Mar 25, 2024 - Business

Monopoly nation: How Big Tech's global power has lifted the U.S. stock market

Illustration of a hand cursor wearing a top hat.

Illustration: Shoshana Gordon/Axios

The outperformance of the U.S. stock market and its broader economy can in large part be attributed to its superabundance of world-spanning monopolies.

Why it matters: The world's biggest tech monopolies are overwhelmingly American. That's been great for investors, although the jury's still out on whether it's good for citizens more broadly.

The big picture: Apple has a monopoly in smartphones. Alphabet has a monopoly in search. Microsoft has a monopoly in computer operating systems. Amazon has a monopoly in e-commerce. Nvidia has a monopoly in AI chips. Meta has a monopoly in social networks.

  • It's no coincidence that these firms are the six most valuable private-sector companies in the world — indeed, they're the only ones worth more than $1 trillion. (That's a benchmark even Berkshire Hathaway has never achieved.)
  • Between them the six monopolies are worth more than $13 trillion, or more than $100,000 per U.S. household.

Between the lines: Don't get hung up on the etymology of "monopoly" — from the Greek monos, meaning single, and pōlein, meaning sell. It's perfectly possible for two or more players in a competitive market to all be monopolies.

How it works: Under U.S. antitrust guidelines, it's legal to be a monopoly or to grow organically to become one, but two companies aren't allowed to merge if doing so would create a monopoly.

  • It is illegal to abuse a monopoly to crush your competition and harm consumers. That's what the DOJ just accused Apple of doing.

By the numbers: A monopoly — or, to use its technical term, a "highly concentrated market" — is defined by the Department of Justice and the Federal Trade Commission as a market where the Herfindahl-Hirschman Index, or HHI, is greater than 1,800.

  • HHI is calculated by summing the squares of the market shares of the companies in the market. That means its highest possible value — one company with 100% market share — is 10,000.
  • A market with four companies, each with a 25% market share, would have an HHI of 2,500. But a market with 10 companies, each with a 10% market share, has an HHI of only 1,000.

Reality check: A large part of the jurisprudence of antitrust comes down to defining markets. Are AI chips a market? If so then Nvidia clearly has a monopoly. On the other hand, if the market in question is semiconductors more broadly, then Nvidia isn't close to being a monopoly.

The bottom line: Monopolies tend to have extraordinary pricing power, profits, and valuations. That's something we're seeing today in Big Tech.

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