Breaking Up a Digital Monopoly

The dominating power of today's global data monopolies—most prominently Google, Facebook, and Amazon—has alarmed people around the world. Governments are seeking ways to rein in such monopolies and establish reasonable conditions for competition in the services they offer. Their business models (such as targeted advertising), also raise major issues of personal security and privacy.⁹ Thus, measures that control their tendencies toward monopoly may help to address the threats they pose to civil and political liberties. In this Viewpoint, we propose a regulatory strategy that addresses the naturally monopolistic nature of these services by isolating the core acquired data collection and management functions. Acquired data is data derived from the discourse of society at large so the public retains a legitimate ownership interest in it. As described in this Viewpoint, our proposal requires companies to compete by innovation rather than through monopolistic control over data.

The dominant data platforms can arguably be characterized as natural monopolies within their respective type of service. According to Richard Posner's classic account, "If the entire demand within a relevant market can be satisfied at lowest cost by one firm rather than by two or more, the market is a natural monopoly, whatever the actual number of firms in it." He goes on to say that in such a market the firms will tend to "… shake down to one through mergers or failures."⁶ Among producers, the costs of entry, such as necessary infrastructure investment, leads to large economies of scale when there are few producers, and this tends to give an advantage to the largest supplier in an industry. This phenomenon is captured by the concept of subadditivity, which is the basis for the modern theory of natural monopoly (see the accompanying sidebar). Among consumers, services that benefit from strong network effects also tend to dominate over time.⁷ Familiar examples of natural monopolies include public utilities such as water services, the electricity grid, and telecommunications.