To this day, the most commonly cited example of a monopoly in the history of the United States is John D. Rockefeller’s Standard Oil Company. A natural monopoly, Standard Oil depended on the connections of its executives and its capture of key technologies to seize its market share rather than on regulatory intervention like modern utility or public transport companies. Its vertical and horizontal integrations combined with its technological superiorities allowed Standard Oil to grow to dominate the market to the degree that the firm was eventually broken apart into many smaller companies under the famed Sherman Antitrust Act. Today, natural monopolies like this don’t seem to exist. In most industries, many players appear to jockey for the attention of consumers. However, one industry stands out as an exception: technology.
The high-tech industry presents several examples of companies that control massive segments of the market, creating effective – if not full – monopolies in their fields. However, this may not necessarily be readily apparent to the consumer. In high tech, it is not the producer of the finished product who has the monopoly power. As much as Apple is dominant in cell phone production, it has a variety of competitors. Moreover, one would never be able to contend that laptop computers are an uncontested market. However, when one looks into the technologies behind all of those products, it tells a different story. Component manufacturers such as Intel and Qualcomm control powerful intellectual property that renders their competitors largely unable to compete in producing inputs like processors, gyroscopes, and data transmission protocols. The holders of this IP don’t even need to produce these inputs themselves, but allow some small level of competition through contracting out the rights to the IP.
Another example of monopoly in high tech can be found in each of the “FANG” companies. (Facebook, Amazon, Netflix, and Google) Grouped for the qualities they all share, these firms are young, high-tech, and possess limited physical assets. Just like the abovementioned consumer product input manufacturers, these firms control intellectual property rights to valuable technologies and brands that ultimately render their potential competitors unable to capture any large segment of the market. Moreover, all benefit from network effects that present a positive externality supporting the firm’s efforts. Additionally, as firms that operate almost entirely online, as soon as they enter one town with their product, they are easily capable of entering the entire United States.
One can hardly deny that Google isn’t the Standard Oil Company of online services. Its closest competitor is the outdated Yahoo, which captures only 8% of the market. Compare this to Google’s 75% market share. With giants like Google controlling massive shares of the consumer markets, it is remarkable how very little we hear about trustbusting the firms that control an immense stake of their respective markets. Perhaps we believe that they somehow “deserve” it. Americans recognise that each of these companies gained their dominant position on the merit of their first-mover advantage, or their superior technologies, or even just more efficient processing like at Amazon. However, these firms operate in industries that are somewhat momentum-driven. Once a critical mass is reached in market share, the firm is largely unstoppable. For other examples, look at the network-driven successes of Uber and Airbnb.
Ultimately, it’s clear that high-tech companies present some examples of monopoly companies that have leveraged economies of scale, superior technology, and network effects to fairly capture immense market shares. However, history holds examples of the US government using trustbusting legislation to break apart these monopolies. As it stands right now, very little noise is made around addressing this market control that could have negative impacts on consumer selection, service, and prices. Perhaps it’s about time these firms were put under the microscope.
Picture titled, "Google", taken by Open Grid Scheduler / Grid Engine on May 20, 2015, obtained through Creative Commons (https://flic.kr/p/ssECzY