Why Everything is a Monopoly... Again

Google Found to Be a Monopoly: A Big Deal You Might Have Missed#

Last week, amidst all the noise about market ups and downs, election stuff, and the Olympics finishing up, something really important happened legally. District Judge Amit Meta made a ruling that said Google was a monopolist and acted like one to keep its monopoly going.

Now, this didn’t surprise anyone who pays attention to big companies. It feels like every trillion-dollar company out there is kind of a monopoly these days, whether it’s technically legal or not. For a long time, the feeling was that Regulators would just look the other way forever.

But that seems to be changing, and that’s not great news for big businesses. If you haven’t noticed, there aren’t as many different companies around anymore. For a surprising number of big companies, becoming a monopoly isn’t just a way to make the most money; sometimes, it’s the only way they can make any profit at all.

A guy named Tyler mentioned the verdict, saying Google lost its Department of Justice antitrust suit. The judge found Google violated antitrust law. Specifically, the distribution agreements Google made were found to be anti-competitive and against section two of the Sherman Act. Google got in trouble over deals where they paid companies like Apple, and also similar amounts to Samsung, Motorola, and LG. (The speaker notes he worked with interns who showed real enthusiasm, perhaps contrasting with this corporate behavior).

The core finding is that Google is a monopolist and has acted as one to maintain its Monopoly.

Understanding Monopolies (And When They’re Okay)#

Okay, so not all monopolies are automatically illegal. And, believe it or not, some can actually be good for us regular folks sometimes.

A company is allowed to be dominant in a market if:

Their product is simply better than everyone else’s.
Competitors don’t even try to compete because one company is just so far ahead.

For a long time, Google truly had the best search engine. Maybe that’s less true now, but people generally still choose to Google things because they expect the best search results. This kind of market dominance? That’s not illegal.

It only becomes illegal when that dominant company uses its position to lock things down and make it harder for others to compete fairly.

Today, there are lots of search engines that are just as good as Google, or maybe even better. What Google actually got in trouble for was paying huge amounts – billions of dollars every year – to companies like Apple just to make Google search the default option on their mobile phones. This move made it way tougher for those alternative search engines to get a foot in the door because, let’s be honest, how many of us actually go into our phone settings and change the default search engine? Not many!

(Quick side note: The speaker makes a disclaimer here, saying he’s not a lawyer, even though he consulted one for this info. He advises anyone running a big company not to use a YouTube video as their guide for anti-competitive practices.)

Why Monopolies Are Becoming an “Epidemic”#

So, why is this Google lawsuit such a big deal beyond just Google? Because monopolies are popping up everywhere in the corporate world today, and there are three simple reasons for it.

Reason 1: More Opportunities for New Types of Monopolies#

There’s simply more chance now than ever before to create a monopoly. We consume way more varied goods and services than at any other time, even recently. Forty years ago, nobody was thinking about monopolizing search engines! The biggest companies back then made much more basic products.

Let’s compare US Steel and Nvidia.

Both were the most valuable companies in the world at their peak.
Both made products mostly to service other businesses.
Both were right at the forefront of a big industrial trend (US Steel making steel during America’s building boom; Nvidia making H100 GPUs as AI is taking off).

Here’s the key difference:

Steel beams are a very basic product.
Cutting-edge, specialized microprocessors like Nvidia’s are complex and proprietary.

According to company documents, Nvidia sold 150,000 of these chips just to Microsoft and another 50,000 to Meta. Why? So these companies could speed up “the rate in which the internet is turned into procedurally generated flop” (that’s the speaker’s funny way of putting it).

Each of these GPUs sells for around $25,000 (according to Barron’s), but only costs Nvidia a few hundred dollars to make. Nvidia can charge such huge markups because it is a monopoly. The companies buying these chips literally have nowhere else to go. Nvidia dominates the market for AI computing because they developed CUDA, which is the standard everyone uses for building machine learning models.

Let’s clarify that legal point again:

Dominating a market because your product is better is completely fair game.
(Note: The speaker then says dominating by undercutting competitors or forcing suppliers not to work with others is also legal, which is a debatable point legally, but it’s presented here as part of the explanation).

It’s hard to make a steel beam so much better that every other steel beam is useless. So, after antitrust laws came in, it got harder to keep a monopoly with basic stuff. But it became even more profitable to have one with advanced, proprietary products.

(The speaker admits he used Nvidia as an example partly because mentioning it helps the video get recommended by YouTube to people who own Nvidia shares and want good news.)

Examples of Modern Monopolies#

Here are some examples of today’s big players who’ve reached that “promised land” of market dominance:

Apple: Creates a monopoly with its product ecosystem.
Microsoft: Has an effective monopoly on operating systems (outside of Apple).
Google: Monopolies on search engines and online video (YouTube).
Aramco: A monopoly on Saudi oil.
Meta: A monopoly on “Boomer memes” (that’s the speaker’s joke for Facebook).

Investing in Companies That Lose Money (But Aim for Monopoly)#

Beyond the established giants, there’s trillions of dollars being poured into companies whose main goal is just to take market share.

Think Food delivery, ride sharing, and even some AI applications.
These companies often lose a lot of money.
They only stay alive thanks to constant funding rounds from investors.

The only way these businesses make financial sense is if they can eventually outlast their competitors and achieve a dominant market share. They often do this by making their product seem better than it is, or by selling it below cost.

Companies like Lucid Motors, Uber, and Open AI technically lose money on each new customer or user they get. But their investors don’t care – the goal is just gaining market share. If they do become a monopoly, then they can raise prices, fatten their profits, and join the other trillion-dollar tech companies.

Are Monopolies Ever Good? (Briefly)#

This all sounds a bit like a dystopian future, but sometimes, in rare cases, it can actually benefit you as a regular person.

For a while, you might enjoy incredibly cheap food delivery – that was often partially paid for by rich Silicon Valley investors!
The experience of streaming movies was arguably better when Netflix was basically the only game in town and controlled the whole streaming market.

(The speaker then cues up the idea of explaining why the “good” monopolies don’t last and why we’re getting more “bad” ones, linking it to “how money works.”)

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Reason 2: It’s Easy (Continued) - Buying the Competition#

Back to why monopolies are booming. The second reason is that it’s just gotten so easy to build them, especially through buying other companies.

Across the world, thousands of new businesses are started with the sole goal of just being bought out by a bigger company, or more recently, by a Private Equity Firm. Tax rules have actually encouraged investors and entrepreneurs to look for a quick “exit” (selling the company) rather than building a business that makes steady profit over many years.

According to the corporate law firm White & Case, the worldwide volume of mergers and acquisitions (M&A) has tripled over just the last two decades. One of the simplest ways to build a monopoly is just to buy up all your competitors, and that’s exactly what’s been happening.

Just recently, the huge global food company Mars agreed to buy Kenova, the company that makes Pringles and other snacks, for $36 billion. This is one of the biggest corporate purchases ever in the food industry, which is already mainly controlled by a few big companies. With food prices being high already, more consolidation like this isn’t going to help things.

But buying companies is getting more popular because it’s easier. Big companies have tons of cash, and for a long time, they could borrow even more money at really low interest rates. Even now, after rates have gone up a bit, borrowing costs for big institutions are still much cheaper than they’ve been for most of American corporate history. This low cost of borrowing has made it super easy for companies to just buy up others in their field. It’s also made it possible to start businesses where the founders only make money if they can sell the company off to someone else.

Think about YouTube, which you’re watching this video on. Google acquired YouTube back when it wasn’t making any money. Today, it’s Google’s biggest source of revenue besides search advertising.

The rise of private equity has also helped, giving owners another option to sell their companies. Private equity deals are usually smaller, but they can definitely still create monopolies.

Private Equity’s “Roll-Up” Strategy: Local Monopolies#

A common tactic for private equity is called “rolling up” businesses. If you were a private equity manager, here’s how you might do it:

You would buy up lots of local businesses from their owners. Depending on how much money your fund has, these are often smaller, less glamorous places like plumbing companies, HVAC shops, or local mechanics.
These are great to buy because they usually make a nice, steady profit, and the owners (maybe looking to retire) don’t have many options to sell besides you. You’re often one of the only people who can give them a lump sum of cash for their life’s work.
Your next step is to centralize operations. You’d put things like booking appointments, accounting, marketing, and customer support into one main office. This cuts down on costs.
Crucially, this also means that your different businesses in the same area aren’t competing with each other anymore.

A private equity fund isn’t going to buy every mechanic shop in the whole country, but they don’t need to! If you own all the shops in a specific local area, guess what? You still have a monopoly! It’s just a local monopoly. And unless people are willing to drive two hours to get their car fixed, they’re going to have to pay whatever price you set.

This local monopoly approach is actually often better than the big global ones from the perspective of the company owner, because you’re way less likely to get in trouble with the FTC (Federal Trade Commission). You’re just too small for them to notice on their main radar.

Reason 3: Regulators Aren’t Effectively Fighting Back#

But honestly, the fact that you might fly under the FTC’s radar doesn’t matter as much because of the third reason everything’s becoming a monopoly: Regulators like the FTC and their equivalents in other countries haven’t been doing a great job of fighting back against monopolies.

These organizations are supposed to have two main ways to stop monopolies:

Blocking Mergers: They can stop companies from combining if they think the resulting company would have too much power in the market, creating a monopoly (remember, a legal monopoly comes from a better product, so merging two companies that would illegally dominate is supposed to be stopped).
Breaking Up Companies: They can force companies that have gotten too big and monopolistic to break up into smaller, competing businesses (famous examples include the breakups of AT&T and Standard Oil).

The problem is, regulators haven’t really been doing either very effectively. In fact, those big, famous company breakups from the 20th century? Those pieces have actually been slowly merging back together again. Monopolies, in a way, are kind of the natural path businesses tend towards. Unless the authorities actively do something to stop it, even companies that were broken up will slowly drift back towards being a monopoly.

Part of the issue is resources. According to public data gathered by the Washington Center for Equitable Growth, the money provided to the FTC and the Department of Justice’s Antitrust Division has been cut steadily since 2008. This is happening even though the number and complexity of big business deals have increased massively in that time. Basically, they are expected to do a lot more work with a lot less money. Plus, the FTC has to take companies to court to block mergers or break them up, which means they can only handle a limited number of cases at once.

The “Revolving Door” Problem#

There’s also the not-so-secret problem called the “revolving door.” This is where people who are supposed to be regulating these big companies end up taking high-paying jobs working for those very same companies (or firms that represent them) after they leave their government position.

Here are a few examples:

Joseph Simons: Was the chairman of the Federal Trade Commission. After leaving, he became a partner at the law firm Paul Weiss, which specializes in – you guessed it – corporate mergers and acquisitions.
The chairwoman before him: Is now a partner at Wilson Sonsini, one of the largest corporate law firms in the world.
The chairwoman before her: Also became a partner at a law firm that specializes in mergers and acquisitions.

If you get appointed to head the FTC, there’s a real reason to do a good job, but maybe not too much of a good job that might make it hard for you to get a high-paying private sector job once your term is up.

The current chair, Lena Khan, is different. She’s known as one of the most aggressive FTC leaders in recent history. She’s pushed through some genuine successes, like this recent Google ruling and getting the Banning of non-compete agreements. Because of this, she’s become very unpopular with business leaders who are openly trying to get her removed. Unfortunately, this probably means there isn’t a partner position waiting for her at a fancy law firm after her time at the FTC is over.

The Worst Impact: On Workers#

Hidden beneath all this is maybe the most harmful thing monopolies do. While they can be bad for consumers, they are much, much worse for workers.

If you work in an industry that’s controlled by a monopoly, you essentially have nowhere else to go to get a job. This means the company can get away with paying you just enough money to stop you from deciding to retrain for a completely different field.

(The speaker notes that getting rid of non-compete agreements makes this specific issue harder for companies to pull off, and suggests watching another video on that topic).

Want to Learn More?#

The speaker also mentions he’s writing an article about the Mars/Kenova mega-merger from his perspective as a former investment banker who used to work on deals like that. You can find that article and others on his free email newsletter. He mentions finding the link in the LinkedIn section of the video description. He encourages signing up to keep learning “how money works.”