The issue is about checking their monopoly power while encouraging their positive externalities and consumer surplus
There are ongoing investigations worldwide, including in the European Union and the United States, on the abuse of monopolistic power by the Big Tech firms, especially Facebook and Google. Many compare this with the earlier antitrust investigations in the U.S. on the telecom industry and the break-up of the AT&T dictated by the Department of Justice in its Modified Final Judgment in 1982.
Key differences now
However, there are important differences this time around when compared with the earlier investigations. First, the information good that is being provided by the Internet firms of today, is largely non-rival. The consumption of information by one does not alter the value for the others. However, in telecom, due to limited network capacity, the consumption by one has an effect of decreasing value for the others and, hence, is rival in nature.
Second, telecom services are within the jurisdictional boundaries of regulators and, hence, the regulators have the power to lay down rules of the orderly behaviour of the licensed telecom operators. On the other hand, the Internet firms operate globally, thanks to the ubiquitous Internet. Therefore, it is often difficult to lay down international rules of obligation and fulfilment by the different country regulators.
Third, while it is debatable whether the goods and services provided by the Internet firms are excludable, telecom is certainly excludable due to the need for consumers to obtain connections from the respective telcos and pay the subscription charges for the same. It is this factor that was leveraged by the Internet firms to provide search, navigation, and social connectivity with no charge to the consumers, and, consequently, making these services non-excludable. In fact, the Internet, started as the Department of Defense project in the U.S., was created to be non-excludable. However, commercialisation of the Internet has created this new avatar of non-excludability that includes subtle trade-offs of personal information for availing services of the Internet firms.
It must be pointed out that such non-excludable and non-rival goods, also known as public goods, are provided by governments. On the other hand, in a peculiar way, the information goods as described above are being provided by private firms. This arrangement poses several problems.
First, while governments can cover the expense of providing public goods (such as police protection, parks and street lights) through tax-payers’ money, private firms need to have monetisation models to cover the costs of providing their services. Hence, the Internet firms have resorted to personalised advertisements and third-party sharing of the personal information of their users for monetisation purposes.
Second, the strong network effects present in these Internet platforms warrant increasing the subscriber base and garnering as much market share as possible. This results in near monopoly of some firms in their defined markets. In order to retain their pole position, these firms may resort to anti-competitive behaviour including acquiring rivals to vertically integrate; erecting entry barriers by refusing to interconnect and inter-operate with competing firms, and leveraging their capital base, thereby engaging in predatory pricing, and driving out competitors.
However, network effects create a huge consumer surplus. Even without our knowledge, these Internet firms have now become an indispensable part of our lives. We cannot do without Google Maps for our day-to-day commute to various destinations; Google Searches are indispensable in our quest for information and news; Google Scholar is a necessary tool for academicians to explore relevant research artefacts. There are positive externalities as well. For example, Google Maps Application Program Interface (APIs) is being used by almost all logistic and transport companies; Facebook APIs are used for advertisement by almost all firms across the industry. Sundar Pichai, the CEO of Google, recently announced that its Search is being expanded to provide accurate and timely information on vaccine distribution to enable quick recovery from the COVID-19 pandemic.
Hence, the question before policymakers is how to regulate these Internet firms from abusing their monopoly power while at the same time encouraging the positive externalities and consumer surplus they create. This is a tough nut to crack as it is often very difficult to prove that the firms engage in the abuse of their monopoly power. Due to strong network effects, it is not possible to ban or curtail these services. Even if other
options are available (such as Signal and Telegram for messaging), the network effects bind customers to their often used platform (WhatsApp), even if it is not their favourite.
A traditional view is to subsidise the good that creates positive externalities. Should the governments provide tax subsidy to these Internet firms in return for their orderly behaviour in the marketplace? Should the governments mandate sharing of Non-Personal Data (NPD) owned by these firms for societal and economic well-being as pointed out in the expert committee on NPD? It is legitimate as pointed out by the Australian government in its media legislation, that Google and Facebook must negotiate a fair payment with news organisations for using their content in Facebook’s newsfeed and Google’s Search. Controlled expansion of products and services without hurting the interests of consumers and smaller competing firms shall be the mantra used by these firms to minimise litigation, lawsuits and, eventually, wastage of tax-payers’ money.
While governments and regulators deal with these dilemmas, should not the Internet firms adhere to core ethical principles in conducting their businesses? Lessons from the Enron scandal, and collusions between large banks and financial institutions during the 2008 financial crisis, indicate that firms that aim at super monopoly profits and are greedy to become powerhouses of the world, often end up in the ditch.