In October, the US Department of Justice launched a federal antitrust lawsuit against Google, accusing the technology giant of abusing its dominance in the market for internet search. To explore how Google achieved that dominant position, what impact that position has on society, and what—if any—steps policy makers should take to address the dominance of tech companies, Chicago Booth’s Initiative on Global Markets invited both its US and European Economic Experts Panels to express their views on these issues.
Statement A: Google’s dominance of the market for internet search arose mainly from a combination of economies of scale and a quality algorithm.
Responses weighted by each panelist’s confidence
A strong majority of each panel agreed that Google’s dominance of the market for internet search arose mainly from a combination of economies of scale and a quality algorithm.
Nicholas Bloom of Stanford said, “Google’s search engine has been far better from the outset—this alone can explain why it dominated. It is simply a better search engine.”
Franklin Allen of Imperial College London added, “They do have a good algorithm and this is a big part of their success, but increasing returns to scale due to network effects are large.” And Daron Acemoglu of MIT noted: “Quality of algorithm likely played a role early on, but now it’s mostly network effects—dominance breeds dominance.”
Robert Hall of Stanford introduced an additional factor behind Google’s dominance: “Not to mention good timing.” David Autor of MIT commented: “If Google hadn’t invented page rank, someone else would have. Google benefited from getting there first with a good idea.”
Pete Klenow of Stanford drew attention to background information on Google’s cluster architecture. And John Van Reenen of MIT pointed to “General findings in literature including our work on superstar firms.”
Statement B: In light of Google’s dominance, its current operating practices could have a substantial negative effect on social welfare in the long run.
Responses weighted by each panelist’s confidence
On the question of whether Google’s dominance and current operating practices could have a substantial negative effect on social welfare in the long run, more experts agreed than disagreed, but there was substantial uncertainty.
Among those who agreed with the statement, some referred to how potential negative effects might arise. Barry Eichengreen of the University of California at Berkeley said, “Overwhelming market dominance creating formidable barriers to entry are not good.” Bengt Holmstrom of MIT explained: “Difficult to assess. De facto monopoly due to superior algorithm. Worried about limited contestability and biased ad rankings.” Franklin Allen added, “As with many monopolies, they will have the wrong incentives with regard to pricing of advertising and to innovation.”
Others develop the theme of the possible impact of market dominance on a firm’s conduct. Christopher Pissarides of London School of Economics noted simply: “Power corrupts.” Larry Samuelson of Yale said, “Innovation brought Google to a dominant position, but Google bars no holds in preserving that position, with adverse consequences.”
Daron Acemoglu went further: “It walks, swims, and quacks like a duck, it’s probably a duck. It looks, behaves, and dominates like a monopoly, it’ll probably harm welfare.” And David Autor warned, “I fear Google is becoming the new *old* Microsoft, before the antitrust case. They may not be doing substantial harm now—but they could.” Pete Klenow linked to a 2010 study asking exactly that question: Is Google the next Microsoft?
A number of panelists picked up on the word “could.” Pinelopi Goldberg of Yale stated, “They COULD; this does not mean they WILL. Regulators should be vigilant and scrutinize practices going forward.” Robert Shimer of the University of Chicago added, “The key word in the question is ‘could.’ It could also have a substantial positive effect, as it has in the past.”
Anil Kashyap of Chicago Booth pointed to a mechanism by which negative effects could happen: a “kill zone” in the space of startups, as described by venture capitalists, where the prospect of acquisition by an incumbent platform undermines early adoption and makes new entrants not worth funding. Kjetil Storesletten of the University of Oslo worried about the effects on other industries: “Indirect costs: dominant tech giants soak up the advertisement revenue the free press/media depends on. This risks crowding out the press.”
Karl Whelan of University College Dublin expressed, “Weak agreement, but we’ve seen large tech companies rise and fall. This could be the ‘peak Google’ era and something else replaces it.” But Peter Neary of Oxford, who strongly agreed with the statement, responded: “A classic case of natural monopoly. Unfortunately, it is (almost) at the global level so countervailing action would have to be global too.”
Among the sizeable minority of panelists who said that they were uncertain, some find the question insufficiently specific. Jonathan Levin of Stanford replied: “Struggling with question framing. Some practices deserve scrutiny. On net, however, its products and services create enormous value.”
Kenneth Judd of Stanford said, “Fuzzy answer to a fuzzy question. ‘Could’ have negative impact, yes. But current operations include creation and sharing of powerful tools.” Pol Antras of Harvard added, “Ambiguous language here. Google will not have decreased steady-state welfare; but relative to a counterfactual with more competition, it may.”
Others were unsure that they knew enough for anything more than a response of “uncertain.” Christian Leuz of Chicago Booth noted: “Given Google’s dominance in the market for search, there clearly is potential for such harm. Don’t know enough about its practices to answer.” Darrell Duffie of Stanford commented: “Depends on how Google exercises its market power, and on the quality of potentially superior entrants. Those are beyond my expertise.”
Patrick Honohan of Trinity College Dublin, who voted “no opinion,” responded: “Future dynamics of the sector too uncertain for me to assess.” And Richard Schmalensee of MIT said, “I don’t know enough about its current operating practices to be very confident.”
Among those who disagreed or strongly disagreed with the statement, Robert Hall stated, “I take it that would mean that regulators are currently passing up a constructive intervention, which is not the case.” And Nicholas Bloom concluded: “Search is a natural monopoly. If better searches exist they will win—Google beat out Alta Vista on product quality.”
Statement C: The nature of the market dominance of technology giants in the digital economy warrants either the imposition of some kind of regulation or a fundamental change in antitrust policy.
Responses weighted by each panelist’s confidence
The greatest differences across the two panels surfaced on the question of whether the nature of the market dominance of technology giants warrants regulation or a fundamental change in antitrust policy. A considerably larger proportion of experts on the European panel agreed or strongly agreed with the statement than on the US panel, and just over a fifth of US experts disagreed.
Christopher Pissarides, who strongly agreed with the statement, said, “They are becoming monopolies in very sensitive areas. Human nature cannot be trusted in such circumstances.” Bengt Holmstrom, who agreed, responded: “Market values strongly suggest a need for review. Especially now that competition from China [has been] curtailed.” And Barry Eichengreen, who also agreed, concluded: “Absent public sector intervention, this problem won’t solve itself.”
Others who agreed with the statement go into a little more detail on what should be done. Larry Samuelson said, “The tech industry is rife with natural monopolies, which are routinely regulated in other sectors.” Franklin Allen commented: “We do need new antitrust policies and new regulation as well as new taxation to deal with the issues raised by the tech firms.” Daron Acemoglu added, “This should probably involve more than light-touch regulation. We should also deal with the effects of Big Tech on direction of innovation.” And Jonathan Levin noted: “To take one example—thoughtful, informed regulation is needed in areas like privacy and data rights.”
Austan Goolsbee of Chicago Booth goes back to history for perspective: “Go look at what happened the last time there was a massive disruption to technology and increase in corporate power, 1880-1930.” David Autor added, “The Sherman Act was not set up for the networked world. Case in point: Facebook should never have been allowed to buy WhatsApp.”
Columbia’s Jose Scheinkman concurred: “Need to increase scrutiny of acquisitions of related businesses, for example, WhatsApp by Facebook.” Booth’s Richard Thaler, who said he was uncertain, also reflected on policy on mergers and acquisitions: “It is hard to favor unspecified changes in the rules. I don’t think Google should be able to buy Waze, nor Facebook buy Instagram.”
Among others who said they were uncertain, Darrell Duffie of Stanford asked: “Are existing antitrust laws enough? DOJ seems to think so, and they seemed to work for Bell and Microsoft. For Google: stay tuned.” Richard Schmalensee warned, “Those sorts of changes surely deserve serious consideration, but I’m not confident that we can find changes that are net beneficial.”
Among those who disagreed, several comment on the adequacy of existing antitrust laws. Judith Chevalier of Yale said, “Enforcement of merger policy, for example, would ideally be stronger, but I don’t think that derives from a fundamental deficiency in the laws.” Similarly, Michael Greenstone of the University of Chicago remarked: “There are always legitimate questions about enforcement but I think the laws are up to the task.”
Kenneth Judd of Stanford added, “A key point in the current discussion is the Apple-Google arrangement. I guess that current law can handle this; no need for new rules.” And Robert Hall, who said he was uncertain, noted: “Merger regulation is in place and a good idea. Regulators should understand that there is not competition in the market, but for the market.”
Others who disagreed doubt that there are grounds as yet for changes in regulation or antitrust policy. Robert Shimer said, “We are yet to see evidence of significant damage caused by these firms, but do see substantial social benefits.” Pinelopi Goldberg added, “It is not clear what problem the regulator is asked to solve. Being worried about future abuse of power is no justification for regulation.”
Nicholas Bloom, who strongly disagreed with the statement, is concerned about the dangers: “The history of government regulation is poor, and particularly with governments like Trump in the US, I do not want them to have more control.” And Anil Kashyap, who voted “no opinion,” asked: “How do we know what kind of changes would result—and probably they would not just be designed based on economic principles.”
Finally, Pete Klenow referred to further reading on the economics of data property rights. And Karl Whelan recalled a book coauthored more than 20 years ago by Google’s chief economist, offering “a strategic guide to the network economy”: “I learned lots from reading Varian-Shapiro’s Information Rules. Markets for information goods are innately imperfectly competitive.”