Introduction
Network effects play a critical role in the development of digital advertising markets, frequently giving a significant competitive advantage to established companies. In the advertising sector, Google is the most notable example of a company that everybody knows about. This popularity creates a powerful network effect, attracting more and more users and generating more revenue. Ultimately, although digital advertising markets naturally tend to monopolize because of network effects, it is not the only cause of Google’s domination, and the company has exploited its position to unlawfully harm competition.
Network Effects and Monopolization
In general, network effects imply a situation when a company exponentially grows due to an increasing number of customers. This phenomenon occurs because people tend to tell their families, friends, and colleagues about their experiences. The concept of network effects is particularly critical in the digital advertising markets and social media platforms that typically demonstrate an exponential growth curve (Holt & Hammeke, 2021). In other words, the more users the platforms have, the more additional customers they attract.
In many cases, it creates a monopolization effect when a single company achieves a dominant position in the industry, and most people use it and advise it to their friends. For instance, Google, Apple, Amazon, and Facebook are some of the largest platform-based companies that utilize network effects to their benefit (Holt & Hammeke, 2021). Their scope of influence is so vast in the digital world that many governments and institutions have to implement additional regulations to preserve competition and prevent complete monopolization (Holt & Hammeke, 2021). In Europe, the Digital Services Act provides strict guidelines concerning how prominent business platforms can interact with users (Holt & Hammeke, 2021). Ultimately, it shows that digital advertising markets tend to monopolize because of network effects, and governments have to implement regulations to prevent the domination of the largest companies in the industry.
Google Monopolization and Unlawful Practices
Although Google tends to grow because of its vast scope of influence and powerful network effects, it also utilizes unlawful tactics to hurt competition. Over the years, the company has been sued numerous times in various countries for breaking antitrust policies and other regulations (Paul, 2021; Wadhwani, 2022). Some of Google’s largest fines in its recent history include a €1.49B penalty for breaching EU antitrust rules, $268M for violating regulations in France, and many of the lawsuits are still ongoing (Wadhwani, 2022). In addition to antitrust issues, Google has been accused of market manipulation, unlawful restrictions on Android manufacturers, and other violations (Paul, 2021; Wadhwani, 2022). In many of these cases, governments have provided sufficient evidence to prove Google’s illegal activity, winning the lawsuits. As a result, it is evident that Google has utilized multiple unlawful practices to intentionally harm competition and grow in the digital advertising market.
Conclusion
Network effects can help companies grow significantly, eventually leading to monopolization if the governments and legal institutions do not control this expansion. However, as the current analysis has shown, some companies utilize unlawful practices in addition to network effects to dominate markets. Over its history, Google has been proven to breach numerous regulations, resulting in antitrust and market manipulation fines. The company lost billions of dollars due to lawsuits; however, its position as the dominant company in the digital advertising sector remains unhinged. It shows that although Google tends to violate many regulations, its robust network effect and intelligent marketing help the company grow.
References
Holt, D., & Hammeke, F. (2021). European Union: Two-sided markets, platforms and network effects. Global Competition Review. Web.
Paul, K. (2020). Google is facing the biggest case in a generation. What could happen? The Guardian. Web.
Wadhwani, S. (2022). Google receives $161.9M antitrust fine in India, its largest online search market. Spice Works. Web.