A Monopoly in the Technology Industry
A monopoly is a market structure in which a single commercial organization has dominating influence due to a number of favorable characteristics. Monopolies are classified into three types in economics: closed, open, and natural. The current state of affairs in the technology industry demonstrates some type of natural monopoly. Because of their reputation, inherent talents, and algorithms, technology behemoths such as Google and Facebook have practically single-player status. The natural monopoly status that Google and Facebook currently enjoy can be attributed to the fact that these digital companies have tap and continue to tap into the natural, as well as, trained talents of coding experts to develop algorithms. This enables them to build a reputation of the dominant digital companies. The recent buy off of yahoo further increases Google's market share and enhances its monopolistic position. A general natural monopoly graph enables one to understand the basic economic operations of both Google and Facebook. Price P3 and Quantity Q3 represent the price and service outputs hence revenues of the companies in an unregulated monopolistic market structure. However, should the government intervene and regulate the operations, their revenue and product outputs will decline to the levels indicated by P4 and Q3. Therefore, factors such as technology and globalization tend to impact revenue and productivity of digital media companies, thereby resulting in increased profitability that further promotes dominance.
Barriers to Entry in the Market
An article published by Taplin for the New YorkTimes recognizes that the Internet giants Google and Facebook enjoy extensive market dominance that creates market entry barriers for other similar or related technology companies (Taplin, 2016). Consequently, companies such as AT&T and Times Warner have resorted to strategies such as mergers to overcome some of the challenges created by the technological monopoly perpetrated by both Google and Facebook.
Technology and Monopoly
Technology is one of the factors that promote the apparent monopoly of both Google and Facebook. This situation is based on the fact that the two capitalize on their technological abilities to influence pricing in industries such as advertising and the creative industries. According to Zucker (2006), technology influences pricing, thereby affecting the price-taking abilities of the market. Additionally, technology influences innovations, which when applied over a long period lead to dominance due to best practices or competitive advantages. Lastly, technology tends to enable market leaders to maintain their status and establish a slowed market growth rate on which they capitalize to remain dominant.
Impact on Advertising and Marketing
Thus, Google and Facebook have used technology to create a monopoly. Both companies use their algorithms to set the price in the digital advertising and marketing industry thereby impacting the ability of other firms in a similar space to enter or exit such a market segment (Darby & Zucker, 2006). The two firms offer substantially reduced marketing and advertising costs that offer a wider market reach compared to traditional advertising platforms. The impact of their technological super-abilities has been the fluctuation of prices in the non-digital and digital marketing spaces. Additionally, the activities of these two companies have had a negative impact on content creation industry such that there are diminished revenues from licensing fees and royalties. Taplin (2016) reports that AT& T and Times Warner lament that almost monopolistic market structure that Google and Facebook has created has led to a decline in royalties and licensing revenue of by more than 50% in the past almost two decades. Moreover, revenue from print ads reduced from nearly 66 billion to 24 billion between 2000 and 2013 (Taplin, 2016).
Globalization and Monopoly
The market dominance enjoyed by Google and Facebook would not be a reality if it were not for globalization. Presently, both companies have a presence in almost every part of the world. Thus, they have access to different market and economic conditions at a significantly lower cost compared to other firms. Therefore, the two enjoy a double-sided benefit of globalization regarding access to markets and ability to meet information demands of an increasing global world. Alon, Child, Li, and McInyre (2011) note that globalization facilitates the internationalization of services and promotes technology-based competitive advantages. The impact of these benefits on the market is enhanced abilities a firm to supply the product or service demands of both local and worldwide markets. Additionally, the technology-based competitive advantages due to globalization enables firms to maintain low costs while maximizing on profits due to differences in economic factors in different parts of the world.
The Merger Impact
Thus, the merger by AT&T and Times Warner attempts to disrupt the market dominance of both Facebook and Google by combining their market shares in a bid to establish better presence both in the U.S. and international markets. However, this strategy will only offer the merging companies greater market dominance in the phone business, but not the digital media business, controlled by Google and Facebook.
Potential for Change
Notwithstanding, the activities of both companies can be altered to affect their monopolistic position. Presently, change due to market factors can only be achieved by the entry of other companies with better technology or natural talent to overturn the existing status. Nonetheless, legislative actions such as ending the "free riding" advantages from the creative industries is likely to alter the market structure for all players in the media business.
Conclusion
Technology and globalization have facilitated the prevalence of naturalistic monopolies. Google and Facebook enjoy significantly large market shares due to their coding expertise and reputations-all factors associated with natural monopolies. This market situation can be overturned by either the emergence of better natural talent or legislative action. To sum it up, the merger by AT&T and Times Warner is unlikely to have an impact on Google's and Facebook's natural monopoly status.
References
Alon, I., Child, J., Li, S., & McIntyre, J. R. (2011). Globalization of Chinese firms: Theoretical
Universalism or particularism. Management and Organization Review, 7(2), 191-200.
Darby, M. R., & Zucker, L. G. (2006). Innovation, competition and welfare-enhancing monopoly
(No. w12094). National Bureau of Economic Research.
Taplin, J. (2016). Forget AT&T. The real monopolies are Google and Facebook. Retrieved from
https://www.nytimes.com/2016/12/13/opinion/forget-att-the-real-monopolies-are-google-and-facebook.html?_r=0
