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The effects of Big Tech on competition

Summary:
As we can observe - and it’s not just Elizabeth Warren making stuff up over in the US to give her an election campaign issue - there’s an awful lot of concern about the monopolistic effects of Big Tech out there. Regulate, break up, above all proffer more power to the bureaucracy than to those private market actors.At which point we can try to consider the actual effects of Big Tech on the only human economic unit of any importance, the household. Has the irruption of online into the marketplace increased or reduced competition? For, sure, we can observe large companies out there and assume we’ve greater market concentration. But does that hold at that household level? One cute possibility is to look at the UK supermarket industry. Over the years we’ve had several investigations into

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As we can observe - and it’s not just Elizabeth Warren making stuff up over in the US to give her an election campaign issue - there’s an awful lot of concern about the monopolistic effects of Big Tech out there. Regulate, break up, above all proffer more power to the bureaucracy than to those private market actors.

At which point we can try to consider the actual effects of Big Tech on the only human economic unit of any importance, the household. Has the irruption of online into the marketplace increased or reduced competition? For, sure, we can observe large companies out there and assume we’ve greater market concentration. But does that hold at that household level?

One cute possibility is to look at the UK supermarket industry. Over the years we’ve had several investigations into whether the big supermarkets had carved up the country between them. There was certainly some evidence of oligopoly - British supermarket margins were globally regarded as immense at some 6 and 7%. From one of those reports:

In rural areas, 71 per cent of the population has access to at least one grocery store larger than 1,400 sq metres within a 15-minute drive-time (see Figure 3.10), and 13 per cent of the population has a choice of at least four stores of different fascia larger than 1,400 sq metres within a 15-minute drive-time.

This indicates that a large proportion of the urban and rural population in the UK is able to choose between at least two larger grocery stores within a reasonable drivetime. Nevertheless, these national-level figures will mask substantial regional variations. In Section 6, we assess the extent to which local markets for grocery retailing are highly concentrated. We also take the extent of store choice into account when assessing the overall effectiveness of competition in grocery retailing in Section 10.

That report is from 2008. Something a little more recent, 2016:

With the introduction of online grocery shopping, home delivery and click and collect in the nineties, the market was initially made up of the four major players on the British grocery scene: Sainsbury's, Asda, Morrisons and Tesco. Since then, online grocery sales have skyrocketed, with the United Kingdom forecasted to become the second largest online grocery market worldwide after China by 2020. With the introduction of new players, such as purely online retailers Ocado and AmazonFresh, the online grocery market share has changed with Tesco, Asda and Ocado the leading online grocery retailers in terms of edible grocery sales.

Quite how many full service supermarkets are now available will be variable. One of those doing those deliveries might well be the same organisation which owns the locally accessible bricks and mortar store. But a reasonable rule of thumb would be that every household in the country, down to and including the most isolated rural hamlet, now has at least four supermarkets literally on the doorstep via those delivery vans.

Four being an important number as it was the number the Competition Commission used to indicate that obviously, clearly, there’s no competition problem here if that many choices exist.

We can also look at other indicators - anyone pondering supermarket share prices will know that retail margins have collapsed in the past couple of decades.

Again, sure, Amazon’s a big company. But it’s not obvious that it has led to increased concentration, less competition, in the retail market now, is it? So, our justification in trying to regulate it is what? Other than just that taste to find a justification for more regulation and plum jobs as regulators?

As to the larger picture, just another proof of the contention that every monopoly or oligopoly eventually - eventually being a variable amount of time - will be destroyed by advancing and changing technology. It’ll happen to all those we currently worry about, as it has happened to all those we used to.

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Tim Worstall
Tim Worstall is a British-born writer and Senior Fellow of the Adam Smith Institute. Worstall is a regular contributor to Forbes and the Register. He has also written for the Guardian, the New York Times, PandoDaily, the Daily Telegraph blogs, the Times, and The Wall Street Journal. In 2010 his blog was listed as one of the top 100 UK political blogs by Total Politics.

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