Digital Platforms: Rapacious Monopolists or the New Corporate Paradigm?
In his classic book The Visible Hand, Harvard business historian Alfred Chandler wrote that the rise of the corporation in the late 1800s was a revolutionary development that transformed America for the better. But at the time, muckrakers and many politicians begged to differ, demonizing the new organizational form and yearning for a simpler time. We are at a similar moment today, as “neo-Brandeisian” activists and some politicians demonize today’s new organizational paradigm—digital platforms—and seek a return to the status quo ante.
Indeed, some critics consider the tech companies that operate today’s digital platforms to be the 21st-century equivalent of the industrial monopolies of the 19th century and their founders akin to the so-called “robber barons” of that era, the Rockefellers, Carnegies, and Vanderbilts—rapacious monopolists in need of a comeuppance. So, the critics’ proposed solution is the same trustbusting formula that they believe worked well in the early 1900s: not to manage potential the excesses of digital platforms, but to break them up and prevent more from emerging. But just as limiting the economy’s evolution toward the industrial corporation as the organizational archetype in the early 1900s would have severely damaged America’s global competitiveness, hamstringing the platform economy today would be equally problematic.
The platform economy represents a revolution in the way businesses operate, and how consumers access products and services. Consumers can now benefit from choice, quality, and competitive prices in one place, something that was as feasible in the old corporate model. And it’s not just the big Internet platforms like Amazon, Facebook, and Google that have embraced the platform model; we are seeing it in a variety of industries including banking (think: Stripe), transportation (Uber), real estate (Redfin), consulting (Upwork), lodging (Airbnb), and communications (Zoom). In addition to the well-known upstarts in those sectors, lesser-known examples such as Coursera and Udemy have lowered the barriers to entry into higher education for people worldwide. Telemedicine services, such as Teladoc and Doctor On Demand, have drastically reduced patient wait times and expenditures. And LegalZoom has democratized access to legal counseling by reducing the complexity of the process.
Some platforms also make markets, thus fostering more robust small business and professional ecosystems by helping them reach wider audiences. For example, in a self-sustaining cycle, app entrepreneurs efficiently acquire new customers through Apple and Google App stores.
The platformization of the economy also increases U.S. competitiveness. Many U.S. platform firms are global, so America benefits from increased domestic jobs and repatriated profits. Smaller platforms also help U.S. competitiveness. For instance, Etsy, an online marketplace where artisans sell their wares, has opened new avenues for expansion into international markets for local entrepreneurs.
It is time to recognize the platform economy may become the new organizational model of the 21st century. It’s also important to recognize how overzealous antitrust enforcement could slow this transition to the detriment of U.S. businesses, their employees, and consumers. Resisting platformization by treating platforms like robber barons will undermine the productivity gains and innovations that platforms can deliver, which are essential to the nation’s growth and competitiveness.
Opponents of platforms try to apply a 20th-century standard of market share and concentration to 21st-century industries. Yet as a report from the Obama administration’s Council of Economic Advisers’ noted: “Some newer technology markets are also characterized by network effects, with large positive spillovers from having many consumers use the same product. Markets in which network effects are important, such as social media sites, may come to be dominated by one firm.” Although the reality is that in many sectors there are two or more platforms competing (e.g., Uber and Lyft; Airbnb and VRBO; Google and Bing, etc.).
However, many policymakers, regulators, business competitors, and pundits are wary of platforms, focusing on market share that sometimes results from the “winner-take-all” effect of platform markets rather than the sizeable advantages to consumers that come with their widespread use. This is not to say that antitrust has no role. Rather, that role should be to ensure that platform firms’ conduct is not anti-competitive, not to break up platforms or prevent them from getting bigger a matter of policy.
The next economy may well be the platform economy. The United States led the industrial economy because our antitrust laws allowed bigness (whereas Europe’s laws prevented it). Today, the United States risks becoming a laggard in the platform economy, especially to China, if the opponents prevail. Policymakers should instead embrace the platform economy as an inevitable and welcome organizational model of enterprises in the 21st century, that will bring the same kinds and magnitude of benefits that the transition to the industrial corporation economy did a century ago.
