Classroom Companion: Business

Perfect competition
Monopolistic
competition
Sellers
Buyers
Oligopoly
Monopoly
Monopsony
Oligopsony
Few
Few
MNO
Facebook
Smartphone
manufacturers
Digital
freelance
services
Spotify
Youtube
. Fig. 13.1 Market types. (Authors’ own figure)
 
Chapter 13 · Digital Monopolies and Oligopolies

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199
13
The term natural monopoly was formally defined by William Baumol as “[a]n 
industry in which multi-firm production is more costly than production by a 
monopoly” (Baumol et al., 
1982
). The natural monopoly has 100% market share. 
The closely related term “de facto monopoly” implies that the company may not 
have 100% market share but will have nearly so over a substantial amount of time. 
Therefore, the de facto monopoly is not a true monopoly.
Path dependence caused by strong network effects may, at one point, work in 
favor of one of the competitors who eventually will capture most of the market 
(see 
7
Chap. 
11
). This happened in the competition between Facebook and 
Myspace, in which Facebook took the lead in 2008. Myspace is still active, having 
about one million registered users, while Facebook has 2.2 billion users and is a de 
facto monopoly, as it is more than 2000 times bigger than its competitor. Note that 
the same person may be a registered user of Myspace and Facebook at the same 
time. Membership in one social media network does not exclude simultaneous 
membership in a competing social media network.
As explained in 
7
Chap. 
12
, lock-in implies that it is difficult for a newcomer to 
capture market shares in a market dominated by a de facto monopoly. Though 
Myspace is still active and offers competitive services to Facebook, lock-in in favor 
of Facebook hampers Myspace to capture significant market shares from 
Facebook.
Cost may be a factor in some cases. In the VCR standards war, two incompati-
ble standards are more inefficient as compared to one standard. VHS and Betamax 
are almost identical as seen from the user’s viewpoint provided that the same films 
are available on both standards for approximately the same price. However, the 
filmmakers may view it differently; they must produce two versions of the same 
film for two incompatible media. This is both expensive and cumbersome for the 
production side and will eventually lead to higher prices; therefore, the market 
eventually develops into a de facto monopoly since bandwagon effects, for exam-
ple, that one of the products are more visible in advertisements and, in displays in 
shops, may work in favor of one of the technologies (see 
7
Chap. 
11
 for more 
details).
Sometimes, companies with large market shares—for example, Google—may 
be mistaken to be de facto monopolies. In the search engine market, Google has 
92% of the market, and the rest is divided between Bing (2.5%), Yahoo! (1.5%), 
Baidu (1.5%) (China), and several other search engines with less than 1% market 
share each (Search engine market share worldwide: Dec 2019–Dec 2020. 
StatCounter). The web browser market is shared between Google Chrome (64%), 
Safari (18%), Mozilla Firefox (4.5%), Samsung Internet (3%), and several other 
browsers with small market shares (Browser market share worldwide: Dec 2019–
Dec 2020. StatCounter). In the search engine market, Google is strictly not a de 
facto monopoly since there is still considerable room for competition, and there are 
no strong lock-in mechanisms that bind the user to one particular search engine. 
The market shares in the search engine market have also been rather stable for a 
long period of time. The browser market is certainly not a de facto monopoly, 
though it is dominated by one large provider almost four times bigger than the next 
largest provider.