This "consumer welfare" theory of antitrust is obviously wrong, and it's the best-known neoliberal monopoly delusion. But it's not the only one! Another pro-monopoly ideology we can thank the Chicago School economists for is "industrial organization" (IO), a theory that insists that *vertical* monopolies are actually *really* good. This turns out to be one of the most consequentially catastrophic mistakes in modern economic history.

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What's a "vertical monopoly"? That's when a company takes over parts of the supply chain both upstream and downstream from it. Take Essilor Luxottica, the eyeglasses monopoly that owns every brand of frames you've ever heard of, from Coach and Oakley to Versace and Bausch and Lomb. That's a *horizontal* lobby - the company took over every eyewear brand under the sun.

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But they also created a *vertical* monopoly by buying most of the major eyeglass retailers (Sunglass Hut, Lenscrafters, etc), and by buying up most of the optical labs in the world (Essilor makes the majority of corrective lenses, worldwide). They also own Eyemed, the world's largest eyeglasses insurer.

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IO theory predicts that even if a company like Essilor Luxxotica uses its monopoly power to price gouge in one part of the eyeglass supply chain (e.g. by raising the price of frames, which Essilor Luxxotica has done, by over 1,000%), that they will use some of those extraordinary profits to keep all their other products as cheap as possible.

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If Luxottica can use its market power to mark up the price of frames by a factor of ten, then IO theory predicts that they'll keep the prices of lenses and insurance as low as possible, in order to make it harder for lens or insurance companies to get into the frame business. By using monopoly frame profits to starve those rivals of profits, Essilor Luxxotica can keep them so poor that they can't afford to branch out and compete with Essilor Luxottica's high-priced frames.

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Like so much in neoliberal economics, this is nothing but "a superior moral justification for selfishness" (h/t John Kenneth Galbraith). IO is a way for the greediest among to convince policymakers that their greed is good, and produces a benefit for all of us. By energetically peddling this economic nonsense, monopolists and their pet economists have done extraordinary harm to the world, while getting very, very rich.

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Google is a real poster-child for what happens to a market when regulators adopt IO ideas. "Google’s hidden empire," is a new paper out today from Aline Blankertz, Brianna Rock and Nicholas Shaxson, which tells the story of how IO let Google become the enshittified, thrice-convicted monopolist it is today:

arxiv.org/abs/2511.02931

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Google's Hidden Empire

This paper presents striking new data about the scale of Google's involvement in the global digital and corporate landscape, head and shoulders above the other big tech firms.

^arXiv.org

The authors mostly look at the history of how EU regulators dealt with Google's long string of mergers. By the time Google embarked on this shopping spree, the European Commission had already remade itself as a Chicago School, IO-embracing regulator. The authors trace this to 2001, when the EC blocked a merger between GE and Honeywell, which had been approved in the USA.

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This provoked howls of disapproval and mockery from Chicago School proponents, who mocked the EC for not hiring enough "IO expertise," contrasting the Commission's staff with the US FTC, which had 50 PhD (neoliberal) economists on the payroll. Stung, the EU embarged on a "Big Bang" hiring spree for Chicago School economists in 2004, remaking the way it viewed competition policy for decades to come.

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This is the context for Google's wave of highly consequential vertical mergers, the most important of which being its acquisition of Doubleclick, the ad-tech company that allowed Google to acquire the monopoly it was last year convincted of operating:

thebignewsletter.com/p/google-…

When Google sought regulatory approval in the EU for its Doubleclick acquisition, the EC's economists blithely predicted that this wouldn't lead to any harmful consequences.

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Google Found GUILTY of Monopolization Again

Judge Leonie Brinkema ruled against the search giant for its control over the software underpinning online ad buying. Now it's on to the remedy.

^{Matt Stoller (BIG by Matt Stoller)}

Sure, it would let Google dominate the tools used by publishers to place ads on their pages; and by the advertisers who placed those ads; and the marketplace in which the seller and buyer tools transacted business. But that's a vertical monopoly, and any (IO-trained) fule no that this is a perfectly innocuous arrangement that can't possibly lead to harmful monopoly conduct.

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The EC arrived at this extraordinary conclusion by paying outside economists a *lot* of money for advice (that kind of pretzel logic doesn't come cheap). Two decades later, Google/Doubleclick was abusing its monopoly so badly that the EU fined the company €2.95 billion.

It's not like Google/Doubleclick took two decades to start screwing over advertisers and publishers.

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Right from the jump, it was clear that this merger was an anticompetitive disaster, but that didn't stop the EC from waving through more mergers, like 2020's Google acquisition of Fitbit:

pluralistic.net/2020/10/01/the…

Once again, the EC concluded that this merger, being "vertical," couldn't have any deleterious effects.

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In reality, Google-Fitbit was a classic "killer acquisition," in which Google bought out and killed the dominant player in a sector it was planning to enter, in order to shut down a competitor. Within a few years, the Fitbit had been enshittified beyond all recognition.

Despite these regulatory failures (and many more like them), the EC remains firmly committed to IO and its supremely chill posture on vertical monopolization.

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But as bad as IO is for regulating vertical mergers, it's even less well suited for addressing Google's main tactic for shaping markets: vertical *investments*.

Google Ventures (GV) is Google's investment arm, and it is *vastly* larger than the venture arms of other Big Tech companies. Google invests in far more companies than it buys outright, and also far more companies than any other Big Tech company does.

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GV is the only tech company investment fund that shows up in the top-ten list of VCs by deal.

In the paper, the authors use data from Pitchbook to create a sense of Google's remarkable investment portfolio. Many of these deals go through "Google for Startups," which allows Google to acquire an equity stake in companies for "in-kind contributions," mainly access to Google's cloud servers and data.

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By investing so widely, Google can exert enormous force on the shape of the entire tech ecosystem, ensuring that the companies that *do* succeed don't compete with Google's most lucrative lines of business, but rather funnel users and businesses into using Google's services.

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This activity isn't tracked by academics, regulators, or stock analysts. It's the "hidden empire" of the paper's title. 9556 companies that show up in Pitchbook as receiving Big Tech investments since 2024. 5,899 of those companies got their investments from Google.

Combine Google's free hand to engage in vertical acquisitions and its invisible empire of portfolio companies, and you have a world-spanning entity with damned few checks on its power.

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What's more, as the authors write, Google is becoming an arm of US foreign power. Back in 2024, Google made a $24b acquisition offer to the cybersecurity company Wiz, which turned it down, out of fear that the Biden administration's antitrust enforcers would tank the deal. After Donald Trump's election - which saw antitrust enforcement neutralized except as a tool for blackmailing companies Trump doesn't like - Wiz sold to Google for $32b.

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The Wiz acquisition is an incredibly dangerous one from a competitive perspective. Wiz provides realtime cybersecurity monitoring for the networks of large corporations, meaning that any Wiz customer necessarily shares a *gigantic* amount of sensitive data with the company - and now, with Google, which owns Wiz, and competes with many of its customers.

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Google has already mastered the art of weaponizing the data that it collects from *users*, but with Wiz, it gains unprecedented access to sensitive data from the world's *businesses*.

Google's consolidation of market power - power it has abused so badly that it has lost *three* federal antitrust cases - can be directly traced to the foolish notions of Industrial Organization theory and its misplaced faith in vertical mergers.

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As the authors write, it's long past time we abandoned this failed ideology. The Google/Wiz merger still has to clear regulatory approval in the EU. This represents a chance for the EC to abandon its tragic, decades-long, unrequited love affair with IO and block this nakedly anticompetitive merger.

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