Monday, March 02, 2009

Graph Theory of monopoly

On TechCrunch, Eric Clemons, a professor at Wharton, does an analysis of whether Google could soon face antitrust charges. What's interesting is his analysis of when monopoly power may be viewed to have kicked in for electronic markets, which are apparently harder to analyse than "regular" markets.

His analysis boils down to a separator construction: analyzing two cases of market power that look similar but actually are different, he argues that the key difference is that in one case (airline reservations) the key monopoly-controlling entity separated the customers from the suppliers in a graph sense: all paths from customers to airlines went through the reservation systems. In a different example (bank ATMs), he showed that this was not the case, and in fact no actual monopoly developed, even though the entity had 100% market control.

He uses this to conclude that there is a potential (lots of caveats) antitrust case against Google, based partly on the fact that Google separates customers from companies wishing to ply their services, and controls the advertising mechanisms by which corporations talk to customers. I imagine that claiming that we ONLY search online is a stretch, and also it would be hard to argue that we are forced to use Google for this purpose - he addresses these points as well.

Overall an interesting argument: I was of course most interested in the graph-theoretic reasoning.

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