Large tech firms appear to be monopolies only because standard economic models ignore the value of their software and brand patents.
April 26, 2026
Original Paper
Intangible Capital and the Technology of Scale : Disentangling Scalability from Market Power
SSRN · 6618198
The Takeaway
Economists use returns to scale to measure whether a company is too big and has too much market power. When intangible assets like code and brand reputation are properly counted, the massive profits of giant firms look like natural results of technology rather than illegal price gouging. Traditional accounting makes it look like these firms are charging unfair prices because it cannot see the specialized capital they are using to grow. Correcting this oversight lowers the estimated market power of big tech by about 20 percent. Dominance in the modern economy is often a product of how software scales, not a lack of competition.
From the abstract
This paper shows that intangible capital fundamentally reshapes firm-level scale economies and the measurement of market power. I develop a structural nonparametric production framework that incorporates intangible capital as a factor input and external R&D as a source of productivity spillovers, and estimate it using U.S. public firm data from 1975 to 2024. I find that returns to scale increase sharply with firm size only when intangible capital is included; absent intangibles, returns to s