Big Tech is Like a Fast Food Franchise

A McDonald’s franchisee invests several hundred thousand dollars building and equipping a restaurant, recruits and trains staff, manages daily operations, and absorbs the risk of a bad location. McDonald’s sets the menu, the supplier list, the pricing guidelines, the design specifications, the training requirements, and the standards against which the franchise can be audited and revoked. The franchisee’s capital is at risk; McDonald’s corporate’s is not. McDonald’s also, in most arrangements, owns the real estate and charges the franchisee rent. The arrangement is voluntary in the sense that no one forces the franchisee to sign. It is asymmetric in the sense that every significant decision rests with one party. The franchisee agreed to all of this in advance. McDonald’s corporate revenue derives primarily from real estate, not from food. The company acquires the land and building, then leases them to the franchisee at rates that capture a substantial share of the location’s economic…