As the internet industry evolves, the internet platform companies are expounding in volume making the market share to be intense. Statistics reveal that when it comes to the section of instant messaging, search engines as well as e-commerce, the biggest enterprise’s market share has been persistently more than 50 per cent (Boyd, 2017, p.7). However, monopoly has been upheld in the internet industry by big companies such as Google, Facebook and Amazon (Boyd, 2017, p.9). For instance, Google has a global market share of 86.3% of the internet search engine market. Essentially, a company that has a market share exceeding 50 per cent is regarded as possessing a market power. The monopoly power is the prime basis whereby monopoly may cause an impact on both the consumer and the industry. These companies with monopoly have been making huge profits and created more employment opportunities but also has established substantial barriers to entry into their respective markets. The monopoly power of this internet industry has both advantages and disadvantages to the consumers’ welfare. However, the advantages that the monopoly power in this industry contributes to the consumer’s welfare is determined to outweigh the disadvantages it has to its consumers. Therefore, this paper evaluates the extent to which the advantages of monopoly power within the internet industry outweighs the disadvantages it poses to its consumers’ welfare.
Advantages of monopoly to consumers
Economically, perfect competition is normally considered to be desired than monopoly yet monopoly is not necessarily bad since they are very motivated as being competitive. Companies having the monopoly uses the economic theory whereby they assume that is self-motivated by self-interest in the internet industry (Laudon and Traver, 2018, p.36). This form of motivation by self-interest enables the companies with a monopoly to improve their products and services from time to time so as to ensure that it meets and satisfy the needs and welfare of its consumers. Such monopolistic companies enjoy huge profits and due to the self-interest would like to retain the market power to themselves and to achieve that they focus on meeting the needs of their consumers fully so that they can maintain the monopoly. As a result, the consumers benefit due to high-quality services and products offered by the monopoly (Boldrin & Levin, 2008, p.61). For instance, Google has a monopoly in the search engine industry and has gradually been improving its services to an optimum level whereby it provides precise, accurate and fast search results to its consumers. As much as this enable the company to maintain its market power it has also enable it to meet and satisfy the needs of its consumers.
Monopolies are inspired by economies of scale whereby an increase in output leads to a decrease in average cost of production. And since the monopolies do have a large market power which guarantees them huge profits it enables them to make investments in research and development as well as allowing them to finance high-cost investment in new technology (Laudon and Traver, 2018, p.51). Since monopolies have huge profits enough to fund their research and development of their technologies, it enables them to come up with efficient services and products which are compatible with their customers. Research and development of their services enable the company to develop user efficient technology which eases and benefits the consumers’ needs. Essentially, this leads to improved products and services which are affordable to the consumers. For instance, Facebook has carried out several research and development to improve the efficiency and use of its platform by its users using various devices. Due to these research and development, Facebook has been able to meet and improve its services for its consumers by providing various Facebook applications which are compatible with various types of mobile phones (Wen et al., 2013, p.28).
Disadvantages of monopoly to consumers
Monopoly in the internet industry causes loss of consumers’ welfare. Actually, monopolies cause an increase in market power since the big companies with the monopoly tend to increase their prices above the marginal costs, thus leading to deadweight loss (DWL) or consumer welfare losses (Wen et al., 2013, p.29). In this instance, the welfare of the consumers is undermined due to the increased prices of their services and products which makes the services and products unaffordable to the consumers thus straining their economic resources. Moreover, monopoly tends to create inequity among its consumers. High prices set by monopolies exploits low-income consumers as well as their purchasing power may be shifted to shareholders in terms of dividends resulting in unequal income distribution to its consumers.
Additionally, a monopoly with the internet industry appears to be less geared towards economic efficiency like minimizing cost or improving productivity. Moreover, a monopoly is likely to encounter diseconomies of scale since the more it becomes bigger, the more their average costs increase (Microeconomics in context., 2018, p.24). Also, the unavailability of competition discourages a monopoly from making investments further in conducting research as well as development, resulting in unavailability of innovation as well as poor quality services. This leads to dissatisfaction of the consumers as their needs are not met fully. Moreover, poor quality products and services can also negatively impact the health of consumers. Poor services to the consumers can be detrimental to the consumers’ needs and efficiency, this can lead to wastage of time and resources which thus affects the consumers’ financial status.
A monopoly in the internet industry has both strengths and weakness in ensuring the consumers’ welfare. However, the monopoly in this industry has more strengths to ensuring consumer’s welfare which outweighs the weaknesses. First, in terms of welfare loss which is a weakness to consumers’ welfare, it has both negative and positive value in the long run. This indicates that the traits of internet business companies fix welfare losses resulting from the monopoly as well as improve the consumers’ wellbeing (Boyd, 2017, p.9). In essence, a monopoly has more characteristics and strategies which improves the welfare of the consumers more than the effect it has which leads to welfare losses. Moreover, it facilitates the consumer’s welfare by proving high-quality services which actually minimizes welfare losses for the consumers. In fact, a monopoly in the internet industry has resulted in more convenience and improved consumers’ welfare.
Specifically, the strengths of a monopoly in the internet industry in ensuring consumer’s welfare outweighs the weaknesses due to the following reasons; large internet business companies have created economies of scale which significantly improve and maintain the social welfare of the consumers; also due to the traits of the internet industry, internet businesses with monopolies take up a bigger market share yet they are faced with high competition from other small companies, therefore, market power is not created and as a consequence price reduces or even prices ends up getting set below the marginal cost (Wen et al., 2013, p.30). Thus it does not cause welfare loss but rather tends to be more of improving the consumers’ welfare.
The internet industry market share is significantly centralized from its structural viewpoint forming a monopoly. Big companies such as Google, Facebook, Amazon among other companies in the internet industry have created a monopoly in their respective fields. It is certain that the monopoly formed has both strengths and weaknesses to ensure the customer’s welfare. However, it is evident that the monopoly in this industry has more strengths to ensuring consumer’s welfare which outweighs the weaknesses. The monopoly contributes more on improving the customers’ welfare in order to ensure its sustainability more than it leads to welfare loss since they have a higher market concentration thus maintain a highly competitive vitality co-existence. Therefore, a monopoly is more beneficial to customers’ welfare.