The Economics of Google: A Report on Monopoly and Market Competition

This report provides an economic analysis of Google's market position, focusing on its potential monopoly power in various subsectors. It examines Google's dominance in search engine services, online advertising, and online shopping, highlighting its substantial market share and the impact of economies of scale. The report differentiates between pure and natural monopolies and discusses the extent of competition Google faces from rivals like Bing, Yahoo, and Amazon. It evaluates Google's approach to innovation and its strategies to maintain market dominance, including short, medium, and long-term plans related to service customization, sub-sector improvements, and potential mergers and acquisitions. The conclusion emphasizes Google's network effect, data access, and continuous investment in research and development to maintain its competitive edge. The report references several academic sources to support its analysis.

Economics
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Introduction
• Natural monopoly market
• High fixed cost
• Economies of scale
• One firm can operate efficiently
• Google: Tech giant
• Monopoly like power Figure 1: Natural monopoly market

Question A.i: Monopoly in
Search Engine Service
• Monopoly: market with single seller
• Accounts 67 percent share in the search engine market
• Share in the organic search market is close to 90 percent.
• 180 million unique visitors each month
• Economies of scale
• Does not suppress competition
• Other competitors include Bing, Yahoo and MSN
Figure 2: Market share of
different player in Search
Engine Market

Question A.ii: Monopoly in
Online Advertising Service
• Dominance in digital advertising
• Accounts 74.6 percent of search advertise spending
• $100 million revenue from online advertise service
• Argument against monopoly
• Several other competitors
• Scope of intense competition Figure 3: Market share of
different players in online
advertising market

Question A.iii: Monopoly in
Online Shopping Service
• Less relevance compared to two other
• Focused on improving Google shopping and delivering
services
• e-commerce giants operate on their own
• Amazon, Flipkart and others develop own application
• Relatively less dominance of Google in the area.

Question B:Google to be a monopoly in different
subsector
• Google can be a potential monopoly
• Different from pure monopoly
• Pure monopoly: single seller and limited competition
• Google: not the only service providers
• Operate with other competitors
• Has a dominating share

Question B:Google to be a monopoly in different subsector
• Dominating market power
• 70 percent market share in search engine market
• Large network effect and economies of scale
• Online advertising market
• Market share of 74.6 percent
• Relatively less market power in online shopping service

Question C: Innovation and
Google
• Insufficient innovation in natural monopolies
• Not relevant for Google
• Significant effort to innovate
• Spends billions of dollar on R&D
• Funds more than 250 research projects annually
• Encourages scholars
• Strategies like ’20 percent time’ contribute to innovation

Question D:Strategies to retain
monopoly power
• Anti-trust action
• Strategies need to be adapted to maintain monopoly
• Short term strategy
• Should remain innovative
• Customization of various online services
• Could get information at the quickest possible time
• Example: Amazon

Question D:Strategies to retain
monopoly power
• Medium term strategy
• Breaking its services into different sub-sectors
• Improvement of services in different sub-sectors
• Long term strategy
• Merger and Acquisition
• Can merge with or acquire Bing
• Example: Facebook and Whats app

Conclusion
• Dominating share of Google
• Search Engine Service, Online Advertising Service, Online Shopping Service
• Network effect
• Access to huge amount of data
• Economies of scale
• Not suppress competition
• Invest in R&D
• Strategies to maintain monopoly power

References
• Budzinski, O. and Kohler, K.H., 2015. Is Amazon The Next Google?. ORDO, 66(1),
pp.263-288.
• Cowell, F., 2018. Microeconomics: principles and analysis. Oxford University
Press.
• Engel, J.S., 2016. Google and Niantic Labs: The professional entrepreneur and
innovation in the silicon valley (A). The Berkeley-Haas Case Series. University of
California, Berkeley. Haas School of Business.
• Graham, M. 2019. Google says it competes with 'lots of companies' in advertising
— here's the hole in that argument. [online] CNBC. Available at:
https://www.cnbc.com/2019/09/12/google-the-adtech-industry-is-crowded-and-
competitive.html [Accessed 23 Dec. 2019].