试听180秒069：Why Do a Few Large Companies Dominate the Internet?

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Hello, Himalaya’s subscribers. My name is Timothy Taylor. 
And today we're going to discuss why do a few large companies dominate the internet? Sometimes when you're thinking about economic issues, we just start off with a big fact. And we think about how to explain that fact. Well, here's a big fact. If you look at China's digital companies, you see some huge and dominant firms like Alibaba, Baidu and Tencent. If you look at US digital companies, you also see some huge and dominant firms like Google, Amazon, Facebook. Why is it that a few very large companies dominate the internet in both countries?                                                                                                          
Is this just a coincidence? I mean after all, it's not that hard to start a company and set up a web page, or is there some other kind of barrier to entry that might make it hard for small firms to compete, enter these kinds of markets, and then maybe eventually grow into larger firms? Let's tackle this question in three parts. First of all, we're going to talk about some additional barriers to entry, network economies and platform companies. Second, we'll talk about sources of competition in the digital economy. And third, we'll talk about some issues that come up when restraining or breaking up large digital companies.

So let's start off with some additional barriers to entry, network economies and platform companies. Let's think about possible reasons for why it seems like a few large companies dominate the internet. One argument involves network economies. Let's imagine that you invented the very first telephone, you've solved all the technical problems, you are holding that very first telephone in your hand. What is the value for you at that very moment of owning that telephone? Well, at that particular moment, the value is zero. The reason is because you just invented the telephone. There is no one else for you to call.

Now, when there are another twenty people or hundred people or ten thousand people who also have telephones, then the value of having a phone is much higher, because there are more people to call. When you can call almost any person or business, the value becomes quite high. For certain goods, the value of the good is determined by the size of the network of other people who are using that same good. Imagine some small company came along and it had a new kind of telephone technology. Maybe it seemed like this might work pretty well, but because of the technology, it has to be a completely separate system. It can't be used with the existing telephone system. 

You can even imagine maybe for some engineering or energy use reason, this new telephone might have some advantages over current phones. But if you can't connect it to the existing network of phones, the network effect will make it very hard to get that new technology established. Big digital companies are a kind of network. One reason to go to Alibaba or Baidu or Tencent is that everyone else seems to be going there too. There are what are sometimes called platform companies. And this is a little bit different than the network economy argument we just gave. It's not just that they connect a network of people, but also that these companies provide a platform for those who are supplying something and those who are demanding something. 

Maybe it's easiest to see this in the case of e-commerce that happens through Alibaba. There are buyers and sellers. Why do so many buyers go to Alibaba? Because there are lots of sellers there. Why do so many sellers go to Alibaba? Because there are so many buyers there. Alibaba is a platform for this to happen. This is true about say Wechat as well in a slightly different way. Why do so many people put content up on the Wechat? Well, because it's an easy place for everyone to look. And why does everyone look for content on wechat？ Well,because everyone is putting content up there. Again Wechat is a platform where suppliers of content and demanders of content meet. 

What I'm trying to emphasize here is that when you have a platform company, it can be hard for other firms to enter. Say somebody started up a direct competitor, uh, to Alibaba, and the technology was much the same. But here's the question. Who is going to go there to shop? Who is going to go there to sell things? You have to establish yourself as a platform company. Now it's not impossible to do that, but it might be kind of hard. It might be a barrier that limits the ability of other people to come and start that kind of company. 

So let's move to our second point：sources of competition in the digital economy. And I'm gonna make a point here. That's probably something some of you thought of right at the start of this lecture. Sure. Alibaba and Baidu and Tencent，they are all big, but there are also some pretty big companies competing with them. Let's just mention a few of the ones that are larger or better known. Um, for example, Topshop sells a lot of retail goods to consumers, like clothing, shoes, sporting goods. Netease does various commerce things as well as online games. 

58.com has lots of local advertising for jobs, real estate, cars and other items.Momo operates as a mobile based social networking and entertainment platform. JD.com sells certain kinds of specific authentic goods and has its own delivery service. Sogou competes in providing internet search services. So maybe there is a possibility of more competition than we were at first thinking. The point I'm trying to make here is that network economies and platform markets are real things. And they do in some ways make it harder to enter these markets. But clearly they don't make it impossible to do so. You do see new firms emerging. You do see, in some cases established firms declining in certain areas.

Now this seems to happen in two ways. One is that as digital firms become established, they try out different ways of expanding what they do. So Alibaba, for example, doesn't just do e-commerce. It has separate consumer to consumer,business to consumer, business to business platforms, and it also has electronic payments through Alipay. Baidu doesn't just do internet searches, it also does electronic payments,internet TV,provides maps, news services and so on. And Tencent doesn't just do Wechat which I mentioned before. It also does electronic payments with Tenpay as well as various kinds of social media things music and other services. So even within these firms there can be competition to provide different specific kinds of services. 

The other issue here is sometimes called multi platforming. And the idea here is you don't just have to use one digital company as your platform. Many people use different companies for different purposes. So in a way, lots of people are always trying out different digital companies. They're thinking about which ones they prefer for use for one certain purpose, and they can shift back and forth between them over time. This gives smaller firms a chance to get established and also makes for competition between larger firms as well. Now, from the standpoint of governments, they are worried about whether there is enough competition in the market, what does this mean? 

Should they be trying to restrain or break up the big digital companies in some way? This takes us to our third point about issues involved in restraining or breaking up large digital companies. The obvious issue here is imagine you've got some big successful companies like Alibaba and Baidu and Tencent and many of those others just mentioned. Why should you change that? It's a good thing for an economy to have big successful companies, right? Well, as you've probably figured out, it's rare for me to answer any question like that with a definite yes or no. Like a lot of economists, I see the world in terms of trade-offs. 

Sure, it's great to be an investor in these big successful companies. It's probably pretty good to be a worker or a manager for these big successful companies. But for society as a whole, there can be trade offs. For example, one trade off is whether consumers are getting the best possible deal. Are these services from these big digital companies being provided at lowest possible cost and in an efficient way? Is there a high quality of service? If competition is limited, you need to be concerned that maybe consumers aren't getting as good a deal as they otherwise might. 

Another issue is what evolves over time. If you have limited competition, then incentives for continual investment and improvement in service might be lacking. Remember that comment from the famous economist John Hicks that “the best of monopoly profits is a quiet life”? Are firms taking the quiet life or are they pushing forward? So if a large firm is producing efficiently improving quality, helping consumers investing in the future, well, then there's no problem. But what if every time a small company comes along, that might have a better idea? The big company buys that little company or blocks it or prevents it from competing? 

What if the existing company uses its large size in the market to make it hard for consumers to even learn about new competitors, or even make it hard to access their services? In these situations，you don't want to assume that just because a company is big and successful in making profits. It's also good for the economy and for consumers. The US has a larger history of breaking up large firms than China. So let me give you a few famous US examples here. I mentioned earlier that from the 1920s up until the 1970s, AT&T was the dominant monopoly phone company in the United States. 

Now this is an enormous successful company that has high profits,employs lots of workers, but there was a feeling it was holding back competition. The US government sued the company for being a monopoly, and in 1984 broke it up into a number of smaller local companies and a long distance phone company. This encourage the entry of new telephone firms. Now. Yes, phones were a network industry, but that doesn't mean the whole industry has to be run by one company. You can share networks and interconnect. And what happened was that phone service got a lot cheaper for consumers. And there was a lot more innovation in the physical phones as well. 

Let me give you another example. The dominant computer company in the global economy in the 1960s and into the 1970s was International Business Machines, which is better known by its abbreviation IBM. Now,    again, a big successful company, high profits, employed lots of workers and the US government sued the company for blocking competition by new entrance into the computer market. It tried to break IBM into pieces. Now, the US government eventually lost that lawsuit in 1982, but it meant that IBM was focusing on big mainframe computers. Just about the time that desktop and personal computers were taking off in the nineteen eighties. 

And not having the giant shadow of IBM over the market probably helped these new computing companies like Apple and Dell and others get established and compete. It helped make the US computer market more competitive. Here's a third example, Microsoft, the big successful company, high profits, lots of workers, and the US government sued the company for trying to limit competition. The complaint in this case was that Microsoft was trying to use its near monopoly position in computer operating systems in a way that favored its own internet browser a called Explorer and made it harder for other internet browsers to compete. 

Microsoft lost this lawsuit in 2001, and it agreed not to act in ways that might limit future competition. And this is just about when companies like Google and Facebook are taking off in the US economy, and Microsoft was blocked from getting in their way. Now my bottom line to remember here, sure, big successful companies can be a good thing for an economy, but a company is not the actual goal of economic policy. Instead, the goal is that goods and services are provided efficiently and at low cost in the present, and that there is investment for the additional productivity and innovation in the future, which will lead to new products and economic growth. 

Sometimes large existing companies accomplish that goal, which is great, but sometimes large existing companies are more worried about finding ways to limit possible future competition, so they can keep their profits high. And that isn't so great. When that happens, there can be a role for government to restrain their actions, or even, in some cases, break them into smaller, separate companies to get more competition in the economy. Let's end here with a few review questions. How can a network be a barrier to entry? Why is a platform company create some barriers to entry? 

How does competition happen anyway in the digital economy, even with network effects on platform companies? And finally, what are some possible trade offs for consumers and for the economy as a whole,if big successful digital companies don't threat, at least some threat of potential competition. In the next few lectures, we'll keep talking about companies but from a different perspective. We'll look at the key differences between privately run companies and state-owned companies, and some of the incentives they face. 

I'm Timothy Taylor. Thank you for listening to Himalaya.