However, Thompson has more recently begun to pronounce and analyze in the field of tech antitrust, and here he is on les
If that’s true, then aggregation theory is no longer a dominant theory of competition on the internet — “a completely new way to understand business in the Internet age” — but merely another source of competitive advantage in some contexts. The advantage may also, as Jonathan Knee, my co-teacher at the Columbia Business School points out, vary greatly as between platforms. And aggregation theory’s assumptions (or assertions) of “zero distribution costs, marginal costs, and transaction costs” damage the model in any real-world situation where none of those are true. An alternative model—like, say a straightforward platform or matchmaking model—doesn’t depend on such assumptions and therefore is probably more useful, though it may require more background reading to understand.
The problem is that his aggregation theory isn’t aspirational. Instead, it is presented as a description of how the internet has “fundamentally changed the plane of competition” in a world where “on the internet everything is just zero marginal bits.” It also takes as its assumptions: “Zero distribution costs. Zero marginal costs. Zero transactions.” In that, in some ways, it is like the older economic models from the 1960s, except that they were at least billed as models, not depictions of reality.
Viewed more carefully, aggregation theory is — at least in part — a model of what idealized competition might look like online, in some markets. Competition driven by quality reflects what antitrust and net neutrality advocates want competition to look like — that is, the better product wins, instead of whoever owns the pipes (or the channels). But that doesn’t mean it is what competition actually does look like, even on the internet. And this jump from the normative to the descriptive is the major pitfall of Thompson’s analysis.
There is truth to the idea that in many online markets over the past 20 years, the most popular platforms attract more suppliers, which attracts more consumers, and so on, acting as the platform or intermediary between the two “sides” of the market. (Some, like David Evans, call this a matchmaking model.) Providing a great user experience, attracting suppliers, and improving the product through feedback certainly describes an important way an online company can generate an advantage for itself.
I think we’d all agree that brand matters, and indeed the invention of powerful brands did change competition. But it might be a little too easy to think competition actually has changed forever. And we can see Thompson falling into the novelty trap by asserting things like “the internet has made transaction costs zero” — a sentence that would make any serious economist howl with laughter.
Here is the danger: If you think competition is all about brands and buzz (in the 1890s) or Thompson’s aggregation theory (right now), you might end up overlooking all of the other strategies and factors that could also lead to a lasting advantage. Consider Amazon. Thompson says that “the internet has made distribution (of digital goods) free.” But, as implied, that hasn’t made the distribution of physical goods free. And that is why a company like Amazon can, and has, gained a major advantage by building up a large physical infrastructure (warehouses), not unlike a steel producer in the 20th century, and strongly relying on a loyalty program (Prime). So, it turns out Amazon’s competitive advantage isn’t all about the fact that “on the internet everything is just zero marginal bits.”
Here’s my send-up of aggregation theory: Imagine this is the 1920s and we were speaking of the invention of brand advertising, and someone says, “whichever brand has the most people attracting it will create a buzz that further favors the winner. Hence, traditional metrics of competition are out the window.”
Whether this is core to his theory or not, Thompson also takes a highly anti-empirical approach to switching costs. He endorses the old 1990s idea that “competition is just one click away,” which may have been true in 1999, but that can’t be taken seriously now — if what he means is that the costs of leaving Google or Facebook are close to zero.The real question is whether there are, for the average person, costs to switching from Facebook or Google to use something else. The assertion that those costs are near zero is magical thinking. Indeed, one of Google’s most important strategies over this decade — its tell — has been to increase those switching costs in subtle ways.
Well, this overstates matters, because Thompson himself, faced with the actual Google case, to his credit, does not fall into his own novelty trap. Instead, in his post, he speculates that what might be at issue is duopoly collusion with Apple; he also suggests that other duopolies may be controlling distribution. (This insight, by itself, makes his post worth reading.)
Take Thompson’s recent analysis of the United States v. Google case. According to Thompson, the Google case needs be understood primarily through what he calls aggregation theory, which is something of a specialized version of what economists call a two-sided markets theory. His theory asserts that 1) the quality of the user experience, rather than control over distribution, is what determines the winners in digital markets; and 2) a lead based on quality is self-reenforcing, because either more suppliers are attracted or the winner, with more customers, gets more feedback on what makes for a better product. (For those with a background in economics, Thompson’s aggregation theory resembles a mixture of a two-sided market theory with some positive feedback loop stuff thrown in.) Thompson says that “aggregators” (or more technically, “level-3 aggregators” which are platform in economic if not technological parlance) are in this manner different than traditional monopolists, for they “win by building ever better products for consumers.”
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https://assifonte.org/media/ngo/Video-Maccabi-Tel-Aviv-Bnei-Yehuda-Tel-Aviv-v-en-gb-1efe-24.php
http://news7.totssants.com/qds/video-Pontevedra-Cadiz-v-en-gb-1amz30122020-9.php
http://live07.colomboserboli.com/tie/video-Girona-Lugo-v-en-gb-1bxw-9.php
http://live-stream.munich.es/rqh/v-ideos-Maccabi-Tel-Aviv-Bnei-Yehuda-Tel-Aviv-v-en-gb-1usg-15.php
http://news24.gruposio.es/nue/v-ideos-amorebieta-v-sporting-gijon-v-es-es-1xta-22.php
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as typically bad but wasn’t that bad, certainly not crippling to productivity, but there were large, cringe-worthy portions of our code feared by all, that were obviously a result of the bad patterns Gary had revealed. Imagine opening your eyes to the fact that we were all part of the problem.When you look at all the big tech firms, in fact, they actually all rely on some mixture of tools for lasting comparative advantage. Facebook, obviously, relies on old-fashioned network effects, not unlike AT