A growing army of writers, analysts and policy makers is pleading for the dismantling of today’s digital conglomerates. They’re calling for a re-interpretation of the (American) antri-trust doctrine to protect consumers and society, to safeguard free competition and to protect truly innovative startups. When monopolists are too powerful and no longer vulnerable to creative destruction, should legislators take an axe to them?

Our observations

  • In his latest book, The Curse of Bigness, Tim Wu argues for a dismantling of today’s monopolists in, among other sectors, digital technology, pharmaceuticals, airlines and the beer industry. His most prominent target is Facebook, which clearly has a dominant position (almost 70%) in social media, in part through the acquisitions of WhatsApp and Instagram, and this lack of competition means that they can get away with, according to Wu, mistreating users (i.e. as in the well-known scandals over privacy protection and fake news).
  • In their upcoming book, The Myth of Capitalism, Jonathan Tepper and Denise Hearn similarly argue that the American economy is far from an open market and that anti-trust enforcement is needed more than ever.
  • As we noted before, since the 1970s, the dominant Chicago School interpretation of anti-trust law in the U.S. dictates that only consumer welfare should be taken into account and as long as consumers aren’t forced to pay too much, government should refrain from interfering in the economy. Last year, at a conference from that same school, it was made clear that its scholars now embrace a broader definition of anti-trust and that today’s giants stand in the way of true competition and that this, for instance, leads to less innovation, lower wages and increasing inequality.
  • Historian Niall Ferguson believes that big tech suffers from the same kind of hubris as did Wall Street bankers in the run-up to the GFC. He believes social media will bring about further societal polarization and that governments will eventually intervene and possibly break up these companies to reduce their power.
  • Fortnite developer Epic offers an Android version of its popular game, but refuses to do so through the Android Play Store because it disapproves of Google’s position as the sole gatekeeper. A group of iPhone users has been battling Apple over its control of the Appstore since 2011, their case has now made it to the Supreme Court.
  • The Economist recently coined the term “kill-zones” to describe the ways in which big tech kills its competition. As soon as tech firms enter a market (or a startup tries to enter an existing tech market), startups are either acquired (sometimes under heavy pressure) or squeezed out of competition. Even when they are not targeted directly, a startup’s valuation is likely to plunge as soon as big tech makes a move into its market (e.g. meal-delivery startup BlueApron lost much of its valuation after Amazon acquired Whole Foods).
  • Since the turn of the millennium, the U.S. has lost 50% of its publicly traded firms and despite the fact that real GDP has grown threefold since the 1970s, there are fewer firms today than back then. Also, the number of yearly IPOs has almost halved over the course of two decades.

Connecting the dots

People tend to favor the underdog and embrace stories which tell us that giants are vulnerable to smaller, but smarter, contenders (e.g. David versus Goliath). This love for the underdog is also present in scientific and popular accounts of disruptive innovation, such as in the work of Joseph Schumpeter, the godfather of studies of innovation, who used the term “creative destruction” to describe how old industries give way to new technologies and new businesses. However, some giants may simply be too big, and too clever, to suffer from creative destruction and continue to expand their business and their (political) power. This was true for giants of the past (e.g. the famous cases of Standard Oil and AT&T) and it may be true for today’s big tech giants. They have built (quasi-) monopolies in their respective markets of online search, social media and e-commerce and have swallowed or squeezed out almost all of their competitors. To illustrate, Alphabet, which holds 92% of online search, has spent $12.6bn on 308 startups since 2013. Moreover, they are expanding into ever more verticals in which they battle incumbents (and startups) with large wads of cash, technological superiority and data-centered synergies. It’s clear to many that this has given rise to a dire situation and, for one, European legislators have sought ways to penalize them, but in the U.S. no serious effort has been taken to dismantle these companies (as happened with their notorious predecessors). The problem is that, at least in the U.S., the doctrine on monopoly-busting says that this is only just when monopolies force consumers to pay too much. In practice, the products of tech companies are either free or relatively cheap; Amazon is even held responsible for low inflation levels.
The growing momentum for legal action against big tech is founded on two arguments against the dominant, but narrow,

take on trust busting. First, while tech companies’ products may be cheap or free, consumers actually “pay” a yet-unknown price in the form of personal data and the insights they provide by using online services. The many privacy violations and data hacks indicate that tech companies are failing to protect consumer rights and we cannot assess yet how our data will be used in the future. In other words, it is impossible to tell whether we’re paying a “fair” price for what we get in return. For Tim Wu, this is one of the reasons to call for an undoing of the Facebook acquisition of WhatsApp and Instagram; as independent platforms, they could provide more user-friendly (similar to how they once started out) alternatives to Facebook.
Second, and possibly more convincing for economists or federal courts, these large companies may eventually stand in the way of genuine innovation that could benefit all of the economy and society. To be fair, tech companies (along with pharmaceuticals) are clearly among the top investors in R&D, but it remains questionable whether they will actually deliver truly valuable and meaningful innovation. For instance, they might block or postpone the commercialization of promising technologies or services to protect their own revenues. Moreover, even though they weren’t considered successful at the time, it has often been argued that the antitrust cases against IBM in the 1980s and Microsoft in the ‘90s were needed to create an opening for new and more innovative companies to enter the IT market. In fact, the likes of Google and Facebook may never have blossomed if it wasn’t for those court cases. All in all, whether it is in the direct interest of consumers, the open market or society as a whole, there are reasons to consider legal action against today’s tech giants and let a new ecosystem of technology and business models grow from the ashes of the old giants.


  • Despite growing momentum for legal action, the U.S. government is still unlikely to take on big tech as it did the giants of the past. Nevertheless, the European court cases and smaller law suits against Google and Apple could damage their dominant position and, for instance, reduce their control over the smartphone platform.
  • If big tech is not dismantled, these companies are likely to continue to acquire promising startups before they reach maturity (and kill-off competition before it can hurt them). Also, even though their typical low-marginal-costs business models preclude any immediate need to invest in infrastructure or capital goods as much their non-digital ancestors did (e.g. telephone companies having to build their own networks), big tech is increasingly investing in physical assets (e.g. stores, hotels, offices and homes, vehicles). They do so for a variety of reasons, but one of them is to raise barriers to enter their markets.
  • In an extreme scenario, governments could even decide to nationalize social media (e.g. Facebook) or online search companies (e.g. Google) in order to gain control and serve public interest (e.g. in relation to privacy protection and/or fake news). The most prominent examples are the brief nationalization of the American railways during WOI and the various periods of nationalization of the British railways.