Chicago Booth Review Podcast Should We Care If Google Is a Monopoly?

Hal Weitzman: When you want to do an internet search, what website do you go to? Chances are it’s Google. Google has a market share in internet search of more than 90%. If you want to fact check me, just Google it. So does that make Google a monopoly? There are alternatives, such as Microsoft’s Bing, but Google is undeniably dominant, and that gives it huge influence.

Welcome to the Chicago Booth Review podcast, where we bring you groundbreaking aca-demic research in a clear and straightforward way. I’m Hal Weitzman, and in this episode we present a lively debate from 2018, when we invited Chicago Booth’s Luigi Zingales and George Mason University’s Tyler Cowen to consider whether Google and Facebook are monopolies. Zingales argues that those companies have monopoles on our data, and that gives them undue power and reduces competition. Cowen counters that they have a large market share because they’re good at what they do, and if we want to avoid them, we have other choices.

This is not just an academic discussion. Two years after this conversation, Democrats in the US House of Representatives issued a report calling for Apple, Amazon, Facebook and Google to be broken up, and the debate continues to rage.

We filmed our discussion as part of Chicago Booth Review’s Big Question video series, and I began by asking Luigi Zingales why we, as users, should care about Facebook and Google’s dominance of their respective markets.

Luigi Zingales: That’s an excellent question because most people don’t per-ceive that as a problem because, effectively, to most consumers, the price is zero—or at least the perceived price is zero. It’s not really zero because we’re giving up a lot of valuable stuff, which is our data in exchange. But most people don’t perceive that data as valuable and so they perceive that they receive great services for free, and Google and Facebook are great. The flip side of that is that their market power on the advertising side increases the cost of advertising, which eventually will be reflected in the price of goods. So the effect of monopoly is eventually felt by consumers, but in an indirect way. It doesn’t generate their reaction. In addition—this would be true even if this was a monopoly in any business—in addition, Facebook and Google are in the media business, which is a very important business for our democracy, and so the risk of their dominance is that they back, also, our political system.

Hal Weitzman: OK, Tyler Cowen, are you worried about these indirect costs?

Tyler Cowen: I think Google and Facebook are great companies. They give consumers wonderful products for free. In the area of advertising, they actually give people who want to advertise a much lower price, a much better way of reaching users in a targeted manner. So they very much lowered prices in that market. They’re not monopolies. You can advertise on radio. You can advertise on TV. You can advertise in print media. You can advertise online. To the extent they have a large market share, it’s because they’re doing a better job at a lower price. If you look at Google and Facebook as media, there’s never been a time in American history where you have more choices as to what to read, what kind of news to get, how many opinions, how many commentators you can sample. You can read the two of us online, and 15 years ago, that real-ly would not have been possible.

Luigi Zingales: But, you know, people say that data is the new oil and Zucker-berg is the new Rockefeller. Now, at the time of Rockefeller, they used to say that he was more efficient. He was more efficient, but he controlled 95 percent of refineries in the United States and he had deals that restricted the ability of shipping oil in a competitive way with the railways. So he was, effectively, abusing his market position, and I think that it was the right decision for the antitrust of the United States to go after Rockefeller and break up Standard Oil. So, if this was to-day, would you be in favor of breaking up Standard Oil or not?

Tyler Cowen: If Standard Oil were giving away the oil for free, no, I wouldn’t break them up. If I look at social networks—

Luigi Zingales: No, no, but wait, wait.

Tyler Cowen: I can be on WhatsApp. I can be on LinkedIn. I can be on Twit-ter. I have the contacts within my cell phone. I have email. I have Snapchat. Except for Snapchat, I use all of these. I don’t feel Facebook has a monopoly on my attention. I have a lot of different op-tions. I use them as I see fit.

Luigi Zingales: Actually, many of the things you mentioned, starting with WhatsApp and Instagram, are owned by Facebook.

Tyler Cowen: No, I didn’t mention Instagram.

Luigi Zingales: But you did mention WhatsApp.

Tyler Cowen: WhatsApp is a quite distinct way of communicating.

Luigi Zingales: But it’s still owned by Facebook, and Google owns YouTube, and so there is an increasing concentration of these media and we know that the ability—you said, I think you’re absolutely right, that these are great companies and they produce a better product. Part of the reason why they produce a better product is because they have more data than every-body else. And how did they acquire this data? In a way, which, in a trade. So it’s not true that the price is zero. We give up data in exchange for the service. The point is most people don’t under-stand what they’re giving up. And they then use this information potentially against you.

Tyler Cowen: But, potentially, you use the word “potentially.” They’re not using it against you. So most Americans are very happy with the bargains they get through Facebook and Google, right. The real danger is if you have more government intervention, we become like the European rent seekers, who view them as foreign companies, revenue sources. It becomes a form of rent seeking. How much wealth can we extract from Facebook and Google, basically, to pay the bills of the European Union. That’s the relevant alternative, which is pretty ugly given the ar-guments from your own work.

Luigi Zingales: Actually, I, initially I shared your concern that what Margrethe Vestager was doing was rent seeking just because they are sort of American companies. I don’t think that’s the case. I think now she’s gone also after European companies, and I think that the antitrust in Europe is much more effective. Look at the price of cell-phone services. In Europe, they’re a fraction of the ones in the United States, with better services. So Europe has become, I’m sorry to say, at the front end of enforcement of competition, and the United States has become complacent on this issue. And you can’t, sort of (laughs), deny it since you’ve written a book about that.

Hal Weitzman: Luigi Zingales, if I can interrupt, this is a great conversation, but Luigi, what exactly are the anticompetitive practices that you’re concerned about that compa-nies like Facebook and Google are engaging in?

Luigi Zingales: So, number one—and it’s the reason why they are being fined by the European Union—is, there was a company in the UK that started to have a price comparison, and the company was doing fairly well until Google created its own price-comparison system, and all of a sudden, this company went tremendously down in the ranking of searches, basically de-stroying the business model of this company. And so, their power to direct flow is the same power that railways had to direct where the grain was taken or not taken that led the United States gov-ernment to intervene in regulating the railways. It is the same power that AT&T had when it was the only source of communication. They had the power to direct who receives a phone call, who doesn’t. That’s an enormous power that, left unchecked, is the source of the problem. And this is Google. Now Facebook, 60 percent of American people get their news from Facebook. Yes, every-body can read my Twitter thing. There are not very many people, and the vast majority of the American people are getting their news filtered by Facebook. Now, we are discussing today about the fact that $100,000 could have swung the American election. -But it didn’t. -$100,000! -We know it didn’t. -Whether it did or did not is irrelevant, but the point is people are concerned that $100,000 can swing the election. This is a joke because, first of all, there were $80 million paid by Hillary Clinton and Donald Trump, so if I’m concerned, I’m concerned about the $80 million not the $100k. But more important, if Facebook with $100k can swing the election, imagine—

Tyler Cowen: But they can’t. Most people can’t even tell you what ads popped up in their Facebook feed in the morning. Your former colleague Jesse Shapiro has a very good paper on the spending, on the phony ads on Facebook. He concludes it’s highly unlikely it swayed anything. I have personally, through my nonprofit, spent $100k on Facebook ads. I have a sense of what it can or cannot do for you. It cannot sway for you a US presidential election. That’s a myth that people repeat, but it’s just not true.

Luigi Zingales: If we agree that $100k cannot swing the American election, we agree.

Tyler Cowen: Maybe the New York Times swayed it by having so many articles about Comey, Hillary, and the emails. That might have been wrong. As a problem, that’s 200 times larger than anything you might say against Facebook.

Luigi Zingales: I agree. I think the New York Times swung the election by supporting Hillary so intensively. I think that is what determined the election in favor of Donald Trump.

Hal Weitzman: But actually, Luigi, don’t you bring out a different point, that the problem with Facebook managing, or screening, people’s news is about stewardship? And simi-larly, other concerns about data, let’s look at the Equifax breach, where they basically leaked mil-lions of people’s personal data. Isn’t the big issue really about the stewardship of people’s data, not about who holds the data in the first place? Isn’t that what people are really concerned about?

Luigi Zingales: No, I think that what is crucial is who owns the data, who can have access to it. And let me give you a very simple example. In the European Union—speaking about the European Union being the front hand of competition—they have a new directive called PSD2, which is about a data directive coming into line in 2018, where they require every bank to make accessible the data of a customer at the customer’s request. So I have my account at Citigroup. I want to move to Bank of America, and I go to Bank of America and authorize Bank of America to get all my data that resides with Citigroup and transfer it to Bank of America. The data after all are mine. Why can’t I make it transferrable? That transfer creates competition because it reduces the friction and is creating more opportunity for new entrants. The monopoly that Face-book and Google have of our data, number one, prevents entry, which is always bad in an econo-my, and number two, gives them tremendous power. The Facebook posts are filtered. If I put a piece on Facebook, not all my readers get it. It gets filtered. It gets filtered based on an algorithm. That algorithm is decided by somebody at Facebook. If you had a government entity filtering stuff to 60 percent of the American people, you would go ape shit. And why do we let some kids in the Silicon Valley have all this power?

Tyler Cowen: Look, every media source decides which stories to run, which not to run. The Washington Post does it. The New York Times does it. Facebook is actually the most open of these. It’s very willing to carry us live streaming, you criticizing Facebook. Keep in mind, there are open-source social networks. There’s Mastadon. There’s Diaspora. Most people aren’t in-terested in them. Facebook, as a walled garden, has better rules of governance, clearer property rights, very much Luigi Zingales kind of ideas. They have competed against other competitors and done a better job, and that’s why they’ve drawn so much more attention. People are not looking to pull out of that network. They’re giving more and more of their time to it because they like the job Facebook has done. They don’t want to pull out into an open-source social network.

Luigi Zingales: Actually, that’s not true. There was a new start-up a few years ago called Power Ventures that was allowing people to get information from different social net-works and centralize it. And so you could actually switch from different social networks. Facebook went after this company and apparently the law of the land in the United States is that if I give you my password for Facebook and log-in and you go in, you can be convicted as a hacker for a criminal behavior, even if I voluntarily give you the password.

Tyler Cowen: That is not the reason why Facebook has taken over the mar-ket.

Luigi Zingales: It’s one of the reasons.

Tyler Cowen: It’s higher standards of customer service. People like it. It’s not personally my favorite site. I would rather go to Twitter and read you than spend my time on Face-book. It’s easy for me to do.

Hal Weitzman: But Luigi, tell us a bit more, sorry to interrupt, about your proposal. So you have proposed that this, the situation you describe at the banks, or you’ve used the example of mobile phones, where you can take your number to any company, that that porta-bility should apply to social media. So tell us—

Luigi Zingales: Absolutely. Because Tyler said something very important. It is true that all newspapers edit news. It’s also true that newspapers are in competition, and if we had a TV or a newspaper with more than 60 percent of market share, we would be worried. In fact, there is a law in the FCC, that now the Trump administration is trying to repeal, that if you own more than 38 percent of market share of customers, you are—

Tyler Cowen: But market shares, how do you define the market?

Luigi Zingales: I understand, but in the TV business, if you, up to now, if you own more than 30 percent of market share, you are in violation of a federal rule. Why does this rule exist? Because we are concerned about somebody who owns 80 or 90 percent of the TV mar-ket, at least in the old days, and controls the market. Now, Facebook is going that direction as far as social diffusion of news is concerned. So, I don’t have any problem that they edit the news as long as there is a fragmentation of the industry. So that’s the reason my solution is not a government intervention in breaking them up or in regulating what they can or cannot edit. It is in creating more competition at entry, and this idea of data portability or social-graph portability is exactly in that direction. We reduce some of the element of network externality. We know that network ex-ternality generates a natural monopoly, and one of the sources of network externalities is the switching cost . So what I want to do is favor a reduction in the switching cost to increase competi-tion.

Tyler Cowen: We have networks where there’s an openness from one portal to another. So when we email each other, we do it across different email systems. That has some advantages—greater openness—but it has a lot of disadvantages. There’s more spam. There’s doubt as to who owns the message. What you can do. Can you keep a message? Facebook has changed that by walling off the garden, clearer property rights. And consumers, in essence, choose social media that are more open source or social media that are more like these walled gardens. That’s been a competitive process. Media are more competitive than ever before. TV, radio, internet, they’re not separate worlds where you have some percent of market share. They all compete against each other. Tech right now is maybe the most intense competition we’ve seen ever in American history. The most innovation ever. This is at the cusp of doing a lot of new things, and to think we’re gonna have a government come in and regulate it according to some uniform way—I’m far more worried that will stifle innovation.

Luigi Zingales: But I’m not advocating regulation. I’m advocating a realloca-tion of data ownership.

Tyler Cowen: You’re saying Facebook has to be run a certain way, right?

Luigi Zingales: No, I say that ownership of data, because it’s our property and because of what you can do with it, must be determined a particular way. In a sense, the govern-ment decides the boundaries of property rights. That’s one of the functions of the govern-ment.

Tyler Cowen: I’d rather have Facebook set the rules than the govern-ment.

Luigi Zingales: Really? You want Facebook, you want Facebook to determine the ownership rights?

Tyler Cowen: Of data within Facebook, absolutely. It’s the world I live in now.

Luigi Zingales: OK, and then they’re gonna determine who is gonna be the next president.

Tyler Cowen: They don’t determine who’s gonna be the next president.

Luigi Zingales: You know that—

Tyler Cowen: You think Mark Zuckerberg is gonna be the next president?

Luigi Zingales: Yes, actually. People were saying that Trump had no chances. I was betting that he would and I won. So I think that.

Hal Weitzman: So you have a lot to answer for there, Luigi.

Luigi Zingales: Be afraid of Mark Zuckerberg as the next president. But more importantly, do you realize that there are employees of Facebook and Google who are embedded in the political campaign of both parties. They’re helping both parties to campaign. What do they receive in exchange? Google was able to visit the White House under Obama 450 times, of which 17 were private meetings with the US president. Do you think that this has nothing to do with the fact that Google did not receive an indictment by the FTC?

Tyler Cowen: Look, we have a general problem.

Luigi Zingales: No, answer the question (laughs).

Tyler Cowen: I don’t know. We have a general problem with crony capital-ism, but if you ask, can you use Google to find information against Obama, it is so so so easy, and people do it all the time. Google does not censor this. Google would rather not do any censoring at all.

Luigi Zingales: Yet. Google does not do any censoring yet.

Tyler Cowen: It’s the outside world demanding that Google and Facebook take on this role, which they basically don’t want to have. It costs them a lot of money. It’s hard to know where to draw the line.

Luigi Zingales: No, but wait a second. You are right that at the moment, they don’t discriminate on the political basis, but they do discriminate on the commercial basis. So if you are a competitor, you’re at the bottom of the list. If you are a—

Tyler Cowen: I can buy ad space on Google.

Luigi Zingales: Yeah, but let’s say I own the railways, and if you’re my com-petitor, I charge you double the price. If you are my friend, you get it for free. That’s, there is a law of the land in the United States: if you are a public utility of certain characteristic, you must pro-vide service on equal terms to everybody.

Tyler Cowen: If I go into Sears, yes, they put some Sears brands out front. If I go to Amazon, they make it easy for me to buy Alexa. There’s not an actual problem with consumer welfare here. Keep in mind, the standard of American antitrust law: Are consumers harmed? It’s clearer, more definite than how European antitrust law has run, and there really has not been sig-nificant evidence that American consumers have been harmed. And you’re always saying “poten-tial,” “will be,” “it’ll be the next president,” “the next election,” but right now these—

Luigi Zingales: No, I’m talking about the past president, who was in bed with Google. I’m not talking about a sort of future. I’m talking about the reality.

Tyler Cowen: He could not get his preferred candidate elected, whatever relationship you think he might have had with Google. It didn’t work, right?

Luigi Zingales: OK, you say the power is not absolute yet, OK?

Tyler Cowen: That’s a misleading way of putting it. Arguably, the three com-panies that have created the most consumer surplus in the last 10 years are Google, Facebook, and Amazon. Maybe Apple, but their stuff isn’t free. They’ve also innovated an enormous amount in other areas. Look at what Google has done with Gmail, with self-driving cars. Google Glass. It doesn’t work yet. It may nonetheless be a kind of milestone for a product that does work. They’re both putting a lot of money into artificial intelligence. This is a golden age of innovation, and you want to somehow tax these companies, which give away things for free.

Luigi Zingales: I don’t want to tax these companies.

Tyler Cowen: It is a tax to them, having to restructure their software, their systems.

Luigi Zingales: No, it’s simply a challenge for competition. You want, as you said, to wall their garden to make sure nobody enters. In walling their garden, there are two func-tions that this plays. One is to the benefit of the consumer. The other is to create the famous moat that Warren Buffet likes, to prevent anybody from coming in.

Tyler Cowen: But the wall is not that no one comes in. The wall is that so many people can come in. They’re carrying this content right now. Facebook, Google, they love to carry people’s content. YouTube is the same way. It makes their platforms worth more, not less. So it’s not as if they’re putting up a moat and then keeping out content. That’s not the essence of their business model.

Luigi Zingales: No, they put up a moat to block competitors from coming in, becoming a bigger and bigger monopoly. So they use—

Tyler Cowen: Monopoly is a loaded word. Call it a platform company that sells its material, including its ads, at much lower prices with better targeting.

Luigi Zingales: They’re not ads; they’re collateral damages. Come on, let’s call a spade a spade.

Tyler Cowen: What’s the damage?

Luigi Zingales: It is a monopoly, maybe a good monopoly. I’m open to discuss-ing this, but let’s call a spade a spade. They are monopolies.

Tyler Cowen: The word monopoly is misleading when price is zero, right? We should look for another word. “Platform companies with very wide reach.”

Luigi Zingales: The price is not zero. It’s zero just in your imagination. We’re giving up the most secret part of our life.

Tyler Cowen: It does not cost money.

Luigi Zingales: Google knows about you more than your wife does.

Tyler Cowen: That is not a cost to me.

Luigi Zingales: It is a cost to me.

Tyler Cowen: But Luigi, what about this idea that the monopolies that you mention, the oil and the railways, were not consumer-based. I mean, these—

Luigi Zingales: What do you mean they were not consumer-based?

Tyler Cowen: Well, these companies, these platforms have grown because consumers have chosen to use them. Consumers didn’t.

Luigi Zingales: People chose to use Rockefeller and his gasoline. He was more efficient.

Tyler Cowen: People chose to use gasoline, but not necessarily from any par-ticular company.

Luigi Zingales: When he was producing 95 percent of it (laughs), what alter-native did they have. That’s exactly the point of a monopoly.

Tyler Cowen: But there were competitors to these companies that fell away because these companies were superior.

Luigi Zingales: So it’s true for Rockefeller. So are you really saying that you, if you were today, you would defend the Rockefeller monopoly? I’m asking because I’m curious. Would you say no? Now I understand that at University of Chicago, we owe our foundation to Rockefeller, for full disclosure. The money was the Rockefeller money. Still, I think that today, I would be in favor of breaking up the monopoly that, by the way, when it was broken up, he was happy and increased the value. Like when AT&T was broken up, it increased the value. So it’s not obvious that the antitrust intervention is aimed at destroying value even if you measure value as shareholder value.

Hal Weitzman: So, if your proposal were implemented to have this portabil-ity, and Facebook and Google were to grow and increase their market share, you would be happy with that because at least there would be, the kind of structural competition would be there.

Luigi Zingales: Yeah, absolutely. I have nothing against these two companies. I love using Google. I think it’s a fantastic service. I don’t use much of Facebook, but that’s my is-sue. I use WhatsApp, which is a Facebook company. So I think that I agree that they provided a lot of value for what they did. So there is nothing negative about this aspect. However, my concern is moving forward. So you were saying about the moat. Facebook now owns a VPN provider that mon-itors when something goes viral. So at some point a couple of weeks ago, tbh, which is a new Face-book for kids or new Twitter for kids, reached 5 million viewers in a couple of weeks. They went and bought it out, no questions asked. Why? Because they were afraid of competition. So basically, they are using their common base to block any new entry. I don’t call this a competitive market-place.

Tyler Cowen: Less than 10 years ago, I remember reading articles about Myspace. “Can anyone challenge the monopoly of Myspace?” And of course Facebook did. Face-book has not been such a big deal for very long. Keep in mind, this is perhaps the best operating sector in the whole American economy, the most dynamic, the most innovative.

Luigi Zingales: Is it really the best?

Tyler Cowen: Yes.

Luigi Zingales: Maybe is by comparison.

They didn’t even know who was advertising—

Tyler Cowen: Consumer satisfaction.

Luigi Zingales: Because the consumers don’t perceive the price they pay. If I give a product for free because you subsidize me, consumers would be happy with whatever I give them.

Tyler Cowen: You don’t think communists advertised through books in the old days? Of course they did. There would be subsidized copies of “The Communist Manifesto.” The Trotskyites would hand out their pamphlets. They may have swayed a few votes.

Luigi Zingales: Let me tell you, I love to buy mathematics books printed by the Russians. They were selling the best math books for pennies, and I was a very happy customer. Even if it was printed by the Communist Party, it was great stuff. They give away good content for free, subsidized by somebody else. The consumers are happy. Does it make them a good thing? No, because only some mathematicians were printed in their books.

Tyler Cowen: Keep in mind, again, the work of your former colleague Jesse Shapiro. Jesse’s work indicates maybe the most screwed up part of media is cable TV, the most po-larizing, that the media diet through online activity is actually relatively balanced, much more than people think. There has not been online polarization. If you want a search engine that won’t gather data on you, you can get it now. It’s there, also free. Maybe you don’t do that. That suggests you don’t care about the data gathering all that much. Use Duck Duck Go.

Luigi Zingales: No, it’s that if I want to get the service, I basically have no choice.

Tyler Cowen: That’s not true.

Luigi Zingales: Do you want me to use Bing? Come on, nobody uses Bing.

Tyler Cowen: I use Bing when I’m in China. It’s not a problem.

Luigi Zingales: Exactly, when you’re in China, you are forbidden from using anything else (laughs).

Tyler Cowen: It’s almost as good as Google. It’s no great loss. It’s competi-tive.

Luigi Zingales: Really?

Tyler Cowen: Yes.

Luigi Zingales: So how much are you willing to, are you really willing to use Bing here in the United States, even without the restriction of the Chinese? No.

Tyler Cowen: I do sometimes. Look, in China I have a VPN. I can go to Google. It’s slightly slower. For the most part, I use Bing to save that second-and-a-half. Bing is fine. Google is great, right. You have a lot of choice. A lot of different search engines.

Luigi Zingales: “A lot of choice” seems like an overstatement. You have some choice, a reduce in choice. On the advertising side, you basically have no choice because now the advertising market, as Hal said, 85 percent is divided between Facebook and Google.

Tyler Cowen: My books are advertised in many places, but they’re actually not advertised on Facebook, and not advertised on Google at all. Your books probably also not. No one thinks, oh, we have to advertise Tyler’s book on Facebook.

Luigi Zingales: As economists, we understand market share, OK, so your books are popular. You spend a lot in advertising. I don’t think they are relevant in the US economy over-all. If you look at the statistics, the statistics say that 85 percent of the advertising revenues are divided between two players. Any textbook analysis would say that’s a duopoly.

Tyler Cowen: No, it’s—

Luigi Zingales: It’s not a competitive market.

Tyler Cowen: That fact isn’t true. When you’re saying advertising revenues, you need to think of all your advertising choices, and that Facebook and Google are a much smaller part of the overall pie. Advertise on radio. It can be pretty effective.

Luigi Zingales: This is all, you’re right, and those statistics are for online ad-vertising, is also true.

Tyler Cowen: Yes, only one part of a much, much bigger market.

Luigi Zingales: I understand, but it is a growing share of that market and be-coming more and more important. So it’s sort of a, I’m not saying that in this moment we have a monopoly. I’m just saying that the concern is there, and when there is a concern, and there is a very simple way, because let’s turn around. What is the cost of what I suggested? Nothing. Because the data are stored already. So what you need is just the ability to switch somewhere else, and ac-tually Facebook already offers access to the API to their “preferred programmers”. So what is the difference between what is happening today and what I advocate? The difference is that you are guaranteed that access. Now Facebook says, “Let’s play with my data; “however, if you become a competitor, “I’m gonna cut your head off.” So that’s not competition; that’s tyranny.

Tyler Cowen: The regulations you want are gonna favor the incumbents. You of all people should know that.

Luigi Zingales: Favor the incumbents? No!

Tyler Cowen: Imagine there’s a new virtual-reality social network that cannot interchange with, say, Facebook or LinkedIn because it’s an entirely different medium and the way the old regulations are written won’t pick up the new dynamic properties of the new sector and it will be held back. It will be stifled.

Luigi Zingales: No, it’s very simple.

Tyler Cowen: The regulations will end up cementing in whatever market power Google and Facebook have. And you talk about all of Google’s visits to the White House: In whose interests are those regulations going to be written? The upstarts that don’t exist yet or Google and Facebook? Zingales knows for sure.

Luigi Zingales: Look, two things. First of all, it’s very easy to write regulation that, in principle at least—

Tyler Cowen: In principle.

Luigi Zingales: In principle. But let’s say that, sort of, don’t favor the incum-bent, which is to say this rule applies only to X percent of market share. So, if you are a start-up, you don’t have to subject yourself to those rules. Once you past that limit, you do. But here we’re not talking about strict regulation. You’re talking allocation of property rights. This is a function of the government, and is it going to be done in the perfect way? No, but what is the alternative? If the alternative is complete laissez faire, then I think we go into a country that is going to be owned by Facebook.

Hal Weitzman: Well, what about the other alternative, though, Luigi, which is that if your proposal were not adopted, would you accept or would you be embracing the idea of breaking up these social platforms?

Luigi Zingales: I think that I am in a conundrum because I think that breaking up would be very difficult in a sense there are some efficiencies associated with this, and so when you try to break up something that naturally tend to convey, it’s gonna recreate in some way or another, so I don’t think that a breakup will do it, and the only viable alternative—but that’s where I am with you, I am afraid of the consequence—is regulation. When AT&T was a monopoly, there was no doubt it was network externality. There was no doubt it was a monopoly. It was heavily regulated. I don’t think that in the long term it was that great, but I think in the short term, it might have been the lesser evil.

Tyler Cowen: Do you foresee there would actually be a popular revolution based on people demanding their data that would drive that? If the prices don’t go up, where’s the demand for that going to come from?

Luigi Zingales: First of all, I think that the first time we discover that they use the data in a way that is misleading. The algorithm of Facebook is designed to make people more addicted to Facebook. That’s not that different from what cigarette makers were doing, from all the activity that corporations are doing to actually make people use their product more and, sort of, at the cost of the quality of the news or the cost of all the stuff. And when this at some point will be revealed, like it was revealed with the tobacco manufacturers, there will be a revolt, and as these things go, when there is a revolt, the pendulum swings too much in the opposite direction. So there will be excessive regulation and that will be terrible. So, what I’m advocating is actually the simple solution, and as Theodore Roosevelt used to say, “If you don’t go with me, somebody else will come and will be much worse.”

Hal Weitzman: OK, Tyler Cowen, I’m gonna let you have the last word quick-ly. Do you fear that there might be regulation if nothing is done to improve consumers’ access to their own data?

Tyler Cowen: I think American consumers are pretty happy with the status quo. A lot of the discontent I see comes from media companies, which compete against Facebook and very often are losing. European attitudes are a bit different, so our intellectuals, media compa-nies, and politicians are turning against tech. Most American people, I think, really see they’re get-ting a very good bargain.

Hal Weitzman: OK, well this has been a really fascinating and very lively dis-cussion, so thanks very much to our panel, Tyler Cowen and Luigi Zingales.

Hal Weitzman: That’s it for this episode of the Chicago Booth Review Podcast. It was produced by Josh Stunkel, and I’m Hal Weitzman. For more episodes of the Big Question video series, find our YouTube page or visit us at chicagobooth.edu/review, or just Google “Chicago Booth Review.” If you enjoyed this episode of the podcast, please subscribe and please do leave us a 5-star review. Thanks—until next time.