6) Tough love and interventions won’t cure our
social network addictions.
Just now, Facebook has experienced yet another disclosure of unsavory business practices that contradict its preferred persona as a trustworthy steward of valuable and private data. Yet again, the company did exactly what it stated it would not do. In response to the disclosure, Facebook senior management uses a “no harm, no foul” defense.
Despite ample evidence that the company willfully breaks things like the truth and transparency, the vast majority of subscribers will not abandon Facebook. This company appears invincible and not subject to creative destruction of their business plan by new ventures. Facebook has the financial resources to buy insurgent firms and has so exploited scale and networking externalities apparently making it irreplaceable.
Don’t buy the argument that dominant firms are one click away from obscurity.
Do not expect the companies like Facebook to turn over a new leaf, because their existing business plan works incredibly well: extract maximum value about of consumer data and mouth words about self-regulation and respect for the subscriber.
7) Consumer surplus from two-sided markets
declines further.
Social networks and other broadband intermediaries can offer lots of desirable “free” services. These platform operators can decide which market side to demand compensation and regularly calibrate who gets subsidized access. This process can benefit consumers. For example, credit card users like cash rebates and “free” airline miles. It appears that consumers get something for nothing.
Think again. Even in the credit card, bricks and mortar world, vendors have to recoup the 1-5% swipe fees they pay for processing credit card purchases. In the Internet ecosystem, platform subscribers surely pay to subscribe to services. Big data has value and intermediaries have mastered the ability to collect, collate, and sell consumer data.
Data mining does more than make sure dog owners do not receive cat food commercials. The process makes it ever more likely that vendors can “size up” a prospective buyer and know the price a specific customer will agree to pay. So-called surge pricing calculates, with great precision, the current state of supply and demand. Uber customers like having the opportunity to pay less than the fixed tariffs of taxi companies. Not so much when dynamic pricing far exceeds the cab fare.
8) Fresh water economics trumps the salt water version.
Antitrust economists increasingly adhere to vastly different philosophies and market assumptions based on which academic “school” of thought they embrace. Curiously, coastal universities have a majority of scholars inclined to support some degree of judicial and regulatory intervention to remedy marketplace flaws and to pursue equity goals. Scholars located in interior locales appear more inclined to trust an unfettered marketplace to serve consumers.
For several decades, antitrust courts have embraced the interior, fresh water school of thought originally championed by academics at the University of Chicago. This Chicago School orientation supports a libertarian view that government and courts should not intervene if near term consumer benefits accrue.
Several of the assumptions made by Chicago School economists appear questionable in the Internet ecosystem. For example, Amazon continues to forgo profits in the quest for expanded shelf-space of products and services. Chicago School adherents would not expect any venture to eschew profit maximization based on the view that it might not have future opportunities to recoup predatory, or long term promotional prices.
It has become increasingly clear that a short-term emphasis on downstream benefits to consumers from platforms ignore both near term and future harms upstream. Platform operators like Uber can change prices quickly and extract maximum returns, despite having made negligible investment in physical assets like cars. Social networks like Facebook accrue billions in advertising without having to make any significant investment in self-generated content.
I question the value proposition touted by many platform operators, but not many others apparently agree with me. I suspect that consumer welfare actually suffers from judicial adoption of Chicago School doctrine, but a new policy and philosophical regime does not appear likely in the near term.
9) Information, Communications and Entertainment
markets further concentrate.
While the occasional article notes a vast increase in market concentration, few legislators or antitrust courts seem bothered. I think they should be, particularly when a sober, clear thinking publication like The Economist detects considerable harm to both consumers and competition.
It appears that sponsored researchers, spin doctors and lobbyists collectively remain effective in their pitch that mergers accrue ample public service dividends. The merged company—like TMobile-Sprint__will become a “more effective competitor. What does that mean? Will consumers benefit from lower prices, more options and greater innovation? How are three 5G wireless networks better than 4 networks?
Consider the recent consolidations in pharmaceuticals and commercial aviation. I do not see less as more. Big Pharma, acquires insurgent firms, exploits patent loopholes to prevent market entry of generic options and raises prices by thousands of percentage points. Big Aviation devotes sleepless afternoon improving their business class seats while imposing ever more draconian rules and fees on economy customers.
How can companies reduce the value position of their goods and services while simultaneously raising prices?
10) Restoring Internet Freedom translates into lots of costly
“free” enhancements.
FCC Chairman Pai’s Internet deregulatory bandwagon continues its merry way, most recently declaring wireless messaging as an information service even when the service travels via conventional telephone networks and appears as letters and numbers. On the other hand, Chairman Pai’s beneficiaries correctly note that the world has not stopped spinning on its axis and that consumers definitely like services that appear to cost zero, as in zero rated video that does not debit a still limited data plan.
The possibility exists that Chairman Pai has not restored Internet freedom, but merely facilitated the opportunity for carriers to operate biased networks that harm individuals and society. Beneficiaries of better than best efforts routing and service subsidies welcome such flexibility. However, First Amendment freedoms decline when a wireless carrier can refuse to carry content, or throttle it when in its sole judgment the content is deemed inappropriate, or competitively harmful.
The court of public opinion likes subsidizes and zero-rated access to content. Consumers may not like it when more and more anecdotal evidence shows how biased carriage distorts the truth in much the same way as bots and fake news contaminate social networks.