Big Tech and the Digital Economy

To date, world antitrust and regulatory agencies have invariably described large technology companies—such as Google, Amazon, Microsoft, Apple, and Facebook—as dominant, bottleneck or gatekeeping companies comparable to the textbook monopolists of the early twentieth century. They have proceeded on this basis to discipline their business activities with unprecedented financial penalties and other regulatory obligations. This “techlash” is the subject of this book. Proceeding from the observation that big tech firms engage in both monopoly and oligopoly competition across digital markets, the book introduces a theory of moligopoly competition. It suggests that rivalry-spirited antitrust and regulatory laws are both conceptually and methodologically impervious to the competitive pressure that bears on big tech firms, resulting in a risk of well-intended but irrelevant policy intervention. The book proposes a refocusing of competition policy towards certain types of tipped markets where digital firms extract monopoly rents, and careful adoption of regulation toward other social harms generated by big tech’s business models.

Conclusion

This concluding chapter explains that the picture of big tech firms as monopolists is intuitively attractive, but analytically wrong. The digital economy has a variety of properties that work together to impose on firms a pressure equivalent to oligopoly competition. In particular, network externalities, increasing returns to adoption, and tipping effects produce significant discontinuities. This influences the direction and intensity of competition. Tech firms compete with others by a process of indirect entry, and reconfigure existing channels of competition.

The “Moligopoly” Hypothesis

This chapter examines the empirical validity of the moligopoly hypothesis—that is, the intuition that big tech monopolies are exposed to oligopoly competition across markets. The focus is on big tech firms’ annual filings to financial regulators as well as business analysts’ reports, market research and competitive intelligence. The data calls attention to the possibility of latent and complementary levels of competition in big tech that antitrust and regulatory decision-makers miss in their assessments of monopoly power in digital markets. This competition does not seem to originate from substitute products or services. And it seems to vary at firm level, suggesting significant heterogeneity amongst big tech firms.

Introduction

In recent years, big tech’s entry into new markets like entertainment, banking, or healthcare has aroused monopoly complaints from established players. Both in the European Union (EU) and the United States, congressional institutions, antitrust agencies, and market regulators appear to be increasingly concerned. Whilst US antitrust authorities are yet to act, the European Union has adopted aggressive decisions against big tech. In addition, regulatory reform is on the tables of European lawmakers with proposals to limit big tech’s acquisitions of startups or mandate data sharing with competitors. Contemporary policy reliance on a monopoly explanation is, however, inconsistent with descriptions of intense levels of big tech oligopoly competition found in financial reports, market research, and competitive intelligence analysis. This chapter attempts to sketch out the book’s ambition to give a fuller account of big tech competition.

Evolutionary dynamics of competition among ports in networks

The competitive relationships among ports become complicated as the consequence of the prosperity of international trade. Typical oligopoly competition models cannot be competent for the analysis of ports competition in real scenario. In this paper, the scale-free network is adopted to characterize the interactions among ports with various number of neighbors. For each port node, not only direct competition but also indirect influences exerted by its neighbor are taken into account. Following the hypothesis in evolutionary game theory, social learning behavior among competitors occurs generally in our model. Conforming to reality, strategies considering both price collusion and price competition are proposed to investigate evolutionary dynamics of competition among ports in the self-organization process of imitation. It shows that neighbors have the same goal but play different roles in affecting strategy transition during the evolution with two competitive means. We explore how evolutionary dynamics are influenced by different imitation means. Then this paper verifies that price collusion is more conducive to port development when abundant resources is provided. Our results obtained in this evolutionary framework with different imitation means may enhance port-operation efficiency.

Learning from oligopoly rivalry: Implications for business financial statements

Research question: Utilizing the tenets of oligopoly competition that is a well-known type of imperfect rivalry, this study is interested in building a financial theory of inter-company price or pricing (ICP) economics and documenting its direct affinity with corporate financial reporting in general and corporate financial statements in particular. It is also interested in executing an analytical application unveiling the straight linkage of ICP with financial disclosure. Motivation: There is an extant body of literature that examines different ICP structures for different companies and industries or markets. However, the literature is silent in corroborating any explicit association that we argue and show does exist between ICP and accounting. To the best of our knowledge, this is the first study to break this silence. Idea: Cost advantage and operating profit are exploited to do the theorization and accounting implementation, by justifying the linkage between ICP and business financial statements. Findings: Investigations show that given that businesses transact or compete with each other at arm’s length terms under oligopoly competition with a Stackelberg game; ceteris paribus, the operating profit figure of the business with cost advantage will be higher than the operating profit figure of the business without cost advantage. Investigations also show that given that businesses transact or compete with each other at arm’s length terms under oligopoly competition with a Stackelberg game; ceteris paribus, asset size, earnings before interest and taxes (EBIT), earnings before taxes (EBT) and hence net income/profit after tax (NPAT) figures of the business with cost advantage will always be higher than asset size, EBIT, EBT and therefore NPAT figures of the business without cost advantage. Investigations further suggest that given that businesses transact or compete with each other at arm’s length terms under oligopoly competition with a Cournot game where there is neither any cost advantage nor disadvantage one way or the other; ceteris paribus, the operating profit, asset size, EBIT, EBT and NPAT figures of the interacting business among the others will be identical.

Announced or Surprise Inspections and Oligopoly Competition

To enforce compliance, regulators often choose between announced or unannounced (surprise) inspections. We analyze the impact of these inspection regimes on firms’ compliance choices in a multiple stage oligopoly game of quantity competition with endogenous compliance, monitoring and avoidance. In equilibrium, whether unannounced inspections achieve a higher level of compliance than announced inspections depends on the number of firms, demand and the cost of compliance. Furthermore, the impact on compliance of increasing the fine, the supervisor’s wage or the probability of inspections also depends on market size and structure and may be non-monotonic. Finally we provide conditions under which a welfare maximizing regulator will prefer an unannounced to an announced regime. Thus, our results suggest that when choosing the appropriate inspection regime, regulators should account for market characteristics, especially if compliance maximization is the objective.

Bertrand Oligopoly Competition in Composite Web Service Network

Because of its heterogeneous nature, a web service can be composed of multiple composite web services. To improve profitability in the software-component economy, software as a service (SaaS) service providers compete more at the composite-service level than at the single-service level. Moreover, because of the collaborative environment, composite web service networks determine both the applicability of the web service and its expected economic behavior. Based on the traditional linear demand model, this article presents a congestion-aware demand model that makes several assumptions regarding the SaaS service marketplace. Then, it formulates the SaaS service providers' pricing behaviors as a network Bertrand oligopoly competition. Key game-theoretic analysis includes the existence and uniqueness of the pure strategy Nash equilibrium. Moreover, this article provides one sufficient condition, where if all SaaS service providers follow the best response strategy, the strategy profile converges to the unique pure strategy Nash equilibrium.