Firms like Google, Facebook, Amazon, Apple and Netflix are relatively new players in their respective markets, albeit that all are basically part of the tech industry. They can all be seen as having considerable monopoly power. Despite criticism of their behaviour in some respects (how some treat their workers, whether they pay their fair share of tax,how disruptive some have been to other firms), their success is testament to the fact that customers clearly see them as being good value for money.
Traditional theory might suggest that having gained this monopoly power, these sorts of firms would then increase prices to exploit the opportunity to make additional profits. The evidence suggests this does not seem to be happening.
It is certainly the case that questions have been asked about the prices of Apple’s iPhone – at over €1,000; the iPhone X range did raise eyebrows when it was launched in 2018. The price does not seem to have stopped consumers buying the new phones in large numbers, and the existence of deals and offers with network providers does mean that even these high-priced phones are within reach of many consumers.
These firms are making profits, but the question is could they be making even more profit than they already are?
The answer is almost certainly ‘Yes’ but for some reason they are not choosing to do so. They are not profit maximizing in the way that economic theory would suggest.
One explanation might be that the market in which they operate is relatively contestable. In the case of the firms mentioned, it is not necessarily one market, of course. Amazon, for example, operates in many different markets. It began as a book seller, then branched out into music and then into dozens of different markets. Now it also produces its own tech products like the Echo, tablets, e-readers, and streaming TV and music services. Amazon Music, for example, is a direct competitor to Apple’s iTunes service, and Google has its Google Play Music service.
These firms might be monopolies, but they are acutely aware that if they try to exploit their customers to make higher profits, they risk new entrants coming into the market and taking a share of the profits that exist. If Amazon, for example, charges an excessive price for its music streaming service, then potential entrants can undercut its price, take market share and enjoy the profits that are available in the market. It might not only be other large firms like Google and Apple which might enter the market, but many other potential entrants. The Silicon Valley story is well known and there is no shortage of bright young entrepreneurs out there waiting for an opportunity to enter a market and take advantage of profits that are available.
We might look at the markets which these monopolies operate in as being contestable and thus affecting the behaviour of incumbent firms in those markets. The fear of entry might be sufficient to influence the behaviour of these firms, ensuring that they continue to focus on being competitive, providing a good service to customers, and providing high quality products at reasonable prices. If this is the case, is it really necessary for regulators to intervene in these markets? Surely, it’s a ‘win-win’ situation?

Critical Thinking Questions
1 In your experience of dealing with the firms mentioned in the article, would you say that they do provide good quality products at reasonable prices alongside excellent service? Try to phrase your answer in terms of your understanding of ‘economic efficiency’.
2 In 2018, Apple reported third quarter profits of \($11.5\) billion (€10.14 billion). Amazon’s second quarter profits were recorded as \($2.5\) billion (€2.2 billion). Google’s profits for the first quarter of 2018 stood at \($9.4\) billion (€8.3 billion).
‘With profits this size, we should expect to see more entrants forcing profits back to normal levels if these markets really are contestable.’ Comment on this statement.
3 The markets in which firms like Amazon, Google and Apple operate are too complex to be analyzed at a simple level for contestability. To what extent do you think this is a fair comment on these markets?
4 To what extent is entering and exiting a market such as streaming music costless? Given your answer to this question, does this cast doubt on whether the market for streaming music is contestable?
5 The article notes that regulation of these markets might not be necessary, and that this represents a ‘win-win’
situation. To what extent do you agree with this?