Google and Facebook (and other, lesser, social media companies) have a lot of information on you. Lots and lots and lots of information on you. Many people are coming to the conclusion that this is bad, bad news and “something must be done”. Politicians and activists share a tendency to respond to such demands by pushing “something” they already favour as the solution to the popular demand for action. A few days ago, the “something” seemed to be some form of anti-trust action over the social media giants.
In the Continental Telegraph, Tim Worstall explains why an over-the-top anti-trust offensive is likely to leave everyone in a worse state than the status quo:
Which brings us to the tech companies of today:
Big Tech May Be Monopolistic, But It’s Good for ConsumersQuite so, thus no antitrust actions should or need be taken.
At the first level there’s the simple point that Facebook, Google a little less, Microsoft, e-Bay, they benefit from network effects. The more people who use them the more attractive they become to the next user. Meaning that size, in and of itself, creates yet more size. That’s just what we mean by network effects.
In turn that also means that the efficient size of an organisation here is that global monopoly. It isn’t true in most cases because there are diseconomies of scale as well as economies of it, but another way to describe network effects is just that we’re insisting that the -economies outweigh the dis- at scales up to and including 7 billion people.
In that first reading of antitrust that would mean they gain economic power and thus government must step in. In our second reading that’s not enough.
Firstly, the monopolists must exercise that economic power they have. Something not greatly in evidence as just having power doesn’t mean it can be exercised. For when you do try to, say, raise prices can someone come in and try to undercut you? If so you’ve got contestable economic power, or even a contestable monopoly. As an example, think the Chinese and rare earths. They were producing some 97% of the world’s supply. So, they decided to play silly buggers, exercise that power. It took a couple of years but two new mines opened, China’s share of rare earths fell and prices halved, below their original point. People contested that Chinese economic power when China tried to exercise it. China didn’t win either.
If Google tried to raise the price of adverts then business would flow away from them. If Facebook started charging for access then there wouldn’t be a Facebook. They’ve got contestable monopolies.
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Sure, we should keep a wary eye open and if the consumer is being gouged then we could and should do something. But while we’ve got efficient companies, monopolies or not, benefiting consumers then the correct response is to get the hell out of the way.
Unless you’re a politician who simply wants to expand the powers politicians have over society – something which explains most politicians – but then we can tell them to go boil their heads. Only the exercise of economic power to the disbenefit of consumers justifies intervention.
