Chapter 12
Internet Economics: Networks and Platforms
IN THIS CHAPTER
Understanding how digital versions of economies of scale drive internet oligopolies
Explaining why so many digital products are given away for free
Noting the power of network effects
Explaining how digital platforms decide whom — and how much — to charge
The digital economy is dominated by large oligopoly firms like Apple and Google that display an economic behavior that was entirely unknown before the advent of the internet: that of a major firm giving away its main product for free.
This phenomenon has been a boon for consumers, who can access and enjoy an almost incomprehensibly wide variety of business and entertainment services at no cost. But it has, simultaneously, been quite confounding for government antitrust (antimonopoly) regulators who are normally very concerned whenever major companies dominate their respective industries.
If U.S. Steel, for instance, controlled 93 percent of the entire market for steel production in the United States, regulators would aggressively investigate whether it was using ...
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