Are Big Tech Companies Bad for Innovation?

In digitized global markets, how do national authorities regulate competition? Andreas Kornelakis and Pauline Hublart looked at the question in “Digital markets, competition regimes and models of capitalism: A comparative institutional analysis of European and US responses to Google,” recently published in the journal Competition & Change. The piece looks at the US-EU disagreement over Google’s dominant position in digital markets. The research argues that the variation in the response to the company’s market and nonmarket strategies can be traced back to differences between Ordoliberal and Chicago School ideas. The authors suggest that these differences are embedded in the ‘competition regimes’ of the European and US capitalist models. Here, they expand upon their key motivations for research as well as answer key questions concerning Big Tech, regulation and an example featuring Alibaba, and the current competition structures in digital markets in relation to political-economic models, values, and paradigms.

Kornelakis, a senior lecturer in international management at the King’s Business School at King’s College London, and Hublart, a senior adviser in management consulting at KPMG Luxembourg, answer questions about their article below.

What motivated you to pursue this research?
What might appear as a paradoxical question is actually illustrated with the recent example of Alibaba, the world’s largest online retailer. In April 2021 Alibaba was hit with a record fine by the Chinese antitrust regulator for abusing its market dominance for several years. Among the charges against Alibaba was the stifling of innovation on its market. This might appear somewhat ironic for a Tech giant, which revolutionized e-commerce, and now ranks amongst the 5largest Artificial Intelligence (AI) companies in the world.

Alibaba is yet another example in a series of Big Tech companies like Google, Apple, Facebook and Amazon, which are very successful in their markets. In fact, what the companies themselves may understand as ‘market success’; antitrust authorities and policy makers around the world may interpret as a ‘monopolization’ risk. Thus, regulators across the globe increasingly monitor the behavior of Big Tech multinationals so that they protect the market from a harmful concentration of economic power.

The Tech giants’ endless ambition towards extending their market power prompted us to examine the so-called “Google Shopping Case”. The European Commission conducted a seven-year investigation; and eventually compelled Google to pay the highest fine ever imposed on the grounds that it abused its market power. More precisely, the EC ruled that Google abused its dominant position in the general search engine market to expand its power in the price comparison website market. Just as the Chinese regulator in the recent Alibaba case, the EC’s decision stated that Google’s conduct was harmful for consumers’ choice and therefore bad for innovation.

In what ways is your research innovative, and how do you think it will impact the field?
Our research also revealed that not all regulators in the world shared the same views on when and how Big Tech can be bad for innovation. Instead, the answer very much depends on the case, but also on the institutional context and jurisdiction. The Federal Trade Commission in the US also investigated the case of Google. However, the US antitrust authorities emphasized that Google Shopping provided a product improvement, so it was deemed beneficial for consumers and good for innovation.

Our findings explain the puzzle of different approaches to competition in digital markets by tracing them back to the schools of thought, which are embedded into national contexts and jurisdictions. In the US capitalism, the Chicago School approach to competition prioritizes the consumer welfare whilst tolerating monopolies. In Europe, the German Ordoliberal school emphasizes consumer choice and is sensitive to competitors’ harm.

Finally, our findings suggest that competition regimes are entrenched in historically rooted political-economic models, values and paradigms. This impacts the field by showing the continued relevance of comparative institutional analysis, as a frame of researching contemporary social, economic and business problems posed by the digitalization of markets.