Tech Super Giants Monopolies Tech Super Giants Maintain Standard Oil Sized Monopolies
By Steve Brachmann & Gene Quinn February 28, 2018 Perhaps the most concrete example most Americans refer to when they think of business monopoly is the classic case of Standard Oil, the American oil company established by John D. Rockefeller in 1870. Standard Oil grew to become one of the world’s largest multinational corporations by the early 1900s, and controlled almost unthinkable wealth.
.. It’s certainly true that Standard Oil had a massive grip on America’s oil industry. By 1890, the company controlled 88 percent of the U.S. market for refined oil products and this market share increased to 91 percent of all American oil production by 1904. Between 1882 and 1906, this market dominance reportedly brought Standard Oil a total of $838,783,800 in net income. On an annual basis, that would mean that Standard Oil earned nearly $35 million in net income each year. Using an inflation calculator, which calculates inflation based on consumer price index data going back to the early 19th century, $35 million in 1906 equals approximately $969 million in 2017.
Figure 1: Net income for Standard Oil is the yearly average from 1882 to 1906, adjusted for inflation. Chart shows actual 2017 net income for other companies. Data Sources: NASDAQ and Wall Street Journal.
As shown in Fig. 1 (above), Apple, Google, Facebook and Microsoft all easily have more than 10 times the net income as did Standard Oil when it was broken apart. Apple coming in at close to 50 times the net income! Cisco and Intel come in just under 10 times the net income as compared to Standard Oil, both at 9.9 times greater net income than Standard Oil when it was broken apart.
If 91 percent control of the oil refining industry and net income of $35 million per year was enough to break apart Standard Oil under the terms of the Sherman Antitrust Act, there are a few tech super giants that would face a similar fate if the trust-busting philosophies that held sway during the administration of President Theodore Roosevelt were en vogue today.
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Contemplating the breakup of these tech giants as a way to promote competition is no panacea for the American economy. Critics of historic antitrust activity, especially in the Alcoa case, have noted that companies may obtain such a dominant market position not through illicit business activities but by increased investment or improved cost efficiencies. After all, while competitors may have had problems competing against Standard Oil, consumers enjoyed the cheaper oil. In a similar way, today’s tech consumers do benefit from free access to platforms developed by tech giants like Google and Facebook.
But at what cost do American’s receive these “free” platforms? Free is an interesting word, which rarely applies. Increasingly American consumers are giving up private data in order to access “free” platforms, products and services. Moreover, the real cost is impossible to know when you factor in the fact that big-tech giants routinely crowd out independents and small enterprises. Increasingly, as patent rights have weakened and antitrust enforcement has been non-existent, tech giants like Apple, Google, Facebook and others have routinely trampled on the proprietary property of others in an effort to support their largeness. What innovations have been suppressed as the result of monopolistic super-giants that make Standard Oil look like nothing more than a modestly sized enterprise?
We are watching a new era unfold before our eyes. Antitrust enforcement is nearly non-existent and patent rights are extraordinarily weak. What hope does an individual or small enterprise have against super-giants? Without a functioning patent system that provides real and enforceable rights to patent owners it becomes all the more necessary for Antitrust regulators to level the playing field.
If Standard Oil remains the benchmark for what it means to be a monopoly, which many believe it does, it is difficult to understand why U.S. Antitrust regulators are not at least asking very serious questions about the market dominance of the tech super giants and the associated suppression of smaller, truly innovative enterprises.
.. Contemplating the breakup of these tech giants as a way to promote competition is no panacea for the American economy. Critics of historic antitrust activity, especially in the Alcoa case, have noted that companies may obtain such a dominant market position not through illicit business activities but by increased investment or improved cost efficiencies. After all, while competitors may have had problems competing against Standard Oil, consumers enjoyed the cheaper oil. In a similar way, today’s tech consumers do benefit from free access to platforms developed by tech giants like Google and Facebook.
But at what cost do American’s receive these “free” platforms? Free is an interesting word, which rarely applies. Increasingly American consumers are giving up private data in order to access “free” platforms, products and services. Moreover, the real cost is impossible to know when you factor in the fact that big-tech giants routinely crowd out independents and small enterprises. Increasingly, as patent rights have weakened and antitrust enforcement has been non-existent, tech giants like Apple, Google, Facebook and others have routinely trampled on the proprietary property of others in an effort to support their largeness. What innovations have been suppressed as the result of monopolistic super-giants that make Standard Oil look like nothing more than a modestly sized enterprise?
We are watching a new era unfold before our eyes. Antitrust enforcement is nearly non-existent and patent rights are extraordinarily weak. What hope does an individual or small enterprise have against super-giants? Without a functioning patent system that provides real and enforceable rights to patent owners it becomes all the more necessary for Antitrust regulators to level the playing field.
If Standard Oil remains the benchmark for what it means to be a monopoly, which many believe it does, it is difficult to understand why U.S. Antitrust regulators are not at least asking very serious questions about the market dominance of the tech super giants and the associated suppression of smaller, truly innovative enterprises.
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