November 30, 2010

Really? A Monopoly?

I found a very interesting article involving Google that I previously was not aware of. Apparently, France declared Google a monopoly in late June this year. Navx markets online databases for GPS navigation devices and complained that Google was implementing anticompetitive practices in the online advertising market. Google informed Navx in writing, on 17 November 2009, that advertising for speed camera databases and warning systems was contrary to its content policy, and thus breached the contract. Google’s practices significantly affected Navx’s income and its potential for growth, so Navx retaliated by complaining about Google. So for this – Google is a monopoly?

“Google holds a dominant position on the advertising market related to online searches,” the French authority concluded. “Its search engine enjoys a wide popularity and currently totals around 90 percent of the Web searches made in France. Moreover, there are strong barriers to entry for this activity.” In class, we asked what explains the presence of a monopoly. We concluded that we must assume there are barriers to entry so that the one supplier remains the only supplier. We also asked where the barriers to entry would come from, and concluded that barriers exist because of some kind of public policy or government. We also said that if we see a monopoly without government backing, the monopoly would not survive over time. I do not see any of this in this particular issue. There may be some barriers to entry with online advertising, and I would like to know exactly what strong barriers the French Authority are referring to. (I tried to look it up on their website, but it did not say). The point is there is currently no public policy or government declaring that Google must be the only supplier of online advertising. The Authority claimed that 90 percent of the web searches in France are through Google. This must mean that 10 percent of web searches are through another source. This indicates that Google is not the only supplier of web searches and online advertising, but that there are others in the industry. Therefore, Google is not the only supplier, and is not a true monopoly. However, they clearly dominate the market at this time in online advertising. Google has been around and dominating the market for some time now. If we do consider Google as a monopoly, and it does not have government backing, then we would expect the monopoly not to persist over time. So how is it that Google still exists?

The author says, “Once a company comes to understand that being too successful may be bad for its future, it is really hard to stay on the cutting edge.” Here, I think the author is mistaken. Just because Google is ahead of its competitors and is successful, does not mean that it will be bad for them in the future. For a true monopoly, I’m not sure if there is such thing as being too successful. After all, we would probably consider that a monopoly is “too successful” in the first place since they are already the only supplier. As they become successful and make a profit, they will remain in the current industry as there are barriers to entry and this does not necessarily mean it will be bad for their future as the author implies. It actually may have more positive signs for the future rather than negative signs.

Not only is the author wrong in evaluating the situation with some of his comments, I think that the French Competition Authority was wrong in the first place in determining whether or not Google is a true monopoly. I think Navx was scared for the future of their company and complained about Google to save their own butts. What do you think?

(Here is some important info from the article, so you don’t have to read it all - “Having determined Google has a monopoly, the agency ordered the company to resume offering its services to a French company called Navx, which sells a database to let drivers know where the French police are likely to have radar traps in operation. Google found Navx’s business distasteful — it is arguable that Navx’s customers use the product to help them act illegally with impunity — so last November, Google stopped doing business with Navx. As a result, those using search terms like “radar trap” in French could no longer learn of the company’s product and, a few clicks later, buy it. Navx complained to the French government, saying its sales had plunged and that as a result it was facing problems raising capital. On Wednesday, the authority ordered Google to resume selling ads to Navx and to produce clear policies on when advertisers would be turned down.”) hmmmmm.....

1 comment:

Larry Eubanks said...

Sounds like you could also use this issue for 453 since I smell rent seeking.

Let me try to understand the idea. Google's search engine is a monopoly, right? The concern with a monopoly is supposed to be that the monopoly has higher prices than if there was no monopoly. Well, I don't remember paying to use Google's search engine. Nor do I pay to use Google's Blogger, nor it's calendar, nor it's email.