One of the arguments we (often) hear is that the new digital business model (so-called platform economies) will operate in a winner-take-all market. That we will be inundated with monopolies. Certainly that is the line anti-trust regulators are pushing – mostly because they are bureaucrats and face bureaucratic incentives.
To be a monopoly some very stringent conditions need to be met:
- No close substitutes for the product
- Barriers to entry for new competitors
- Barriers to exit for consumers
The mischief that monopolies cause is that they restrict output and raise prices.
Of course demonstrating this combination of characteristics and features is somewhat difficult. So what anti-trust regulators are done is simply target size. Big is bad.
But … we read in the Wall Street Journal relating to Netflix:
But a line in its latest earnings report was a stunner: Its U.S. subscribers actually dropped in the second quarter.
More Americans left the service than signed up. Wow.
Netflix blamed a weak lineup of new shows. It said growth would soon return. And maybe it will, but the episode reminds us of one way streaming is different from cable TV: the ease of quitting. And with the arrival now of determined competitors, Netflix’s next decade is likely to be very different from its last.
There is no barrier to exit. Consumers can leave very easily and cheaply.
What about entry?
Into this challenge Disney plans to inject a new complication. In the fall, it will launch its own much-awaited streaming service at $6.99 a month, about half the $12.99 Netflix charges for its basic high-definition service.
… Even worse, several giant competitors, such as Apple , Amazon and AT&T, basically are using streaming as a sweetener, sometimes even as a free add-on, for much larger underlying businesses.
So here is the thing – there are no barriers to entry or exit. Prices for consumers are falling. Choice is expanding.