The large research and development expenditures of the main digital platforms (Alphabet-Google, Apple, Meta-Facebook, Amazon and Microsoft) may send an image of beneficial investment and innovation, but the reality is that they suppress healthy innovators depriving them of the “oxygen” they need to survive. Ariel Ezrachi and Maurice E. Stucke write that we shouldn’t bet on the ecosystems of tech barons to deliver much-needed innovations to address pressing needs such as global warming, wealth inequality, social unrest, population growth and threats to democracy. They propose three principles to guide future policies aimed at promoting innovation in the digital economy.
Ask a room full of antitrust lawyers and economists what is most responsible for advancing our standard of living, and the likely consensus is innovation. Repeat the question in the context of the digital economy, and many will likely identify digital platforms as innovation champions. The image is often of platforms acting as a coral reef, allowing innovators to access and deliver their various services and products to consumers and business users.
There is no doubt that the main digital platforms, such as Alphabet (Google), Apple, Meta (Facebook), Amazon and Microsoft, invest heavily in research and development. Scrolling through their financial statements over the past decade, Google, Apple, Facebook and Microsoft have spent billions of dollars a year on research and development. (Amazon does not detail R&D separately in its annual reports, combining it with content.) These four companies have collectively spent more than $451.6 billion on R&D over eleven years. To put that figure into perspective, their combined eleven-year R&D spending exceeded the gross domestic product of more than 160 countries in 2020.
But like our new book explores, the reality (including R&D spending) is bleaker. While many policy makers remain captivated by the level of investment and the image of coral reefs attracting innovation, they fail to see the putrid red algae attacking these coral reefs – where tech barons crack down on innovators in good standing. health by depriving them of the “oxygen” necessary to survive.
Controlling ever-expanding ecosystems allows tech barons to identify market patterns and discern trends and threats to innovation long before anyone else. This nowcasting radar, for example, allowed Facebook to identify WhatsApp, among others, as a competitive threat. To protect their market position from disruption, tech barons can then deploy several weapons that suppress the supply and demand of potentially threatening disruptive innovations. These weapons consist, among other things, of excluding disruptors from their ecosystem by denying them access or reducing interoperability. Tech barons also significantly impact the demand for innovation within their ecosystem through the use of dark patterns, self-preferences, frictions, and other means. Although users may have a sense of autonomy when choosing online services and applications, they often take a path that has been carefully designed for them. The tech barons push them towards innovations they want users to adopt and away from innovations that may disrupt their ecosystems.
So while the tech barons seemingly provide many benefits and advance valuable innovation, at the same time they stifle a lot of it. Their levels of investment in research and development seem high, but mask their qualitative impact of reduced disruption, reduced plurality and increased toxicity. Markets may appear competitive, but are populated with innovations that support the value chains of their ecosystem.
These strategies impact potentially disruptive innovations far beyond the ecosystems of the tech barons, as they create an “elephant path” that few dare to tread. This risk, for example, discourages investors, who prefer not to back innovations that challenge the value chains of tech barons. The resulting distortions affect not only the current dynamics of competition and innovation, but also the flow of future innovation.
With limited disruption and growing market power, another trend is emerging as the nature of innovation reaching the market changes. While the term innovation is commonly associated with initiatives that create positive value, in the economy of the digital ecosystem, its implementation can run counter to our personal and societal interests. Market power allows tech barons to promote innovation that brings us value. A review of patent applications from major tech barons confirms the trend: namely, more toxic innovation that aims to mine data, decode our emotions and thoughts, and better manipulate our behavior.
Ultimately, what happens online doesn’t stay online. The toxic innovation of the ecosystems of the tech barons ripples through society, helping to spread conspiracy theories, fake news and hate. When Facebook’s algorithms, for example, rewarded negative stories, political parties became more negative in their posts. This resentment and tribalism weakens trust and democratic systems. Likewise, new technologies affect our self-esteem and our mental health. Beyond the political, societal and human stories hides a technological story. A story of innovation designed to generate profits, regardless of the effects on democracy, society and our well-being. A story where the disruptions that could challenge these technologies are set aside and marginalized by those in power.
Our book also discusses the limitations of the current application toolkit. Although innovation is high on the antitrust agenda, its dynamic and unpredictable nature often makes it too illusory to engage in. New regulations, such as the Digital Markets Act, Digital Services Act, and Data Act, will likely offer an improvement over the status quo, by targeting some strategies that undermine disruptive innovation. But many of the new and proposed regulations focus on past anti-competitive or exploitative strategies and will not stem toxic innovation in the ecosystems of tech barons.
So what can be done? We propose three key principles that should guide future policies aimed at promoting innovation in the digital economy. These include the assess of innovation, the incentives that are directly influenced by the ecosystem value chain, and diversity of innovations. These three principles can help advance more nuanced policies that maintain tech barons’ incentives to innovate while opening up opportunities for new waves of disruptive innovation.
Value-creating innovation, resulting from a competitive and heterogeneous landscape, is not inevitable. To meet our pressing needs, like global warming, wealth inequality, social unrest, population growth, and current threats to democracy, we need disruptive innovations, and we need them sooner rather than later. . We should not bet on the ecosystems of the tech barons to deliver these innovations. Instead, as our book explains, we should bet on a diversity of tech hackers and cities. Our future prosperity and our livelihoods depend on it.
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Ariel Ezrachi – Oxford University
Ariel Ezrachi is Slaughter and May Professor of Competition Law at the University of Oxford and Director of the Oxford Center for Competition Law and Policy
Maurice E. Stucke – Tennessee College of Law
Maurice E. Stucke is the Douglas A. Blaze Professor Emeritus of Law at the University of Tennessee School of Law.