Unstable Networks in the Newly Formed Digital Advertising Triopoly
Apple’s App Tracking Transparency embedded in its recent IOS update, has shifted the dynamic in the advertising industry in favor of Apple as Apple users now have their default third party tracking consent set to “opt out” instead of “opt in”. With this, only Apple is privy their users’ data while Facebook and Google lose consumer data and thus the ability to provide as targeted ads as before. As Apple disrupts the duopoly that Facebook and Google had in the advertising industry, they have seen a growing client base while Facebook and Google have seen the number of apps advertising on their platforms decline. With the entry of Apple, we can see that the resulting competitive network in the “big advertising” industry may not be structurally balanced.
With Apple’s entry into advertising, we now have three large competitors, forming a triangular network. Because they are competing against each other, the ties that they have are antagonistic/negative due to their rivalry. Because all three competitors have negative ties against each other, this leads to an opportunity for two of them to team up and form an alliance against the third. This would be an intuitive outcome given the profit maximizing nature of businesses to incentivize driving out additional competition and preventing disruption to the status quo.
In the following diagrams, Node A represents Apple, Node G represents Google, and Node F represents Facebook. The positive and negative signs in the edges represent an alliance or a rivalrous relationship respectively.
Figure 1 shows the initial state with Apple’s entrance into advertising
Figure 2 shows one potential outcome if regulations were not in place to prevent the network from achieving stability.
However, while this may lead to structural balance in the network, in the real world, antitrust laws prevent firms from colluding with one another to eliminate competition due to its negative impacts on consumers. Therefore, it is likely that we see all three edges be negative in this network without achieving structural balance due to regulatory requirements.
What is fascinating here is to see how regulation in competitive markets has the ability to prevent networks from achieving balance.
Works Cited:
https://www.forbes.com/sites/dereksaul/2022/09/06/apple-crashes-advertising-duopoly-google-and-facebooks-stranglehold-loosening-report-finds/?sh=6090278c5386