Why Google and Facebook Can’t Be Broken Up Like a Utility

Nobel Prize-winning economist Jean Tirole describes the difficulties of breaking up today’s tech companies at the 2018 Eccles Prize and Speaker Forum. He won the prize for his book, Economics for the Common Good.

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A number of people say Google and Facebook should become public utilities. But if you think about it, it’s actually very difficult to achieve. For one thing, to do public utility regulation you have to regulate the profits, so you have to measure the costs, and measure the revenue. Measure the costs: Google was just a small startup at the start, they were financed, there was probably one out of ten or one out of 20 who succeed, just like a drug company, a new drug. So you have to factor in a probability of success in there, and we have no clue as to what this probability of success could be.

And then the revenue: Those companies are global, and of course, what they do is to put their intangibles – the patents, or the data – they put that into some country where the taxation is low, and they will do the same thing if we started regulating them as a public utility. And not to mention the fact that things move very fast, which brings me actually to breakups because lots of people also say you should break up Google and Facebook.

But, think about Google, for example. If you want to break up a firm the way we broke up AT&T, or we broke up electricity companies, or railroad companies depending on the country, you identify an essential facility – an essential facility is some kind of business segment you cannot duplicate easily. So clearly, you cannot just duplicate the tracks and station in New York, right? I mean, there’s no way a railroad company can duplicate that. It’s very hard to duplicate transmission, high-power voltage grid, right? It’s not doable.

Those are kind of natural monopolies or essential facilities. For AT&T it was the local loop, right? So you take that out, and you prevent the owner of that essential facility from reentering the segments, so it’s a line of business restriction. That’s what was done for AT&T. Or at least you make sure there is a level playing field with the competitors in the competitive segments. So for that you need to limit the ties, the bundlings, the predation, and so on on the rivals.

Now, try to do that with Google. First, you have to ask yourself, “What is the essential facility?” Ok, search engine. Let’s assume it’s a search engine. So you take the search engine and you cut it from, you cut it from Waze, and YouTube, and Gmail, and whatnot. Now you ask yourself, “Will the search engine work as well without Waze, Gmail, YouTube, and so on?” Not quite, because of course, they use lots of data from your personal profile, right, to guide you to another thing that you might want to buy or to look at. So the data are a common input into all those services, so it becomes harder actually to break up things.

Not to mention the fact that the technology is changing very fast. And railroads – I hope nobody is working in railroads or electricity, or even telecoms in the 80s. Those were technologies which had been there for a century, right? So you cut them into pieces, that’s fine. But you know if you start thinking about the internet, things change pretty fast, right?

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