Monopolies in the Internet Industry and Their Impact

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Monopolies in the Internet industry and their impact

With the development of the global Internet, which has profoundly affected people’s daily lives, Internet platforms have risen rapidly. Popiel (2018) states that technology giants have achieved near-monopolistic positions in their respective global markets, which has significant implications for the increasing commercialization of the Internet. Internet platforms have taken absolute dominance in their respective markets, forming an oligopoly situation, especially in searching, social media, e-commerce, and online dating; where user inertia can easily be formed, the performance is more prominent. This paper will analyze the formation of Internet oligopoly and its performance and further analyze the impact on individuals and society, including consumer welfare, market competition, innovation, and entrepreneurship.

The lack of diversity and the formation of monopolies have led some Internet companies to take solid exclusionary measures to gain lucrative returns, thus affecting the order of the market and the progress of innovation. The reduction of diversity often starts with the development of enterprises. It is also a common practice in the international community to punish monopolies in the Internet field. Internet platforms monopolize user traffic due to network effects, bilateral market effects, diminishing marginal returns, and the platform’s use of data to continuously optimize its services, enabling many users to converge on the platform. Moreover, the platform has increased its traffic advantage by using its traffic advantage to expand horizontally and vertically through business expansion and other means. A case in point is the antitrust litigation between the Federal Trade Commission and Facebook, alleging that Facebook has imposed anticompetitive conditions in recent years through merger expansion and API interface restrictions. Facebook has even required that third-party applications not develop competing features and not connect to or promote other social networking services. These actions not only weaken the competitive threat from competitors but also profoundly affect the development and progress of the market and technology. For example, in 2013, Twitter launched the app Vine to allow users to shoot and share short video clips, and in response, Facebook shut down the API that allowed Vine to access friends through Facebook.

Robert Epstein (2018) points out that search engines can effectively influence users’ tendencies by manipulating their knowledge distribution, which is the search engine manipulation effect (SEME), through which search engines strengthen their traffic dominance. The European Union and its member states have recently conducted anti-monopoly investigations against Google, Amazon, Facebook, and other Internet companies (Iacobucci & Ducci, 2019). Therefore, enterprises must create an open and inclusive development environment, encourage free competition and diversification, create space for innovation, and promote the sound development of the Internet industry development system. Monopoly is not a phenomenon unique to traditional industries; monopoly in the Internet field may seem invisible, but it is particularly harmful. The platform oligopoly brought about by the lack of Internet diversity may have an impact on the order of consumer welfare, market competition, innovation, and entrepreneurship.

To begin with, the reduced diversity of the Internet has led to monopolies that jeopardize the welfare of consumers. In terms of competitive strategy, especially the platform ecosystem with social commerce as the core, it should give full play to its advantages of high user traffic stickiness and strong lock-in effect in the local market. It uses leverage effects and cross-network externalities to transfer its market power to new markets to gain competitive advantages and uses blocking and blocking means to control traffic entry to hinder the development of eco-products from competing platforms (Fukuyama et al., 2021). Consumer interests are usually safeguarded thanks to broader autonomy of choice, and increased competition will force platforms to offer better products or services or even provide subsidies, with some Internet platforms using monopolistic approaches to protect their ecosystem (McMillan, 2018). In order to maintain competitive advantage, some platforms have begun to block the space for user choice and raise user switching costs, exposing potential competitors to high costs of market entry and expansion. Ultimately, such monopolistic behavior objectively destroys and dismantles the diversity that should exist in the digital economy, infringes on the right to independent choice of users within the platform, and affects the competitive relationship between the platform and the platform, the platform, and the operator and other subjects, and this impact will eventually be transmitted to the consumer side, to the detriment of consumer interests.

Moreover, the oligopoly of online enterprises will lead to the exclusion of competition. Oligopoly can distort the normal development of digital markets, including leading to lower quality, using monopoly advantages to gather wealth, and increasing third-party costs. Innovation is the inexhaustible source on which the digital economy is based, and SMEs are the fountainhead of innovation. For SMEs and affiliated application developers, Internet platforms are important channels to connect users and realize the transformation of product and service values. However, based on their interests, some social media platforms abuse their private power of platform autonomy to block SMEs without justifiable reasons and discourage the development of other competitors by giving preferential treatment to intra-ecological and affiliated cooperative enterprises. In intellectual property, the giants’ encroachment on small and medium-sized enterprises and entrepreneurs has been repeated (Kang et al., 2020). Some platform companies use their advantages to exclude potential competitors and define the industry’s rules by their own rules, thus blocking out innovative and competitive latecomers. The result is to squeeze further the user’s right to choose and enlarge their own profit space, bringing an increasing number of implanted ads, increasing royalties, and unbridled arbitrary pricing, which further influences the daily life of individuals and the development of business ecology.

In addition, small and medium-sized enterprises will become another victim of the monopolistic oligarchy. The traffic entrance of super social platforms in the data market is essential in promoting and encouraging SMEs’ innovation. However, their preferential blocking behavior causes traffic resources to tilt, seriously hits the regular order of the market, seriously affects the innovation efficiency of other operators, and inhibits the innovation vitality and potential of market latecomers that do not belong to their ecology. Furthermore, it creates a relatively closed ecosystem by blocking and stifling the innovation that the Internet and technological interoperability could produce. Under the lasting influence of the blocking policy, the oligarchic pattern of the digital economy market will be solidified (Durand & Milberg, 2020). For example, data oligopolies profit from crawling valuable content from photographers, writers, musicians, and other websites and publishing it on their sites. Some companies directly harm competitors on their platforms by reducing the functionality of standalone apps or reducing traffic to standalone apps by making them more challenging to find on their search engines or app stores. Finally, this can achieve a self-reinforcing monopoly and limit innovation. Platforms use their data and traffic monopolies to strengthen their monopoly position through algorithms and other technical means (Colangelo & Maggiolino, 2018). Whatsmore, by enhancing and expanding its services and entering new fields, the platform will form a second and third round of monopoly in new fields, the latter of which will further strengthen its monopoly advantage. For many innovative start-ups, platforms either suppress them in terms of traffic and data. For innovative entrepreneurs, if these monopolistic platforms do not acquire them, it is difficult for them to get a good space for development. Thus, the self-reinforcement of Internet oligopoly suppresses innovative entrepreneurship.

With technologies advancing rapidly, the new round of technological revolution is profoundly changing the reality and network world. In the face of the new pattern, first of all, it is necessary to improve Internet laws and regulations, explore new thinking in digital governance, promptly screen those monopolistic behaviors that hinder the development of innovation, and impose heavy penalties without mercy, so that monopolistic behaviors have no room for survival. The diversity of the Internet is an inherent requirement for maintaining an excellent competitive environment in the digital market and is also a critical path for the successful development of the digital economy. At the stage of traffic stock competition, the intermingled, dynamic and flattened market structure of platform ecology has brought significant challenges to the competitive environment of the digital economy. The monopolistic behavior of Internet enterprises affects the order of fair competition in the market and transmits the monopoly status of a single market to multiple markets, forming a vicious circle.



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