Are monopolies extinct in the data-driven economy?  Some argue yes. Pointing to the transformative powers of disruptive innovation, they reject concerns about monopolization. As Google’s chairman said, “the reason that you should trust us is that if we were to violate that trust people would move immediately to someone else.”[1] Barriers to entry are negligible, he noted, “because competition is just one click away.”^[2]

Others disagree. While competitors may be a click away, competition is not. Digital giants may abuse their power, push out competitors, and exploit users. Illustrative is the EU Commission’s recently fining Google 2.4 billion Euros.[3] As a complainant in that case said: “For well over a decade, Google’s search engine has played a decisive role in determining what most of us read, use and purchase online. Left unchecked, there are few limits to this gatekeeper power. Google can deploy its insidious search manipulation practices to commandeer the lion’s share of traffic and revenues in virtually any online sector of its choosing, quietly crushing competition, innovation, and consumer choice in the process.”[4]

Should we worry about the digital giants?

One underlying dispute is over the ease in entering the data-driven markets.  If “competition is a click away” and entry is invariably easy, then monopolies are less of a concern.

Under the traditional antitrust factors, entry into the search engine market may seem easy, obviating the need for intervention. Search engines are free and easy to use. Users can switch easily among Google, Bing, Yahoo!, and DuckDuckGo. Seemingly users are not locked-in by any data portability issues. Thus, in chastising the U.S. Federal Trade Commission for even investigating Google for monopolization, one U.S. senator claimed that “[c]ompared to almost any other market in the history of antitrust regulation, online search has effectively zero barriers to entry.”[5]

But if entry were easy, Google could not behave like a monopoly (by intentionally degrading the quality of its search results in order to promote its own comparison shopping service). Moreover, Microsoft would not have spent over 4.5 billion dollars in developing its algorithms and building the physical capacity necessary to operate its search engine Bing.[6] 

So what is going on here?

One problem is that traditional antitrust analysis may not fully appreciate important entry barriers - namely data-driven network effects.  In a network environment where the winner takes it all, reality may be that “competition is for losers.”[7]

__

"The implications go beyond our wallets. One concern is how economic power may translate to political power..."
___

Network effects occur when our value of a product or service increases as others also use it.  As more people use a telephone, for example, the more people you can call, the more use you get from your phone.  These classic network effects are familiar in the brick-and-mortar economy. So, what’s new in the data-driven economy? The stakes are larger because the data-driven economy can amplify at least five, potentially interrelated, network effects: