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Titans of Tech: Regulating Monopolies in the Digital Age

The United States is still haunted by the memories of Gilded Age monopolies: Rockefeller’s Standard Oil, Vanderbilt’s New York Central Railroad, and the trusts that dominated major industries such as tobacco, meatpacking, and steel at the turn of the century. But in the information age, a new, more shadowy class of monopolies has emerged. Large tech companies have become monopolies of data, rooted in the development of the internet and an interconnected world. These monopolies share many qualities with their Gilded Age predecessors, but rely upon a radically different model. Fundamentally, their product is centralization.
These two eras of monopolization have frightening parallels. In both, monopolies carry disproportionate power not only in the economy, but in society as a whole. Although abuses of influence are not as dramatic in modern monopolies as they were in classical ones—gone are the days of robber barons openly buying House seats—concentration of resources still leads to outsized political control. To a lesser degree, many of the same corrupting patterns appear in modern politics. Just this summer, the role of tech giants in the public sphere came under intense scrutiny when Google critic and journalist Barry Lynn was fired from the New America Foundation, a purportedly independent think tank that took considerable donations from Google.

Furthermore, both historical and modern monopolies display similar structures, consolidating power horizontally and vertically. The term “horizontal monopoly” best captures the most common use of the term, a sprawling company grown through buying up and forcing out competitors. Numerous horizontal corporations existed at the turn of the 20th century, collectively referred to as “trusts.” Vanderbilt used his control of the only rail bridge to the ports of New York City to box out Manhattan competition and purchase the depreciated stock for a fraction of its value, further expanding his horizontal control. The corporate merger, on the rise in America today, is the defining tool of these companies. Owners of horizontal monopolies can accrue staggering wealth from the reduction in competition and ensuing market capture.

Vertical integration, though not as recognizable, can have an equally dramatic impact on the economic landscape. Rather than engaging directly with competitors, vertically integrated companies buy up and down the supply chain, seeking to secure their gains and force out competition from above and below. Standard Oil, for example, notoriously undercut railroad companies by constructing a series of pipelines to transport oil, bypassing their aggressive rates. Such tactics, aimed not at growth but at denying competitors opportunities to compete, are still commonplace.

The modern tech industry exhibits vertical and horizontal monopolization as well, often simultaneously. Google is so dominant that its name has become synonymous with online searching itself. The most glaring example of vertical integration is Apple, which builds its brand on an end-to-end experience, from the hardware to the software to the stores that sell its products. Bigger is seen as better in these industries, and the vast majority of people’s online lives are conducted through an exceptionally small number of companies.

These tech companies are not all monopolistic in the true sense of the word, or to the extent that their classical predecessors were. Their market shares vary, and their level of dominance doesn’t rival the power of the late Gilded Age industrialists. Their frequent lack of products in a traditional sense further complicates things, since modern companies such as Facebook and Google offer their services for free. Talking about market dominance without products to sell seems counterintuitive. Still, the comparison is worthwhile, as many of the same monopolistic problems remain: The size and dominance of these companies can shutter innovative competition and create outsized political influence across the globe.
What separates the monopolies of today from those of the past is the order in which they consolidate power and the relative importance of that consolidation. In the industrial monopolies of the early 20th century, monopolization occurred after a company had already been established. Monopolization was not an integral part of tobacco, steel, or sugar, but rather the natural result of unchecked competition.
The same is not true of monopolies in the tech industry. The information age is based in connectivity and data. These companies are direct products of this era. Amazon, one of the most prominent modern monopolies, exemplifies this trend. Amazon envisions itself as “the everything store,” aggressively pursuing dominance in distribution across the board, from music to food to web hosting. This is a fundamentally different type of monopolization from the industrial tycoons of the 1800s and 1900s. Instead of dominating the goods being bought, Amazon dominates the medium used to buy. The appeal of Amazon is its centralization and convenience. The monopoly is inherent to the product.

This same pattern repeats itself in other modern tech monopolies. Google has built an effective platform based on the integration of its many services, from its calendar and email to its personal browser and signature search engine. Facebook, too, sees itself as a one-stop shop for news and culture, friends and family. It is successful precisely because its vast spread—79 percent of the online population uses Facebook—allows users to stay connected with nearly everyone they know. The more users Facebook has, the more attractive Facebook becomes to others. Protections against rivals grow organically out of the nature of these modern monopolies. The near-ubiquity of these companies does not come from horizontal integration and hostile takeovers, but rather develops from rational choices by consumers.

This is the reason modern monopolies can’t simply be broken up. The rallying cries of the industrial age labor movements are not suited to the problems monopolies pose today. While it took some 20 years of hard struggle from the passage of the first significant antitrust law in the late 1800s to the eventual successes of the trust busters in the 1910s, the monopolization of the industrial companies posed, in many ways, a less intractable threat. Today, we are more dependent on the monopolistic nature of tech companies. Regulating these modern monopolies will be no simple task.

Unfortunately, current political rhetoric has not shifted to meet this reality. The slogans of the modern progressive movement could be exchanged, almost word for word, for those of the early trustbusters. That lack of flexibility compounds the fact that practical attempts to move against consolidation of any form, let alone the specialized consolidation of the tech industry, have stagnated.

In essence, there are three options for action. The first option is to do nothing, but increasing evidence suggests that the economy is already suffering from the negative impacts of tech monopolization on innovation and income inequality. The second option is to begin the difficult process of teasing apart these centralized companies from their competition-crushing practices. However, concrete recommendations on how to craft these policies are few and far between, and structural changes would likely harm both consumers and companies. The final option—a new approach—is to find ways to embrace the monopolistic tendencies of these companies and control them for the public good. Each path has its perils. The solution lies in knowing where and when these different tactics should be applied.

Although direct antitrust action ignores the complexities of these tech-based corporations, it may still be viable in some contexts. Calls have been made with varying degrees of sincerity for Amazon, Apple, Facebook, and Google to be broken up in this way. When pressed, however, few have solid recommendations as to what form these regulations should take. It is unlikely that direct antitrust action will be achievable without impacting consumers, and there is no guarantee such actions would be successful. In the late 90s, antitrust action against Microsoft failed, resulting in a settlement rather than any form of corporate restructuring. This doesn’t bode well for proponents of antitrust action, as Microsoft was the closest thing the tech industry had to a traditional trust.

An approach that embraces the monopolistic tendencies of these companies is inevitable. One of the most notable proposals draws its inspiration from utilities. Just as electricity or water are seen as natural monopolies, the argument goes, data and information naturally tend toward monopolization as well. Rather than fighting tech monopolies, we should regulate them, declaring them information utilities. This method, however, raises serious problems of its own.

Utilities have historically underperformed economically for many of the same reasons large monopolies do. Further, intense governmental involvement in companies so integrated in individuals’ lives should not be undertaken lightly. The calls for the designation of Facebook, Twitter, or Google as public utilities have had a distinct political tinge, favored by right wing commentators who perceive a liberal bias in Silicon Valley. Pursuing this solution would raise fundamental questions about the role of government and politics in our increasingly digital personal lives.

The way forward is not clear. The old methods of anti-monopoly law and trustbusting are not suited to the complexities of modern information monopolies. Utility classification, while promising, does not fully address the issue and raises its own concerns. Still, inaction increasingly appears out of the question. Economic inequality, the centralization of power, and the role of data and the internet in our daily lives have become the defining issues of the current political climate. The early 20th century has taught us what happens when monopolies are left to their own devices: It is up to us to determine how to apply its lessons to a rapidly changing technological world.