Li yongjin, research fellow, institute of financial and economic strategies, chinese academy of social sciences
Visiting fellow, centre for tourism studies, chinese academy of social sciences
Source: original in people's forum 2021 z1
As the global internet permeates full socio-economic life, internet platforms rise rapidly. These platforms dominate their respective markets and create oligopolistic situations. For example, in the united states, the amazon platform accounts for 55 per cent of online shopping searches and over 40 per cent of online sales revenue, alphabet (the google parent company) and facebook account for 73 per cent of the market share of the digital advertising market, and apple and alphabet account for over 99 per cent of the market share of smartphone operating systems. In china, many internet platforms have also taken a leading role in their respective fields, such as in the area of instant communication, in the field of search, in the areas of ali and in the area of electrical shopping. Internet platforms accumulate a great deal of wealth, and the united nations digital economy report 2019 notes that digitization has created a number of super-platforms that have resulted in a more concentrated distribution of wealth. By 2018, 8 of the 20 enterprises with the highest global market value were internet-based, accounting for 56 per cent of the total value of top20. These platform enterprises are data-driven, acting both as intermediaries in the online market and, in a sense, as infrastructure, creating a unique advantage, increasing their monopolistic position and extending it to related areas, which may pose a threat to market competition, consumer welfare, innovative entrepreneurship, etc。
Main manifestations of oligopoly on internet platforms
Owing to the characteristics of the platform economy, the main manifestations of monopoly over internet platforms are different from those of some existing sub-linear industries. In internet platforms, monopolies are manifested mainly in data monopolies, flow monopolies and algorithm monopolies。
Data monopoly. Many internet platforms often operate free of charge to consumers. However, free is not without cost, and in many of the free services, users pay in the currency of data. Many platform enterprises collect large amounts of data to track user behaviour and make the transition from “data mining” to “real-life mining”, thus penetrating daily experience, exchanges and even ideas. These platforms use data for targeted promotions, coupons and advertising to increase user adhesion. The platform's monopoly on data can be achieved in several ways: first, the platform draws on its market power to limit consumer choices, thereby requiring consumers to provide data that go beyond what it provides. Users are required to provide various types of data, including authorization during use, on many of our internet platforms. These data and authorizations are not necessary for the platform to complete its services, but are needed for the platform to further tap consumers. For example, a survey in the washington post shows that in the week of using google's crrome browser, there were more than 11,000 cLookie requested. Some scholars have called this a “exploitative abuse” of market positions. Secondly, the platform uses its data to enhance its competitive advantage. The platform not only uses its services to collect data on the multidimensional dimensions of consumers and to validate them with one another in order to obtain images of consumers, thereby providing them with accurate services. At the same time, the platform can leverage its large collection of comparable consumer data for cross-application and thus gain a stronger market position. Third, the platform uses data to exclude competition in the market. The platform could also take advantage of data advantages, enter new market areas, create new competitive advantages and exclude competition。
The flow monopoly. The internet platform monopolizes the flow of users by means of network effects, bilateral market effects, declining marginal gains, and the continued optimization of services through the use of data. According to the survey, the top four aps in the country account for more than half of user time. The platform, on the other hand, uses its traffic advantages to expand both horizontally and vertically, including through business outreach. This flow advantage can also influence the development of user perspectives. Robert epstein (2018) pointed out that the search engine, by manipulating its knowledge distribution, could effectively influence the tendency of users to “search engine manipulation”, which enhanced its flow advantage. In my country, the flow monopoly is also beginning to emerge. For example, the study on internet platforms and data competition regulation, published by the internet rule of law centre of the chinese institute of social sciences, shows that office software such as nails, flybooks and so forth has been hampered in micro-credit sharing during the epidemic. This is in fact a typical case of internet platforms monopolizing their traffic advantages。
Algebra monopoly. Algorithmic monopolies are a unique feature of the monopoly of internet platforms. An important aspect of algorithm monopolies is the suppression of competition through special consideration of the business they run, discrimination against the business of competitors and self-preference. This is particularly evident in many platforms that have both an intermediary and an infrastructure role. On 10 march 2020, the united states senate judicial committee sub-committee on antitrust, competition policy and consumer rights heard whether google used search algorithms to prioritize results in its favour, and whether apple placed its own application (app) in a more visible position at the app store. Algebra monopolies also include other aspects, such as the platform's use of algorithms for discriminatory dynamic pricing of consumers. For example, foreign researchers have found that those searching hotels on tourism websites orbitz and cheaptickets through a web browser on android phones have seen prices 50 per cent lower than iphone users。
Sources of oligopoly on internet platforms
The creation of monopolistic internet platforms has common and unique causes with traditional monopolistic industries. In the formation of traditional monopolistic industries, incremental costs play a decisive role. The next additional cost function shows that in a given market, a single firm can meet the entire market demand at a lower cost than two or more firms. A sufficient condition for the lesser cost is economies of scale. Given the characteristics of the internet, many internet-based information-based services, such as infrastructure, information-gathering and dissemination networks, are very costly in the first place, but their marginal costs are close to zero once they enter the target market, which enables leading firms to build market advantages by relying on the number of users to share the cost of the first input. In addition to sub-costing functions, the ability of internet platforms to occupy a monopoly is also related to other effects。
The first is the network effect. The concept of network effects stems from the “metcalf law”, which states that networks with n nodes have n (n-1) potential nodes to nodes. In other words, the number of possible connections is increasing proportionally to the number of users and the number of potential transactions is increasing. If each new connection adds value, larger networks will have a larger scale return than smaller ones. In this way, the various operators of the network, in order to reduce costs, tend to combine in order to obtain a pay for size. In the end, markets must be concentrated in large oligarchs. However, the size of the compensation generated by the network effects does not necessarily ensure the monopoly position of enterprises. Daniel f. Spulber & christopher s. Yoo (2014) noted that the ability to attract an entire client base does not necessarily benefit professional enterprises serving market niches. More connectivity can lead to network congestion, and enterprises need to weigh the benefits of a single network size against the benefits of product diversification in multiple networks. One effect associated with network effects is the locking effect. For internet platform enterprises, they can force users to choose one network to exclude others by refusing to connect to other networks. In economics, the user lock-in effect is equivalent to a sunk cost on the demand side, a demand side economy of scale that has some catalytic effect on internet monopolies。
The second is bilateral or multilateral market effects. Many internet online markets are bilateral. An important feature of the bilateral market is the interdependence of the effects on the platform between customers who obtain value or income from each other. In the case of the online shopping market, for example, the value of consumers depends to a large extent on the number of sellers on the market, as the more sellers, the more room consumers have to choose and the more competition among sellers, the more favourable it is for consumers. For sellers, the more consumers on the platform, the larger the number of potential users, the more valuable. Transfrontier network effects create positive positive feedback cycles. These positive feedbacks also favour platforms that already have a certain size in the market and lead to the eventual concentration of markets on one or more platforms。
The final model of the platform's behaviour also determines its potential for oligopoly. Owing to the complexity of network transactions, many platforms act as web-based infrastructures, effectively serve as digital markets, taking advantage of their technological advantages and allow them to monopolize markets. In many cases, the platform exercises close control over its users. For example, the amazon closely monitors communications between third-party market vendors and consumers and penalizes businesses that direct consumers to their own independent websites or other distribution channels. The platform also uses its role as an infrastructure that leverages the combined advantages of data, users, technology, etc., to penetrate other markets, i. E., so-called “leverage” or cross-market integration, thereby creating competitive advantages in new markets. In my country, the use of data and user advantages by ali baba to infiltrate the financial sphere, and the use of its advantages in the social sphere to infiltrate the playing field are more typical examples of cross-market integration. In addition, the platform can increase user adhesion and maintain its monopoly by building on user data accumulation and using data advantages to provide accurate individualized services to users。
The above-mentioned features of the integrated platform, the bank for international settlements, in its 2019 economic report, state that the platform has developed a feedback cycle of data analysis, network outreach and interactive activities, three elements that are synergetic and provide the basis for the monopolization of the internet platform。
Impact of oligopoly on internet platforms
The oligopolistic nature of internet platforms can have implications for the competitive order of markets, innovative entrepreneurship, consumer welfare, etc。
Exclusion of competition. For many internet oligarchs, these platforms have enormous flow and data resource advantages, which they often exploit to pressure competitors to block potential market entrants and to exclude competition from markets, thereby undermining social welfare. For example, in the field of electricians in our country, there have been instances of anti-competitive practices such as “two or two”。
Bringing digital distortions. Ariel ezrachi & maurice e. Stucke (2018) points out that oligopolistic monopolies can distort the normal development of the digital market, including leading to a decline in quality, pooling wealth using a monopoly advantage (e. G. Oligopoly extracts valuable content from photographers, writers, musicians and other websites and makes it available on their websites, thereby making profits), increasing third-party costs (e. G. Directly harming competitors on their platforms, reducing the functionality of independent applications or reducing the flow of independent applications by making it more difficult for competitors to find them in their search engines or application shops), negative innovations (e. G., the platform uses innovations to strengthen its existing models rather than more advanced or rational ones, which run counter to consumer and market interests)。
Self-enforcement of monopolies and restrictions on innovation. The platform uses its data monopoly and flow monopoly advantages to reinforce its monopoly position through technical means such as algorithms. Moreover, the platform will enter new areas through the enhancement and expansion of services, creating a second and third monopoly in new areas, which will further strengthen its monopoly advantage. For many start-ups with the potential for innovation, the platform either presses traffic, data, etc., or “killer mergers and acquisitions” to stifle competition. For innovators, it is difficult for them to gain better development space if they are not acquired by these monopolistic platforms. As a result, the self-enhancement of the internet oligopoly has stifled innovative entrepreneurship. Other studies suggest that the concentration of data on internet oligopoly can also undermine democracy, personal privacy, etc。
Iv. Governance responses to oligopolistic internet platforms
While the internet oligopoly is created spontaneously through competition in the market, when it acquires market status, its monopolistic behaviour may, in general terms, have an impact on social welfare, social innovation, etc., and should therefore be clearly regulated in legal policy。
