conference with Kara Swisher, a reputation can change in an instant. Smith was deeply involved in the Microsoft antitrust case, and saw Microsoft’s reputation change quickly, and how the world changed:
. . . we went from being the New York Mets to the New York Yankees. You know, we were the little team, and then all of a sudden we were this behemoth that lost everybody’s support. And we ended up with the U.S. government, states, all coming after us, and a case that we lost on an appeal in 2001. And I think as much as anything, there were a couple of things we learned. One is, I think if you create technology that changes the world, the world is going to want to govern you. It’s going to want, in some measure, to regulate you. And you have to come to terms with that and figure out how you’re going to navigate that and step up to the responsibilities that the world wants you to assume. And the second thing was actually very personal, in a way. You have to develop the ability to look in the mirror and see yourself, not the way you see yourself, but the way other people see you. And guess what? They don’t think you’re quite as good-looking as you thought you were.
Microsoft went from tech darling to tech whipping post quickly. The same fate may await Google, Facebook, Twitter, and Amazon, if they haven’t absorbed the lessons the Microsoft case has taught. These new firms have potentially more powerful structural dominance, given their positioning as intermediaries in the information ecosystem. That’s what Microsoft was aiming to do in the age of desktop and dial-up and URLs. Now, we have LTE (soon, 5G), mobile, and social media, with scads of personal data being shared almost constantly.
One difficulty with current regulations and thinking about antitrust is that these intermediaries represent not one-sided markets (you buy directly from a store’s cashier), but two-sided markets. Two-sided markets are quite common — conferences that bring together speakers and audiences; academic journals that bring together readers and authors; and flea markets that bring together buyers and sellers. Being at the center, a conference can charge exhibitors and attendees, for example. There is even a tradition of predatory pricing in two-sided markets — for example, a nightclub waiving cover charges for female patrons to attract more paying male patrons.
Are “hipster monopolies” emerging in scholarly and scientific publishing? Not yet, but there are initiatives aimed at structural dominance using data, content, and services. Currently, competition is robust in these areas. For example, years ago, Mendeley was feared to be creating structural dominance by utilizing the PDF to create community. Its acquisition by Elsevier reined in this potential, only to see ResearchGate emerge as another contender. Now, Mendeley, ResearchGate, and Kopernio compete with the truly anti-competitive pirate site Sci-Hub in a roughly similar space providing content storage or access solutions. Our competition remains robust because there are still boundaries on scale, either because of domain limitation, adoption ceilings, or competitive market fragmentation. However, ideas around a “supercontinent of scholarly publishing,” as outlined well by Roger Schonfeld, hint that potential issues involving hipster monopolies may lie ahead.
The two-sided markets are being dominated by the likes of Amazon, Facebook, and Google because these companies have scaled well beyond traditional boundaries, and are now working the two sides of multiple international markets all the time. Facebook and Google compete for advertising dollars, it’s true, but together dominate online advertising, sopping up more than 80% of available spend. Google’s search power also has allowed it to use its position to integrate its e-commerce business. This has not gone unnoticed. Now, dozens of states and the US Department of Justice are suing these companies over anti-trust concerns and anti-competitive behaviors, and the possibility of seeing them broken up is real.
With network effects and economies of scale in technology making platforms drift toward singularity if left alone, clearly more thinking needs to be done. One option is to place these platforms under common carrier obligations, meaning they would be liable for any losses sustained by those utilizing them. Railroads, telephone providers, and even amusement parks that operate rollercoasters (in some states) are subject to such obligations. This would require a major revision of current laws exempting platforms from such regulations. In the US currently today as opposed to 2018, the body politic is shifting toward a more regulatory mood. Another option is to reintroduce the FCC as a licensing entity for what are essentially broadband broadcasters.
Right now, intermediaries have gone to scale and are dominating both the producers and consumers. It’s a two-sided market on a scale and pace unlike anything we’ve seen before. The antitrust campaigns of the late 19th and early 20th centuries were a result of abuses on an industrial scale not formerly seen. Now, information and infrastructure scale has created new forms of structural dominance, with novel effects we need to manage.
Whether we need to invoke the somewhat charged and potentially unhelpful word “monopoly” may be beside the point. What we need is to regulate the intermediaries so that predatory pricing, information imbalances, and structural dominance become less of an issue. Perhaps focusing on “anti-competitive” and “structural dominance” would be more specific. Relying an imprecise and oft-abused term like “monopoly” may belie the seriousness of the situation.