WORKING PAPER SERIES NO. 19004
ARE “FANGS” MONOPOLIES? A THEORY OF DISEQUILIBRIUM COMPETITION WITH UNCERTAINTY
NICOLAS PETIT UNIVERSITY OF LIEGE AND HOOVER INSTITUTION
APRIL 16, 2019
Hoover Institution Working Group on Intellectual Property, Innovation, and Prosperity Stanford University
www.hooverip2.org
Working Paper, April 15, 2019
ARE “FANGs” MONOPOLIES? A THEORY OF DISEQUILIBRIUM COMPETITION WITH UNCERTAINTY
Nicolas Petit
Introduction This paper lays down the rudiments of a descriptive theory of competition among the digital tech platforms known as “FANGs” (Facebook, Amazon, Netflix and Google), amidst rising academic and policy polarization over the answer to what seems to be – at least at the formulation level – a simple question: are FANGs monopolies?
To date, two streams of thought pervade the competition policy debate. On the one hand, works in favor of the monopoly motion insist on FANG’s control of a large share of output in relevant product(s) or service market(s), high barriers to entry, lateral integration and strong network effects. Some of these works also implicate harder to estimate, and potentially novel, harms like reductions in privacy, labor market monopsony and distortions of the democratic process.
On the other hand, a line of argument skeptical of FANG monopolies argues that traditional monopoly harms are not manifest in FANGs. To the contrary, FANGS would outperform textbook monopolies by observable metrics of prices, output, labor or innovation. In addition, the tech industry is rife with examples of once dominant later irrelevant companies like
MySpace, AOL or Yahoo!., inviting caution against anticipative monopoly findings.
Both perspectives carry weight in competition and regulatory decision-making. Yet confidence in the idea that FANGs are monopolies is on the rise, as evidenced by the rapid succession of