Big tech companies can increase their market share by lowering prices and acting as a monopoly. These companies typically have high economies of scale which allow them to undercut competitor prices to attract their target market. Currently, the online retail market is dominated by Amazon.
The graph above shows how Amazon attracts over 50% of marketplace site visits (Ici, 2019). Amazon is known to use its power to exploit smaller companies. Vendors who want to have a greater market share need to be on Amazon’s retail platform. However, Amazon can monitor the sales of products on their platform and if an item is performing well, they are incentivized to recreate the product and undercut prices. Amazon has also started price wars with competing companies, namely Diapers.com. Amazon wanted to buy Diapers.com and in response to their refusal, Amazon lowered their diaper prices by 30%. Amazon stood to lose approximately $100 million over three months. Within the next year, Amazon acquired Diapers.com (Novet, 2020). By manipulating prices Amazon has been able to crush companies and make it impossible for small businesses to be involved in retail. This process of predatory pricing is another way to create another environment with little room for growth. It sets barriers for competitors to enter markets and makes it difficult to differentiate products. Like Amazon, Google holds most of the search engine market with 81% of search queries being run on google. Its search engine prioritizes Google’s business over third-party services (Elias, 2020). This creates a complex problem because, to solve this problem and level the playing field for competitors, free services may suffer. This creates a tradeoff between the importance of customer welfare and less biased competition.
While large tech companies support most consumers in their industry, they have had a negative impact on market competition because of actions like lowering prices, serial acquisitions, and poor data privacy. To stimulate innovation, governments must successfully regulate the tech industry, by creating forward-thinking policies that keep up with technological advances. The MIT Sloan Review offers a plan for the government to work with the private sector to help identify risks stemming from regulation so that policies can be more effective (Charrie, 2019). One solution could be forcing companies to justify how a merger or acquisition would benefit competition. This would prevent killer acquisitions or any acquisitions with the goal of eliminating an opposing product. Companies could also be forced to split into distinct areas to prevent conflicts of interest. For example, splitting the Amazon retail platform from Amazon Web Services. This would prevent companies from strongarming competitors in one area while leaning on the revenue from other areas. Ultimately, solutions should increase the welfare of consumers by setting parameters around data privacy and monetization while maintaining a balance with innovation.
References
Charrie, L. Q. and A. (2019, September 19). The Right Way to Regulate the Tech Industry. MIT Sloan Management Review. https://sloanreview.mit.edu/article/the-right-way-to-regulate-the-tech-industry/
De Vynck, G., & Zakrzewski, C. (2021). Tech giants quietly buy up dozens of companies a year. Regulators are finally noticing. Washington Post. https://www.washingtonpost.com/technology/2021/09/20/secret-tech-acquisitions-ftc/
Ederer, F. (2021). Does Big Tech Gobble Up Competitors? Yale Insights. https://insights.som.yale.edu/insights/does-big-tech-gobble-up-competitors
Elias, J. (2020, October 7). Google “overwhelmingly” dominates search market, antitrust committee states. CNBC. https://www.cnbc.com/2020/10/06/google-overwhelmingly-dominates-search-market-house-committee-finds.html
Ici, D. (2019). E-commerce in Million U.S. Dollars. In bigcommerce.com.
Novet, A. P., Jordan. (2020, October 7). Amazon bullies partners and vendors, says antitrust subcommittee. CNBC. https://www.cnbc.com/2020/10/06/amazon-bullies-partners-and-vendors-says-antitrust-subcommittee.html
Srinivasan, D. (2019, May 28). Opinion | Why Privacy Is an Antitrust Issue. The New York Times. https://www.nytimes.com/2019/05/28/opinion/privacy-antitrust-facebook.html