Google and Facebook have an effective duopoly on online advertising. For the average person, why is that a problem? Prices haven’t gone up. Why should we care?

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Zingales: Most people don’t perceive that as a problem. The perceived price [for using Google or Facebook] is zero. It’s not really zero, because we are giving up our data in exchange. Google and Facebook’s market power in advertising increases the cost of advertising, which eventually will be reflected in the price of goods. In addition, Facebook and Google are in the media business, a very important business for our democracy. The risk of their dominance is the affect on our political system.

Cowen: Google and Facebook are great companies. They give consumers wonderful products for free. They actually give people who want to advertise a much lower price, a much better way of reaching users in a targeted manner, so they’ve very much lowered prices. They’re not monopolies. You can advertise on radio, on TV, in print media, online. They have a large market share because they’re doing a better job at a lower price. If you look at Google and Facebook as media, there’s never been a time in American history where you have more choices as to what to read, what kind of news to get, how many opinions, and how many commentators you can sample.

Zingales: People say that data are the new oil and Zuckerberg is the new Rockefeller. At the time of Rockefeller, they used to say he was more efficient, but he controlled 95 percent of refineries in the United States! He had deals with the railways that restricted the ability to compete. He was, effectively, abusing his market position, and it was the right decision for antitrust authorities in the US to go after Rockefeller and break up Standard Oil. If it were today, would you be in favor of breaking up Standard Oil?

Cowen: If Standard Oil were giving away the oil for free, no. Facebook doesn’t have a monopoly on my attention. I have a lot of different options.

Zingales: You are absolutely right. These are great companies. They produce a better product, partly because they have more data than anybody else. How did they acquire these data? In a sort of trade. It’s not true that the price is zero. We give up data in exchange for the service. Most people don’t understand what they are giving up.

Cowen: Most Americans are very happy with the bargains they get through Facebook and Google. The real danger, if you have more government intervention, is we become like the European rent-seekers, who view them as foreign companies, revenue sources—how much wealth can we extract from Facebook and Google to pay the bills of the European Union?

Zingales: Antitrust in Europe is much more effective. Look at the price of cell phones and cell-phone services. They are a fraction of the price in the US, with better services. The EU is at the front end of enforcement of competition, while the US has become complacent. In the EU, they have a new directive requiring every bank to give customers access to their data at the customer’s request. That transfer creates competition because it reduces the friction and creates more opportunity for new entry. The monopoly that Facebook and Google have of our data, number one, prevents entry, and number two, gives them tremendous power.

Cowen: Every media source decides which stories to run and which not to run. There are open-source social networks. Most people aren’t interested in them. Facebook, as a walled garden, has clear rules of governance and property rights. They have competed against other competitors and done a better job. People are not looking to pull out of that network. They’re giving more and more of their time to it because they like the job that Facebook has done.

Should personal internet data be portable, like mobile-phone numbers?

Zingales: I don’t have any problem with Facebook editing the news, as long as there is fragmentation of the industry. My solution is not government intervention. It is creating more competition and entry. This idea of data portability or “social graph portability” is exactly in that direction. We reduce some of the elements of network externality, which generates a natural monopoly, and is partly due to switching costs. I want to reduce switching costs to increase competition.

Cowen: We have networks, such as email, where there is an openness from one portal to another. That has some advantages—greater openness—but it has a lot of disadvantages. There is more spam. There is doubt about who owns the message. Facebook has changed that by walling off the garden and having clear property rights. Consumers either choose social media that are more open source, or social media that are like these walled gardens. That’s been a competitive process. Media are more competitive than ever before. TV, radio, internet—they’re not separate worlds; they all compete against each other. Tech, right now, has maybe the most intense competition we’ve seen ever in American history. Arguably, the three companies that have created the most consumer surplus over the past 10 years are Google, Facebook, and Amazon. This is a golden age of innovation, and you want to somehow tax these companies, which give away things for free. It is a tax to them, having to restructure their software, their systems.

Zingales: I’m not advocating regulation; I’m advocating a reallocation of data ownership. I don’t want to tax them; I want more competition. You want, as you said, a walled garden. In a walled garden, there are two factors at play. One benefits the consumer. The other creates a moat to block competitors from coming in and to build a bigger and bigger monopoly. These companies discriminate on a commercial basis. If you are a competitor, you’re at the bottom of the list. If I own the railways, I can’t charge you double the price because you’re my competitor, while my friends get it for free. That’s the law of the land in the US: if you are a public utility with certain characteristics, you must provide service on equal terms to everybody.

Cowen: If I go into Sears, yes, they put some Sears brands out front. If I go to Amazon, they make it easy to me to buy Alexa. There’s not an actual problem with consumer welfare here. Keep in mind the standard of American antitrust law: Are consumers harmed? It’s clearer and more definite than how European antitrust law is run. There’s really not been significant evidence that American consumers have been harmed. Facebook and Google are not building a moat to keep out content. That’s not the essence of their business model. Monopoly is a loaded word. It’s misleading, because the price is zero. We should look for another term—platform companies with very wide reach.

If there were data portability and greater competition, and Facebook and Google nevertheless grew and increased their market share, would that be better?

Zingales: Yes, absolutely. In essence, I have nothing against these two companies. I love using Google. I think it’s a fantastic service. I don’t use Facebook much, but I use WhatsApp, which is a Facebook company. I agree that they have provided a lot of value. There’s nothing negative about that aspect. My concern is about the future. Let’s go back to the idea of the moat. Facebook now owns a VPN provider that monitors when something goes viral. When it does, they buy it, because they are afraid of competition. They are using their common base to block any new entry. I don’t call that a competitive marketplace.

Cowen: Less than 10 years ago, I remember reading headlines: “Can anyone challenge the monopoly of Myspace?” And, of course, Facebook did. Facebook has not been such a big deal for very long. Keep in mind, this is perhaps the best operating sector in the whole American economy—the most dynamic, the most innovative.

Zingales: I’m not saying we have a monopoly yet. I’m saying there is a concern, and there is a very simple solution. What is the cost of what I am suggesting? Nothing, because the data are stored already. What you need is just the ability to switch somewhere else. Actually, Facebook already offers their Graph API to their preferred programmers. What is the difference between what is happening today and what I advocate? The difference is that under my proposal, you are guaranteed access. Now, Facebook says, “Let’s play with my data. However, if you become my competition, I cut your head off.” That’s not competition. That’s tyranny.

Cowen: The regulations you want would favor the incumbents. Imagine there is a new virtual-reality social network that cannot interchange with Facebook or LinkedIn because it’s an entirely different medium. The way the old regulations are written won’t pick up the new dynamic properties of the new sector and it will be held back. It will be stifled. The regulations will end up cementing in whatever market power Google and Facebook had.

Zingales: It’s very easy to write regulations, in principle at least, that don’t favor the incumbent: “This rule applies only if you have X amount of market shares.” If you are a start-up, you don’t have to subject yourself to those rules. Once you pass that limit, you do. We’re not talking about strictness; we’re talking about allocation of property rights, a function of the government. Is it going to be done in a perfect way? No, but what is the alternative? If the alternative is complete laissez faire, I think we are in danger of becoming a country that is going to be owned by Facebook.

If we don’t get data portability, will consumers demand regulation?

Zingales: Regulation would be the only other viable option. When AT&T was a monopoly, there was no doubt there was a network externality and a monopoly. It was heavily regulated. In the long run, it was not great; but in the short run, it might be the lesser evil. The demand might come the first time we discover them using the data in a misleading way. Facebook’s algorithm is designed to make people more addicted to Facebook. That’s not that different from what cigarette makers were doing. This, at some point, will be revealed, and, as with the tobacco manufacturers, there will be a revolt against them. As these things go, when the pendulum swings in the opposite direction, there will be excessive regulation, and it will be terrible.

Cowen: American consumers are pretty happy with the status quo. A lot of the discontent I see comes from media companies, which compete against Facebook, and very often are losing.

For more on the potential monopoly power of Facebook, check out “Hail to the Chief of Facebook,” episode 1 of the Capitalisn’t podcast.