An Essay on Moligopoly Model: A Passage to the New Frontier of Digital Economy

An Essay on Moligopoly Model: A Passage to the New Frontier of Digital Economy

Debasish Roy
Copyright: © 2022 |Pages: 49
DOI: 10.4018/978-1-7998-9764-4.ch017
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Abstract

This chapter has attempted to provide a strong structural foundation of the newly emerged economic model of moligopoly in the era of growing digitization. The explosive nature of digitization since the beginning of the first decade of 21st century has posed some major problems for the existing textbook economic models since they have failed to explain the market forms within which the “Big Tech” firms are operating. Going by the standard norms of non-collusive oligopoly models, these technological behemoths do not form reaction functions – although they display all the natural ‘traits' of a monopolist. Thus, the new economic model of moligopoly may be defined as a hybridization of monopoly and oligopoly models, respectively. In this chapter, four major “Tech giants”; namely, Netflix, Microsoft, Facebook, and Google, are taken as sample firms for time series analysis to lay the foundation stone of moligopoly model and its related postulates.
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Introduction

The idea of moligopoly evolved from the findings related to the big technological firms’ business models that not only violated the traditional profit – maximization condition of the firms resulting in the derivation of equilibrium price and output; but simultaneously able to maintain a sustainable difference between the Marginal Revenue (MR) and Marginal Cost (MC) schedules. Hence, technically, the moligopoly model is a clear departure from the existing textbook economic models. Out of many reasons, initially three major reasons could be highlighted for this aberrant functioning of the major firm in digital industry, and they are: Discontinuity, Modularity, and Uncertainty (Petit, 2020; pp. 64 – 171).

To quote Petit (2020, p. 121): “The tech giants operate in an environment characterized by discontinuity. By this, we mean changes, events, or shifts which alter the competitive environment by reallocating strategic advantages and disadvantages among firms”. The sequence of historical discontinuity in digital technology may be illustrated in Table 1.

Table 1.
Sequence of historical discontinuities in digital technology (Source: Petit, 2020; p. 123)
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The concept of modularity may be defined as the economic process / processes that helps / help to combine (recombine) new products or services to the existing market at little cost (Dong et al., 2017). It is characterized by pervasiveness in the market accompanied by fierce competition to usher in random arrivals of new products and services.

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