Analysis Of Google As A Natural Monopoly

Google, a corporate titan that has existed for approximately 20 years ago, possesses a massive power that sways large parts of the United States economy and society, ranging from political issues to personal shopping habits, from the stock market to the manufacturing of small businesses. With Google’s enormous size and dominance over the users’ database and economies of scale, some governments have raised their concern and are gearing up for an antitrust investigation of the company.

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Why google is a natural monopoly?

The chairman and CEO of Berkshire Hathaway, Warren Buffett, claimed in an interview that Google’s search ad business acts like a natural monopoly that can fend off any potential competitors. This proclamation can be primarily attributed to the company’s significant amount of market share, economies of scale, and the network effects.

The diagram below shows a common phenomenon in natural monopoly industries, increasing returns to scale, in which as output increases, average total cost falls. The source of this occurrence is the huge initial fixed costs, which gives a large independent firm an advantage of lower average total cost over two or more smaller firms. Illustrated in the below graph, the natural monopolist’s ATC curve gradually declines along the product quantity axis at which price is greater than or equal to average total cost. In other words, the phenomenon takes place at least until the firm would break even in the long run.

Within media companies, network effects play a vital role that controls the number of users a business can approach. The more users approach Google, the more data it collects, which allows the company to innovate its algorithm to attract more customers and more application developers will gravitate to them. The platform cuts both ways, which constrains smaller firms from expanding due to their limited user data.

Google has become so widespread that nowadays, it is regularly utilized as a verb. The platform’s practical applications and prevalence have attracted a vast number of users and concurrently, deterred them from seeking alternatives. Furthermore, Google is automatically embedded in a myriad of devices, from mobile phones to website browsers, which consequently enhances peoples’ inclination to the page. For instance, Google’s Android software presents in three out of every four smartphones in the world, according to analyst’s estimation. In order to achieve such scale, the company has required manufacturers to place its search engine on their devices and preinstall a serious of Google apps in exchange of free utilization of the software.

How does Google use the monopoly power?

Google owns approximately 90% of the market share of internet searches, a substantial

proportion compared to the modest 2% of its closest search competitor, Bings. This predominance allows the company to exert tremendous influence over peoples’ consumption of internet as well as the production of other businesses.

In a published article in 2015, Robert Epstein, a senior research psychologist at the American Institute for Behavioral Research and Technology, stated that Google can control “a wide variety of opinions and beliefs … [more] than any company in history has ever had. Google’s search algorithm can easily shift the voting preferences of undecided voters by 20 percent or more - up to 80 percent in some demographic groups - with virtually no one knowing they are being manipulated…. ” With the immense power Google currently possess, it is capable of shaping perspectives of citizens not only in America but all over the world. Moreover, ever since 2011, Google’s advance in its algorithms, ranging from Panda to Fred, have driven a number of corporations out of business.

In addition, Google, Amazon, Facebook, Apple, and Microsoft have together purchased over 500 companies in the past decade. Most of the emerging tech startups did not have the chance to compete and expand because as soon as they enter Big Tech’s “kill zone”, they are acquired. Meanwhile, a growing amount of evidence indicates that the concentration on these merger activities leads to lower productivity, lower income, and destroyed economic dynamism.

Should Google be regulated?

The power and control of Google over the market has turned into a controversial issue

and raised a question of whether US government should break up the company in the way that it once broke up the railroad, oil, and steel monopolies. “Today’s big tech companies have too much power - too much power over our economy, our society, and our democracy. They’ve bulldozed competition, used our private information for profit, and tilted the playing field against everyone else. And in the process, they have hurt small businesses and stifled innovation”, the Democratic senator and presidential hopeful Elizabeth Warren argued. In fact, some restrictions have already taken place in Europe, as Google confronted a $5 billion fine for alleged anti - competitive Android bundling and a separate $4 billion under GDPR case. Examining the devastating effects of Google’s jurisdiction on society, governments acceded that an action has to be established. However, the optimal approach is unclear since US foreign policy can impact society on a global scale and can be influenced by political factors.

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Google is considered a natural monopoly generally because their products and services are superior to those of their competitors in the industry. The company obtains a regular and solid customer owing to its strong brand popularity and is able to extract enormous amount of data to generate larger amounts of revenue. Therefore, governments’ intervention in Google’s monopolistic power and its control of users’ data would extend market’s efficiency, increase competition, and allow customers to acquire a variety of options.