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How do the tech giants build their own monopolies?

Although innovations in information technology have changed the way people live, work and connect, the growth pattern of the IT industry has contributed to widening the gap between rich and poor and allowing the formation of wealth. monopoly power.

For more than 30 years in advanced economies, especially the United States, wealth and income inequality have risen, real wages (adjusted for inflation) steadily increase, and those Retirees face reduced interest rates on savings. Meanwhile, corporate profits and stock prices rose sharply. According to research by Mordecai Kurz, professor of economics at Stanford University, these changes are mainly due to the rise of modern IT.

IT has affected the economy in a myriad of ways: computers, the Internet, and mobile technology have transformed the media, online retail, the pharmaceutical industry, and a myriad of consumer-related services. Other uses. IT has improved life a lot.

However, by supporting an increase in monopoly power and facilitating barriers to industry entry, the development of IT also has negative economic, social and political side effects. So how have IT companies built their monopoly power?

First of all, it is the structure of the IT sector that allows the formation of monopolistic powers. IT has improved information processing, storage and transmission of data. IT innovators are the only owners of huge information channels that they actively try to block their competitors from using.

In addition, IT companies can protect their monopoly power through patents or copyrights that belong to intellectual property. However, these practices require the disclosure of the trade secret. Therefore, for strategic reasons, many companies bypass legal protections and reinforce their dominant market position by releasing software updates by default.

This creates barriers that make it difficult for competitors to break down. As new potential technologies emerge, large companies often need competitors to challenge them to compete on their own or to stop them.

Second, once an innovative company establishes a dominant foundation, size becomes a great advantage.

As the costs of processing and storing information have decreased in recent years, a company with an advantage of size will have smaller operating costs and rapid increases in profits as the number of users increases, for example. Figure is a case of Google and Facebook. The advantages of cost and the economies of scale make it almost impossible for competitors to compete.

Plus, since these companies take their power from information, their position is enhanced by their ability to use personal information as a strategic asset. In fact, many IT platforms are not manufacturers in the traditional sense. They do not directly produce any products, but only act as a public utility that allows the coordination and sharing of information among users in many different fields.

As a result, IT creates barriers to market entry, and solidifies the positions of top companies (because they have a large number of users means owning a huge amount of information). With the speed of IT innovation increasing rapidly, the monopoly power is also increasing.

The monopoly property of US companies in numbers

Professor Kurz has calculated “monopoly assets” – monopolies in stock value and monopoly returns.

In the 1980s, monopoly property did not exist. But as the IT industry grows, monopoly assets increase rapidly. It reached 82% of the total stock market value (equivalent to 23.8 trillion USD) in December 2015. It is an asset added by the rise of monopoly power, and it is continuing. develop.

Nine out of 10 companies with the largest monopoly assets in the US as of December 2015 are involved in IT, focusing on mobile media, social media, and pharmaceuticals. Similarly, companies transformed by IT occupy most of the positions among the top 100 companies with the most monopoly assets.

K Nguyen
* Source: Age


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