Wednesday, September 6, 2017

Facebook, Amazon, Netflix and Google can't be be accused of ripping off consumers with monopoly prices

See Larry Summers on the rise of monopoly power by Scott Sumner.
"Here's Larry Summers in the Financial Times:
Consumers also appear more likely now to have to purchase from monopolies rather than from companies engaged in fierce price competition meaning that pay checks do not go as far.
I decided to follow the link, expecting an academic study showing the rise of monopoly power. Instead I found another FT article, which began as follows:
Have we reached a market top in technology stocks and, in particular, those of the Fangs: Facebook, Amazon, Netflix and Google? That is the question many investors are asking, not only because their valuations seem so high but also because it seems Big Tech has become the new Wall Street and the prime target for a populist backlash in a world increasingly bifurcated, economically and socially.
It's interesting that Summers chose those examples of monopolies reducing the purchasing power of consumers. Let's take them one at a time: 
1. Facebook: Totally free social networking.

2. Amazon: Known for slashing prices by introducing more competition into industries such as book retailers. Just purchased Whole Foods, and is now slashing the prices of groceries.

3. Netflix: A new product that did not previously exist; hence it cannot possibly explain declining consumer purchasing power. If compared to movie theaters, it's cheaper.

4. Google: Totally free search engine.

Even if Facebook, Netflix and Google were very expensive, instead of dirt cheap, I don't see how they would reduce purchasing power. Back in 1990 the cost of these services was infinite---they didn't exist.

There may be some problems associated with these companies---perhaps they lead to more inequality at the very top of the income distribution. But I don't see how they can be accused of ripping off consumers with monopoly prices. Am I missing Summers' point?

Perhaps it was the editors at the FT who added the link, not Summers."

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