Regulations Make Monopolies

March 31st, 2019

Large companies usually rail against any sort of regulation that would hurt their bottom line. However, I used the word usually and not always -- and this isn't because large corporations are sometimes altruistically pro-consumer, but because, sometimes, what's bad for their bottom line is even worse for their competitors' bottom lines.

There's a related joke that goes something like:

A genie tells a man that he has three wishes, but whatever he wishes for, his enemy will get twice that. The man wishes for half a stroke.

This is the case when Facebook comes out pro-regulation as well -- what's an inconvenience for them is a death ruling for their competitors of smaller size.

Imagine Congress proposes a bill calling for content moderation by social media companies with the goal of reducing foreign impact on elections. How does this affect Facebook? Facebook needs to spend a few extra million dollars a year and hire a few more moderators. An inconvenience? Sure. A death ruling? Not at all. It's just a few million dollars less annual profit.

Now think about that little social network someone is making in his apartment with money coming out of his own pocket. Can this one-man, profit-less company survive this regulation? From where will the creator (and marketer, and person in charge of customer support, and decisionmaker, and ....) find the time to moderate content or the money to hire a moderator?

If you impose regulations on the entirety of a multi-company market where one company is the root of all that's wrong in it, and that one company makes up the majority of the market, of course the company will support the regulation. When you have the money and legal team, you'll find a way to go around or comply with the said regulations, but it pushes newcomers off the edge.

Regulations only increase the barrier to entry for newcomers and cement the power of the monopolistic incumbent.

Don't take Zuckerberg's support for more regulations for social media companies as an act of goodwill where he's willing to give up some money to uphold democracy (whether it's even the right thing to do is an essay for later) -- take it as the monopolistic anti-competition act it is.