Economics: Principals, Problems, and Policies, Essay Example

The US Federal Trade Commission (FTC) has subpoenaed Apple due to an investigation into Google regarding their dominance in the search engine market. The subpoena is requesting Apple to explain the reasoning behind their use of Google maps as well as the search results integrated with their iOS. The reason that the FTC is investigating Google for alleged anti-trust behavior attributes to the many internet practices which Google may have committed. These include accusations of Google violating users’ privacy by accessing personal information without the users’ consent and promoting Google products over those of other companies in order to lock them out of sales. Other companies have claimed that Google was locking them out of sales by driving users to click Google products. The FTC is interested as to why Google is the preferred maps and search engine in all of Apple’s products. (Times, 2012)

Google operates in an oligopoly market structure. This means that they are in competition within the same industry as other firms such as Microsoft, Yelp, and Expedia. This is different from a monopoly market structure where there is only one firm in the given industry. Google holds a 75% share of the search engine market. Microsoft has claimed that the agreements between Google and Apple are anti-competitive. This may be due to the possibility that Google and Apple may be colluding with each other to increase their market power. Although there is no true form of price fixing found in this anti-trust case, the collusion between Google and Apple would result in pecuniary costs for other companies. Other non-pecuniary costs for those other companies may include opportunity costs of sales, and the rendering of their advertisements as irrelevant due to the Google promoting their products over others. Specifically, it was section 5 of the FTC act that may have been violated, which prohibits verbatim “unfair methods of competition”. (Brue, 2012)

It is subject to interpretation as to whether or not monopolies and oligopolies are bad for society based on many economic variables. A monopoly which is demonstrating power in its given industry will not be bad for society because they are not in competition with any other firms; as they are the only firm in existence in their industry. The only scenario where a monopoly may be bad for society is if they were neglecting the concerns of their stakeholders. Oligopolies demonstrating market power in their industry through unfair competition, barriers to entry into the market, price fixing, and collusion can definitely result in unfavorable scenarios for many elements of society. If firms create a strong enough barrier to entry into the market, then this prevents other firms from expanding or starting their business into that industry. Without any business in that market, there is no room for growth or revenue. If multiple firms are colluding to price fixing, then this is not only illegal, but is bad for society because it impairs their purchasing power. (Brue, 2012) (Times, 2012)

In many cases, both monopolies and oligopolies can serve good for society. Consider a government monopoly that provides a certain drug for a specific disease. Because the drug is provided by a government monopoly, other unqualified competitors will be prohibited by law to simulate their untested drug. Oligopolies can be beneficial to society given that they do not engage in collusion, price fixing, anti-trusts, or any other forms of unfair methods of competition. They provide the demanded products and services to society and reasonable and affordable prices, and stimulate the economy with their sales revenue which is also taxed. In a health oligopoly market, there is equilibrium which minimized deadweight loss to society. (Brue, 2012)

References

Brue, F. (2012). Economics: Principals, Problems, and Policies. McGraw-Hill.

Times, I. B. (2012, March 14). Apple Subpoenaed by FTC Over Google Antitrust Investigation. Retrieved from International Business Times.