Classroom Companion: Business

13.4 · Conclusions

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the number of users receiving free services (cross-side network effect). Therefore, 
decisions taken in one market segment also depend on decisions taken in the other 
market segment, rendering business modeling and strategic planning intricate.
Monopsony and oligopsony markets have also appeared in the digital economy, 
for example, enterprises offering streaming services where the enterprise buys con-
tent from artists and resells it to their own customers.
 
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Questions
1. Facebook is a multisided platform offering services in several market segments; 
three of them are social networking services, advertisements, and third-party 
services. How will you characterize each of them?
2. The credit card market is served by two-sided platforms. Who are the two cus-
tomer groups served by credit card companies? What type of market do they 
represent?
3. Why can we model the advertisement market of enterprises in the digital econ-
omy both as an oligopoly and as a market with monopolistic competition?
 
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Answers
1. Social networking, de facto monopoly; advertisements, monopolistic competi-
tion because there are several competitors offering different advertisement 
services to different user segments (see also Question 3); third parties, oligop-
sony buying content from third parties and reselling it to social networking 
consumers.
2. The customer groups are card users and merchants. Both user groups are buy-
ing the service from the companies. Since there are few credit card companies, 
both markets are oligopoly markets.
3. The advertisement market in the digital economy is dominated by a few big com-
panies and several small ones. The market may then be modeled as an oligopoly 
since it is only the companies with large market shares in the advertisement mar-
ket that can manipulate the evolution of the market. On the other hand, the 
total advertisement market also contains a large number of non-digital compa-
nies (e.g., newspapers and journals) reaching different segments of the popula-
tion. The advertisement market can then also be modeled as a market with 
monopolistic competition because each stakeholder may offer marketers access 
to different segments of the population (e.g., different age groups) and to special 
interest groups.
References
Baumol, W. J., Panzar, J. C., & Willig, R. D. (1982). Contestable markets and the theory of industry 
structure. Harcourt Brace Jovanovich.
Blair, I. (2019). Mobile app download and usage statistics. BuildFire.
Nelson, R. Global app revenue topped $18 billion last quarter, up 23% year-over-year. Sensor Tower. 
October 10, 2018.
Zuckerberg makes it official: Facebook hits 500 million members. TechCrunch. July 4, 2010.