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TECHNOLOGY GIANTS, THE “MOLIGOPOLY” HYPOTHESIS
AND CONGLOMERATE COMPETITION
Nicolas Petit, University of Liege (ULg)
ASCOL...
www.lcii.eu
www.lcii.eu
 Archipelago of relevant
markets with monopolists
on each island
 Antitrust scholars: Tim
Wu, “In the Grip o...
www.lcii.eu
Outline
1. The Moligopoly Hypothesis
2. The Nature of Moligopoly Competition
3. The Problem with Competition E...
www.lcii.eu
1. The Moligopoly Hypothesis
www.lcii.eu
Yahoo! Finance – Overview
www.lcii.eu
Yahoo! Finance – Results
www.lcii.eu
Reuters Finance
www.lcii.eu
Bloomberg
www.lcii.eu
 Google, Amazon, Microsoft,
mention “intense competition” as
the first risk factor faced by their
businesses,...
www.lcii.eu
www.lcii.eu
Summation
Support to moligopoly
hypothesis? Y
 Non AT experts characterize
each GAFAM as a technology
pole th...
www.lcii.eu
2. The Nature of Moligopoly Competition
Observations
 Conglomeralism
 Disruptism
 R&Dism
 Serendipitism
 ...
www.lcii.eu
Conglomeralism
www.lcii.eu
Disruptism
 E. Schmidt, “someone, somewhere in a garage is
gunning for us”, The New Gründergeist, Monday,
Oct...
www.lcii.eu
R&Dism
www.lcii.eu
R&Dism, Cont’d
Source, 2015 EU Industrial R&D Scorecard
R&D intensity: “High above 5%; Medium-high between 2% ...
www.lcii.eu
Serendipitism
www.lcii.eu
Transactionalism
www.lcii.eu
 “Low end market footholds”
 AMZN
 Toys “R” Us
 FedEx, UPS, TNT
 GOOG
 Fiber
 ProjectFi
 MSFT
 Cisco
...
www.lcii.eu
3. The Problem with Competition Economics?
Mainstream
 Over-simplification?
 Discredit of general equilibriu...
www.lcii.eu
 Consider dominance or restraints
restrictions in core if and only if
competition and innovation in
periphera...
www.lcii.eu
Proposed Screen
SERENDIPITISM? PATIENT
CAPITALISM
PLATFORM
LEADERSHIP?
Conglomeralism
(footholds)
Experimental...
www.lcii.eu
5. Public Interest Hypothesis?
Intuition
 Beyond philanthropy, provision of
(quasi) public goods by
moligopol...
www.lcii.eu
5. Conclusions
Theory
 Need a theory of the “whole”
where competition in
nonconsumption matters
 Role of bus...
www.lcii.eu
Thank you
 https://aisaacblog.com/
 www.lcii.eu
 Twitter: @CompetitionProf
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Tech Giants, the Moligopoly Hypothesis and Conglomerate Competition

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This presentation discusses the nature of competition amongst the US technology giants. It focuses on Google, Apple, Facebook, Amazon and Microsoft (GAFAM). It suggests that the current categorization of those firms as monopolies is wrong. It is based on a misguided frame of reference, which is blind to competition that occurs outside of the core market where those companies operate. Antitrust agencies and regulators should take a more holistic view of the conglomerate competition that exists amongst those firms. They should in particular look at how those companies "compete against the non consumption", in search for new and low end market footholds. The presentation makes a number of policy proposals, including using innovation-based screens and tests to decided which cases to prioritize and exonerate.

Veröffentlicht in: Wirtschaft & Finanzen
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Tech Giants, the Moligopoly Hypothesis and Conglomerate Competition

  1. 1. TECHNOLOGY GIANTS, THE “MOLIGOPOLY” HYPOTHESIS AND CONGLOMERATE COMPETITION Nicolas Petit, University of Liege (ULg) ASCOLA Conference, Leiden University, 1 July 2016
  2. 2. www.lcii.eu
  3. 3. www.lcii.eu  Archipelago of relevant markets with monopolists on each island  Antitrust scholars: Tim Wu, “In the Grip of the New Monopolists”, Wall Street Journal, 2010 Tech v Antitrust  Google, Apple, Facebook, Amazon, Microsoft as oligopoly competitors at war in the market  http://www.slate.com/artic les/technology/low_concep t/features/2013/wargames/ what_if_google_and_apple _went_to_war_in_real_life .html
  4. 4. www.lcii.eu Outline 1. The Moligopoly Hypothesis 2. The Nature of Moligopoly Competition 3. The Problem with Competition Economics? 4. Possible Framework 5. The Public Interest Hypothesis 6. Conclusion
  5. 5. www.lcii.eu 1. The Moligopoly Hypothesis
  6. 6. www.lcii.eu Yahoo! Finance – Overview
  7. 7. www.lcii.eu Yahoo! Finance – Results
  8. 8. www.lcii.eu Reuters Finance
  9. 9. www.lcii.eu Bloomberg
  10. 10. www.lcii.eu  Google, Amazon, Microsoft, mention “intense competition” as the first risk factor faced by their businesses, and all give colourful descriptions of fierce industry rivalry  Apple consistently ranks competition (in particular price) as the second risk factor, and defines it as “aggressive”  Facebook does not mention competition within the three main risk factors, yet it appears in fifth rank in all its 10-Ks  FAQ: firms must provide “information about the most significant risks that apply to the company or to its securities”  “companies generally list the risk factors in order of their importance”
  11. 11. www.lcii.eu
  12. 12. www.lcii.eu Summation Support to moligopoly hypothesis? Y  Non AT experts characterize each GAFAM as a technology pole that offers a mix of products and services;  Non AT experts recognize the distinctly superior position held by each GAFAM in one or more core businesses; and  Non AT experts balance this with a variety of competitive threats exerted “across industries” by other technology and non-technology firms in actual or future markets outside of the core “Extended rivalry”? Porter (1985)  “(1) firms not in the industry but who could overcome entry barriers particularly cheaply; (2) firms for whom there is obvious synergy from being in the industry; (3) firms for whom competing in the industry is an obvious extension of the corporate strategy; (4) customers or suppliers who may integrate backward or forward”
  13. 13. www.lcii.eu 2. The Nature of Moligopoly Competition Observations  Conglomeralism  Disruptism  R&Dism  Serendipitism  Transactionalism Interpretation  Competing against the non-consumption
  14. 14. www.lcii.eu Conglomeralism
  15. 15. www.lcii.eu Disruptism  E. Schmidt, “someone, somewhere in a garage is gunning for us”, The New Gründergeist, Monday, October 13, 2014.  10-K filings  “Our business is characterized by rapid change as well as new and disruptive technologies”  “[...] many of the areas in which we compete evolve rapidly with changing and disruptive technologies, shifting user needs, and frequent introductions of new products and services”  “Our business is characterized by innovation, rapid change, and disruptive technologies”.
  16. 16. www.lcii.eu R&Dism
  17. 17. www.lcii.eu R&Dism, Cont’d Source, 2015 EU Industrial R&D Scorecard R&D intensity: “High above 5%; Medium-high between 2% and 5%; Medium-low between 1% and 2% and Low below 1%”.
  18. 18. www.lcii.eu Serendipitism
  19. 19. www.lcii.eu Transactionalism
  20. 20. www.lcii.eu  “Low end market footholds”  AMZN  Toys “R” Us  FedEx, UPS, TNT  GOOG  Fiber  ProjectFi  MSFT  Cisco  Hagiu and Yoffie, “What’s Your Google Strategy”?, HBR 2009 Interpretation: Competing v non-consumption?  “New market footholds”  Ambition to build the next “General Purpose Technologies” (Bresnahan and Tratjenberg); “Generative Technologies” (Zittran); “Bell Labs model” (Klein) ?  Human skills that create, scale and manage  Artificial skills that compute  Digital oil (data)  Digital machines (AI, VR, etc.)
  21. 21. www.lcii.eu 3. The Problem with Competition Economics? Mainstream  Over-simplification?  Discredit of general equilibrium analyzis and domination of partial equilibrium analyzis in micro- economics => 2D analysis  Mono-parametrical competition (price or output)  Generalization?  Abundant and fungible labour  Conglomerate discount  Distrust for investments in tech startups and venture capitalism as source of innovation and competition  Disciplinarity: “one theory science” Applied  Market definition “cage”  Google >< Apple  WhatsApp >< Instant Messaging  Price and output competition only => R&D and skills too remote from market  Focus on barriers to entry, incumbency and scale in the core  Potential competition is RM- centric  Out of market efficiencies generally irrelevant
  22. 22. www.lcii.eu  Consider dominance or restraints restrictions in core if and only if competition and innovation in peripheral segments is insufficient  Number of conglomeral footholds  Structure of R&D process (blue sky v pipeline)  Skills expenses  Nominal R&D expenses  Content of R&D expenses  Ratio R&D expenses to revenue (or profit)  Retained earnings v buybacks of stock and dividends  M&A and VC expenses 4. Possible Framework?  As long as innovation and competition against non- consumption thrives, no need to look into the core  When moligopolist shirks on ambition to disrupt itself, dominance or restraint in core no longer insulated from antitrust scrutiny  Platform approval  Non competes  Dynamic analyzis, geared on level of ongoing intensity of conglomeralism, experimentalism, R&Dism
  23. 23. www.lcii.eu Proposed Screen SERENDIPITISM? PATIENT CAPITALISM PLATFORM LEADERSHIP? Conglomeralism (footholds) Experimentalism R&D to revenue/ profit Retained earnings Number and value of transactions; private equity funding High? GOOG; AMZN; MSFT GOOG; AMZN; MSFT FB (21,0%); GOOG (14,9%); MSFT (11,9%); AMZN (10,42%) AAPL: 87b GOOG: 61b GOOGL; MSFT; FB; AMZN Low? AAPL; FB AAPL; FB AAPL (3,0%) MSFT: 9b FB: 6b AMZN: 1,9b AAPL
  24. 24. www.lcii.eu 5. Public Interest Hypothesis? Intuition  Beyond philanthropy, provision of (quasi) public goods by moligopolists  Traditional public goods sectors, and more generally, utilities sectors  Information (Wikipedia), currency (Bitcoin), defence (Palantir), security (Apple encryption), health  Utilities (broadband, personal mobility, etc.)  Moligopolists as private ordering alternative to welfare State model for the provision of public goods Interest  Pros: reduces costs of political reform for Government  Cons: States lose legitimacy, with competition in the provision of public goods; explains welfare States propensity to regulate them; Less strong in free market spirited countries  Moligopoly v State Monopoly?  In antitrust process, what scope for justifications and design of competition agencies?
  25. 25. www.lcii.eu 5. Conclusions Theory  Need a theory of the “whole” where competition in nonconsumption matters  Role of business strategy literature  AT agencies tagging “monopoly” label risks precipitating ex ante populistic regulation, rent seeking conduct and knee jerk responses Practice  Relevant market analyzis is a cage  Accomodate technologism?  New types of practices: non competes in labour contracts  Ex post case studies  Microsoft conduct during the browser/OS war?  High or low degree of technologism?  HYPO: anticompetitive conduct in core, to keep iron in fire following failure to anticipate « mobile revolution »?
  26. 26. www.lcii.eu Thank you  https://aisaacblog.com/  www.lcii.eu  Twitter: @CompetitionProf

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