Topic: Science and Technology- developments and their applications and effects in everyday life.
6) A small cohort of technology firms now guards the door to the modern economy. Discuss why information technology markets of today are highly concentrated. Also discuss the need to adapt our regulatory policies to new business models.(250 words)
Why this question
MNCs, especially those based on IT platforms have grown at a tremendous rate owing to their inherent strengths. However as can be easily observed their growth has been highly concentrated and at the same time the regulatory environment has not adapted itself to the rapidly evolving business models. The article looks into those issues in detail.
Discuss- this is an all-encompassing directive which mandates us to write in detail about the key demand of the question. we also have to discuss about the related and important aspects of the question in order to bring out a complete picture of the issue in hand.
Key demand of the question.
The question wants us to write in detail about the reasons as to why the information technology markets of today are highly concentrated and also discuss at length the need to adapt our regulatory policy in line with the newly emerging business models.
Structure of the answer
Introduction– write a few lines about the multi-national, multi-billion IT companies representing the modern economy- Google, Facebook, Amazon, Uber etc.
- Discuss why information technology markets of today are highly concentrated. E.g
- network externality: We need to be on the same network as the person with whom we want to interact.
- The dominant firms benefit from economies of scale
- There are exceptions, of course. Economies of scale and network externalities have not played a paramount role in the markets for digital music and movies, where there are a number of platforms but these services are differentiated by their degree of interaction with the user etc.
- Discuss why there is a need to adapt our regulatory policy in line with the newly emerging business models. E.g
- the reasoning behind traditional competition measures is no longer valid. It is now common for a platform like Google or Facebook to set very low prices—or provide a service for free—on one side of the market and very high prices on the other side.
- And yet, even small digital firms and startups now practice this kind of asymmetric pricing: consider, for example, free online newspapers that are funded wholly by advertising.
- Two-sided markets are prevalent in the digital economy, and a regulator who does not adequately account for this unusual business model could incorrectly declare low pricing to be predatory, or high pricing to be excessive, even though such price structures have also been adopted by the smallest platforms entering the market.
- Regulators, then, will need to refrain from mechanically applying traditional principles of competition policy. When it comes to multi-sided platforms, these principles simply are not applicable in many cases.
Conclusion– based on your discussion, form a fair and a balanced conclusion on the given issue.