Big Tech and the Digital Economy: The Moligopoly Scenario, Nicolas PETIT

Nicolas Petit

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The impressive emergence of the major digital firms, now perched at the top of the world’s stock market capitalisations, has decidedly put the academic world in extreme turmoil, so that literary and academic production about them accompanies the media’s growing awareness of the lasting concentration and low intensity of competition on digital markets.

Nicolas Petit, professor at the European University Institute, offers us in his latest book a deep dive into the factory of competition in the digital economy and more precisely in the one that MAGNAFs (Microsoft, Apple, Google, Netflix, Amazon, Facebook) are engaged in. It carefully tries to challenge the "dominant dogma" according to which maintaining a dominant position in the absence of alternatives in a given market necessarily implies weak rivalry and reduced competition. Thus, both its factual expositions and its economic demonstrations converge towards the conceptualization of a new theory with the ambition to explain the functioning of current competition in the digital economy, to identify its drivers and to deconstruct the myth of the infallibility of the digital "superstars". Dubbed "moligopoly" - a word formed by the merger of the terms "monopoly" and "oligopoly" - this theory aims to lay the foundations of a new representation of the competitive game in the digital economy in which the Big Tech are both dominant firms and economic agents subject to real competitive pressures.

The book is divided into six chapters following reasoning that oscillates between empirical findings and theoretical formulations. The author draws on economic, management and business sciences as well as legal sciences to frame his demonstrations. The reading is thus enriched by the multiperspectivity of the analyses at the confluence of the "moligopoly scenario".

The first chapter therefore opens against the backdrop of the great doctrinal division that opposes two protagonists at the antipodes of each other and that seems to hold two divergent hypotyposes of the competitive position of the major digital firms. Between the neo-structuralists and the practitioners of the consumer welfare standard, the gap is abyssal, both in terms of the position of the theoretical problem and in terms of the direction that competition policy should take in the competitive regulation of digital markets.

In the second chapter, and in order to capture the reader’s full attention, the author opens the hostilities against the competition and regulatory authorities with a straightforward question: "To begin with, why should we trust the conclusions of antitrust and regulatory decision-makers regarding the monopoly of the digital giants?"(p. 32.) This provocation is only apparent in the sense that it is, according to Professor Nicolas Petit, justified by a finding that the analytical methodology of competition and regulatory authorities suffers from real anomalies that prevent them from identifying the diversity of sources of competitive constraints weighing on the Big Tech. Thus begins a propaedeutic aimed at identifying the rhizomes of competition in the digital economy and probing the competitive environment of the digital giants. It is in fact based, on the one hand, on an intersubjective study (the examination of 10-K forms) of the competitive reality as it presents itself to MAGNAF and, on the other hand, on market analysis and competitive intelligence by independent bodies. The regulatory authorities are therefore invited to broaden the focus of their empirical observations, which necessarily requires multidisciplinarity in the analysis.

What is striking in this book is the author’s unalterable faith in economics, which is supposed to be the (only) machine for producing "scientific truths" about competition. Hence, MAGNAFs, as presumed ultra-dominant entities, are scrutinized through the prism of monopoly theory in order to wring the neck of the idea that the big digital firms are acting in a monopoly position. But if they do not behave in a monopoly position in the markets, where does the competitive pressure to curb their market power come from? This is what Professor Petit tries to demonstrate in Chapter 3, which sheds new light on the workings of the competitive process in digital markets characterized by intense network effects, which bring the conditions of competition under uncertainty.

In order to root his theory in an empirical approach, the author presents the history and the anatomy of the six firms under study as well as a series of properties that constitute their recent economic development (chapter 4). This ontological exercise is considered fundamental for Professor Petit, as it is a necessary prerequisite for any study of market power in that it allows the rigidity of neo-structuralist analyses that focus almost exclusively on firm size to be relaxed. Next, the author demonstrates the existence of a source of competitive constraint through indirect inputs that can ensure dynamic competition in digital markets. Each of these six Internet giants can certainly be considered as a structural monopoly in the market for a product or service. However, they are players who play an intense dynamic game in an oligopoly. Far from being "quiet", they are in competition to corner markets that have not yet tipped over. It would therefore be a market structure that would offer a balance that would create productive and even allocative efficiency. Nicolas Petit places this theory in line with Schumpeter and, in particular, Arrow, on which he argues for a convergence of analysis with Schumpeter. To this end, he invokes Arrow’s assertion that the diversification sought by the major operators would be conceivable in order to preserve innovation, without however clarifying the assessment of the "imperfect solution" that the latter added. The recommendation follows that the resources of the competition authorities should be confined to those markets that have already changed and are no longer of interest to new entrants. For those markets that have not yet switched, competition is considered to be sufficiently fierce and efficient. However, it should be noted that the "moligopoly" theory as defended in this book gives little room to the role of start-ups in neutralizing monopoly rents intipped markets.

Chapter 5 introduces the theoretical lessons presented in the orchestrated debate on competition policies in the digital economy. Here, the cult of rivalry is questioned. According to the author, while rivalry is a historical function of competition policy, it cannot be the exclusive variable by which the strength or state of competition should be assessed. Thus, Professor Petit proposes "to abandon, or at least radically modify, the antitrust principles traditionally conceived of rivalry in digital markets" (p. 177). To this end, he suggests that the analysis of competition authorities should distinguish between markets that have tipped and those not yet subject to suchtipping effects. The idea seems appealing in the sense that the strength of its practical variations is aimed at creating competition between markets - that is, competition that aims to eliminate or at least undermine monopoly rents in the digital markets that have tipped by encouraging increased indirect entry into neighbouring or related markets.

In conclusion, Nicolas Petit intends to have demonstrated how intuitively attractive the monopoly qualification is, but erroneous. There would be no need to apply antitrust law because of the strong competition that exists between the Big Tech companies. Harmful news such as fake news, invasions of privacy and hate speech are not the result of market power. That is why he refers regulation back to consumer law.

Some readers of this book might be tempted a priori to see in its author a diabolical advocatus helping to loosen the noose that threatens to break the hegemony of Big Tech. This would therefore be to miss a diagnosis that is certainly subject to debate, but which is fruitful in terms of lessons learned and raw material, making competition law and policy a freshly arable field for academic debate.

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Author

  • University of Paris I Panthéon-Sorbonne

Quotation

Farouk Er-razki, Big Tech and the Digital Economy: The Moligopoly Scenario, Nicolas PETIT, February 2021, Concurrences N° 1-2021, Art. N° 98935, pp. 266-267

Publisher Oxford University Press

Date 8 October 2020

Number of pages 320

ISBN 978-0198837701

Visites 507

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