Attempts to regulate the tech industry could just give even more power to Facebook and Google (FB, GOOG, GOOGL)

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Regulation of the tech industry could end up helping the major players like Facebook and Google.
Analysts at Nomura argued in a recent research note that new legislation could simply make it harder for new companies to enter the market, further entrenching the current tech titans.
Facebook, meanwhile, will be able to absorb any regulatory headaches as a cost of doing business — reinforcing its dominance in the long run.

The growing calls for lawmakers to constrain the technology industry's power may have an unintended consequence: It could actually strengthen the position of big tech companies like Facebook and Google.

In a research note published Wednesday, analysts at investment bank Nomura argued that increased regulation, rather than reining in the tech giants, could actually entrench their dominance. "We believe that regulation is likely to make platforms such as Facebook stronger and increase barriers to entry," they wrote.

The argument: That the major players will, ultimately, be able to shoulder the burden of increased compliance as a cost of doing business — but for smaller players with less resources at their disposal, it could be prohibitively expensive.

Plus, the name recognition enjoyed by the likes of Facebook will come in handy as it attempts to get permission from users over how it handles their data: "It is much easier to get consent if you are a large platform that is globally known (Google, Facebook, etc.) relative to smaller publishers and ad tech vendors."

"We believe the global regulatory environment, which is still very much being formed, could ultimately prove to be a positive for Facebook in the long run," the analysts wrote.

This has been the case in other industries, they added, citing the finance sector: "History has proven that regulation increases the barriers to entry for the newly regulated industry. The prime example here is the financial services industry after the implementation of Dodd Frank."

Other analysts have also shrugged off concerns that increased regulatory scrutiny could harm Facebook. Morningstar Equity Research analyst Ali Mogharabi has pointed to GDPR — the EU's new data protection regulation — as an example of legislation that may further entrench Facebook's power.

"Future regulations, such as the General Data Protection Regulation in Europe or some bills being proposed in the United States, are likely to create barriers to entry," he wrote in April. "This might actually make it harder for competing social networks to collect valuable user data to sell ads, and in turn may help Facebook maintain its dominant position as the social network of choice for advertisers."

There are limits to this positive thinking, however. Some of the tech industry's fiercer critics are calling for far more aggressive measures directly targeting the major players' — like the Open Markets Institute's proposal to ban Facebook and Google from acquiring any more companies. Others are demanding regulators use antitrust laws to split them up into their constituent parts.

But so long as criticism of Facebook and its ilk remains focused on discrete issues, like fake news, privacy concerns, or tech addiction — rather than more existential concerns — then any regulatory response might simply boost it in the long run.

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