The answer is threefold. First, monopolies can arise even in fast-growing markets. However, it is important to recognize that even if a monopoly is likely to exist as a growing market matures, in such circumstances it is difficult and easy to get wrong in advance as to which monopolies are actually (or will be) monopolies. An infamous example of this is part of the debate surrounding the social networking company MySpace. A Guardian article from early 2007 noted that “it may already be too late for competitors to displace MySpace.” Facebook had been publicly available for five months.
Second, monopolies can enable and accelerate innovation, and are not necessarily an obstacle. The profits generated by a monopoly can be used for innovation, allowing the monopolist to maintain its advantage. These innovations add value, leading to an increase in the total value of the monopolist's production.
Third, and perhaps most importantly, the characterization of large technology companies as generally monopolies (as opposed to having a great deal of market power in a relatively few narrow markets) is probably incorrect. There is no debate that there have been and probably continue to be competition problems in the large technology sector. Notorious examples include Microsoft's anticompetitive behavior against Netscape, and there will undoubtedly be others in the future.
However, rather than simply investigating specific instances of anti-competitive behaviour, competition authorities have recently begun to more generally designate certain large technology companies as automatically monopolies by their very nature. These include Google, Apple, Meta, Microsoft, Amazon and Nvidia, and are referred to as GAMMAN.
The argument is that certain characteristics of technology markets, including in particular network effects (e.g., a user of a social media platform such as Facebook gets more value from the more other users they have; the larger the network, the greater the benefits), “tilt” the market so that once a firm establishes itself as the largest player, it becomes irreplaceable. All large technology firms are then considered monopolies. Moreover, when such firms try to expand their activities from existing markets into new ones, it is seen as anti-competitive behavior, an attempt to leverage their monopoly in one market into market power in others.
This analysis misses many important features of the technology sector, particularly what economists call “supply-side substitution” and new entry through vertical expansion. Supply-side substitution occurs when a company selling one product can use the tools used to make that product to make and sell another product instead. In technology, Meta's Instagram Threads network is a recent and well-known example. Instagram was focused on video and photos. But when Elon Musk's Twitter (now called X) looked vulnerable, Meta tweaked its Instagram offering, adding the option to post text like Twitter, and the text/image/video content was missing.
Vertical expansion is when a company that sells at one level of a supply chain (such as wholesale) expands its offerings to another part of the same supply chain. An example of this would be a company like Amazon that provides cloud computing services to AI providers and then creates its own AI foundational model (Amazon's model is called Titan).
In the mind of anti-technology politicians, this is either impossible (supply-side substitution is generally not even acknowledged as a concept) or anti-competitive. But if another big tech company has 80 percent market share in a given field, what does it mean to say that it is anti-competitive when a big tech rival enters that market and creates a new significant substitute (such as Threads as an alternative to Twitter)?
There have been and continue to be significant competitive challenges in the technology sector. But politicians and regulators must be careful not to kill the money tree in their attempts to address them. AI and other emerging technologies are key to getting the developed world out of the growth slump we've experienced since the global financial crisis. Big tech companies cannot afford to be too stifling in their attempts to help us all get out of that crisis.
