Today’s Monopolies Are Yesterday’s Start-Ups

Luigi Zingales: Competition is really the essence of what makes a capitalist economy work. And it’s not necessarily ownership. It’s not necessarily incentives. It’s really competition. And I think that we have lost a bit of this appreciation in the current debate, and I think it is important to understand how this is important to make our current system work. 

Concentration in the United States over the last 20 years has increased. Now, what does that mean? People are divided. And even if competition is OK from a product market point of view, even if prices are low, concentration can lead to distortion, for example in regulation and entry. 

So the best example is Google. Google has an enormous amount of concentration. Sales and services at zero price to most of us, but it has an enormous power on regulating privacy, data, and stuff like that. So is that a problem or not? And I think an increasing number of people in academia are starting to say, “Yes, it is a problem.” 

It’s also true that the monetary price that we pay for Google service is zero. It’s also true that we give a lot of data in exchange. So that zero price is fictitious, because we pay a cost, and a pretty significant cost that’s due with our privacy. 

Today there are a lot of property rights that are not well allocated, or allocated by default to, in my view, the wrong side. So let me take a positive example. We’re all familiar with what is number portability. You can switch your phone provider within three hours at no cost for you. What is the number portability as a definition of property rights? The phone number belongs to you, not to the company. And that definition enhances competition greatly. 

But what about bank accounts? Today it is a pain to change which bank you deal with, because you have to reroute your checking account, your mortgage, lots of things. If you own that number, and you can switch from one bank to the other, we would see a lot more bank competition. 

So do you call that regulation? Do you call that definition of property rights that enhances competition? And so I think that technology has created a lot more intangible assets that need to be properly defined. And the property over those assets need to be properly defined. 

You can challenge a monopoly. If the Department of Justice, or Federal Trade Commission, were more aggressive in defining what is a monopoly, what is market power, and ready to break up firms, like it was in the time of Rockefeller, and honestly was pretty close at the time of Microsoft. People don’t fully appreciate that the reason why we have Google and Facebook today is because there was an antitrust enforcement against Microsoft that slowed down the ability of Microsoft to monopolize also the internet, the browsers, the data search, and so on and so forth. 

And so today’s monopolies are yesterday’s startups. And in a good system, this keeps changing. A system where this does not change is a system that is fossilized and is a system that hurts everyone.