By Rosa M. Abrantes-Metz (The Brattle Group) & Albert Metz (Global Economics Group)
The bloom is off the Big Tech rose. It seems nearly the entire political spectrum is angry with Amazon, Google and Facebook for one reason or another. This has led to a great deal of discussion on whether and how to regulate (or even break up) these platforms, including whether they should be regulated as utilities. Over the last several years, if there is one issue which might support a somewhat broad political consensus it is the desire to regulate large internet platforms like Amazon, Google and Facebook.
Our purpose with this article is simply to caution against some forms of regulatory treatment which emphasize the utility-like nature of large platforms. We choose the word “caution” because we are not necessarily arguing that such regulation is in all instances inappropriate or uncalled for. Instead, all we mean is that there are counterarguments which should be considered, and in this article we give voice to some of those arguments.
The basic economic argument for utility-like regulation of internet platforms is that these platforms can become “natural monopolies” which tend to forestall competition. While there is merit to this argument, internet platforms have also been a source of tremendous innovation which in turn has allowed entrants to unseat what were once thought to be entrenched incumbents. Regulation risks quashing such innovation and harming consumer welfare.
Furthermore, internet platforms, unlike traditional utilities, are sometimes amenable to multi-homing, meaning that customers of one platform may also choose to be customers of additional similar platforms. Multi-homing can be critical in enabling successful entry into the market.
While examples of entry do not disprove the possibility of market power abuse by some platforms, they do remind us that the economics of platforms can be more complex and nuanced than the classical utility model would suggest.
