Digital Monopolies and Oligopolies PDF
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This presentation examines different market structures, including monopolies, oligopolies, and monopolistic competition. It discusses the characteristics of each type, providing examples from the digital economy. The presentation also details the concept of de facto and de jure monopolies, and offers insights into the factors that contribute to the formation and stability of these market structures.
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ДИГИТАЛНИ МОНОПОЛИ И ОЛИГОПОЛИ (1 , SLAJDOVI) Digital Monopolies and Oligopolies Definition of Market Types In the monopoly market, there is only one seller of the good, and there are no substitutes that the buyers may choose instead. In standard microeconomic theory, the monopoly may t...
ДИГИТАЛНИ МОНОПОЛИ И ОЛИГОПОЛИ (1 , SLAJDOVI) Digital Monopolies and Oligopolies Definition of Market Types In the monopoly market, there is only one seller of the good, and there are no substitutes that the buyers may choose instead. In standard microeconomic theory, the monopoly may then alone determine prices and maximize its revenues. We may distinguish between three types of monopolies: 1. That a company is a de jure monopoly means that the company is protected against competition by law. 2. That a company is a natural monopoly implies that the market is best served by a single supplier rather than being shared among several suppliers; for example, if the market is shared by several companies, the prices of the good may be higher (and production less effective) than if the market is served by only one company. 3. That a company is a de facto monopoly means that the company has captured almost the whole market and that the barrier to entry is so high that new entrants are discouraged to try. Тerritorial cartel. These are businesses that operate as a monopoly within a region, for example, a country. Before the market was opened for competition, the telephone operators were regional cartels by this definition. When the AT&T (the US telephone operator owning most of the telephone infrastructure in the USA) was split into regional operating companies (the “Baby Bells”) in 1982, these companies became regional cartels. Се до 1998 во телекомуникацискиот сектор во Европа постојат т.н. De jure монополи Потоа, се воведува конкуренција така што има слободен пристап на секој заинтересиран до оваа индустрија To prevent the incumbent (the former monopolist) from misusing its market power built up on historical government money, the fairness of competition was strictly regulated by the government. The regulations impede the incumbent from buying up competitors or forcing them out of the market with unfair pricing or other obstructions of their business. The regulations contain technical and commercial conditions for how newcomers can interconnect their networks to the network of the incumbent, also allowing the newcomers to operate as resellers or virtual network operators (VNOs). Т.Н. Природни монополи, de-facto монополи A natural monopoly is a type of monopoly in an industry or sector with high barriers to entry and start-up costs that prevent any rivals from competing. As such, a natural monopoly has only one efficient player. This company may be the only provider of a product or service in an industry or geographic location. De facto monopolies Facebook, YouTube, Google, and Twitter A de facto monopoly is a monopoly that was not created by government. It is a company that is dominant in its market due to there being few or no competitors or because the demand for its products or services is incredibly high. An example of a de facto monopoly would be Microsoft, which owns a very high percentage of the PC operating system market. Кои се причините за оваа ситуација? Path dependence Lock in Costs (Betamax vs VHS) Ситуација денес In the oligopoly market, there are only a few sellers of the same product. Actions taken by a single competitor (e.g., lowering the price or offer complementary goods) may change the composition of the market; that is, redistributing market shares. If there are only two competitors, the market is called a duopoly. One common strategy in oligopoly markets is that each firm must be aware of actions taken by the other firms (on, e.g., price and marketing) and respond accordingly. Actions taken by each company may then have direct impact on prices, competitive strength, and customer behavior. Only a few mobile network operators offer services in each country forming local oligopolies. Visa and MasterCard share most of the international credit cards market. Microsoft and Apple are the dominating producers of operating systems for personal computers. Monopolistic competition implies that there are many sellers in the same marketplace offering differentiated products, for example, shoes with different designs, materials, and quality. Other examples are restaurants and producers of cheese, soap, cars, and clothing. The products in a monopolistic market may serve the same purpose, but differentiation makes the products unique so that they are not exact substitutes. The prices of products from one supplier are, in general, independent of the prices set by other suppliers. In the digital economy, the markets for smartphones, personal computers, and television sets are monopolistic markets. Perfect competition is a theoretical model that describes markets with many sellers and buyers, where both sellers and buyers have perfect information about prices and customer preferences. Opposed to the oligopoly, the actions of a single competitor will not change the composition of the market. In the digital economy, perfect competition occurs in markets for digital freelance services—webpage design, brand design, visual design, writing, and translation services. A monopsony is a market with many sellers and only one buyer. Example of a (de facto) monopsony in a multisided market is the video sharing service of YouTube. The three most important customer groups are producers of video clips, viewers, and advertisers. As monopsony, YouTube is a channel for producers to distribute video clips to the viewers. Production and distribution of the video content is free of charge. As a monopoly, the video clips are provided to the viewers, also free of charge. Revenues are generated by the advertisers. The oligopsony is similar to the monopsony. The only difference is that there are more than one (but just a few) buyers in the oligopsony market, while there is only one in the monopsony market. The current music streaming market is an oligopsony with three major resellers: Spotify, Apple Music, and SoundCloud. The customers in this market are single artists and producers. Publishers of e-books are also an oligopsony with a few publishers dominating the market. Formation of Monopolies Формирање на монополи Until 1998, the telecommunications businesses in most countries were government granted monopolies (or de jure monopolies). Full competition was introduced in Europe in 1998, allowing anyone to become a network or service provider (ISP). Despite the regulations, monopolies have arisen in the ICT businesses, especially in information service markets. These newcomers (e.g., Facebook, YouTube, and Twitter) are referred to as natural monopolies or de facto monopolies. The natural monopoly has 100% market share. The closely related term “de facto monopoly” implies that the company may not have 100% market share but will have nearly so over a substantial amount of time. Therefore, the de facto monopoly is not a true monopoly. Path dependence caused by strong network effects may, at one point, work in favor of one of the competitors who eventually will capture most of the market (Facebook vs Myspace). Lock-in implies that it is difficult for a newcomer to capture market shares in a market dominated by a de facto monopoly. Cost may be a factor in some cases (Betamax vs VHS) In the search engine market, Google is strictly not a de facto monopoly since there is still considerable room for competition, and there are no strong lock-in mechanisms that bind the user to one particular search engine. A contributing cause of de-facto monopolies in the digital economy is the increased gap between value and cost as more and more of users adopt a digital service. The value gap increases as 𝑛 increases and gives companies with large 𝑛 a strong financial position. This can be seen in, for example, the profit margins of many companies producing digital services, which often range from 25% to 50%—well above the normal industry standard. Digital companies may use this profit margin for more growth; for example, they may develop and improve existing services, innovate new services, and/or acquire competing or supplementary businesses. Formation of Oligopolies Формирање на олигополи Mobile communications and streaming services are two examples of oligopolistic markets in digital economics. There are several reasons why mobile communications is an oligopoly market. The most important (and often overlooked) reason is that the frequency spectrum allocated to mobile communications is rather narrow and can only be sliced into a rather small number of slots broad enough to support a single operator. The second reason why there are so few mobile network operators is that it is expensive to build and manage mobile network infrastructures, in particular, since the licensing authorities may require that the network cover a certain percentage of the population (e.g., everyone) and not just the most profitable parts of the country. Streaming services are serving two markets: the provider of information to be streamed and the receiver of the streamed content. In music streaming, there are a few big providers, where Spotify, Apple Music, and SoundCloud are the most prominent. These providers are, on the oligopsony side, trying to capture artists and record labels on exclusive contracts and, on the oligopoly side, trying to capture listeners using different business models. The competition between oligopolies is difficult because decisions made by one stakeholder may have direct impact on prices, competition, and market shares and, thus, changing the market composition entirely. One particular problem is that the competitors may fall into the prisoner’s dilemma trap. If the two firms do not change the price; the situation remains unchanged. If firm A decides to lower the price, then firm A may gain so many customers from firm B that its revenue becomes larger than it was before, while the revenues of firm B will drop considerably; firm B may even be pushed out of the market. Firm A also knows that if firm B lowers the price and firm A does not, firm A will face the same destiny. If both firms lower the price, the market size of the two firms will be unchanged, but the revenues have become smaller for both firms because the user pay less for the service. The worst outcome for firm A happens if it keeps the same price, while firm B lowers the price. At the same time, the best outcome for firm A happens if it lowers the price and firm B does not. So, what shall firm A do? The likely outcome (called the Nash equilibrium) is that firm A lowers the price, and, by the same reasoning, firm B does the same. This benefits the users, but the revenues of both firms are now lower, and the business is Esejski 1. Definition of Market Types – Osnovni tipovi na pazari -primeri 2. Де јуре и де факто монополи – примери 3. Formiranje na monopoli – na kratko so primeri 4. Formiranje na oligopoli – na kratko so primeri Mergers and Acquisitions Спојувања и превземања (аквизиции) Дефиниции Што е тоа органски раст? Large companies have an advantage by just being large and tend to capture even more consumers—both new consumers joining the market and consumers from its competitors. The result is an increased market size for the largest company in the market, and reduced market size for the rest. This phenomenon is called organic growth. Definition Organic Growth Organic growth is growth generated by the company’s own assets and not from growth that comes from acquiring other companies. The organic growth may be positive or negative. A norganic growth is growth from buying other businesses or opening new locations. Meanwhile, organic growth is internal growth the company sees from its operations, often measured by same-store or comparable sales. Друг начин на раст е преку спојувања и превземања (М&А) Definition Mergers and Acquisitions A merger is a legal consolidation of two enterprises into one where both enterprises cooperate equally in the merger, whereas an acquisition implies that one company (the acquirer) takes control of another company (the target company) by ownership of stocks, assets, or equities of that company. Acquisition is also referred to as takeover. Пример - Facebook acquired WhatsApp—a competing social media with about 500 million MAU— for $19 Billion - the largest acquisitions ever performed and has changed the business landscape toward increased concentration (less competition). Тhe company buys or merges with its competitors, suppliers, or other relevant businesses to form a larger company. From a business perspective, there is little difference between a merger and an acquisition. In both cases, the result is a company with joint assets, employees, and a customer base from the merged or acquired companies. Four categories depending upon how the acquisition takes place: friendly, hostile, reverse, or backflip 1. Friendly takeover (пријателско превземање) means that the takeover is agreed by the management and the stockholders of both companies. However, the takeover is initiated by one of the companies making it technically different from a merger. In practice, there is no difference between mergers and friendly acquisitions. The Facebook acquisition of WhatsApp is an example of a friendly takeover 2. Hostile takeover (непријателско превземање) implies that the management of the target company is unwilling to accept the takeover, but for some reason, the takeover nevertheless takes place. Methods may include offering a price well over the market value of the company, persuading enough stockholders to vote for a new and friendly management, or buying stocks directly or via intermediaries to gain control of the company. 3. Reverse takeover (обратно превземање)is a term used for takeover of a public company by a private company so that the private company can go public bypassing the complex process of going public itself. One example from digital economy is the reverse takeover of the public US mobile operator Metro PLC by the privately owned T-Mobile USA (Deutsche Telecom) to form the new public company T-Mobile US, the third largest mobile operator in the USA. 4. Backflip takeover (Превземање наназад) is an acquisition where the acquirer makes itself a subsidiary of the acquired company, usually because the brand name of the acquired company is better known. The Danish video game producer Interceptor Entertainment acquired the American company 3D Realms in 2014; moved its headquarters to Aalborg, Denmark; and continued its business under the name 3D Realms Мотиви Oслободување од потенцијалните конкуренти Зголемување на корисничка база Зголемување на удел на пазарот Зголемување на приходите Проширување на компанијата во нови технологии Стекнување нови вештини и технологии (на пример, стартап компании) Проширување во нови пазарни сегменти Развивање на ветувачки концепт „ Стекнување пристап до патенти Motivations Getting rid of a competitor by first acquiring and then shutting down the competitor; also referred to as killer or zombie acquisition Increasing the user base by merging the markets of the two companies. Achieving economy of scale advantages since merging two companies often reduces common costs for administration, research, marketing, inventory, and other expenses. Getting control of larger parts of the production and delivery chain; for example, a mobile network operator acquiring retailers selling smartphones, tablets, and other terminal equipment. Increasing market shares, for example, by attaching a competitor as a subsidiary. Increasing revenues by absorbing a competitor and use the increased market power to set prices and thereby raising the revenues to more than the previous sum of revenues of the two companies. Improving geographical diversification by acquiring similar companies offering the same service or good in a different geographical region. Increasing the product portfolio, for example, offering video games as a supplement on a social media platform. Utilizing synergy between different product categories, for example, acquiring companies producing complementary products. Acquiring new skills and technologies, for example, buying promising startup companies or manufacturers of highly specialized equipment or services. Expanding into new profitable market segments. This is one of the reasons why Google bought YouTube. Marketing under a more recognized brand. This is often the motive behind backflip takeovers as explained above. Developing a promising concept, for example, by buying startups. Acquiring access to patents, protected content, shielded brand names, and other IPR. What is Organic Growth? Organic growth is the process by which a company expands on its own capacity. In an organic growth strategy, a business utilizes all of its resources – without the need to borrow – to expand its operations and grow the company. Organic growth is typically marked by an increase in output, greater efficiency and speed with production, higher revenue, and improved cash flow. It is critical for the success of a company. Three Primary Strategies for Organic Growth There are three primary strategies that the majority of companies pursue in order to facilitate organic growth: 1.Continual optimization of commercial activities, which involves how goods and services are priced, marketed, and sold 2.Reallocating funds into activities – e.g., production of high-earning goods – that fuel earnings and growth 3.Developing new models for operations or creating and developing new goods to sell and/or services to offer Most companies choose to focus on one of the core strategies mentioned above to fuel organic growth, as pursuing more than one can make it less clear what actions within a strategy are working and which aren’t. Also, as growth typically requires significant expenditures, it may be difficult for a company to fund more than one growth strategy at a time. A well-rounded company will likely adopt or practice all of the strategies at some point. However, they usually only attempt one strategy at a time. Generally, only the top-tier level companies opt to utilize more than one strategy at once. They are companies that typically have more resources at their disposal. Organic Growth vs. Inorganic Growth Inorganic growth, by comparison, is accomplished by using resources or growth opportunities outside of a company’s own means. It includes things such as taking loans and entering into mergers and acquisitions. Inorganic growth almost always relies on securing outside capital or resources but may enable more rapid expansion. Organic growth, on the other hand, relies on intrinsic resources and skills to fuel a slower, more natural growth. Organic Growth and Understanding a Targeted Client Base One of the most fundamentally sound things a company can do to fuel organic growth is to understand its target market. Consistent research into the way the target customers/clients think and make decisions helps a company understand where to invest the majority of their funds (into the goods and services most purchased), what new products or services the target clientele would enjoy and use, and tailoring the marketing and pricing of products and services toward the clientele who are most frequently patrons. Final Word Organic growth is ultimately often more difficult to come by because it takes longer and it usually requires a shift in how the company operates. Still, organic growth is arguably better in the long term because it prevents the loss of a company as an independent entity (versus a merger or acquisition) and it also prevents a company from taking on substantial debt (through loans or borrowed resources). Хоризонтална и вертикална интеграција Horizontal integration implies that a company merges with or acquires another company in the same market segment. The motive is either to get rid of a competitor or to build a company with a larger customer base and increased economic value. Facebook’s acquisition of WhatsApp in 2014 is an example of a horizontal acquisition. The motive of vertical integration is to capture or secure a larger part of the company’s supply chain. Backward or upstream vertical integration implies that the company acquires control over suppliers producing input to the company’s own product; for example, an application service provider merging with a content provider. Forward or downstream vertical integration implies that the acquires control over the delivery of services to the customers; for example, a network provider (NP) offering direct access to the users—that is, integrating with an ISP. Google’s acquisition of parts of HTC in 2017 is an example of backward vertical integration since Google took control over the production of mobile phones (user equipment). Forward or downstream vertical integration implies that the company acquires control over parts of its delivery chain or enters related business domains, in which its prime services are used as an input. The role of national regulators and other governing bodies is to supervise the market evolution and to avoid the formation of de-facto monopolies. Market share and revenue are not the only factors determining whether a company is a monopoly. The total number of users and the rate of growth of the number of users are also important factors to be considered in order to regulate digital markets. If one company gets the lead in a market with strong network effects, then with time, the company may become a de-facto monopoly. How does Google acquire new companies and products 1. How does Google make acquisitions? Google acquires companies and products by conducting various types of searches. Google may recruit a company through an unsolicited proposal, or Google may be approached by a company with a product or service that meets the company's criteria. When considering an acquisition, Google reviews factors such as the potential size and growth of the target company, the strength of the team and its mission, as well as any unique assets or technology that could be useful to Google. If all checks out, Google enters into a binding agreement to purchase the target company. 2. Overview of Google's acquisition strategies Google has traditionally been a very acquisitive company, acquiring companies and products to bolster its existing offerings and expand its reach. Here's an overview of Google's acquisition strategies: 1.Acquisition via organic growth: Google has always been aggressive in building its own business through organic growth. This means investing in new products and services that are useful to users, as well as developing relationships with key partners. This strategy has helped Google become the dominant search engine on the web, as well as the owner of popular apps like Gmail and YouTube. 2.acquisition via venture capital: In addition to organic growth, Google also relies on venture capital for acquisitions. Venture capitalists provide startup companies with funding in exchange for a stake in the company, which often gives Google a head start when it comes to negotiating terms for an acquisition. Some notable acquisitions made using this strategy include Blogger (acquired in 2006) and YouTube (acquired in 2008). 3.Acquisition via debt financing: In some cases, Google may opt to borrow money to acquire a company outright. This allows the company to acquire a larger stake in the business without having to give up any assets or dilute its stockholder base, which can be helpful if negotiations go poorly or if certain conditions are not met after an acquisition is completed (such as a significant change in management). Some notable acquisitions made using this strategy include DoubleClick (acquired in 2007) and Nest (acquired in 2014). 3. How Google evaluates potential acquisitions? Google acquires companies and products in a variety of ways. Some acquisitions are through bidding processes, while others are made without any bidding process at all. When Google decides to acquire a company, it first looks at the potential strategic fit between the two companies. For example, Google could acquire a company that has a similar product or service to its own. Alternatively, Google may decide to acquise a company that has a unique and valuable product or service. Once the strategic fit is determined, Google evaluates the financial and management prospects of the target company. This evaluation includes assessing the target company's current revenue and profit, as well as its future potential. Finally, if all of these factors check out and believe that an acquisition would be beneficial for both companies, Google will go ahead with it. 4. How has Google's acquisition approach changed over the years? Google has a long and varied history of acquiring new companies and products. In the early days, Google would simply outbid other companies for promising startups. However, as Google's search dominance grew, the company shifted its focus to acquiring smaller startups that could help it innovate faster. Today, Google's acquisition approach is still largely geared towards acquiring smaller startups with potential to grow rapidly. However, the company has also begun to invest in larger companies with a strong track record of innovation and growth. 5. Recent acquisitions by Google Google acquires new companies and products by various methods. One way is through mergers and acquisitions (M&A). Google has made many M&A deals in the past, including its most recent purchase of Waze for $1 billion. Another way Google acquires new companies is through licensing agreements. For example, Google licenses its search engine technology to corporations so they can provide a search engine for their websites. This way, Google does not have to develop its own search engine technology. Google also acquires new companies through investments. For example, Google invested in Uber Technologies Inc., Airbnb Inc., and Stripe Inc. These investments allow Google to gain access to the businesses' innovative technologies and learn from their successes and failures. 6. Google's approach to nurturing acquired businesses Google acquires businesses and products in a variety of ways. Some acquisitions are made through Google search, where the company looks for companies that have innovative technology or offer useful products and services. Other acquisitions are made through Google's venture capital arm, Google Ventures. This arm invests in early-stage companies and helps them grow into successful businesses. Finally, Google also makes acquisitions through its larger subsidiaries, such as YouTube and Android. These subsidiaries provide Google with additional resources, such as expertise in specific industries or customer bases. 7. What to watch for in future Google acquisitions? Google has a history of acquiring new companies and products in a variety of ways, some of which investors should watch for in the future. Here's a closer look at some of Google's most notable acquisitions: 2) AdWords: In 2008, Google acquired AdWords, an advertising platform that allows businesses to place ads on search engines. Today, AdWords is one of Google's most valuable assets and is used by billions of people each month. 3) Street View: In 2010, Google acquired Street View, a technology that allows users to view maps inside buildings without having to go outside. This service has been used by many businesses to understand customer behavior and improve customer service skills. 4) Android: In 2009, Google acquired Android LLC., developer of the popular mobile operating system Android. Today, Android powers millions of devices around the world and is one of Google's most important investments 8. How Google integrates acquired companies into its overall business? Google acquires new companies and products by integrating them into its overall business. Google looks for companies with innovative technology, a large user base, and a strategic position in the market. Once Google acquires a company, it brings on its existing employees to work on projects related to the newly acquired company's product or service. Additionally, Google may invest in the newly acquired company and give it access to its resources (e.g., engineers, data) to help it grow faster. The importance of data and analytics in acquisitions 9. Importance of Data and Analytics Google is constantly on the lookout for new product and company acquisitions. Whether it's acquiring a new artificial intelligence firm or a web search engine, data and analytics are integral to the process. By understanding what customers want, how they're using the internet, and what other businesses are doing, Google can make informed decisions about potential acquisitions. 10. The future of Google's acquisition strategy Google's acquisition strategy is one of the company's most important areas of focus. Google has a history of acquiring new companies and products to supplement its existing services. Google's acquisition strategy is based on three factors: what the company wants, what it can do, and what it can afford. One of the best examples of Google's acquisition strategy is the purchase of YouTube in 2006. YouTube was a video sharing site that had not yet achieved widespread popularity. At the time, Google was looking for a new way to expand its services into online video content delivery and advertising. YouTube fit that need perfectly and became an essential part of Google's portfolio. Today, Google's acquisition strategy is focused on two main areas: artificial intelligence (AI) and cloud computing infrastructure providers. AI has become one of the most important areas in technology today, and many companies are investing in this field to stay ahead of competitors. Cloud computing providers offer a range of services that make it easier for businesses to access data and manage their operations across multiple devices. Recent acquisitions have included DeepMind Technologies Ltd., Nest Labs Inc., AppNexus Inc., and DoubleClick Inc.. These acquisitions help Google continue to develop its own AI technology as well as expand its offerings beyond search into other areas such as marketing automation and customer engagement platforms. Google's most recent acquisition - Cameyo is a Application virtualization, founded in 2012 and located in Edinburgh. Google acquired it in June 2024. Есејски прашања 1. Органски и неоргански раст – примери 2. Спојувања и превземања – дефиниции, наведете бар три мотиви, примери 3. Хоризонтална и вертикална интеграција