Tech companies, capabilities, and rents

Tyler Cowen asks: could the tech companies run everything better?

Under one view, the major tech companies lucked into some pieces of rapidly scalable software…

Under the second view, the major tech companies have developed new managerial technologies for hiring, handling, and motivating super-smart employees…

Yet a third view starts with the idea of labor scarcity, at least for the very talented folks…

(There’s a bit more in the full post.)

A similar question is: What is the source of tech firms’ rents? Firms can make above market profits for many different reasons. Are their rents the result of economies of scale (consistent with Cowen #1)? Are their rents the result of superior capabilities (Cowen #2)? #3 is a bit trickier to articulate without mentioning #1 or #2, but remains worth having in the mix.

The answer seems to me to matter quite a bit, in terms of how worried we should be about the tech firms’ market power — at least in purely economic terms.

Consider these quotes:

“The power of new tech giants to use their potent networks and the vast amounts of data they collect to thwart competition is one of the biggest challenges facing antitrust authorities today.” David Wessel, Brookings

“Some firms clearly ‘get it’ and others don’t.” Chiara Criscuolo, OECD

David’s quote articulates a view of tech rents in line with #1. Chiara’s can be interpreted as closer to #2. I have yet to see anyone demonstrate empirically which is more accurate.

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