It is common to hear proponents of antitrust action against big tech firms talk up the potential for future harms to consumers from sustained dominance by Facebook, Google, and Amazon.
In her influential “Amazon’s Antitrust Paradox,” lawyer Lina Khan argued that “the current market is not always a good indication of competitive harm” and that antitrust authorities should “ask what the future market will look like." This sentiment was recently echoed by economist Jason Furman in a digital competition review for the UK government.
One of the best cases against such an approach was inadvertently delivered by long-time antitrust champion Professor Tim Wu at a Stigler Center conference on antitrust last week. While critiquing the consumer welfare standard approach in a debate with Tyler Cowen, Wu said:
everyone who is even vaguely honest as an economist will agree that dynamic costs matter more than static costs and dynamic benefits matter more than static benefits. But those are the hardest to measure, so we've gotten trapped in a world where the old joke about the economist and the street light has become the soul of the law.
Exactly. Antitrust policy can indeed tend to think of markets too statistically. But antitrust enforcers also have no special insight into the future of markets and available technologies, and hence the change in the balance of costs and benefits to consumers going forwards. Looking at a static market may well lead to mistaken conclusions. But it's a complete leap of faith to presume that replacing static analysis (more accurate but incomplete) with dynamic analysis (supposedly comprehensive but wildly speculative) will deliver better outcomes for consumers.
As Joseph Schumpeter warned:
in capitalist reality as distinguished from its textbook picture, it is not that [static] kind of competition which counts but the competition from the new commodity, the new technology, the new source of supply, the new type of organization...competition which commands a decisive cost or quality advantage and which strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives.
Over the past century, many firms in markets similar to today's tech giants, including retail, social networks, photography, browsers, mobile, and music, have been dubbed unassailable monopolies, only to be ultimately overhauled by new companies or products (a topic of my forthcoming paper). No forward-looking antitrust authority could have foreseen these developments. Basing antitrust law on the notion they could is a fool's errand.