In the ideal world, companies are supposed to compete for their customers due to the high rivalry in the field. Because of that, the businesses are forced to continuously innovate and develop their services while maintaining affordable prices. If they fail with either, the threat of substitution will become too high. However, in recent years, the growth of IT big tech superstar companies has been unprecedented.
American Concentration Of Big Tech Companies
The few large companies dominate the market in several industries, causing all the middle and small-sized companies to eventually fail. In a study exploring the field of tech titans and protecting the fair competition in the United States, Shapiro wrote, “Our hypothesis is that technology or market conditions—or their interaction—have evolved to increasingly concentrate sales among firms with superior products or higher productivity, thereby enabling the most successful firms to control a larger market share.”
The concentration of sales is clearly seen in the tech industry where Facebook, Google, Microsoft, Alphabet, Amazon, and Apple, all withing the top 10% more than $1 billion annual revenue are the unquestionable winners of the industry. All of them are also US-based.
European Big Tech Harmed By The US?
The disproportion between the big tech in America and the big tech in Europe is astounding. While the technology giants in the United States and their investment in further innovation has increased significantly, it has decreased in Europe. The R&D spending by EU technology firms is 8% of the global total, as compared to 77% of the US companies. While Amazon, Apple, Facebook, Google, Microsoft, and Netflix were spending about €43 billion on R&D in 2018, Europe was almost inactive in tech R&D.
The large reason behind that is that only the giant companies have the resources to spend billions on R&D and other intangible assets. Thus, the European tech companies cannot keep up with the innovation and it is the vicious circle of the few powerful US companies taking the majority piece of the pie.
Does The Monopolistic Market Harm Only Companies?
The lack of competition is not only an issue for the middle-sized and small businesses, it is also a large issue for workers and consumers. In the case of productivity growth stagnation, wages stagnation is likely to follow. And in terms of the customers, when the competition is lower, the companies are free to drive up their prices higher.
Why is Europe The Strictest?
The European Union regulations have undoubtedly been the most aggressive towards Big Tech. While Asia and the US only now begin to tighten up their regulations, the EU jurisdiction has been on the case for a while now. Generally, in the EU law, considering behavior as monopolistic is set at a much lower level than in the US. Thus, a company’s actions that will not be breaching regulations in the US will be committing a breach in the EU with the same behavior. Moreover, after the new GDPR rules were passed, the privacy laws have become more strict than they have been previously in order to protect the consumers from big companies misusing the data. Thus, Europe is involved in regulating the big techs more than the US mostly because their laws and regulations are more strict.
The clear advantage of the IT companies is that they are tech-savvy and thus, more likely to benefit from the up-and-coming technologies such as the use of AI, IoT and advanced ML technology. Thus, it can further enlarge this gap in the IT industry especially. The newest technologies such as AI require an immense amount of resources, both in terms of finances, human resources, and R&D. Thus, only the largest companies will be able to afford it. It is a zero-sum game where the giants will continue its wealth while the other companies in the sector will fail.