Essay Example - Information Technology and Monopolies

Everyone agrees that information technology has been instrumental in driving the economy forward. However, IT has enabled the rapid growth of monopoly power. Monopolies are dangerous for the economy and the society because they have the power to dictate the market in terms of setting high prices for their commodities, limiting what is available for the consumers, dictating salaries, and setting the price for the suppliers among others (Schrager, 2018). This topic was selected because there seems to be a strong link between the growth of tech giants of today and the use of IT to both grow and lock out competition, thereby becoming monopolies in their respective industries. The goal of the paper will be to demonstrate how advancement in Information Technology (IT) has led to the emergence of tech monopolies such as Amazon and Microsoft and why the resulting monopolies are a threat to the health of the US economy and society.

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Issue

Amazon and Microsoft among other tech giants today hold a lot of power. As they continue to grow, they are managing to restrict the growth of potential competitors using a combination of trade secrets, takeovers, first-mover advantages, intellectual property protection, and economies of scale, it becomes very difficult to challenge these monopolies. As a result, these monopolies can choke off outside innovation. The very nature of IT facilitates the formation of monopoly because IT innovators are sole proprietors of valuable information that such firms prevent others from using. Often, the value of the proprietary knowledge of such firms is exactly the market value of their right to prevent other organizations from using this knowledge.

Besides the usual threats highlighted, the rise of monopoly power is playing a huge role in fuelling economic inequality, slowing the rate of innovation, and weakening the bargaining power of the workers. IT has enabled Amazon and Microsoft to rapidly become legal monopolies, and using a combination of strategies, they are becoming hard to challenge, not only eroding consumer sovereignty but also increasing inequality in income and wealth. Socioeconomic inequality is a serious problem in America and the ability of these tech giants to reap supernormal profits while keeping costs low should be a concern to American society.

For example, tech giants choke off competition using mergers, acquisitions, intellectual property protection, network effects and to make a lot of money for a very few people. At the same time, a whole lot of other people ranging from workers to entrepreneurs have to do with a slow economy and shrinking industries. If not addressed, tech giants will kill innovation, deny consumers choices, increase the price of goods and services, and dramatically increase socioeconomic inequality.

Findings

In the article "In the Age of Amazon, It's Time to Forget What We Know About Monopolies", Allison Schrager examines the wealth of the American economy and comes to the conclusion that the tech monopolies that have been created by IT are bad for the economy. As the article highlights, a handful of firms control more than 50% of the US markets (Schrager, 2018). Bigger and bigger firms are taking up a larger share of the economy. Market concentration means that there are fewer domestic producers.

Schrager, in particular, outlines that in the newer industries that have been created by advances in IT, there is a lot of market concentration. For example, he explains that people only network socially with Facebook and buy their books from Amazon, locking out opportunities for other vendors. The article outlines that to provide goods and monopolies cheaply, these tech giants are putting pressure on wages. When a market has few employers, workers have little power to negotiate. More returns are channeled towards capital rather than labor, leading to slow wage growth in America. He explains that the falling share of labor is directly related to the increasingly concentrated market. He further argues that with the advancement in manufacturing technologies, prices of goods and services should be much lower than they are had these giants not been controlling prices.

The article also highlights that Amazon and Microsoft are a threat to innovation because less competition means less innovation. In the past, it is the large firms that have led innovation but with less competition, these large firms have no incentive to innovate anymore. Rather than innovate, Schrager explains that it has become easier for these monopolies to buy smaller and more agile firms.

Kurtz reveals another unwelcome macroeconomic consequence of tech giant’s monopoly power- rise in monopoly profits at the expense of labor income. Since 1982, the share of monopoly profits has been steadily rising, reaching 23% of the total income produced by corporations in the US by 2015 (Kurtz, 2018). The increase means that during this period, the combined shares of normal interest interests on capital and wages have declined by 23% (Kurtz, 2018).

The combined wealth of the leaders of the five key tech monopolies is larger than that of the bottom half of the population of America. In other words, the rise of monopoly power has slowed gains in the workers' living standards. Hence, just like globalization and automation, the rise in monopoly power should be blamed for America's struggling working class. Consequently, IT has supported the emergence and development of monopolies and is fuelling the fall of living standards of the labor force.

In an article published in The Guardian, Vivian Ho (2019) outlines that technology has steadily become part of the everyday lives of Americans. She also explains that the world has increasingly become dependent on a digital marketplace. However, according to the article, the likes of Amazon and Microsoft are acting as a handful of gatekeepers that have captured the control over key arteries of content, online commerce, and communications. The core argument in the article is that these giant tech companies simply have too much power over society, economy, and democracy (Ho, 2019). With such amount of power, the firms have thrown away competition, tilted the market against anyone else, and are using private information for profit. As she notes, in the process, these firms have stifled innovation and hurt small businesses.

Solutions/ Actions

The solution to the problem posed by the large tech giants is only one- breaking them up. Since the enforcement of stronger antitrust laws and taxation has failed in preventing further growth of tech monopolies, only breaking up of these firms will work. The Gilded Age in America began with innovations in the oil extraction, steel production, and railroads that had to be dissolved. The rise of a handful of hi-tech monopolies presents another second phase of Gilded Age, ushered in by the internet, software, and semiconductors.

As it was in the times of JP Morgan, William H Vanderbilt, and John D Rockefeller, the answer remains the same: dissolution of the monopolies. The owners of the monopolies of the first Gilded Age where generous philanthropists just like those of today, but monopolies are bad for the economy, democracy, and society and the solution is to break them up just like for the first time.

Conclusion

The paper sought to demonstrate that IT has led to tech monopoly with a potentially devastating impact on the consumers and the society in general. As examined, IT has been instrumental in the growth of Amazon and Microsoft into giant monopolies. Besides, it has been revealed that monopolies pose a serious risk to the health of the American economy in terms of innovation, pressure on salaries of workers, and high prices maintained by the absence of competition. To a large extent, tech monopolies are a threat to democracy, a healthy economy, and more equal society. The only solution to this problem is to break up these monopolies into smaller competitive firms. The US government should split up these large firms into smaller companies just like it did to the large corporations that emerged during the Gilded Age.

References

Ho, V. (2019, Jun 4). Tech monopoly? Facebook, Google, and Amazon face increased scrutiny. The Guardian. https://www.theguardian.com/technology/2019/jun/03/tech-monopoly-congress-increases-antitrust-scrutiny-on-facebook-google-amazon

Kurtz, M. (2018, April 27). The darker side of information technology. Milken Institute Review. https://www.milkenreview.org/articles/the-darker-side-of-information-technology#:~:text=The%20very%20nature%20of%20IT,firms%20from%20using%20this%20knowledge

Schrager, A. (2018, Dec 1). In the age of Amazon, it’s time to forget what we know about monopolies. Quartz. https://qz.com/1476480/fear-mononoplies/