Are Google and Facebook monopolies?

by on January 22, 2018 at 11:12 am in Current Affairs, Economics, Law, Web/Tech | Permalink

Here is the video of my 30-minute debate — and yes it was a debate not really a dialogue — with Luigi Zingales on this question (click through for the video).  At the link is an associated transcript too, though the vigor of the back and forth was lots of fun.

1 Per Kurowski January 22, 2018 at 11:56 am

You said “We have a general problem with crony capitalism” Wrong! We have a general problem with crony statism!

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2 rayward January 22, 2018 at 12:11 pm

Of course, Google and Facebook aren’t in the search engine and social media business, they are in the same business, digital advertising, together capturing roughly 70% of total revenues from digital advertising, with Google collecting the lion’s share. You think they might collaborate in setting digital advertising prices. Duh. What’s especially impressive about these two companies is that they have convinced their customers that their services are “free”. They aren’t “free”, as every product their customers buy that advertise with Google and Facebook includes the charges for digital advertising for those products. Ka ching.

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3 msgkings January 22, 2018 at 12:25 pm

And NBC, ABC, and CBS aren’t in the broadcasting business, they are in the advertising business. And newspapers and magazines aren’t in the journalism business, they are in the advertising business. And radio isn’t in the broadcasting business, they are in the advertising business. And….

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4 rayward January 22, 2018 at 12:33 pm

Network television and print journalism are reeling because Google and Facebook capture such a large share of revenues from digital advertising, so your comment rather misses the intended mark. Thanks for helping me make my point.

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5 erik January 22, 2018 at 1:01 pm

Is it not the case that Goog + FB are delivering a superior advertising product — more effective advertising at a lower cost — than traditional media are?

I don’t think your gripe is well thought out. If we can agree, or show, that contracting Google or Facebook to advertise for you is more effective per dollar than is contracting any other firm to advertise for you, does it really matter if they are colluding to set prices?

> They aren’t “free”, as every product their customers buy that advertise with Google and Facebook includes the charges for digital advertising for those products. Ka ching.

If you’re wrong about advertising on Google / Facebook being more expensive then this is totally backwards. To reiterate, I think it’s unreasonable to imagine that advertising online is worse than advertising in print…

This is similar to bitching about standard oil: they made a superior product, they sold it more cheaply than any competition could, and yet they’re held up as a standard of an “abusive monopoly”. I don’t see how delivering the highest quality product at the lowest price is a bad thing.

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6 msgkings January 22, 2018 at 1:04 pm

The next time you actually have a point to make will be the first.

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7 TMC January 22, 2018 at 2:27 pm

Rayward does have interesting anecdotes occasionally, but if he starts out with ‘Of course,’ it’s all garbage.

8 y81 January 22, 2018 at 12:38 pm

NBC was the subject of an antitrust action, back in the day, and was broken up. That was the genesis of ABC.

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9 Bob January 22, 2018 at 8:05 pm

It’s a bit different: While you could say that NBC and ABC’s content is what drives their ability to sell ads, Google’s ability to sell ads is not really about search anymore: They have such a wide array of products that I’d argue that they’ll still be an amazing advertising network it you took search away. Something similar happens to Facebook: They really were driven by people visiting facebook.com, but their money fountain has make them spread their wings pretty widely. They are a few years behind Google in that respect, but they are working pretty hard at being a whole lot more than what you’d think their core business is.

It’s kind of the same thing with Amazon: You think that they are an online retailer, but if they stopped selling items delivered through Amazon, they’d still be a formidable company. AWS would not have started without Amazon being there first, but as its own stock ticker, it might have a Microsoft-sized market cap.

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10 FYI January 22, 2018 at 12:29 pm

Well, but any product would include any advertisement cost for any platform… So yes, in that sense these are free just like TV was free (until cable came along).

But something that really mystifies me is this certainty we have that advertisement is effective. From what I know, scientific proof of that is very thin. Furthermore, if we are really so susceptible to advertisement, are we also susceptible to movies and tv shows we watch? Why are we so interested in the “power” that these companies hold and not so much in the power of writers and directors in Hollywood? Actually, if you say something like that you are probably going to be called a reactionary…

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11 Peter January 22, 2018 at 12:51 pm

My experience is maybe more specific than you’re intending, but having worked for a small company that did a decent amount of advertising to sell our product (lightweight camping gear), advertising was generally very effective, and it was very easy to track and prove, as we did all of our selling online and could easily track traffic/purchases that had seen ads or not. Larger companies concerned with overall branding and who don’t do direct sales obviously have it harder in terms of verification, but a number of large companies have had CEOs question the value of advertising and slash those budgets, only to see sales plunge and reverse course quickly. Having dealt with advertising as much as I did, I was still always surprised that it worked, though if you’re careless it’s pretty easy to waste money on it.

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12 FYI January 22, 2018 at 1:04 pm

I am curious on how effective this is through all the different products / actions we have in our society. I can see myself being persuaded to buy a certain brand of shoes (when I need to buy shoes) based on ads. But will I buy a new car of a certain brand before I would just because of ads? Will I drink more beer just because of it? How about voting? Again, how about society behavior and movies?
Hillary did spend quite a bit more money than the Donald, right?

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13 earnest January 22, 2018 at 3:56 pm

I think with things like cars, you have to advertise because your competitors are. You might not buy a Mitsubishi because you saw an ad for it, but if you had never heard of Mitsubishi, would you even consider trusting the dealership that popped up down the road? Overall sales might be the same if no car company advertised, but you can’t be the only one to opt out.

14 Mark Thorson January 22, 2018 at 2:09 pm

When I had a very small business and advertised in the classified ads of a magazine relevant to the targetted customers, I was surprised to find that the second and third appearances of the ad generated more sales than the first. I anticipated that the first would generate the most, because it would reach most of the people looking for my product, and subsequent ads would just pick up the stragglers. Not so! Repeated advertising works!

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15 Graham January 22, 2018 at 4:51 pm

We found our online sales dropped with Google ads. We tended to be high in the ordinary search results anyway. I assume that consumers discount search results that are paid.

16 Mark Thorson January 22, 2018 at 5:21 pm

Yes, I always skip the ads. If you had some obscure merchandise for which you were already in the top hits, spending on Google sponsored ads might indeed be a bad move.

17 Jeff R January 22, 2018 at 1:18 pm

In biz school, they taught us that the purpose of advertising was to do one or more of 1) inform 2) persuade or 3) remind. When we talk about how “effective” advertising is, it is important to drill down and consider which of these aims we’re talking about. 1) and 3) are very well accomplished via advertising, but they’re also trivially simple. 2) I think is a lot harder, and advertising in 15 or 30 second spots on mass media broadcasts probably doesn’t work all that well, although I’ve not made a point of reading up on the subject. I think blurring the distinction, though, between goals 1-3 can make it seem like 2 is a lot easier than it really is and really muddies the water on any discussion of just how “effective” a given form of advertising is. The question to be asked then is “effective at what?”

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18 rayward January 22, 2018 at 1:57 pm

The question presented is whether Google and Faceback are monopolies, not whether they do a good job advertising. Obviously they do a very good job or firms wouldn’t advertise on their web sites. That they capture roughly 70% of total revenues from digital advertising is extraordinary, especially considering how many web sites there are that could be competition for the digital advertising dollar. What makes Google and Facebook so attractive to advertisers is because they capture roughly 70% of total revenues from digital advertising (i.e., they are large because they are large). Monopolies are considered a drag on the economy because they have no reason to innovate (and they control pricing). Are Google and Facebook motivated to innovate? I suppose so, because if their market share declines, the decline would likely be like Hemingway’s answer when asked how he went bankrupt: gradually then suddenly.

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19 Mark Thorson January 22, 2018 at 2:18 pm

Facebook can always point to MySpace as a competitor with exactly the same business model, hence not a monopoly. Of course, back in the days of punched-card data processing, IBM could point to Remington Rand as a competitor. That didn’t save them from being strong-armed into the 1956 consent decree. But those were different times. AT&T was also coerced into a consent decree that year. Since then, the lion has become a pussycat that wants to sleep all day. Not much chance either Google or Facebook has anything to fear in the U.S. The EU seems to be another story.

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20 NPW January 22, 2018 at 1:21 pm

Step one: Take all the funding resources.
Step two: Only publish content that matches with your world view.

This isn’t a monopoly that harms. After all “monopoly” is such a harsh word, and there is no way that something that people aren’t paying for could possibly harm them. I mean if people use something voluntarily, the only possible reason could be because there isn’t any harm.

Just don’t apply this logic to coed campus where 1 out of 4 women are raped, bars where guys hit on women, a nation where immigrants flood in, an industry where women voluntarily choose to disrobe for the camera, a minority that could return to their homeland…..or any other concept used to cudgel what we call brutes.

This logic obviously doesn’t apply to Google, since Google is on the same side as us, right Tyler?

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21 Mark Thorson January 22, 2018 at 2:23 pm

Fox News should start their own version of Facebook, where you could live in your own bubble without interference from liberal management.

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22 TMC January 22, 2018 at 2:31 pm

Some kind of filter to get rid of the worst of the garbage would suffice.

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23 John F January 22, 2018 at 2:05 pm

Here is how the debate started:
1. Zingales …
Cowen …
2. Zingales: “People say that data are the new oil and Zuckerberg is the new Rockefeller. …”
At this point I knew that Tyler won.

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24 derek January 22, 2018 at 2:23 pm

Let’s see. Advertising. I can advertise and number of ways. TV, Google Facebook radio, Twitter.

Search. Bing and Google.

Social networking. Too long a list.

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25 Colin January 22, 2018 at 3:27 pm

I found this claim of interest:

Antitrust in Europe is much more effective. Look at the price of cell phones and cell-phone services. They are a fraction of the price in the US, with better services.

Anecdotally I find this to be true with regard to cell plans, which are cheaper in Spain (EU country I am most familiar with) than here. Anyone know why this is? Is it really due to antitrust? Would be curious to know how cell phone regulation varies between there and here.

As for phones, not sure how true this is as iPhones are definitely cheaper here than in the EU. (and yes, I am aware there are more phones out there than just Apple’s offerings)

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26 Joël January 22, 2018 at 3:52 pm

For France, it is certainly true that you have better plans for half the price of what you pay for a standard plan in the US. These plans typically offer unlimited time to call to and from any country in Europe + the US and Canada, and quite a lot of data too. For a long time (more than a decade ago, that is) there were three
big cell-phone companies and rumors said they colluded and kept prices highs. Then new actors came, after some deregulation, like “Free”, and prices became to go down quickly.

For phones, it is true that iPhone are slightly more expensive — like all Apple product — when you buy it alone but you may have good deal if you buy it with a plan. There is also a law which says that every iPhone is automatically unlocked (and thus can be used with any carrier) after two years, meaning that there plenty of fine smartphones that you can buy for almost nothing if you’re nor interested in having the latest model.

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27 Curt F. January 22, 2018 at 3:59 pm

Wouldn’t it be easy for the service providers to claim that higher costs in the US are due to population density effects? Since US mean population density is far below Europe’s, there are probably be far more cell towers per user than in the EU. Since cell towers cost money, the US should be more expensive.

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28 Jonathan January 22, 2018 at 4:29 pm

There are lots of reasons US costs should be higher than European costs, and Canadian costs higher than US costs, which is the density of population and the requirement to put lots of towers in fairly sparse places just to have coverage. In addition, spectrum costs are do not compete.very different, although to be fair, European costs vary widely. There are four large facilities-based competitors in the US, and no one has credibly argued that they do not compete. Mobile service was not a good example for Zingales.

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29 Jonathan January 22, 2018 at 4:31 pm

Sorry for garbled text…. should be “….spectrum costs are very different”

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30 Colin January 22, 2018 at 4:37 pm

Good point about population density. In fact, I feel silly for not thinking of it myself.

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31 Anonymous January 22, 2018 at 7:24 pm

In America is is often more important that someone make a lot of money than citizens enjoy good values.

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32 Mulp January 23, 2018 at 4:40 pm

“Anyone know why this is? Is it really due to antitrust? ”

Yes. Yes.

Antitrust and “competition” made cell phone service and internet access worse and more costly in the US.

Blame the breakup of AT&T!

Before the progressive on the so called left and right ended up agreeing on the defective model for telecom, AT&T was fired to operate at high profit, but not too high profit, all based on building excessive capital assets.

Google, Facebook, Amazon, Microsoft, and others are locked in a war of building excessive capital assets. They meet Keynes ideal for maximum growth for their common sector.

None can afford to not build server farms and Internet backbone.

None can afford to limit supply in order to hike prices.

AT&T was likewise forced by regulators to either cut prices or invest more in capital assets, but profit was limited to depreciated invested capital and labor costs of operations. It cut prices increasing demand justifying building more capital assets that offered more services at lower costs that would force lower prices that increase demand and sales revenue.

As a monopoly, it had to create a uniform solution by regulatory mandate. It would have built a cell network that covered their service area uniformly because of universal service. Regulators would have required a standard that would have ended up international, just as AT&T created fiber standards in conjunction with computer makers on its way to universal FiOS to replace copper 100%.

After it was broken up, it got out from under regulations so it could limit supply in hopes of hiking prices and profits. But competitors were not regulated either, so it was a war of uneven coverage to maximize high profit high volume sales. Not using an international standard created locked in customers. Building assets was bad because it forced prices down to generate enough use of assets. Building assets in rural areas was very bad, better to cut customers off than waste shareholder money paying workers to build assets. After all, no competitor wasted shareholder money serving rural customers.

I remember progressives on the left and right outraged at AT&T cutting long distance prices and making much more money, more profit requiring lower prices, but also so much more invested capital their total profit soared because total long distance calling, a wasteful luxury if more than a minute or two, exploded in total minutes. They invented 1-800 to increase long distance calling when mail would do the job better.

AT&T wasted too much on R&D to invent new justifications for building new capital assets to replace existing assets. Eg, which invent fiber to replace copper when 1200 baud is fast enough?

The breaking up of AT&T was to cut wasteful investing, something Milton Friedman railed against.

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33 Charbes A. January 22, 2018 at 3:41 pm

What Facebook monopolizes? Losers? Grow up, freaks!

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34 Bill January 22, 2018 at 4:53 pm

I can’t answer this question today

Because I am going off to

A

Stormey Daniels Film Festival.

But, the bottom line is that Facebook and Google are contestable. It’s just difficult because of first mover advantages in network markets.

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35 Spad January 22, 2018 at 6:23 pm

Part of the problem with TC’s traditional antitrust analysis here about ‘cost to the consumer’ is that the market is not (yet) pricing resources due to encumbant business models, barriers to entry, and market dominance.

“Data is the new oil” – The real question is how much is Google/Facebook earning on an individual’s data, and how much is an individual consumer *losing* because of this market dominance? Or to put it more starkly, in a competitive market, how much would Google or Facebook be paying its users? Coase still applies in the world of big data.

If Facebook came out with a Gmail competitor but paid me an annual fee, I sure would switch.

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36 Jonathan January 22, 2018 at 7:53 pm

How big a fee? 10 cents per year? 1/1,000,000 cent per email received and.or 1/1000 per email sent (with appropriate metrics in place to stop scamming)? The profits from any individual using Gmail are ridiculously tiny, but the one-stop shop ability to target all of the US is quite valuable.

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37 Anonymous January 22, 2018 at 7:22 pm

I only lasted 8 minutes, but it seems from that, that Tyler was given the easier ground to defend.

These things are free.

We can easily find alternatives.

And scariest scenarios have not materialized.

(Social media needs another generation or two of innovation, but that will happen, Net Neutrality willing, and the creek don’t rise.)

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38 Peter Ozug January 22, 2018 at 10:06 pm

The “first to invoke ‘Russia elected Trump using Facebook’…” is the new, “the first to invoke ‘Hitler’…”

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39 Dzhaughn January 22, 2018 at 10:32 pm

The debate was hurt by both participants failing to grasp key points.

Tyler shows a limited understanding of Google’s data trove. They have 75% of the smart phone OS market. They know where you visit, where you thought about visiting, how long it took you to get there, how long you stayed, and when you went there again if you did. They have that linked with calendar entries, sms messages, email message (at least digested to keywords) and payments. They know what phone numbers you called or texted, and the same information about most of the people behind those.

Luigi’s idea of a data sharing API is quixotic. It’s a nice idea, but there is no API that will reveal all of the information above, no one would want that shared if there was, and the corpus is growing and changing form all the time. There is no way Facebook can transfer to another party your set of friends and groups, not without getting the consent of all of those friends. Facebook is not going ask for it nor enable anyone else to ask. Same with Google and what numbers your called or texted or who you emails.

It would be great to ask Google and Facebook to delete everything they know about you. But they don’t care, because they will thrive on the aggregate. If 80% opt out it hurts them; if 50% do, they sitll know plenty about what is linked to what.

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40 FYI January 23, 2018 at 11:33 am

Google GDPR.

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41 TimB January 23, 2018 at 1:40 am

i don’t know if they’re monopolies but they are being priced as such by equity markets…so maybe they are?

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42 Shiran January 23, 2018 at 1:11 pm

Tyler, what would Facebook/Google hypothetically have to do to cross the line in your eyes? i.e., what is your specific tolerance for antitrust?

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43 BC January 23, 2018 at 6:53 pm

A monopoly results in lower quantity and higher prices than socially optimal. Those claiming Facebook and Google are monopolies are implicitly claiming that social welfare would be increased if we spent more time online watching ads and advertising rates were lower. Interestingly, some people claim that we already spend too much time online and too much online exposure is detrimental (especially to children). Some of those people might also blame advertisers for “manipulating” us into spending too much time online.

Set A: People that claim Facebook and Google are monopolies and society would benefit by breaking up those monopolies.
Set B: People that claim Facebook and Google conspire with advertisers to “manipulate” us into spending too much time online exposed to ads.
Intersection of A and B: people that do not feel a strong need for consistency.

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