How the internet is changing economics

Informed Group notebook

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This post is a response to a article of the same name by Kas Thomas.

Kas noticed that in ’the old days’ most markets are dominated by 2, or 3 brands. For instance, Coca Cola and Pepsi dominate the soft drinks market. with the advent of the internet, some new markets have emerged and many existing markets are changing drastically. Kas noticed that the internet based markets seem to be dominated by just 1 big player. Google dominates the Search market, Amazon dominates the on-line bookstore market, FaceBook dominates the social network market, etc.
Kas predicts that major shake-ups are due, as markets move to the internet. Where there was room for several big players before, there will be just 1 left after the transition to an on-line market is complete.

To me, this sounds like a horror scenario. Like Kas, I am no economy major, but having just 1 dominant market player means a practical monopoly. Monopolies mean high prices, or less than top-quality service.

Though this scenario will probably come true in some markets, I think there is hope. Though the internet is apperently a good place to create a monopoly, the opposite is also true. The internet can be a great unifier that provides chances to smaller componies. In the automobile industry for instance, more and more cars are sold through the internet. There are some great search engines that will let you search for your prefered make, model, etc. The result list will show cars offered by big companies, small firms and private cars. This way of working prevents a monopoly and promotes competition, leading to lower prices and higher quality service.
The same goes for electronic equipment for instance. There are several sites that will help you find the right equipment, show specs and reviews and a list of stores that sell the product, ordered cheapest-first.

I also think that the monopoly scenario may be more relevant in the US than in other countries. Amazon for instance is a popular site in Holland, but the local company is doing just as well. The local company has an advantage, as it knows the local market, culture and language.

Finally, I don´t think there will ever be just 1 operating system for our devices. Microsoft managed to create a monopoly 30 years ago when the digital age was just starting, but no one will be able to repeat that now. With Apple, Google and Microsoft there is just too much money and power to let that happen. There is a fashion in OSs. One year iOS will be in vogue and the next year Android will be hip, or the newest Windows version will be the new must-have. I don´t see a monopoly in SmartPhone or Tablet OS any time soon.

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