Big Tech is Like Standard Oil

Venture-funded platform competition is a tontine. In European finance from the seventeenth through the nineteenth centuries, a tontine was a pooled investment in which, as each subscriber died, the remaining subscribers’ shares increased, with the last survivor inheriting the entire fund. Most governments eventually banned tontines because they created obvious incentives to hasten the death of other participants.

In platform competition, the explicit goal from the first investment round is to be the one platform that achieves dominance while all competitors fail. Operating below cost to build market share, sometimes for years, makes financial sense if it eliminates alternatives and enables the extraction of monopoly rents afterward. Investors who hold positions in multiple competing platforms profit regardless of which one wins; the workers, users, and communities that depended on those platforms do not.

The life cycle of a dominant firm in a network industry follows a pattern: enter the market with a genuinely useful product, use that position to acquire or drive out competitors, then extract maximum value from the resulting captive market. Standard Oil, railway companies, the Bell telephone system, cable television, and major record labels all followed this playbook. The constraints that eventually constrained them were the result of political struggles that the industries fought at length.

At its peak, Standard Oil controlled roughly ninety percent of US oil refining capacity. It didn’t achieve this through superior efficiency but through secret railroad rebates, predatory pricing against competitors, and strategic acquisitions of rivals. The Sherman Antitrust Act of 1890 was written in direct response, and the landmark 1911 Supreme Court decision that broke Standard Oil into thirty-four separate companies is often cited as the definitive antitrust remedy. What is less often noted is that several successor companies immediately reconsolidated, and that John D. Rockefeller’s personal fortune increased after the breakup as the stock prices of the subsidiaries rose. The remedy addressed the legal structure of the monopoly without fundamentally altering the underlying concentration of wealth or market power.

The Standard Oil breakup points toward a limit that antitrust has not resolved: separating a company into parts does not eliminate coordination between those parts. Japan’s prewar zaibatsu were family-controlled conglomerates combining a bank, a trading company, and manufacturing enterprises across multiple industries. The bank provided capital to affiliated companies on terms unavailable to competitors; the trading company controlled export markets; profitable units cross-subsidized struggling ones during competitive battles.

The American occupation dissolved the zaibatsu after 1945. Within a decade, the keiretsu emerged: networks of former zaibatsu firms coordinated through mutual shareholding, preferential supply relationships, and regular executive meetings. The legal structure of centralized control had been dismantled, but the practical coordination continued in a different form.

The Bell network evolved along slightly different lines than Standard Oil. AT&T’s control over telephone infrastructure from the 1910s until its breakup in 1984 was maintained by a regulatory compact in which AT&T accepted rate regulation in exchange for a protected monopoly position. That compact produced genuine achievements: Bell Labs generated an extraordinary concentration of fundamental research, including the transistor, the laser, information theory, and Unix. It also suppressed the development of competitive long-distance service and technologies that threatened the core telephone business.

The British railway mania of the 1840s followed the same cycle earlier and more visibly. Between 1844 and 1847, Parliament authorized more than nine thousand miles of new railway, most of it capitalized by a speculative bubble that collapsed in 1847. The consolidation that followed produced a small number of large regional monopolies. Parliament responded with rate controls and mandated third-party access to track, which the railway companies contested for decades. They made the same arguments then that social media and AI companies make today: the industry was too complex to regulate effectively, regulation would destroy investment incentives, and the market would eventually take care of things anyway.

Network effects and switching costs are what make monopolies in network industries self-reinforcing. A telephone network becomes more valuable as more people join it, giving the dominant network an advantage separate from the quality or price of the underlying service. Switching costs compound this: users who have built workflows and contact lists around a platform can’t afford to move to a competitor even when the competitor offers a better product.

Cory Doctorow coined the term “enshittification” to describe these dynamics. A platform enters a market by subsidizing users—offering a service below cost to build a user base. Once users are locked in it starts subsidizing business customers, using the captive user base as leverage. Once business customers are also locked in, it harvests both by degrading service quality and raising prices. The platform can get away with this because the switching costs that lock users in also protect it from competitive consequences.

Antitrust law in the United States was supposed to prevent this. Beginning in the 1970s, however, it was weakened by a legal school associated with the University of Chicago that argued courts should evaluate mergers solely on whether they reduced consumer welfare in the short run. Under this standard, acquisitions of nascent competitors were not anticompetitive if the acquired company had not yet raised prices. Platform companies used this framework to acquire dozens of potential competitors before they could grow large enough to threaten market share. The current debate over platform regulation is therefore partly a debate about whether antitrust law should return to its original concern with concentration of power.

Doctorow2025

Cory Doctorow: Enshittification: Why Everything Suddenly Got Worse and What to Do About It. Farrar, Straus and Giroux, 2025, 978-0374619329.

Stoller2019

Matt Stoller: Goliath: The 100-Year War Between Monopoly Power and Democracy. Simon & Schuster, 2019, 978-1501183089.

Wu2010

Tim Wu: The Master Switch: The Rise and Fall of Information Empires. Knopf, 2011, 978-0307390998.