‘Big Tech’ is not bad, says new IEA paper
17 July 2023
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Economics
Economics
Economic Theory
25 June 2024
Regulators have become too fearful of ‘Big Tech,’ according to a new Hobart Paper published by the free market think tank the Institute of Economic Affairs
The Competition and Markets Authority’s (CMA) blocking of the Microsoft/Activision Blizzard and Meta/Giphy acquisitions has raised concerns about tech investment in the UK. Now, a landmark new Hobart Paper from the Institute of Economic Affairs hits back at the ‘big means bad’ mantra dominating debate about ‘Big Tech.’
Paper author Dr Cento Veljanovski, an economist and legal scholar, highlights that even the largest established digital firms “are constantly innovating, offering consumers new and better services typically to stay ahead of the game and the wall of potential competitors.”
Hayek on Competition: A liberal antitrust for a digital age? harnesses Nobel Prize-winning economist and IEA author F.A. Hayek for the modern age. Hayek explicitly rejected the “popular prejudice against bigness” and contended that a small number of firms in a sector may be beneficial if they can produce products more cheaply and continue innovating.
Google, Microsoft, Amazon and Meta collectively invested over US$71 billion in 2017 in R&D, second only to the pharmaceutical sector, and are consistently ranked as the most innovative firms globally. “Big tech may look like a monopoly, but it does not behave as a classic monopoly that restricts output and overcharges its customers,” writes Veljanovski.
Hayek highlighted the dynamic view of competition, in which open markets are constantly evolving and adapting in unpredictable ways. Building on these ideas, Veljanovski suggests that uncertainty about the future means that bureaucrats are unlikely to improve outcomes and should be reluctant to intervene in dynamic industries.
“The increased adoption of a precautionary principle in dealing with digital mergers risks reducing the competitive dynamics in the digital sector with long-term harm to consumers and reduced innovation,” writes Veljanovski. A Hayekian pro-competition policy should focus on removing barriers to effective competition – including intellectual property laws, taxes and regulations which raise barriers to entry.
Veljanovski also shows that Hayek saw a positive role for the state to set the rules of the game, within the constraints of the rule of law and liberty, but a limited role for prescriptive competition regulation. Hayek accepted the need for laws against certain predatory practices by firms designed to protect themselves from competitors – like contracts restricting trade and predatory pricing – but argued these should be enforced by allowing impacted individuals to sue instead of bureaucratic regulators.
IEA Law and Economics Fellow and paper author Dr Cento Veljanovski said:
“Digital services have delivered immense benefits to humanity through innovative products, often at zero direct cost to consumers. Rather than fearing their bigness and pursuing potentially dangerous interventions, policymakers should seek to embrace the immense power of dynamic competition.
“This is just one of the key insights that can be ascertained from F. A. Hayek, the preeminent classical liberal economist and philosopher. This Hobart Paper shows how Hayek’s views on markets, competition and the law are highly relevant to the digital age. It’s a nuanced and complex picture, which will surprise policymakers and even liberals and free market thinkers.”
ENDS
Notes to Editors
Contact: media@iea.org.uk / 07763 365520
A full copy of Hayek on competition: A liberal antitrust for a digital age, can be read here.
About the author
Cento Veljanovski is the Managing Partner and founder of Case Associates, and IEA Fellow in Law and Economics. He has over 40 years’ experience as an adviser to companies on competition and regulatory economics, has been a director of several management and economics consulting firms, on the board of listed public companies, and is a past editorial and research director at the Institute of Economic Affairs.
Cento has had a distinguished academic career. He was educated in Australia and the United Kingdom, holding several degrees in law and economics and was a ‘Commonwealth Scholar.’ Cento has held academic posts at universities and research centres in the UK, North America, and Australia including full-time appointments at Oxford University, University College London, Monash University and as Visiting Professor at the University of Toronto. Publications include Selling the State – Privatisation in Britain (1987) Economic Principles of Law (2008), The Economics of Law (2008) and Cartel Damages (2020).
The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems. The IEA is a registered educational charity and independent of all political parties.
- A competitive market may only have a few large companies if they efficiently provide high-quality products and innovate.
- Competition ensures that successful companies are constantly challenged by new entrants and products in the market.
- Adopting a ‘precautionary principle’ in response to digital mergers risks harming consumers and reducing investment and innovation.
- Policymakers should focus on removing state-imposed barriers to competition, like excessive patent protection, regulation and taxes – rather than trying to ‘break up’ Big Tech or block acquisitions.
The Competition and Markets Authority’s (CMA) blocking of the Microsoft/Activision Blizzard and Meta/Giphy acquisitions has raised concerns about tech investment in the UK. Now, a landmark new Hobart Paper from the Institute of Economic Affairs hits back at the ‘big means bad’ mantra dominating debate about ‘Big Tech.’
Paper author Dr Cento Veljanovski, an economist and legal scholar, highlights that even the largest established digital firms “are constantly innovating, offering consumers new and better services typically to stay ahead of the game and the wall of potential competitors.”
Hayek on Competition: A liberal antitrust for a digital age? harnesses Nobel Prize-winning economist and IEA author F.A. Hayek for the modern age. Hayek explicitly rejected the “popular prejudice against bigness” and contended that a small number of firms in a sector may be beneficial if they can produce products more cheaply and continue innovating.
Google, Microsoft, Amazon and Meta collectively invested over US$71 billion in 2017 in R&D, second only to the pharmaceutical sector, and are consistently ranked as the most innovative firms globally. “Big tech may look like a monopoly, but it does not behave as a classic monopoly that restricts output and overcharges its customers,” writes Veljanovski.
Hayek highlighted the dynamic view of competition, in which open markets are constantly evolving and adapting in unpredictable ways. Building on these ideas, Veljanovski suggests that uncertainty about the future means that bureaucrats are unlikely to improve outcomes and should be reluctant to intervene in dynamic industries.
“The increased adoption of a precautionary principle in dealing with digital mergers risks reducing the competitive dynamics in the digital sector with long-term harm to consumers and reduced innovation,” writes Veljanovski. A Hayekian pro-competition policy should focus on removing barriers to effective competition – including intellectual property laws, taxes and regulations which raise barriers to entry.
Veljanovski also shows that Hayek saw a positive role for the state to set the rules of the game, within the constraints of the rule of law and liberty, but a limited role for prescriptive competition regulation. Hayek accepted the need for laws against certain predatory practices by firms designed to protect themselves from competitors – like contracts restricting trade and predatory pricing – but argued these should be enforced by allowing impacted individuals to sue instead of bureaucratic regulators.
IEA Law and Economics Fellow and paper author Dr Cento Veljanovski said:
“Digital services have delivered immense benefits to humanity through innovative products, often at zero direct cost to consumers. Rather than fearing their bigness and pursuing potentially dangerous interventions, policymakers should seek to embrace the immense power of dynamic competition.
“This is just one of the key insights that can be ascertained from F. A. Hayek, the preeminent classical liberal economist and philosopher. This Hobart Paper shows how Hayek’s views on markets, competition and the law are highly relevant to the digital age. It’s a nuanced and complex picture, which will surprise policymakers and even liberals and free market thinkers.”
ENDS
Notes to Editors
Contact: media@iea.org.uk / 07763 365520
- The IEA’s Hobart Editions are papers or books likely to make a lasting contribution to free market debate, either on policy matters or on more academic grounds.
- In 1979, F. A. Hayek wrote against the ‘big is bad’ thesis with respect to markets:
- “The misleading emphasis on the influence of the individual firm on prices, in combination with the popular prejudice against bigness as such, with various ‘social’ considerations supposed to make it desirable to preserve the middle class, the independent entrepreneur, the small craftsman or shopkeeper, or quite generally the existing structure of society, has acted against changes caused by economic and technological development. The ‘power’ which large corporations can exercise is represented as in itself dangerous and as making necessary special governmental measures to restrict it. This concern about size and power of individual corporations more often than perhaps any other consideration produces essentially antiliberal conclusions drawn from liberal premises.”
A full copy of Hayek on competition: A liberal antitrust for a digital age, can be read here.
About the author
Cento Veljanovski is the Managing Partner and founder of Case Associates, and IEA Fellow in Law and Economics. He has over 40 years’ experience as an adviser to companies on competition and regulatory economics, has been a director of several management and economics consulting firms, on the board of listed public companies, and is a past editorial and research director at the Institute of Economic Affairs.
Cento has had a distinguished academic career. He was educated in Australia and the United Kingdom, holding several degrees in law and economics and was a ‘Commonwealth Scholar.’ Cento has held academic posts at universities and research centres in the UK, North America, and Australia including full-time appointments at Oxford University, University College London, Monash University and as Visiting Professor at the University of Toronto. Publications include Selling the State – Privatisation in Britain (1987) Economic Principles of Law (2008), The Economics of Law (2008) and Cartel Damages (2020).
The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems. The IEA is a registered educational charity and independent of all political parties.
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