Reference no: EM133621026
Assignment:
Regulating Monopolies - A Case Example of Google Google has been accused of breaching the competition law, which will be examined further in the following section. Although Google claims, it does not have great market power, some countries file cases against Google because of market power abuse. So did the European Commission within the European Union and fined Google 1.49 billion Euro for abusive practices in online advertising. Google was in focus of the European Commission not only for its potential abuse of market power regarding online advertising. The European Commission states in one of its press releases, that Google has a market share of around 80% in the last ten years in search advertising intermediation. European Commission probably sees market power as well as economic power and therefore the necessity to investigate and, if ultimately required, regulate or penalize Google's behavior.
The discussed possibilities to regulate monopolies were mainly for price settings, so at this point it is important to take a closer look at the regulation options the European Commission thought about. A basic fundament of the economist Ramsey pricing is the inverse elasticity rule. It implies, that the mark-up on prices is proportionate to the inverse of the price elasticity of demand. In other words: The more sensible consumers react on price differences, the lower the mark-up will be and vice versa.
An antitrust case filed by the European Commission within the European Union against Google will be exemplified. European law prohibits firms that hold a dominant position on a given market to abuse that position, for example by charging unfair prices. Therefore, the European Commission has made the following judgement: "Google has abused this market dominance by preventing rivals from competing in the online search advertising intermediation market." Based on a broad range of evidence, the Commission found that Google's conduct harmed competition and consumers, and stifled innovation. Google's rivals were unable to grow and offer alternative online search advertising intermediation services to those of Google. As a result, owners of websites had limited options for monetizing space on these websites and were forced to rely almost solely on Google.
1- Define the term Monopoly and compare it to the "Pure competition".
2- Explain the underlined sentence.
3- What are the main economic consequences Monopoly stated within the article above? Can you add more consequences?
4- The article is stating that "Google's conduct harmed competition". What can be the possible barriers or obstacles preventing competition according to your knowledge? Provide examples.