8 The challenge of ‘free’ services for competition policy
In the case of platform revenues, it is easy to see that their competition is not based on price as firms try to maintain people’s attention by improving their content rather than decreasing their prices to other firms, as they understand the reach platforms have. Therefore, it has made economists question how competition works and how it is best to analyse and regulate, and how it affects economic growth.
Rikap (2022) explains how firms can collect knowledge through their production process, and once they are ready to innovate can benefit from their competitive advantage and acquire knowledge to create newer innovations. Although this is part of a capitalist system, the digital economy (all those firms concerned with information and communication technology) has increased the rhythm of knowledge accumulation leading to new ways of profiting from data.
Google’s search business is an example. Google’s main service, its search engine, helps us find an internet webpage through a certain keyword or phrase. Our continued use of the engine has allowed it to become more accurate. Every time we search a phrase, we are giving them a bit of knowledge of how we think or what we expect of the search engine. All of our inputs have allowed knowledge collection and have made Google’s search engine better, so much so that we use it constantly and even become the verb to search on the web.
As Google acquired all of this knowledge, intellectual monopoly capital tells us that it can use this knowledge to increase their market power, leading them to increase rents on their web spaces, particularly for advertising. Hence, Google can increase its profits via search engines because it can control part of its supply chain, especially advertising (see Figure 9). Google allows its clients to bid for certain words, so they become the first webpage to show, Google then charges that amount every time a user clicks the sponsored link. This type of pricing permits Google to have a dynamic pricing strategy which allows it to change its prices according to market demand and competition.
The dynamic pricing strategy is a way of pricing discrimination as it entails that firms can change their pricing according to their client’s circumstances and how demand reacts. The control and acquisition of knowledge through consumer data lets firms react rapidly to changes in demand and supply making price discrimination feasible as they have data on both. However, that is not the only reason for it, firms could also benefit from their usage as is the case of Google or social media enterprises, acquiring higher profits therefore diminishing consumer surplus.