Principles
- The market creates competition.
- Competition ...
- ... creates choice
- ... lowers prices
- ... stimulates innovation
- ... and good customer service.
- Complicated value chains require competition at every node, i.e. not just at the retail level. It is not enough to check only if retail prices are going up (as per Chicago school).
- Competition implies negotiating power, meaning there must be an alternative (at both the retail and wholesale markets) and not too high switching costs.
- In case the market failes: regulation.
The problem
- Highly concentrated marekt power among US internet majors, China internet majors and a few others.
- ISPs have no monopoly, but there are near-duopolies. Regulation brought switching costs down.
- Mobile site owners have no monopoly but switching costs are prohibitively high, creating a quasi-monopoly.
- Same for MNOs vs. MVNOs, but switching costs are probably manageable. However, being unregulated and data traffic continuing its high growth, MNOs will be less eager to offer wholesale deals in the first place.
- Internet platforms have near-monopolies (Google Search, Amazon e-commerce, Facebook social media) or near-duopolies (Android/iOS, Google/Facebook digital ads & news). There are alternatives (Bing, DuckDuckGo; Etsy; WT:Social), but are simply used very little.
Gatekeepers or 'structuring platforms' (2-sided businesses in red):
- ISPs and operators: varying power balance
- South Korean telcos (paid by consumers and possibly content providers) vs. Netflix et al bring up the case once more ("they are using my pipes for free") for content providers contributing to the cost of broadband access networks. Content providers have the upper hand and telcos can only win if the regulator steps in, because they have no monopoly on internet access.
- Fox Sports (paid by consumers and operators) vs. Ziggo. Polish investigation: do broadcasters abuse their market power? The content owner has a stronger position than the telco, because Fox's content is unique and Ziggo, as a TV operator, has no monopoly.
- Passive telco infrastructure owners: power is with the owners; they have an incentive to find new customers to not be getting income from a single customer
- Sale & lease-back constructions for passive infrastructure (esp. mobile sites) generate cash in the short term, but a huge lock-in and financial risk in the long term (generally after 15 years). Consider all the infrastructure deals from (cash-strapped or heavily indebted) telcos with the likes of Cellnex, InfraVia and others. The line between smart and not so smart is thin, where smart implies a sale of a minority stake (possibly through a spin-off or IPO). Cellnex may not be a monopolist, but the lock-in is huge.
- Wholesale can be a monopoly (such as KPN NL in fixed) or a near monopoly (when switching costs are prohibitively high, such as in MNOs hosting MVNOs).
- Internet platforms: quasi-monopolies (and duo-, oligo-), in need of sound negotiations
- Google and Facebook are paid by advertisers (in cash) and by consumers (in personal data). The value of the personal data is only limited by privacy regulations - which the internet companies are trying to circumvent.
- Amazon's e-commerce earns money from both consumers and third-party sellers. A clear case for chinese walls (if not bright line regulation i.e. structural separation). Apparently, Amazon is using information from its third-party sellers to support its own brands.
- Apple (vs. Epic Games) controls the iOS ecosystem through its App Store, whereas Google (esp. with Android 12) allows third-party app stores, besides its own Play Store. Apple demands a 30% fee (dropping to 15% for subscriptions after 1 year). Google's Fundo gets a 20% fee. Bandcamp charges a 15% fee.
- Amazon Channels is hardly a monopoly. CBS is a happy customer. The fee Amazon takes (if any) is not published.
- Peacock vs. Roku (paid by consumers and content providers). Peacock has its unique content (quasi monopoly). Roku is not a monopolist, but is a gatekeeper to its user base (quasi monopoly) and as such Peacock doesn't want to pass it by. Apparently, Roku demanded 30% of the ad inventory, but it's unclear how much they ended up with.
- ACCC vs. Facebook, Google: forced negatiations for the paid use of news snippets from news media (paid by consumers and possibly search engines and news sites), according to the News Media Bargaining Code. Internet services may claim fair use and directing traffic to news media, the ACCC look at it a Neighbouring Rights. The news media (supported by the regulator) thinks the internet services should pay, probably for the simple reason that they make money off of the snippets. In France, a court will decide on whether the regulator has the power to force such negotiations.
Forces
- Free market
- Abuse of market power, monopoly, duopoly.
- Allowing competitors to thrive, Prisoner's dilemma.
- Network effect (the bigger the network becomes, the easier is it to attract new users), winner-takes-all, first-mover advantage, competitor can't enter the market.
- Lack of antitrust enforcement.
- The risk of outsourcing distribution to a wholeale monopolist; theaters were split from studios.
- One-stop shop, lock-in (consumers & businesses become dependent on platform, no option to shop around, platforms set unfair ToS), high switching costs, high entry barrier.
- Peronal data portability will lower switching costs and thus entry barriers.
- Economies of scope allow easy expansion into adjacent areas.
- Two-sided business model, double hats, chinese walls, structural separation
- Fair use (content)
- Forcing a company break-up to make the parts become competitors. Case in point: Facebook's acquisition of Instagram (could have been fierce competitors). Acquisition only to be allowed if expansion cannot be realised organically. A break-up shouldn't be enforced only to destroy it.
- There appears to be a level of collusion among the platforms (Google has an unchallenged monopoly in Search, Gmail, Google Docs). But in certain areas they are challenging each other (Amazon in digital ads; Apple in maps; Google, YouTube, Facebook and Instagram in e-commerce, Facebook in gaming, Facebook in Hosting Services).
- There's a fundamental (political) choice that everybody needs to make: may my personal data be used to a. Improve the service (Google Search, recommendations), b. Enable targeted advertising. Further: Can personal data by anonimised/pseudonimised? It looks like a and b require converting back to personalised data or otherwise service improvement and targeted advertising doesn't work.
- Do the 'free' services need to be free? How much would Facebook (see it's reported ARPUs) and Google need to charge for an ad-free service? (See also price differential between tiers with and tiers without ads at VOD providers.) Without use of personal data, no personalisation or service improvement would be possible. hould platforms be forced to offer a data and/or advertiing free tier/variant? Also: are there options for consumers to NOT agree to the ToS and still use the service? There is a risk of ToS becoming some sort of private regulation.
- Platforms provide great services in exchange for personal data.It makes them as powerful as a state-within-the-state. The political issue being: is that a bad thing?
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