Introduction
The internet search industry has experienced a rapid increase since its discovery. Search engines rank the highest among the most visited sites on the internet. The fact that they focus on providing relevant information from the internet to the consumers has significantly contributed to the success of such companies. Due to the high internet traffic that search engines bear, e-commerce businesses have sought to use these sites for advertising their products making these companies gain high-profit margins. The market has numerous search engines but companies such as Google have established their stronghold in this industry, thus, deemed to have created a monopoly in it.
The Search Engine Industry Analysis
As far as technology goes, Google is one of the leading companies around the world. Started as a PageRank system by Larry Page and a web searching tool by Sergey Bin, Google is one of the world’s fastest-growing technology firms. The company’s success lies in the wide portfolio of services that it offers. More specifically, Google enables users to search for PD files, PowerPoint presentations, PostScript documents, images, and websites. Since the company is linked to at least one billion messages, 17 million images, and 25 billion websites, it is one of the world’s most reliable web search tools (Tran, 2017). With such a wide range of services offered, Google is able to generate significant revenue. According to Graham (2017), the company has two main advertisement features – Google properties and Google Network Members. Google properties are used to host advertisements for Google’s own products, such as Gmail, whereas Google Network Members hosts advertisements for third parties through AdSense. Since Google processes most of the web searches, it can advertise to most people around the world and this has enabled it to monopolize the web search industry.
A monopoly is described as a situation where a single supplier exists in the market. Under the conventional economic analysis, monopoly offers imperfect competition acting as an opposite to perfect competition (Pfeffer & Huckenbeck, 2020). Using the demand curve analysis, the monopolist demand curve is downward sloping as they have control of one of the significant factors that affect the market, price. In essence, the demand within a market is only met by a single supplier at the lowest price. If other suppliers or firms seek entry into the market and cause supply, they are either fail or are merged by the monopolist. For this reason, price discrimination arises.
While price discrimination is a rampant practice, it can only exist under a specific set of circumstances. Firstly, price discrimination is only feasible when the firms in question have short-run market power. The other circumstance for price discrimination is when it is possible to directly or indirectly segment consumers. The other condition for price discrimination is when it is infeasible to arbitrage across goods that have been priced differently. With at least one of these conditions in the market, a particular firm may have gained an incentive to adopt a price discrimination model (Lindgren et al., 2020). However, the kind of price discrimination that will occur will be dependent on the availability of segmentation mechanisms, the nature of the market power, and the type of consumer heterogeneity.
The popularity of price discrimination in the modern-day marketplace is influenced by the nature of competition. In addition to the factors that breed it, price discrimination also occurs as a result of imperfect competition. Despite the possibility of many market scenarios, price discrimination and imperfect competition often occur simultaneously. Imperfect competition within a marketplace defies the hypothetically competitive market as companies strive to sell their products and services by determining their prices and fighting for their market shares. Consequently, the market imbalance created by monopoly fosters a good environment for price discrimination.
Google has faced lawsuits in different countries due to its monopoly in the search engine industry. The company has claimed that it lacks great market power as there are competitors in the respective industry. Nonetheless, the organization has been called to question for abusing its dominance in the market in regards to online advertising (Pfeffer & Huckenbeck, 2020). Google has ensured its stability and monopoly in the market by causing price discrimination in the search engine market. The product in this industry is the information that a user acquires from using a search site. In this context, Google offers free site visits, so a user has access to unlimited information from it. Therefore, other competitors – Yahoo and Bing – have to offer free entry to their sites to maintain a competitive edge.
Google not only employs price discrimination to its users but the businesses that advertise on its platform. The 80 percent of global web search visits that Google has are sold to businesses in the form of an advertising platform. Many businesses across the globe seek to advertise with Google because they are assured that awareness of their product or services will reach at least 90 percent of the people using the site (Morton & Dinielli, 2020). To ensure this market dominance, Google has entered into many exclusionary agreements with distribution channels such as the mobile browser market. Thus, Google has 97 percent mobile search as compared to the 3 percent that its competitors have. In 2018, UK’s ad revenue was estimated at £6.4 billion with 90 percent of this generated by Google. Moreover, in the US companies pay Google an average of $40 billion annually to place ads on its search engine results (Morton & Dinielli, 2020). Evidently, Google has power to control consumer’s experience, the placement of adverts, the frequency in which ads appear to users and the number of ads that appear to users.
One of the ways that can aid the search engine industry is using the third-degree price discrimination concept. Due to anticompetitive practices that Google has enforced in the search industry market, has led the company face numerous antitrust lawsuits in the US and the European Commission. Despite these lawsuits, Google has continued to enter into exclusionary agreements in a bid to mitigate competition in the search engine industry. The third-degree price discrimination concept works where a market is divided into submarkets, hence market segmentation (Shekhar, n.d.). Under market segmentation, Google will only have power over a specific submarket. In these other submarkets, other factors such as quality control and price regulations have to be enacted. The search industry will be allowed to charge consumers so that businesses that can offer competition to Google can have a direct means of profit maximization. Quality control regulations would be enforced to ensure to improve user experiences. Initiating quality control mechanisms in the industry can help reduce the market power that Google has.
Conclusion
In conclusion, the search engine industry faces an imbalanced market power as Google holds the majority of the same ensuring monopoly over the years. Google’s monopoly has fostered price discrimination in the market so that potential competitors are unable to survive, thus, end up failing or merging with them. It is only by causing market segmentation that price and quality control can be attained.
References
Graham, R. (2017). Google and advertising: Digital capitalism in the context of post-fordism, the reification of language, and the rise of fake news. Palgrave Communications, 3(1), 1-19. Web.
Lindgren, C., Daunfeldt, S., Rudholm, N., & Yella, S. (2020). Is intertemporal price discrimination the cause of price dispersion in markets with low search costs? Applied Economics Letters, 28(11), 968-971. Web.
Morton, F., & Dinielli, D. (2020). Roadmap for a monopolization case against Google regarding the search market. Omidyar Network. Web.
Pfeffer, J., & Huckenbeck, J. (2020). Regulating monopolies- a case example of Google. ResearchGate. Web.
Shekhar, P. (n.d.). Price discrimination under monopoly. Department of Economics. Web.
Tran, S. K. (2017). GOOGLE: A reflection of culture, leader, and management. International Journal of Corporate Social Responsibility, 2(1), 1-14. Web.