Josh also illuminates the bigger picture of the monopoly power of platforms, as detailed in Lina Khan's masterful Yale Law Journal article Amazon's Antitrust Paradox (also a must-read, even at 24,000 words). Josh concludes:
"It’s a structural issue. Monopolies are bad for the economy and they’re bad politically. They also have perverse consequences across the board. The money that used to fund your favorite website is now going to Google and Facebook, which doesn’t produce any news at all.Tip of the hat to Cory Doctorow for pointing me to both Lina Kahn's work and also to the draft of On the Formation of Capital and Wealth, by Stanford's Mordecai Kurz. From the abstract:
We could see this coming a few years ago. And we made a decisive and longterm push to restructure our business around subscriptions. So I’m confident we will be fine. But journalism is not fine right now. And journalism is only one industry the platform monopolies affect. Monopolies are bad for all the reasons people used to think they were bad. They raise costs. They stifle innovation. They lower wages. And they have perverse political effects too. Huge and entrenched concentrations of wealth create entrenched and dangerous locuses of political power.
So we will keep using all of Google’s gizmos and services and keep cashing their checks. Hopefully, they won’t see this post and get mad. In the microcosm, it works for us. It’s good money. But big picture … Google is a big, big problem. So is Facebook. So is Amazon. Monopolies are a big, lumbering cause of many of our current afflictions. And we’re only now, slowly, beginning to realize it."
We show modern information technology ... is the cause of rising income and wealth inequality since the 1970's and has contributed to slow growth of wages and decline in the natural rate.
We first study all US firms whose securities trade on public exchanges. Surplus wealth of a firm is the difference between wealth created (equity and debt) and its capital. ... aggregate surplus wealth rose from -$0.59 Trillion in 1974 to $24 Trillion ... in 2015 and reflects rising monopoly power. The added wealth was created mostly in sectors transformed by IT. Declining or slow growing firms with broadly distributed ownership have been replaced by IT based firms with highly concentrated ownership. ... We explain why IT innovations enable and accelerate the erection of barriers to entry and once erected, IT facilitates maintenance of restraints on competition. These innovations also explain rising size of firms.
We next develop a model where firms have monopoly power. Monopoly surplus is unobservable and we deduce it with three methods, based on surplus wealth, share of labor or share of profits. Share of monopoly surplus rose from zero in early 1980's to 23% in 2015. This last result is, remarkably, deduced by all three methods.