Network Effects and Antitrust Intervention
The Forbes article brings up the idea of antitrust intervention regarding online businesses. The article states four reasons of justification for antitrust regulators to step in when it comes to online businesses. This comes from how companies are using catch phrases in regard to online data collection of consumers. One of these catch phrases is “data is the new oil” which is used as a metaphor for how data is increasingly becoming more prevalent in today’s society. There is also the idea that data is an “essential facility” however, since data can be reused so it lacks competition. Another justification for the antitrust intervention is the fact that online businesses can use network effects. With these network effects, businesses can more powerful a business can be as it collects more data. Ultimately, that makes it harder for potential new businesses to enter the market. As a result, there is now a barrier to entry which is another argument for the antitrust intervention.
In class we learned about network effects and how there are benefits to following the general consensus. As more people chose 1 singular entity to follow, whether that being a business or service, that entity’s value increases with each additional follower. That way the entity can give their consumers a better service/good, which ultimately makes it harder for other entities or new entities from being in competition with them. In regard to the article, this is the exact reason why it is being discussed in congress that there needs to be antitrust intervention for online businesses. The network effects can lead to one business having too much power due to the increasing value of the entity as more people use/purchase the service or good.