Let’s start by reviewing some introductory Microeconomics. Even if you’ve already taken Microeconomics, whether as an AP class or in college, let’s review the fundamental definitions of monopolies in competitive / capitalistic environments and apply them to what’s going on today in order to understand the largest companies today a bit better.

Introductory economics has a very narrow definition of the word market, which is basically supply of goods and services meets demand of those same goods and services, and if either supply or demand change, the other will catch up and reach equilibrium. As consumers, we are much more familiar with the demand side of the economy than the supply side. We make several choices (some of us every day) about which products to buy that then support the suppliers who produce those products. The demand side of the economy represents all consumers, including us and our friends and family, put together that make up the total demand for all products and services in the market. Simple enough, right? So, let’s focus on what we don’t see: the supply side.

When markets are new (i.e. a product or service is newly invented — think smartphone), there can be chaotic levels of instability as dozens of entrants try to enter this market and try to reach economies of scale. That’s a microeconomic term that only applies to suppliers. Basically, it means that the more stuff your company makes, the better your company gets at making that stuff faster and cheaper and better because of several reasons like industry knowledge, talent, and distribution relationships. So, some new company who hasn’t made as much of that stuff yet is at a disadvantage and can’t compete with you because you are just that much better and cheaper and faster. So new entrants often go out of business since they can’t compete on price and quantity. But what about the other entrants who started at the same time as you? Most of them will go out of business too — but some of them won’t.

Some of these companies (aka suppliers) will also reach this magical haven of an economy of scale and we end up with between 3 and 10 companies engaged in a competitive oligopoly of product wars, where each tries to one-up the other in making something faster, better, cheaper, cooler, hotter, etc. This is the case with car manufacturers, gas stations, oil companies, real estate, restaurants, grocery stores, and almost every industry you can think of. Yes, even tech. The danger occurs when there is a noncompetitive oligopoly when the leaders of these suppliers get together and don’t compete with each other, but rather collaborate with each other on pricing or do other market manipulation techniques like restrict supply, lobby regulators, and effectively bully consumers out of having any other choice until we collectively get a vague feeling of, hey you know things weren’t always like this — I would rather use an older version of this product because it was a better value.

How to Spot a Monopoly or Oligopoly (Hint: it’s not size)

First think about the statement above. When do you miss the “good ol’ days”? I’ve never heard someone say, oh man I wish we could all go back to not having our packages delivered in two days and having only books available online. Those were the good ol’ days.

Nope, those were definitely the bad old days. So, Amazon is not a monopoly. They are just really, really good at what they do. In other words, you can compare across time to spot an oligopoly. Compare the value of the service as it was given before in the same industry (preferably by the same company) to the value of the service as it is given now. If you miss the older days when that service was objectively better, then your detectors should go off. But you also need to make a second type of comparison to challenge your own bias of the “good ol’ days”.

The second comparison to spot a monopoly or oligopoly is to compare across space. Compare the value of the good or service in other states, provinces, or even countries. Is the price worth the quality there? The rule of thumb when making these comparisons is 10x value. It’s normal for a really good product sold at an attractive price to be 10 times more “worth it” compared to another cheaper product. That’s why it’s better to focus on the value gained from that product rather than the price. It’s not always easy to compare value. However, with some goods like with Internet service, all speeds are publicly shown for comparison. So let’s see if this 10x value indicator holds up with Internet service between the US and other countries.

For example, gigabit ethernet in South Korea costs only $20 per month and is almost 80 times faster than the US. If you pay anywhere near $20 per month for Internet in the US (which I bet is almost everyone), you’re getting ripped off by ultra-capitalistic oligopolies in the Telecom industry. You might say there are other ways to get Internet, like wireless data. Ok, let’s compare prices for those in India with the US. I just turned on roaming data through AT&T while going abroad and it cost me about $10 per day with a limit of 1GB per day. Let’s see how much data that gets you in India, a developing country with relatively recent mobile Internet infrastructure. For the equivalent of slightly less than 10 USD, you can get 50 days of data with a limit of 2GB per day. That’s a 50x value. I won’t count the higher cap into the value comparison (which would bump it up to 100x value) since the speed of the internet is likely slower and it’s hard to use 2GB of data per day.

Still, it’s shameful that the technology capital of the world is so overpriced and slow when it comes to Internet service — the foundation of all modern technology of the past 10 years. If that’s not an oligopoly that is screwing us consumers over, I don’t know what is. Yet, why are people so quick to protest Amazon opening a new HQ but not net neutrality? Because most people’s intuition about technology is wrong, especially regulators. We haven’t seen an invention that is this revolutionary since electricity over 150 years ago, and no one alive then is still alive today. Most regulators today are over 50, so their ability to adapt their intuition to times of change is also much worse than that of younger people who grew up with a computer on a desk or a phone in hand, absorbing everything about it like a sponge.

Why Big Tech is a Competitive Oligopoly — And an Ally we Need

It’s very easy to pick on the biggest guys and try to convince yourself that they are somehow evil monopolies because of this inherent bias that we all have of being total jerks to someone better than us, especially when it’s public information in the stock market telling you they’re better than everyone else. It’s true. You know it, even if you’re not willing to admit it. It’s because of this characteristic many of us have called envy. When harnessed properly and refined, envy becomes the greatest motivator — competition. When uncontrolled and left in your gut, envy can ferment and become jealously, hatred, bigotry, and racism. Studies even show that you are more likely to feel better when you compare yourself to others doing worse than you than to try to ignite a flame of inspiration from someone doing better than you. On average, people are jerks. Nothing new there.

The problem occurs when we pick on the wrong people or organizations just because of where they stand at the current point in time, letting their success get in our way of doing something that is actually good for us. This is another reason why Batman: The Dark Knight is widely considered the best superhero movie of all time (warning: spoilers ahead — skip the rest of this paragraph if you haven’t seen The Dark Knight). It all feels so real — the way the people of Gotham lash out against Batman for taking justice into his own hands, even though most of them know he’s not wrong. They continue to support Harvey Dent, the white knight who represents a traditional sense of justice, even in a corrupt world where a traditional sense of justice would have no chance. Yet, when any Gotham citizen is being robbed, it won’t be Harvey Dent coming to save them. In fact, it might even be Harvey Dent’s alter ego — Two-face, coming to shoot their kid while playing a “fair game of chance”.

Does this all sound familiar? Because it should. The Internet is such a disruptive force that many of our previous notions of justice in our legal system need to be re-evaluated. We can’t wholeheartedly support any single organization just because of their previous history in doing good. We must actually do the work in evaluating each organization individually. Or you can just take my word for it because I’ve already done that work for you =)

As a concrete example, let’s go back to the price gouging practice that is common in Telecom companies, especially with landline Internet. I paid $10 per day to get international roaming Internet and didn’t even get 3G speeds at a major international airport. The simple reason is because AT&T is a monopoly in a very real sense of the word. Guess which organization has been fighting this highly localized monopoly the most? Google — with its own competing service Google Fiber. And guess what usually happens as soon as Google Fiber announces launching in a new city? Competing providers like AT&T try to outdo it by launching their own service in those areas, leading to savings of about $600 per year for almost everyone in the community — and people complain about the iPhone being expensive.

Healthcare — Early and Eery Signs of Consolidation

The scary part is that we are seeing this trend towards larger, collaborative oligopolies in healthcare as well. The low supply of doctors has driven large healthcare corporations to become vertically integrated through partnerships. Vertical integration just means that the insurance companies now collaborate with pharmacies, hospital networks, drug manufacturers, and also other insurers to create larger and larger interconnected healthcare networks with the implicitly understood intent of extracting as much money as possible from consumers, Medicare, Medicaid, and other government healthcare programs without really improving patients’ quality of life at all, while paying doctors less and less money. They draw patients in with the lure of convenience or life-saving necessity and then charge outrageous, opaque prices for just sitting in the emergency room.

The insurance companies pay these bills that patients can’t afford and get heavy subsidies from the government. Patients don’t pay any deductibles because even the deductibles are outrageously high. Then patients damage their credit score because the credit companies believe these large, interconnected, corrupt networks of healthcare providers over the word of struggling middle class families who mostly live paycheck to paycheck. Meanwhile, stricter regulations are creating higher barriers of entry for individual doctors to start their own practices, leading most patients to require choosing a hospital network rather than a physician they can continue to visit for years.

Competition and consumer choice is basically nonexistent in healthcare. If you’ve ever had braces (or “clips” in British English) for your teeth, did the doctor tell you which brand he would use? Did you have the option to pick a premium brand over a cheaper brand? No, because there are no competitive price controls in healthcare. With the exception of employer-sponsored healthcare, where large employers have the negotiating power of picking policies for their employees, consumers are bound to get continuously screwed over on healthcare policies for the rest of our lives.

Although, guess who is trying to change this corrupt dynamic and hopefully reduce prices for consumers? A trio of billionaires and financiers: Jeff Bezos, Warren Buffett, and Jamie Dimon of JP Morgan. Are they doing it because they’re saints? Hell no! They’re doing it because they’re competitive capitalists, and competition is what creates an efficient economy and drives prices down for consumers. I would also trust these business tycoons with changing the healthcare industry more than anyone else in the space, not because they are saints but because there is an irresistible business opportunity here for them.

Not Companies we Deserve, but Companies we Need Right Now

Consider for a moment that two of the largest sectors just 10 years ago were: 1) oil behemoths like Exxon, BP, Chevron, etc. that were responsible for billions of dollars of damage to our wildlife and our oceans through several oil spills; and 2) financiers and investment bankers that brought the global economy to its knees by trading seedy derivative assets and crashing the housing market. Would you rather have these companies running the world? Or would you rather have the technology titans of today, most of whom started their companies from scratch, persisting through the ups and downs, connecting us with the world’s information in the palm of our hands, letting us purchase directly from hard-working suppliers in a competitive marketplace, and paying reasonable wages?

Although the largest technology companies of today aren’t perfect, I bet most people complaining about them would happily accept a job offer from them at the drop of a hat. These aren’t the companies we deserve, but the companies we need right now because they have the potential to be our largest, most powerful allies against the corrupt behemoths of yesterday. They have even joined our fight against oligopoly-inducing government policies like the repeal of net neutrality, which would give even more bargaining power to the Telecom giants by allowing them to create “fast lanes” for their own content. This is why Verizon tried to gobble up internet content companies and put them under its own umbrella (and failed). AT&T is trying to do the same thing with its Time Warner merger, which would put HBO under its umbrella (and will probably fail, too). These Telecom oligopolies won’t succeed for the simple reason that making money from Internet content is really hard.

The companies that have been successful in technology so far have done so because they are really, really good at what they do. Despite privacy and other scandals at some tech companies, many technology companies continue to be purely meritocratic. Most people in tech company workplaces don’t care about whether you wear a suit to work, the color of your skin, your sexual preference or orientation — only whether you are good at what you do. There are very few people who can meet these demands of consistent innovation and creativity, so salaries are also relatively high. It’s not a perfect system, but it’s the closest thing to a meritocracy I’ve ever seen in my entire life.

When I look at the regulators of today, who fall laughably short of having the framework to create good technology regulations, there is only one piece of advice I can give; it’s the same advice that Peter Thiel gave to a young Mark Zuckerberg who approached him for investment as a college dropout with little to show him than a growing but promising company. Thiel had made his millions from a successful Internet company, PayPal. He recognized that your domain expertise, team effort, and a bit of luck were the only things that mattered in technology. As he wrote Facebook its first big check of his personally hard-earned money to the tune of $500,000, his advice was simple: don’t f*** it up.