Platform economies face competition

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.


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15 Responses to Platform economies face competition

  1. stackja

    Money to start a new business?

  2. Ƶĩppʯ (ȊꞪꞨV)

    The mischief that monopolies cause is that they restrict output and raise prices.

    no! the mischief that digital monopolies cause is they control the flow of information.

  3. Driftforge

    ‘no barriers to entry’

    I’m not sure that citing the entry of one of the larger businesses going entering an aligned market effectively shows a lack of barriers to entry. If anything, it suggests that there are substantial barriers to entry, which are worth surmounting specifically because of this.

    Most startups are playing on niche monopolies they have identified can be established, looking to build them to the point where they can be leveraged into profit.

  4. duncanm

    Netflix got woke.

    Can;t do that unless you truly are a monopoly.

  5. Mater

    no! the mischief that digital monopolies cause is they control the flow of information.

    I see a difference between something like Netflix and Facebook.
    For the Netflix customer, the experience is the same regardless of whether NF has one subscriber or 1 Billion. Sit down and watch a movie of your choice. Easy.
    For the Facebook customer, it’s a pretty lonely experience if FB has only one subscriber. Facebook’s core business derives from being a monopoly (that is, everyone in the same place so everyone sees everyone else). People go there anticipating making contact with nearly anyone they desire. Spread these people over several platforms, and you destroy its main reason for existence. If this occurred, people wouldn’t dump one for another, they’d be forced to join up to all of them in order to have complete coverage…and who’s going to post the same stuff on three different platforms? Not going to happen.
    No, social media does have a barrier to entry, it’s just not obvious. The first (competent) mover has won.

  6. Ƶĩppʯ (ȊꞪꞨV)

    the other point is that with the social platforms, the product is in fact you. you are the product. the more information they collect and mine about you and your contacts the more it’s worth to them. so monopoly is the name of the game. and you give all that shit away to the platforms for free.

  7. Dean G

    A monopoly does not mean you cannot have niche players. If you could then there would be no such thing as a monopoly in the real world. We are yet to see if the new Disney service succeeds or manages to take customers away from Netflix.
    Video platforms are not monopolies, they are cartels.
    Facebook and Google Search are natural monopolies.

  8. I_am_not_a_robot

    So here is the thing – there are no barriers to entry or exit. Prices for consumers are falling. Choice is expanding …

    That is what has attracted me, a late-comer to online streaming, and I agree with the comment above that Netflix shows seem very ‘woke’, similarly Amazon and Stan.
    The over-45 male demographic is not well catered for except for a few I’ve come across on Stan e.g. the deservedly celebrated Breaking Bad and Better Call Saul.

  9. Entropy

    Netflix’s problem is that it mostly did not do content, it licences content from content producers. However, no the content producers are all developing their own streaming service, and they are ratcheting up licence fees to Netflix, or removing the licence altogether to make their own product more attractive.

    Apple is also entering the streaming field. Like Netflix and Amazon Prime, it realises it will have to do its own content to compete with content owners. I reckon it will fall on its arse. Apple should make the best platform to view content produced by content or videos using Apple devices. Not compete with their customers. The only way the Appke streaming service will work is as a sweetener for sales of Apple has no chance as a stand-alone product. So really cheap like prime.

  10. Pyrmonter

    But Doomlord …

    There is a vast left wing conspiracy to silence the Patriotic Conservative Nationalists, dontchaknow.

    These platforms need to be regulated for the Public Interest.

    (Anyone who started on the Cat before 2012, please explain the sarcasm)

  11. Frank Walker from National Tiles

    Great post, Sinclair.

  12. Squirrel

    “The mischief that monopolies cause is that they restrict output and raise prices.”

    This, of course, holds true for public sector monopolies, not just the private sector variety – which might help to explain (for those who are puzzled) why public sector incomes have been rising more quickly than private sector incomes, and why they often have less customer-friendly hours of business.

    It will be fascinating to see whether the reforms for the federal public sector (which our shiny new government apparently has in mind) will make that sector as easy to interact with as the slicker privately owned denizens of the platform economy.

  13. Chris M

    To be a monopoly some very stringent conditions need to be met:

    The three conditions supplied are flawed so give a false definition.

  14. John Constantine

    uawei has been dealt a series of massive blows this week that could halt the company’s global consumer tech ambitions. At first it was Google pulling Huawei’s Android license, then came an Intel and Qualcomm ban, and finally the news that ARM had halted all business with Huawei. Assuming the executive order that caused these issues isn’t rescinded, Huawei will now have to create its own operating system and processor designs to be able to build working smartphones and laptops in the future. Huawei appears to be ready and prepared to at least tackle the software side, but I think it’s doomed to fail outside of China.

    Huawei has been calling this a “plan B” during recent months, as the US has been increasingly more hostile towards the company ahead of the current trade restrictions. This plan involves offering an alternative to both Android and Windows that has reportedly been under development for years. Richard Yu, CEO of Huawei’s consumer business, told CNBC this week that the replacement operating system will be ready by the fourth quarter, with a version available outside China by the second quarter of 2020.

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