Analyzing Competition in the Online Economy

• DOI: http://doi.org/10.1177/0003603X231163001
• Published date: 01 June 2023
• Date: 01 June 2023

https://doi.org/10.1177/0003603X231163001

The Antitrust Bulletin

2023, Vol. 68(2) 167 –190

© The Author(s) 2023

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DOI: 10.1177/0003603X231163001

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Article

Analyzing Competition in the

Online Economy

Victor Glass* and Timothy Tardiff**

Abstract

Since economic analysis of the workings of the online economy is in its early stages, detecting

anticompetitive behavior remains challenging. There have been some insights from models that explain

how two-sided markets work, but the practical uses of these models are limited thus far. More

research is necessary on the definition and operations of platforms of different sizes and with different

objectives, for example, the identification of data clustering and flows related to product clustering and

information production and the relationships between data, information, and innovation. Furthermore,

corporate culture, which can produce cultural clashes within an organization, may influence both (anti)

competitive behavior and innovation. The cultural issue becomes even more complex when evaluating

whether a merger would result in both innovation and the abuse of market power. This paper develops

an overview of the technology and operations of the online economy as a start toward informing

competition and antitrust policy. We present a technical overview that becomes a starting point for

understanding potential areas of excessive market power. We also examine market dynamics from

the large platforms’ points of view to understand where they believe the online economy is heading.

Keywords

antitrust, online economy, competitive pricing, mergers, privacy

I. Introduction

The big corporation has an ambiguous image in the American imagination and public policy. Giants

like AT&T, Standard Oil, U.S. Steel, General Motors, and Dupont were symbols of American power

before the digital revolution. The auto companies, in particular, were not only a symbol of, but also

major contributors to America’s ability to mass produce trucks and tanks during World War II. They

gave America a decisive logistical advantage over Nazi Germany, which relied much more heavily on

skilled workers to produce war machines.1 Yet, Americans also have been (and continue to be) fearful

*Professor of Professional Practice and Director, Center for Research in Regulated Industries, Rutgers Business School,

Newark, NJ, USA

**Principal, Advanced Analytical Consulting and Department of Economics, Northeastern University, Boston, MA, USA

Corresponding Author:

Victor Glass, Professor of Professional Practice and Director, Center for Research in Regulated Industries, Rutgers Business

School, 1 Washington Place, Newark, NJ 07102, USA.

Email: vglass@business.rutgers.edu

1163001ABXXXX10.1177/0003603X231163001The Antitrust BulletinGlass and Tardi

research-article2023

1. How the Americans Outproduced Everyone Else in WW2 War Factories, Timeline, YouTube, https://www.youtube.com/

watch?v=wp3wQhDpQG8 (last visited Aug. 25, 2022).

168 The Antitrust Bulletin 68(2)

that large corporations could be a menace to society by controlling essential services and government

policy. Progressives called for government to rein in huge corporations as early as the late nineteenth

century. The Sherman Act was the first legislative act. It prohibited corporations from forming business

trusts where members worked together to boost profits.2 In response to the Sherman Act, there was an

increase in mergers to evade the legal prohibition on coordinated activity. The government responded

by passing the Clayton Act in 1914 to prohibit unfair business practices that would hurt the public,

including prohibiting mergers that may substantially lessen competition or tend to create a monopoly.3

A parallel strategy to tame corporate behavior was to regulate companies considered to be natural

monopolies. AT&T, for example, agreed to federal regulation in exchange for a monopoly on telephone

service. Many academic articles have critiqued the government’s effectiveness in “domesticating” big

business. To this day, there is no clearcut conclusion.

Some politicians on both sides of the aisle now believe that the consumer welfare standard, which

has until recently enjoyed a broad consensus for over half a century,4 has led to underenforcement of

antitrust laws—insufficient prohibition of anticompetitive behavior and mergers. There is great con-

cern now that the emergence of huge platforms such as Amazon, Apple, Google, Facebook, and

Microsoft appear to dominate the online economy.5 Like old wine in new bottles, the public’s reac-

tion is both heady and fearful. American companies dominate the world’s online economy but are

they safe? No one knows for sure, but many people have strong opinions.

Three basic questions frame investigations of whether these companies have market power that is

harming competition: (1) why have they maintained for decades such a large presence in the online

economy? (2) are they shaping markets in ways that exploit customers and competitors? and (3) are

they shaping politics to fit their own needs?

For example, Lina Khan, a modern incarnation of the progressive spirit, asked the question, why

has Amazon grown so big even though it was losing money on many line items.6 The size and growth

of Amazon is beyond dispute. Its annual revenue in 2017 was $178 billion and continued to grow

revenue at an annual average rate of 21 percent through 2021.7 Its net income was only 0.2 percent of

revenue during the 2012–2015 period,8 and yet, its stock average price rose from $220 per share

2. See the Sherman Antitrust Act. 15 U.S. Code § 1—Trusts, etc., in restraint of trade illegal; penalty. In particular, Section 1

prohibits conspiracies, the primary example being price fixing and Section 2 prohibits anticompetitive monopolization or

attempts to monopolize.

3. The Clayton Act, 15 U.S.C. Section 7.

4. See, for example, Herbert Hovenkamp, Antitrust in 2018: The Meaning of Consumer Welfare Now, 58 WharTon. Public

Policy iniTiaTive. issue briefs (2018), https://repository.upenn.edu/pennwhartonppi/58. In evaluating actual or potential

(e.g., a proposed merger) alleged anticompetitive actions, the consumer welfare standard analyzes whether the action

reduces output and/or increases prices (broadly defined), with the emphasis on the latter.

5. That the existence of such large firms has resulted in historically high levels of industry concentration is a controver-

sial issue. For example, Portuese reports that industry concentration barely changed between 2002 and 2017. Aurelien

Portuese, Five False Claims Underscore the Case against the Senate’s Leading Antitrust Bills, informaTion Technology

& innovaTion foundaTion, 2022, https://itif.org/publications/2022/04/04/five-false-claims-underscore-case-against-senate-

antitrust-bills/. Furthermore, even if concentration has increased, prices could be lower as a result of more efficient firms

with scale and scope economies serving greater proportions of consumers. Robert W. Crandall & Thomas W. Hazlett,

Antitrust in a Digital Era: A Skeptical Perspective, cenTer for The sTudy of The adminisTraTive sTaTe, george mason

universiTy, Working PaPer 22-19, 2022, https://administrativestate.gmu.edu/wp-content/uploads/2022/10/Crandall_

Hazlett_22-19.pdf.

6. Lina M. Khan, Amazon’s Antitrust Paradox, 126 yale laW J. –710779 (2017), https://www.yalelawjournal.org/pdf/e.710.

Khan.805_zuvfyyeh.pdf.

7. Amazon Financial Statements 2009-2022, macroTrends, 2022, https://www.macrotrends.net/stocks/charts/AMZN/

amazon/financial-statements.

8. Id.