Switching costs are how economists refer to all the things you have to give up to switch between products or services. Software locks, API restrictions, legal threats, forced downgrades and more - these are why Big Tech stays big.Ĭollectively, these are a way to create high “ switching costs ” and high switching costs are the way to protect the dividends from network effects - to get big and stay big. And Facebook uses all-out warfare and deceptive smear campaigns to stop anyone from connecting their tools to its platform. Apple uses legal and technical countermeasures to stop you from running apps unless you buy them through its store. Famously, Bob Metcalfe, the inventor of Ethernet networking, coined “ Metcalfe’s Law ”: “the value of a telecommunications network is proportional to the square of the number of connected users of the system (n 2 ).” That is, every time you add a new user to a network you double increase the number of ways that users can connect with one another.īut while network effects are a good predictor of whether a service will get big, they can’t explain why it stays big.Ĭheap printers might entice many people to buy a printer for home, and incentivize many retailers to carry ink and paper, and encourage businesses and schools to require home printouts, but why would printer owners shell out big bucks for ink when there’s lots of companies making cheap cartridges ?Īpple’s App Store might be a great way to find reliable apps (incentivizing people to buy iPhones, and incentivizing programmers to make apps for those iPhone owners), but why continue to shop there once you’ve found the apps you want, rather than dealing directly with the app’s makers, who might give you a discount because they no longer have to cut Apple in for a 30% commission ?Īnd Facebook is full of people whose company you enjoy, but if you don’t like its ads, its surveillance, its deceptive practices, or its moderation policies, why not leave Facebook and find a better platform (or run your own), while continuing to send and receive messages from the communities, friends and customers who haven’t left Facebook (yet)?īig Printer periodically downgrades your printer with “security updates” that prevent it from using third party cartridges. Network effects are real, and you can’t understand the history of networked computers without an appreciation for them. Once new people join Facebook, they, in turn, become a reason for other people to join Facebook. ” A system is said to benefit from “network effects” when its value increases as more people use it - people join Facebook to hang out with the people who’ve already joined Facebook. When antitrust enforcers and scholars theorize about Big Tech, they inevitably home in on “ network effects. But as consequential as that market-defining work is, we want to highlight another aspect of the complaint - one that deals directly with the questions of what kinds of systems promote competition and what kinds of systems reduce it. Because the court threw out the FTC’s previous complaint for failing to lay out Facebook’s monopoly status in sufficient detail, the new material is important to keep the case going. ![]() Much of the coverage of the complaint focused on the new material defining “personal social networking” as a “relevant market” and making the case that Facebook dominated that market thanks to conduct banned under the antitrust laws. ![]() FTC Chair Lina Khan rose to fame with a seminal analysis of the monopolistic tactics of Amazon, another Big Tech giant, when she was just a law student, and we anticipated that the amended complaint would make a compelling case that Facebook had violated antitrust law. When the FTC filed its amended antitrust complaint against Facebook in mid-August, we read it with interest. Update, October 1, 2021: The original version of this essay incorrectly stated that Metcalfe's Law dictated that the number of connections in a network doubled with each new user that has been corrected, below.
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