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Digital Monopolies – Unfair Competition?

Dan Ginger Thursday, 18 December 2014.

Recently, on Thursday the 27th of November, the European Parliament voted in favour of ‘breaking up’ Google, by 458 votes to 173. While the European Parliament has no powers to form legislation – this being the role of the European Commission, the vote has fuelled fire on the debate over digital monopolies, and how they should be managed compared to conventional monopolies. Google has a profit margin of 20 per cent, and posts revenues of $13billion annually. Is an online monopoly unfair, prohibiting consumer choice and exhibiting bias? Why should large digital players be penalised for successfully innovating and organising the business model and Ecosystem Economics™?

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One of the major rationale behind breaking up monopolies is to ensure that prices and consumer experience remain favourable for the consumer. Competition helps to keep prices low and to ensure that service or good providers maintain a standard to keep up with competitors. Without this incentive, economic theory suggests that monopoly actors can set prices artificially high for a lower standard of service – the consumer has no choice but to accept. But we don’t pay for Google’s search services. Google has no control over the price it charges customers to use its search engine, because it doesn’t charge a thing. Google also has to maintain quality because the barriers to entry to create an online search engine are so low that competition is natural. Google has so many users because it provides a better service than others – not because it forces browsers to use it. Google has successfully organised the business model in the search sector and online realm, and should not be penalised for innovating better than its competitors. There may be a strong network effect holding consumers to the platform, but as history has shown these have limited influence over time - just ask MySpace. Other search engines are just clicks away, but the convenience and trust placed in Google means that we rarely take up these other options. Google has a 60 per cent market share in the US, and a staggering 90 per cent in Europe as a result.

What is needed instead of regulating Google’s market operations, which the above shows are fair and perfectly natural in the digital sphere, is to regulate their behaviour. It is the huge stockpiles of consumer data where these digital monopolies hold unfair advantages. Alongside the colossal infrastructures and software models that these firms can operate, Google can use this mass of data to inform its ‘takeover’ of other industries and expansion into sectors other than its core competency of search. Google and other firms that indulge in ‘data mining’ gain advantages in other industries which then affect the consumer when payments become involved. Google must be made to protect consumer’s data against security threats, as well as using it in a responsible manner that does not threaten other industries or create monopolistic tendencies in other sectors.

In conclusion, it is important that the internet’s ‘ultra-monopolies’ are regulated – but it is not their market share that needs to be broken up, more their control and use of the vast swathes of consumer data that is provided to them. As a recent article states – "Competition….explains failure, not success; success comes from providing a unique solution, and thus naturally tends to the monopolistic". Google and other online giants do not charge and have plenty of competition – they just provide a service so superior and habitual to consumers that others cannot challenge them. This is not unfair competition, and hence should not be regulated as such. What is important is to ensure that these companies do not use their large databanks to exploit other industries where they can leverage their power in unfair manners and create unnatural monopolies.

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Dan Ginger

Dan Ginger

Dan joined entrepreneurcountry in November 2014, following the award of a First-Class BA (Hons.) degree in Geography from Keble College, The University of Oxford. Alongside writing articles for EntrepreneurCountry, Dan works as an Analyst for the Ariadne Capital team, and is particularly interested in the development of global emerging markets.

LinkedIn Profile: http://uk.linkedin.com/pub/daniel-ginger/5a/b62/804
Twitter: @DanGinge

 

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