Is Google a Monopoly? the Two-Headed Monopolist-Duopolist

According to gs.statcounter.com, Google holds a 92% market share of the search industry worldwide. If we look at the digital advertising landscape, competition is heating up as existing, and new entrants are growing their digital advertising footprint (TikTok, Amazon, and Apple in particular). 

How do you assess a monopoly?

monopoly-examples
A monopoly is a market structure characterized by the presence of a single, dominant individual or enterprise that is the sole supplier of a product or service. Monopolies are associated with a lack of competition and an absence of viable product substitutes. As a consequence, the company can sell products and services at prices that result in substantial profits.

A monopoly is a situation in which one player controls the whole market in a particular industry.

That means the monopolist can prevent competition as it can charge high prices without losing market shares.

Or it can leverage its market dominance to prevent others from entering the market. 

Assessing whether Google is a monopoly is a matter of perspective! 

There are various methodologies to assess whether a company holds a monopoly in an industry

Concentration Ratio

That is represented by how much of the sales are controlled by the largest group.

In short, it looks at the concentration of revenues of a company in a market.

From that perspective, Google is definitely the largest player in the digital advertising industry

advertising-industry
The digital advertising industry has become a multi-billion industry dominated by a few key tech players. The industry’s advertising dollars are also fragmented across several small players and publishers across the web. Most of it is consolidated within brands like Google, YouTube, Facebook, Instagram, Amazon, Bing, Twitter, TikTok, which is growing very quickly, and Pinterest.

Yet, until a few years back, Google and Facebook held a monopoly when it came to digital advertising. 

Today, companies start to have a few more options. 

New players like TikTok, Apple, Amazon, and Linkedin too, are becoming good alternatives. 

Profit-Rate as a Measure

The profit rate looks at how high are the profits of the monopolist.

High profits mean the ability of the monopolist to attract high profits without the risk of new entrants into the market.

If we look at that, from this perspective, Google has very wide profit margins. 

tech-companies-profitability
Microsoft is the most profitable tech giant, with 41.6% operating margins, in 2021. Followed by Facebook (Meta) with 39.6% operating margins. Apple, with 29.6% operating margins. Google, with 22.6% operating margins. And Amazon’s 5.2% operating margins.

Lerner’s Measure

The formula used in this case is (P-MC) / P.

Where MC is the marginal cost.

According to this view, in a situation of perfect competition, the price charges are equal or close to MC so that the result would be zero, thus no monopoly.

Where MC becomes 0, then the effect becomes 1. In this scenario, you have a monopoly.

For the sake of simplicity, we’ll look at the net market share of Google in the search industry and the market share in the industry that allows Google to pay the bills: the digital advertising industry.

Google monopolized the search industry but is the digital advertising industry monopolized? 

If you look at the search industry, Google monopolized the market.

It doesn’t matter from which perspective you look.

According to gs.statcounter.com, Google retains more than 92% of the worldwide search market share. 

You should not be surprised, as Google has been keeping a dominant position for a long time.

However, even though Google is a search engine, it monetizes through a hidden revenue business model based on advertising.

So what about that?

Google and Facebook: the duopoly of the digital advertising industry, still? 

If we change our perspective and look at the advertising industry, it’s hard to believe that Google is a monopoly.

However, in the digital advertising industry, Google and Facebook combined have a dominant position.

Yet, this duopoly is quickly getting eroded by other players, which have enough resources to compete. 

Understanding market dominance can be a matter of perspectives

We’ve seen how assessing a monopoly can be a matter of perspective. If we look at the search industry market share, Google is a monopolist.

However, if we look solely at the digital advertising industry, Google and Facebook control the market (for now)!

 

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