The
latest news that the Federal Trade Commission (FTC) has launched yet other
informal anti-trust investigations on Google raise concerns of market
competition policy (Wyatt, 2013). The new investigations will look into whether
Google is abusing its market dominance in online display advertising. It is not
possible to tell from the information available the specific statute under
which the investigations have been launched. Perhaps this is because formal
investigations are yet to start.
Bundling
of advertising services together as Google is alleged to be doing creates a
monopoly which is simply a market structure where there is very little
competition. It is often associated with the monopolist extracting consumer
surplus when buyers of their services or products are forced to pay more than
the optimal price. Consumers are also deprived of the variety that would often
come from a market with many competing players. Market dominance may also
hamper innovation and creativity. In the case of Google, bundling advertising
services may literally allow it to charge much higher for those services than
they would have had in a situation where there are other serious competitors. Even
the quality of what it offers may not be as stringent in a market it dominates.
It is, however, not always the case that monopolies and oligopolies are bad for
the society.
For
one, a monopoly may be welfare enhancing when they bring some efficiency gains.
For example, the bundling of Microsoft Operating System (OS) and Windows Media
Player (WMP) achieves some levels of efficiency gains by reducing transaction
costs. A customer intending to buy the two will not have to look for different providers
(Cave&Williams, 2011). Transaction costs goes beyond the monetary payment
that a user actually pays. Rather, it includes even non pecuniary costs like
getting information from friends who have had the opportunity to use the
particular bundle of service. The other advantage that may accrue from a market
monopoly is the reduction in production costs. It is much more expensive to
sell cars in bits so that every person in need of one must buy the different
components then find somebody to assemble it for them. Producing and selling
the various components bundled together as a finished car reduces production
costs even as it enhances the chances that those parts will be compatible with
each other. Similarly, one may defend Google’s bundling of advertising on the
basis that those who place adverts do not have to negotiate different
agreements which eventually push the production costs up.
There
are also those situations where a monopoly may be welfare reducing. For
instant, the monopolist may use their market position as a market
differentiation strategy (Cave & Williams, 2011). By differentiation
products or services that are similar in all respects, the monopolist can then
extract more rent from consumers. Google, with its superior search brand, may
just be using that brand to differentiate its advertising services from others
in the market. The company can then charge more for these services. One can
view the same issue from the concept of leveraging. A near monopoly like Google
in the search market with presence in some other market such as online
advertising may decide use its position in search as a leverage in online
advertising. In a situation where the two services or products are perfect
compliments like search and online advertisement, bundling the two virtually
eliminates any competition.
References
Cave,M.,&
Williams,H. (2011).The Perils of Dominance: Exploring the Economies of Search
in the Information Society. The Initiative for a Competitive Online
Marketplace (ICOMP).
Wyatt,
E. (2013, May 24).F.T.C. Is Said to Begin a New Inquiry on Google. The New York Times.
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