Today I had a dream that I was sitting with two teachers and my principal in school and reading a book full of interesting economic problems when one of the teachers realized I was bunking my regular class. To my surprise the other teacher said let her bunk its fine. Quite a motivational dream to cover another economics article on a topic! When I was in 10th standard, it used to be a little tough for me to notice theoretical economics in the real world. But one of the first instances where I could really do it was when I went to Agra and visited the Taj Mahal (yes before it was sold to the foreigner in Bunty and Bubbly movie). So I realized that for about a distance of 2km , no vehicles were allowed. We had 3 options to be precise — a government run e-rickshaw, a ride on the horse ride (or tanga) or walking. To my surprise the prices were way different for each. The e-ric had a minimal charge of Rs. 10 per person but there were quite few and got filled quite quickly so we could not get that. The horse ride charged an immense amount of Rs.300 . There were plenty of them but all were charging exactly the same amount. After our Delhi bargaining powers one rider finally agreed to provide it at Rs.250 but then got quite dirty looks from other riders. I thought what was going on. Why were the other riders pissed off at him?
Then I realized that there had been an agreement between all the riders to charge a fixed price of Rs.300 and no less no more. In this way the people would have no option but to pay such a fees. Such a strategy would reduce competition amongst the riders which would have otherwise led to lower, competitive prices. If such a strategy was not in place the prices would have reflected people’s willingness to pay rather than only the seller’s wish of setting the price. Once a rider would deviate from this strategy , everyone would go to him and not accept any higher price. This may go on till the prices become quite low. Hence analyzing different types of markets and their effects on consumers and the economy was one thing which quite interested me.
A very interesting sector that I analyzed and is quite recent in the news is the IT Sector and particularly the Social Media Companies where the government is trying to show them the importance of following the law of the land. It is quite surprising that the social media companies are not complying to such rules and one of the reasons I feel is because of their dominant position. The moment we remember Social Media only a few names come to our mind like Facebook, Twitter , Instagram and WhatsApp. ( Wow my word editor just corrected the spelling of Whatsapp to WhatsApp seemed like it is actually quite popular indeed) Let us look at the factors which leads to any sector being a monopoly ( or quasi monopoly as it is in the case for these social media companies) and see which factor is the one leading to Social media monopolies and why only whatsapp is autocorrected by Word and not threema ( don’t worry no definitions ahead)
1. Economies of scale: This means that large producers are efficient and can produce at a low cost but a new entrant might not be able to do so immediately. It maybe partly true in our case but setting up an app or website for communication requires not much capital as compared to other sectors. So we rule out this reason.
2. Legal barriers to entry : In some cases monopolies are simply created because law requires it to. For this sector, no law is mentioned and In fact competition law and antitrust laws discourage such dominance of these companies.
3. Technology barriers or substitutes : To make a code for the communication of people won’t really need rocket science and many people can do it and create substitutes for these platforms.
So we can see neither control over any natural resources nor any government hinderance or secret codes have lead to these massive companies establishing a quasi monopoly. Then what might be the possible reason?
One argument is that a big firm acquires small firms which can pose a threat to their dominant position. When they merge a single dominant firm is created in the end which has significant power. An example of this may be Facebook taking over WhatsApp and Instagram and being one of the biggest industry due to this with not many competitive threats.
Another reason might be low cost or providing services free of charge . Now sometimes we wonder how do such big giants then earn money ? Well just as I fake promised that I would not write any definitions above, WhatsApp has fake promised us for so called ‘end to end encryption’. ( maybe not fake promised but written in tiny unreadable font in their terms and conditions which would require at least 5 eye drops to protect our eyes if we started reading them) . You must have noticed a funny thing — You are talking to your friend about how to prepare and apply for IELTS and then a few minutes later you realise that one monopoly has helped another one ( British Council in this case) . We see every social media platform , google , Youtube popping up ads of IELTS on our face and creating obstacles to follow our crushes. So these targeted advertisement models might be giving out millions of dollars to the companies and hence our question is answered. But this is again not so difficult for new startups to copy. Even they can start advertising if not targeted advertisements. Targeted advertisements can be done once they set a good user base.
So, then where are the new entrepreneurs, startups lacking in to compete with these firms? I feel that one of the main reasons for this is a combination of first-mover advantage and restriction of inter-platform communication. For example I just gave my 12th boards and now am free to join these platforms as a new user. Why will I choose WhatsApp over Koo ? Why will I directly go to facebook.com and make an account rather than going to NextDoor ( because my neighbours don’t like me :’( haha) . No. I won’t use Koo or NextDoor because I know all my friends are already using Whatsapp and Facebook and the reason I want to use this platform is mainly for communication and not for playing pet society ( grow up dude !) . I will obviously choose those platforms where I can communicate and message my friends. This is the main reason for monopoly power. Imagine a situation where Airtel users could only call to Airtel users, Vodafone only to Vodafone. Which SIM card would I choose? Obviously the one which has more users connected to it. Because Vodafone users are allowed to call Airtel users, there is no particular monopoly and both charge competitive prices. So Facebook and WhatsApp probably were the first of the platforms which could connect to so many users and become popular so that no other firm could compete afterwards.
I feel one way to reduce monopoly in this area is to allow communication between users of two applications. For example, me being a user of A messaging app can communicate with a user of B messaging app. The second way would be to launch a better-quality product, with new features or concepts which do not exist in these giants eg. Snapchat or TikTok. Having said that, a lot of innovation and research would be required for this. Further, this new application probably would not induce people to give up their existing accounts on these major platforms, but use as an additional or add on application ( Please be careful of your data usage :D). Shifting whole user base to another platform could take time and efforts equivalent to you actually joining the gym.