Network Effects: The Problem of Antitrust and the Internet



The following was an article I published in the Pro Se, the University of Connecticut School of Law student newspaper, in November 2017 and can be downloaded here.

Network Effects: The Problem of Antitrust and the Internet

I implore you to list five sites on the internet where you purchased something. Now, ask yourself when was the last time you purchased something from each of them.

I am practically certain Amazon was put as your number one choice and your last purchase from them was within the previous six months. Unfortunately, this deep affinity for Amazon, along with other technology companies including Facebook and Google, represent a growing and persistent trend of large, near monopoly, corporations flexing their financial and political power over the infrastructure of our economy, while dominating nearly every aspect of our consumer life. 2

A typical citizen might believe these companies are just trying to make money and provide innumerable goods to people at the lowest possible price. Truth be told, you would not be incorrect as 55% percent of online shoppers start their shopping on Amazon. 3 Google has two-billion monthly active users on Android alone and Facebook has nearly 90% of the US population on its platform. 4 While all of these services are provided to people for free, your initial conclusion would also be applauded by the supporters of the Chicago School of Antitrust as they believe the central goal of antitrust is to ensure low prices and such a policy is exactly what has been the instituted by the courts since the 1980s.5 

The rise of Amazon, Google, Facebook and other internet companies is a troubling sign for our republic and presents a vexing problem to determine how to regulate their industry and business models. Although the business models of these companies can generally provide low prices, we have seen that they detrimentally affect the competitive conditions that are needed for markets to thrive. Understand that all of their business models are based on network effects, where the value of each additional user exponentially increases the service’s value. Facebook is the simplest example to explain this concept and its anticompetitive effects. Even though users dislike many features of Facebook, given the innumerable users are on the platform it is simply too hard to ignore. Additionally, for those that are currently on the platform, the fact that it is nearly impossible to switch to another service, and the unwillingness of others to either stop using Facebook means that for all intents and purposes you are stuck using the service to derive the benefits you need to communicate with your friends, store your photographs, read the news, or promote your business. 6 Moreover, why would you stop using a service where the largest quantity of people are located if you want to grow your business through social media. And it certainly does not help when you know more than 50% of all users log in every day.7

Now you may believe that a networked company, like all other businesses, can be duplicated and another competitor can displace it. However, let’s revisit a past situation. Google, one of the largest and well-known companies, tried four times to replace Facebook as a social network by creating Orkut, Google Buzz, Google Wave, and Google Plus and still it has failed. Moreover, all of Google’s attempts were before Facebook became the powerhouse of advertising that it is today. 8 Google’s failure is certainly not because consumers do not like using their services and cannot plausibly be because Google lacks financial or intellectual capital. Google’s failure is just small example of the near insurmountable challenge to displace a networked company. The same failure can be seen in Microsoft’s failure to create a viable phone operating system to displace Apple’s iOS and Google’s Android. 9 In a sense, it might take a significant market paradigm shift to convince users to switch or simply use another service to accomplish the same goals.

Moreover, these companies are continuously leveraging their market power to incrementally take over new industries. For example, try and think of a business Amazon is not a member of – to put it lightly there are not many. Lina Khan of the Open Markets Institute states it succinctly in her recent publication Amazon’s Antitrust Paradox.

[Amazon is a] retailer, it is a marketing platform, a delivery and logistics network, a payment service, a credit lender, an auction house, a major book publisher, a producer of television and films, a fashion designer, a hardware manufacturer, and a leading provider of cloud server space and computing power. 10

The same could almost be said for Google. Now consider applying this concept to a more recent event by contemplating Amazon’s acquisition of Wholefoods. Why would Amazon acquire Wholefoods? Do you think it was out of love for the Wholefoods’ brand and its devotion to locally cultivated food products, out of a desire to sell organic soap and homemade chicken noodle soup? Or perhaps the purchase of Wholefoods was designed to provide Amazon 460 distribution centers in the wealthiest areas in the country where it can further increase its economies of scale to provide the most expedient delivery of goods and services to the people with the greatest purchasing power knowing that at least 50% of them have a Prime subscription and continue to supplant all other retailers. 11 All of the reasons are plausible, and they are certainly not mutually exclusive, but we all know which one is practical and reasonable. 12

But Amazon is not alone in engaging in business practices with sinister motives by overtly flexing its business prowess. Google as well has its own share of controversy, such as preferring its services over others or stifling opinions it disagrees with. 13 Facebook as well has engaged in practices designed to test the limits of its platform such as purposefully manipulating user emotions. 14

These fiendish practices are indicative of the fact that companies are willing to engage in any behavior, however nefarious, as long as it grows and locks in customers on to their platform, and all market power abuse concerns can be dismissed under the guise of low prices. What’s worse is that these practices are incentivized given the nature of a networked market and are not currently part of our antitrust analysis, which only causes other companies to adopt them.

What I find most perplexing is that citizens across this nation, at least for a brief moment, accepted the premise that there is an economic and social cost to low prices, convenience, and big business as in the case of Wal-Mart. I will never forget the ending credits of Wal-Mart: The High Cost of Low Price where the movie listed all of the local resistance movements taken against a Wal-Mart due to the damage its presence imposed on communities – and that was twelve years ago.

To overcome such a difficult situation, we need to rethink the effects our purchasing habits and the role that our antitrust laws have in regulating the business practices of networked internet companies. Legislatures and Courts need to expand the goal of our antitrust laws beyond the purview of providing low prices to consumers and incorporate into their analysis the anticompetitive effects network business practices have on markets. 15

Consumers once recognized the dangers a pure pursuit of low prices has on communities and markets; we need to reinvigorate that desire and fight back.


Reddit Comment Link: 

Antitrust Organizations



Antitrust Organizations

In my last post, I provided a list of people who are devoting their lives to ensuring competitive and fair markets. To complement that post, I am now providing a list of organizations dedicated to the same mission.

I encourage everyone to subscribe to all of their publications, follow them on all social media platforms, share their content, and donate to support their work.

Please comment on Reddit to make suggestions for additions and changes.


TEDxUConn Talk on Market Consolidation


In April 2017, I was offered the opportunity to give a TEDx talk hosted by the University of Connecticut on Market Consolidation. As I have spoken about in the past, markets across nearly every sector of the economy have been consolidated into three to four major players.

My talk highlights this problem by exploring a typical day that a person goes through, the consolidated markets individuals unknowingly engage with, the economic and social consequences of these consolidated markets, and actions that can be taken to remedy this situation.

You can watch my full talk below along with viewing the presentation. Additionally, you can download a PDF of the presentation with citations here.

Antitrust Law Comes to UConn



The following was an article I published in the Pro Se, the University of Connecticut School of Law student newspaper in November 2016. The original article can be downloaded here.

What is Antitrust?

The 1980’s ushered in an era of heightened antitrust analysis that has focused on low prices and ignoring company acquisitions across markets which were rigorously upheld by previous presidents. The consequences of these policies have taken their toll on the American economy, which has only just started to change under Barack Obama. Our current marketplace highlights the need for a more active and progressive antitrust policy, something the next presidential administration will certainly have to take into account. Real competition for many areas of the U.S. economy are at an all-time low; Walmart alone controls 24% of the grocery market, CVS and Walgreens control 50-75% of the drugstore market, Comcast and Time Warner control 66% of broadband internet subscribers, and four banks control 39% of all consumer deposits, just to name a few. Certain areas of the law tend to fluctuate in popularity and antitrust law is no different. Codified into American law at the closing of the nineteenth century with the passage of the Sherman Antitrust Act, antitrust law seeks to ensure fair competition among businesses, low prices for consumers, and promote innovation in the economy. Antitrust law accomplishes this mainly by blocking proposed business mergers and acquisitions and seeks to divide companies in industries that are uncompetitive. Although antitrust law can be enforced through state agencies and private firms, it is primarily enforced at the federal level by the Department of Justice (DOJ) and the Federal Trade Commission (FTC).

Law School Event: Antitrust at UConn

In October, UConn Law School and the Connecticut Bar Association hosted the DOJ’s Deputy Assistant Attorney General for Civil Enforcement (DAAG), Juan Arteaga. During the event, DAAG Arteaga detailed the importance of public service and the sense of purpose that one feels when representing the American public. He stated that he and his colleagues are guided by the Antitrust Division’s mission of economic justice, which seeks to “to ensure that all companies can compete in free and fair markets and that hardworking Americans receive the best and most innovative products and services at the lowest prices possible.” This seminal event at UConn Law School is indicative of a renewed public interest in antitrust law, especially in Connecticut, since the media is reporting more news related to this field. They are conducting rigorous coverage of the pending litigations challenging the Anthem-Cigna and Aetna-Humana mergers and informing the public about the significant threat to competition they present. As reported in the CT Mirror, given the active mergers taking place in the healthcare Industry, Connecticut has become “Exhibit A” for antitrust litigation.

Who is DAAG Arteaga?

DAAG Arteaga grew up in Hartford, CT where he attended Hartford Public High School. After graduating from Columbia Law School, he clerked for Judge Roger L. Gregory of the U.S. Court of Appeals for the Fourth Circuit and then worked at a large New York City law firm for a number of years. When asked what courses law students should take if they plan on pursuing a career in antitrust, he suggested that they consider taking courses that focus on topics such as corporate finance, mergers and acquisitions, and economics. DAAG Arteaga reinforced the important role that state agencies play in protecting consumers from anticompetitive transactions and business practices, noting that the Connecticut Attorney General’s Office and Antitrust Division have partnered on cases such as the Apple eBook’s case to deliver real benefits for consumers in Connecticut. It seems from recent business activities in the economy that a new analytical framework is needed for competition, and hopefully it is created by UConn graduates.

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Previously, I discussed the importance of competition. Since competition is the foundation of antitrust law, it is worth exploring the consequences to our economy and society when competition is nearly nonexistent.

Adam Smith in his magnum opus The Wealth of Nations stated that competitive markets would form when:

the quantity of any commodity which is brought to market falls short of the effectual demand, all those who are willing to pay the whole value of the rent, wages, and profit, which must be paid in order to bring it thither, cannot be supplied with the quantity which they want. Rather than want it altogether, some of them will be willing to give more. 2

In my opinion, monopoly formation in free market capitalist societies is inevitable, or at the very least the pursuit of them is, since they allow, but do not guarantee, the fundamental and fiduciary economic objective of firms; to obtain total market power. 2

Conversely, this is not to say that free market capitalism is inherently reprehensible. Nobel Prize winning economist Milton Friedman stated that:  

The extraordinary economic growth experienced by Western countries during the past two centuries and the wide distribution of the benefits of free enterprise have enormously reduced the extent of poverty in any absolute sense in the capitalistic countries of the West. But poverty is in part a relative matter, and even in these countries, there are clearly many people living under conditions that the rest of us label as poverty.  3

I find it hard to disagree with this statement, but even Friedman admitted that government is necessary to preserve our freedom from the concentration of power.

Our minds tell us, and history confirms, that the great threat to freedom is the concentration of power. Government is necessary to preserve our freedom, it is an instrument through which we can exercise our freedom; yet by concentrating power in political hands, it is also a threat to freedom. Even though the men who wield this power initially be of good will and even though they be not corrupted by the power they exercise, the power will both attract and form men of a different stamp. 4

Today, the United States has numerous mega-mergers pending before our government. Some include Bayer-Monsanto, Anthem-Cigna, Aetna-Humana, and AT&T-Time Warner. All of which, I believe if they were approved, would drastically decrease competition in their respective markets, harm consumers, and further increase the market and political power of each company. Furthermore, allowing these mergers sets a dangerous precedent for future mergers that ultimately should be prohibited. 

Upon entering the White House, this issue will be one of the first to tests of how tolerating the new administration will be toward big business. Both Hillary Clinton and Donald Trump have drastically different beliefs about antitrust. 5 Thus, it is important to explore monopolies in greater detail, including their inherent nature, how they are formed, and what consequences they have.



To put it generally, a monopoly is when an enterprise is the only supplier of a particular commodity. 6 By their nature, given their market power, certain monopolies present numerous threats to the market.

The analysis of monopoly creation contains two considerations. First, the degree of leniency corporations can exploit from the government and second, the business practices they use that subsequently create the monopoly they are seeking to become.

Government leniency is a necessary element in the creation of monopolies. In some cases, there are nonexistent antitrust enforcement mechanisms, which allow an entire country to be dominated by monopolies. 7 In other cases, the Government itself uses its inherent power to create, sustain, and enforce the creation of monopolies. With this, we can classify monopolies into several types, which allows us to differentiate the economically beneficial monopolies from the indefensible.

Geographic Monopoly

A geographic monopoly is a monopoly where the market is confined to a specific geographic location. 8 The reasons for their existence can vary, but most commonly refer to situations where a market may be too small to support another viable competitor. An example of this can be a town with a local “mom-and-pop” pharmacy. With a small enough population, there may not be sufficient demand to ensure another financially viable competitor.

Given this small-town example, this type of monopoly can be justified since natural market supply and demand forces, rather than anti-competitive practices or government intervention, are determining the existence of a monopoly and individuals are capable of entering into the market freely. 9

Government Monopoly

A government monopoly is fully enforced by the state. These are often controversial depending on the type of government the monopoly exists in but can be justified in limited circumstances. Notorious examples of state-run monopolies are PetroChina and Saudi Aramco. For each company, their existence is dependent on and enforced by the state. Meaningful competition or attempt at creating competition is often prohibited.

Natural Monopoly

A natural monopoly is a monopoly in an industry where high infrastructural costs and other barriers to entry, relative to the size of the market, give the largest supplier in an industry an overwhelming advantage over potential competitors. 10 As such, large economies of scale are often needed even to sustain the business can result in monopolistic markets. One of the best examples of a natural monopoly is electric companies. The infrastructure is based on one dominant standard of electrical cable, and the only way to compete is to build more cables. Due to their high public use value, they are often converted to government sanctioned and regulated monopolies, and thus can be beneficial to society and the market.

Technological Monopoly

Technology monopolies are monopolies that occur when a single firm controls manufacturing methods necessary to produce a certain product or has exclusive rights to the technology used to manufacture it. Technological monopolies differ from those based on vertical or horizontal consolidation in that the exclusivity derives from the production process itself. 11

Technological monopolies present the greatest threat to our economy and our economic liberty, as such, these monopolies are the main subject of this post.

Given the threat technology monopolies pose to our markets, I believe a new definition is needed to more accurately reflect their impact. Technology is not defined in the conventional sense such as Apple and Microsoft. It is technology in the broadest sense possible. It is best to think of technology that is used by these monopolies as tangible or intangible routinely exploitable infrastructure, which provides consistent and possibly near perpetual economic efficiency and financial returns with maintenance costs significantly lower than the initial investment. This infrastructure is so integral to an industry that it is either is a platform for the entire market to use possibly becoming immovable and/or where its long-term probability to be significantly replaced is insignificant for the foreseeable future.

Examples include:

  • Coca-Cola’s bottling process
  • Procter and Gamble’s Laundry detergent production facilities
  • Microsoft’s Office and Windows computer code
  • Union Pacific’s Railroad tracks

Often a company’s technology has taken decades, and in some circumstances centuries, to create and is designed to create/move/distribute products or services at the most efficient price as possible.

Companies purchase other businesses to:

  • Access to new technologies and customer distribution channels
  • Expedited access to a new market
  • Increase in cash on hand
  • Access to new clients, potentially ones that would otherwise be unobtainable
  • Access to new geographic markets
  • Cheaper financing of operations, mostly through increased economies of scale
  • Seeking for hidden or nonperforming assets belonging to a target company (e.g. real estate)
  • Generate superior bargaining power over their suppliers and clients
  • Prevent another competitor from increasing their market position (e.g. Facebook and What’s App)
  • Purchasing a competing company’s assets at a discounted rate that is in financial trouble to obtain intellectual property

However, because these processes are nearly mastered, leaving little room to significantly increase efficiency and innovation, these companies use their excess financial capital to, along with reinvesting in their infrastructure, merge with or acquire other businesses. These mergers and acquisitions allow companies to become horizontally and vertically integrated. Horizontal integrations consist of companies of a similar “nature,” usually in the same industry. An example would be Google merging with Yahoo. Both companies consist of search engines providing the backbone to their advertising platform, which they market out to third parties. Vertical integrations consist of a company that purchases another whose business occurs along the supply chain of the buying company. An example would be Microsoft buying Dell. In this merger, Microsoft, the producer of the Windows operating system, would now own, Dell, the manufacturer of personal computers with Windows on it. These integration methods are regulated, in various degrees, by the Department of Justice and Federal Trade Commission, which we will go into more detail on this topic in later posts. Over time the continuous consolidations give companies immense market and economic power, resulting in increased political power as well, ultimately forming monopolies and oligopolies, which have dire consequences on our economy.

Consequences of a Monopoly

Increases Barriers to Entry

As a company’s market power increases, it is rational for a company not only to maintain that power, but prevent others from having it by increasing the barriers to entry into that market.

One of the simplest methods to accomplish this is, counter-intuitively, to increase the regulatory requirements of business operations. Unfortunately, this practice has drastic consequences. It decreases worker mobility, an essential feature of economic growth. 12 It disproportionately impacts middle class jobs and wages. 13 Moreover, consolidating markets can also increase barriers to entry because new entrants cannot possibly produce at the capacity and distribution of their oligopolic counterparts.

Raise Prices

Monopolies have the ability to raise prices without consequence. The textbook method which monopolies accomplish raising prices is by restricting supply. 14 A prime example of this is the OPEC oil price increase in the 1970’s. 15

Decrease Prices

Paradoxically, monopolies also have the ability to decrease prices below the point most favorable for effective competition. 16 Companies obtain this ability mainly through exploiting their economies of scale and using government subsidies or simply produce the product at a loss to stifle any competition. 17

Decreased Innovation Expenditures

Consolidated markets also detrimentally affect expenditures on research and innovation. Researchers found after mergers in the pharmaceutical industry, patenting, research, and development of the merged entity and its non-merging rivals declined substantially. 18

I believe this behavior is rational. A company has a decreased incentive to expend superfluous financial resources than it must to obtain total market power when it is already the dominant or set of dominant players.

It is worth noting, I have seen no evidence that high levels of innovation systematically prevent market concentration. 19

Decreased Willingness to Create New Businesses

Many sources, including President Obama, state that the American economy is roaring back. 20

But the reality is that due to the level of consolidation, innovation and entrepreneurship suffer. For example, since 2008 there have been more firm exits than entrants. While many factors may be at play, once again, this cannot be a coincidence that this has taken place during the period of the greatest market consolidation period in a century.  21


It is important to understand that monopolistic markets are undesirable, not only because they inhibit entrepreneurs from entering a market, but monopolies stifle the market itself.

Increased in Political Power

As companies increase their market power, it is only rational to influence politics in their favor.The Supreme Court decision Citizens United, this has only exacerbated the capacity of companies to retain and increase their political control. 22 

I find there to be no coincidence that during the greatest market consolidation we have seen in decades takes place during the greatest influx of money flowing into our elections. 23


The existence and pursuit of monopolies may be excusable to the extent it is in line with the profit motive inherent to all corporations, and arguably the fiduciary duty of executives is nevertheless indefensible. The mere existence of corporate monopolies presents a significant threat to individual, societal, and economic liberty.

I do not find it radical to conclude that as we are living through the most partisan times in recent memory, 24 and at a time where congressional approval ratings and bill approval are at historic lows, 25 our infrastructure is crumbling, 26 and entrepreneurship in this country is stagnating coincides with the highest rates of consolidation since the Gilded Age. 27

I do not mean to detract from the power of consumer choice. Consumer choice, time and again, can challenge even the most dominate of companies (e.g. Eastman Kodak and McDonald’s), and given the rise of the internet, it is not an unreasonable claim that consumers have a greater ability than ever to make choices about how they interact with the market. 28

However, what we are not taking into account is how unmeaningful consumer choice is in the marketplace today. Corporations have subverted the power of consumers by methodically and intentionally displacing the only reasonable mechanism which consumers have to act on their opinion about a company, their choice. The genuine power of consumers exists and thrives only in a competitive market. This points to what I believe is the true purpose of antitrust law as the necessary government economic correction mechanism against the natural free market tendency to consolidate. I believe consumer choice is an essential element of economic liberty and it is currently being eroded by monopolistic markets. Although we have been here before at the turn of the 20th century, today’s markets are just as worse today. Moreover, it is not that this is happening in any one particular market in the United States and around the world for that matter, it is happening in all of them. For the past 40 years markets, more than ever, are being dominated by large corporations,  we can change it if we choose to. 29


We have heard the same mumbo jumbo before from corporations, that consolidation and free markets will lead to better prices for consumers, increased innovation, and that their mergers are needed to maintain global competitiveness and supposedly promote innovation. Even though we know these arguments to be little more than a farce, these mergers happen anyway. Given the state of our marketplace, I believe more than ever that if we want to fundamentally change many of the economic ails of our country we need to radically change our approach to antitrust politics.

I end this post with a slideshow of as many markets I have been able to reasonably find to inform the public of how concentrated our markets are and justify the need for a more progressive antitrust policy.  30 

Today we live in an American that is overrun by monopolies and oligopolies, it almost seems unnoticeable. But I am convinced there is almost no action where a person does not at least once interacts with a monopolized market.  

Suggestions and additions are welcome by commenting on my reddit page:

Hopefully, this will be the beginning of a movement.

As you watch the slideshow I implore you to try and contemplate a time during the day where you are not interacting with a monopoly; you will soon discover this task is harder than it looks.


Additional Reading: