“Some people are so far behind in a race that they actually believe they’re leading.” – Uncle Junior, The Sopranos

The Global Financial Crisis often serves as a landmark or reference point for a broad swath of discourse even today, and rightly so. Topics such as monetary policy and the structure of the housing market are obvious points of engagement given the nature of the crisis but the range of issues impacted has gone on to include the Opioids Crisis (here and here), inequality, to larger issues of institutional trust.

The events of 2007-2009 left deep impressions on everyone at the time. I was in college during the nadir of the Financial Crisis and one event that will stick with me was Greenspan’s testimony that he “found a flaw” in the way he thinks about markets. Some interpreted the testimony to mean that he was incorrect in the market’s ability to self-regulate, an error in judgment at a single point in time. I always took his testimony to mean something much grander and consequential. It was an error about the very nature of markets, their behavior, and thus the repercussions for those at the helm. It wasn’t that the market didn’t self-correct during this one time period but rather a realization that markets, especially levered ones, trend towards instability rather than steadiness.

It was and remains a stunning admission of how, when foundational assumptions get shaken, everything that gets built on top of them must be reevaluated and reconstructed. If you assume value is the same as “cheap” according to some short-hand metric then you might be buying an ice cube in the middle of the Sahara. If you think everything is always the product of some liquidity spiked punch you’re going to become the boy who cried wolf in addition to getting things wrong.

Similarly, there are some flawed starting assumptions and axioms when it comes to regulating the largest and most profitable tech firms today. The regulatory complex, and surrounding rhetoric, is a muscle that has been conditioned for well over a hundred years to believe that market dominance is the result of nefarious activity or constricting competition. In the days of Standard Oil, that’s how a firm became dominant in size. Controlling supply and distribution put up barriers to entry. But with digital markets, the barrier to entry is essentially dependent on your ability to open a credit card, which is essentially nil. Rather, the barrier often is getting enough scale to capitalize on the internet’s advantages of no marginal costs and increasing returns to scale.

The consequence is an inherent incentive to prioritize the consumer experience; win the consumer and gain leverage over your fixed costs. Take the European Union’s multiple cases against Google. Despite suit after suit the European Union still cannot find ways to boost rivals’ share nor find evidence of Google failing to comply with new rules that try to redistribute share. It doesn’t seem to be at the forefront of their mind that Google’s dominance in search is consistent with consumer choice and not consumers surrendering. Serving and controlling demand is what enables giants like Google, Facebook, and Amazon to dominate markets, not by controlling competitors.

Using yesterday’s mentality to today’s problems is likely to be both a losing strategy in court but also waste opportunities to build new constructs for what competitive markets look like in a digital age. Take the FTC’s antitrust lawsuit against Facebook filed last year. The argument made was laughably asinine, as detailed by Ben Thompson. The FTC argued that Facebook dominated the personal social networking market characterized by 1) being built on a graph of social connections 2) including features to employ interaction with those connections and 3) including features to find and connect with others. The kicker is the FTC’s explicit statement that “specialized” networking services like LinkedIn or other services like YouTube or Spotify. In other words, Facebook is guilty of being a monopoly because it is Facebook. With narrow arguments like this, it could probably be argued that my own existence is illegal because I am me. It’s no wonder the court system threw out the suit noting “The FTC’s Complaint says almost nothing concrete on the key question of how much power Facebook actually had, and still has, in a properly defined antitrust product market. It is almost as if the agency expects the Court to simply nod to the conventional wisdom that Facebook is a monopolist.”

Ideology is enough to file a suit but it’s details that win them. And the suit was light on details, not even mentioning the fastest growing social media service ever which recently crossed 1 billion users. Which leads to another point that is consistently neglected in all these suits. These products and services are not rivalrous in nature. Yes, Facebook competes with Google, and Twitter, and TikTok for advertising dollars. But first, users often utilize all these services simultaneously; they are not zero-sum in nature. Second, what Facebook, and many of these other services compete for, is user time and no one has or ever will have a monopoly on time. It’s one of the strange ironies of the digital era that Netflix, video games, ESPN and Facebook are all competing for the same item (consumer attention) and yet are not rivalrous in nature.

The latest loss, though not by a government this time, came a couple of weeks ago when Apple’s App Store policies were upheld almost universally in court. The court noted that the firm’s bundle of hardware, software and developer services was a selling point for many consumers. The judge’s statement that “success is not illegal” demonstrates the hurdle a consumer harm precedent sets in regulating dominant companies. More concerning in the case of Apple though is the fact that it sounds like the House is completely asleep at the wheel, praising the firm for its innovations while ignoring its market abuses.

I don’t write any of this as an advocate of these firms by default (if Facebook disappeared tomorrow I’d probably snicker a little). But the arguments presented thus far have been between completely incoherent to incompetent.

It’s often said that you can’t fit a square peg into a round hole but the attempt to box in these businesses with old-world rules strikes me as just that; they don’t work and more often than that don’t apply. The juxtaposition between these new-age companies and business models and antiquated mentalities for assessing market dominance and abuse are at odds. Instead, what we need are rules of competition that begin with an actual understanding of how the internet age functions and how different business models need different sets of regulations because the sources of their power and influence differ. Thompson’s work is as good a place to start as there is. The actual starting assumptions for the basis of competition need to be reexamined. Based on what has been published so far, it’s no surprise all we see is loss after loss.