IFYEC002 The Market Organization

provide relevant and precise economic analysis of the strengths and weaknesses of extensive monopoly power on consumer welfare. You may wish to consider the different ways in which consumers may be impacted by such firms.
provide an evaluative judgement on whether the strengths of significant market power in internet and technological markets outweigh the weaknesses, or vice versa.
demonstrate effective study skills in the research and presentation of your work.

Answer:

Monopoly refers to the market organization that has a solitary vender who sells an exclusive merchandise in the market. In a monopoly market, there is no competition faced by the seller since the goods sold do not have any close substitutes.

Due to the absence of close substitutes, the monopoly gets fewer incentives to invest in new ideas. The monopolists get profits but they have very little incentives to control their costs. Inadequacies will, therefore, mean that there are no real cost reserves especially when we make a comparison with the competitive markets. A competitive market will produce goods where demand = supply.

However, in a monopoly market, MC=MR and that is why we say it is profit maximizing. The monopoly has the capacity to charge higher prices and restrict total output and this leads to the reduction of welfare (reduction in the consumer surplus).the reduction in the welfare is a pure handover to the manufacturer through higher proceeds (CNBC Markets, 2017, p. 4). The latter is referred to as welfare loss or the social cost and this is equal to the area ABC as shown in the diagram below.

                                                                ( Aoife & Stephanie , 2018, p. 3).

It has been possible for internet services to capture a big market share and hence be the biggest success globally. Amazon which owns about half of America’s book market, Alibaba which owns about 80% of e-trade in China, Facebook which claims 1.3 billion affiliates who are active and then there is Google which claims 68% of users in America and 90% in Europe ( Aoife & Stephanie , 2018, p. 4).

There have been worries from regulators that the dominance of these firms is bound to expose consumers to all sorts of exploitation. There have been calls from European parliament which is advocating for the splitting of Google engine form the other commercial services. The concerns put across by the commission about Google are real. There is also a need for Amazon to be on the grounds of antitrust. Worries were posted on Facebook so that there would be more focus on privacy rather than on the dominance of the market (Sam , 2018, p. 3).

There is mushrooming of the quasi-monopolies on the internet. Rather than being on a state of regret because of the byproduct of the internet commerce and the need for an oversight which is extremely strict. Monopolies are known to add new categories of abundance in the world but this move makes innovation and growth very stranded.In most parts of the world, there is a tendency to treat monopolies with distrust. Laws, however, do not deem them bad in themselves (Pepall & Reiff, 2016, p. 123). Another example of a monopoly that is coming up very fast is the Uber which is seeking to dominate the taxi company. This was started in Francisco in 2010 and has since grown in 50 countries and in more than 230 cities. The company has been noted to add a new city every other week and its expected income is approximately $ 40 billion.

There is no amount of cash that could make a growth like the one mentioned above in absence of the digital worlds infrastructure. The clients using Uber all have mobile phones on which they can utilize to transfer apps and details on credit cards through which they can use to pay the drivers. There exist algorithms for pricing and also the approximation of distance and time travel and this can be applied anywhere and can be applied to thousands of customers (Chen & Schwartz, 2015, p. 145).

Uber should take a step and convince the world that its services are legal. Most of the internet success stories have relied on the effects of a network while most of the sellers made it a marketplace for buyers. Facebook got a direct advantage in that more members continued to join the platform with the help of those members who had joined earlier on. However, in other platforms like eBay, the effect was not the same since the new buyers did not necessarily help the existing buyers but worked to their detriment. However, through the attraction of more sellers, it helped the new buyers indirectly.

Research done in the United States showed that influence in the tech commerce is so much intensified in few corporations and particularly the big five and that is why the publications called for an antitrust regulation. The speculation seemed to be wrong. It is true that the big five are more powerful collectively than any collection that has ever existed before. Other scholars argue that market novelty in the tech business is in a break (Roesler & Szentes, 2017, p. 156). The facts described above are a clear indication that the tech business is so vivacious and it is subject to competition and disruption (this is very opposite of what the antitrust laws meant to halt.

For instance, the big five industries are in constant competition. This fact alone tells that there is no monopoly since the firms are more than one. There is no clear fact that any of these companies have an actual monopoly power but it relies on entirely one defines a market (Sam , 2018, p. 142). Google is termed to gain a monopoly power but it gets money from online advertisement and here it gets much competition from Facebook. On the other hand, Amazon has a monopoly power but only if one defines the market from the perspective of a separate market from retail. Apple possesses no monopoly in the market.

The existence of a fast disruption

As a result of the existence of the antitrust laws litigation, Google did not beat Microsoft was restricted to some areas and this included areas like the web browsers and this forced the manufactures of PC to take some software and reject others as a condition for getting windows.in the long run, Google became a threat to Microsoft since it solved some problem that Microsoft had not solved before. Interpretation became easy for people to find what they were looking for.it was too late for Google to beat Microsoft with MSN engine later (Chen & Schwartz, 2015, p. 178). 

Price competition is a benefit to the customers

The antitrust law focuses on harm to the clients. It is not adequate for a firm to be dominant since it must be using the dominance to increase prices. However, the latter is different in Europe since it can be the root cause of restriction. Amazon, Microsoft, and Google compete in prices for cloud computing while Uber gives choices to consumers at a lower price ( Aoife & Stephanie , 2018, p. 132).

Conclusion

Monopoly is a kind of a market structure that has both its advantages and disadvantages as discussed above. The regulators in the market should weigh both the advantages and disadvantages of the monopolies before dismissing them. The regulators are supposed to come out and protect the consumers by restricting these companies from harming the consumers. An example is whereby Facebook and Google contain too much information through the people’s habits on surfing and buying habits. The latter should be considered and laws are put so that the companies will be restricted from privacy. The regulators should try to look for the evidence of any existing collusion between the big powers in the technology. The antitrust laws are blunt mostly if they are being used in the case of market dominance.

References

Aoife , W. & Stephanie , B., 2018. Facebook Loses EU Friends as Bloc's Lawmakers Weigh Break Up. [Online]
Available at: https://www.bloomberg.com/news/articles/2018-05-23/facebook-loses-eu-friends-as-bloc-s-lawmakers-weigh-break-up
[Accessed 23rd May 2018].

Chen , Y. & Schwartz, M., 2015. Differential pricing when costs differ: a welfare analysis. he RAND Journal of Economics, 46(2), pp. 154-160.

CNBC Markets, 2017. Op-ed: The idea of using antitrust to break up tech 'monopolies' is spectacularly wrong. [Online]
Available at: https://www.cnbc.com/2017/04/23/why-antitrust-should-not-be-used-against-tech-monopolies.html
[Accessed 24th April 2017].

Pepall , L. & Reiff, J., 2016. The “Veblen” effect, targeted advertising and consumer welfare. Economics Letters, 145(144), pp. 218-220.

Roesler , A. K. & Szentes, B., 2017. Buyer-optimal learning and monopoly pricing. American Economic Review, 107(7), pp. 270-280.

Sam , C., 2018. Britain's Amazon Obsession Puts Retailers at Breaking Point. [Online]
Available at: https://www.bloomberg.com/news/articles/2018-02-09/britain-s-amazon-obsession-pushes-retailers-to-breaking-point
[Accessed 9th February 2018].