What are digital monopolies and why are they important?

Are digital monopolies harmful or do they offer advantages? Explore the impact of dominant tech giants, their influence on competition, data privacy, and innovation.

Market competition can encourage lower prices, higher quality goods, more variety, innovation and demand. But when one provider has a monopoly on a market – digital or otherwise – competition is non-existent. Does that mean digital monopolies are damaging or do they create opportunities too?  

What is a digital monopoly? 

A ‘monopoly’ refers to the exclusive possession or control of or trade in a specific commodity or service. A digital monopoly, according to Øverby and Audestad (2021), is the term used to describe one of the five major market forms operating within the digital economy. 

There are three main metrics used to assess what can be classified as a digital monopoly: 

• The company is a major player whose products account for a significant share of users or traffic. 

• The company’s products have no competitors, or there is little competition on the market. 

• The company obtains significant competitive advantages in related products due to its dominant position in one market. 

What are the disadvantages of a digital monopoly? 

Any market without healthy competition gives the monopoly tremendous control, power and influence over consumers, suppliers and potential competitors, who are effectively barred from market entry. There is a concern that monopolies could abuse their position of power, potentially reducing performance, innovation and quality, or raising prices while making no effort to lower safety risks, waste, or inefficiencies.  

That is why governments monitor and occasionally intervene to prevent a monopoly dominating a particular market sector. Through the Competition and Markets Authority (CMA) in the UK, for example, the Federal Trade Commission (FTC) in the US, or the European Union’s (EU) Competitor Directorate (DG-Comp).  

The biggest threats from digital monopolies like Facebook, Amazon, Apple, Samsung and Google are linked to the data they capture and their influence as a gatekeeper to both the data and the consumers themselves. This includes: 

• Data breaches: The digital monopolies hold a vast amount of personal data from individuals and organisations. Security breaches can lead to sensitive information being released.  

• Data control: Exclusive access to personal data carries the risk of it being misused, for example, to target or inadvertently reveal vulnerable members of society.  

• Attention as currency: The increasing amount of time spent online and on social media can compromise behaviour, almost brainwashing individuals by bombarding them with constant advertising or messaging, and cutting them off from physical interactions. 

• Lack of transparency: Personal information is being collected continuously online, and even users approve cookies, they often don’t fully understand the extent or type of information being captured, what it will be used for, and who it will be shared with. 

• Political influence: High profile social media campaigns or ‘fake news’ can manipulate public perceptions and influence the outcomes of general elections and other democratic processes.  

The EU’s Digital Markets Act (DMA) 2022 was one of the first regulatory tools to comprehensively regulate the ‘gatekeeper’ power of the largest digital companies. It established criteria to identify the large digital platforms providing so called core platform services, such as online search engines, app stores, and messenger services.

It also set out gatekeeper obligations and prohibitions. For example, gatekeepers must not track end users outside of the gatekeepers' core platform service for the purpose of targeted advertising, without effective consent having been granted. 

What are the advantages of a digital monopoly? 

Digital monopolies – whether they are selling products (Amazon, eBay) or services (Uber, Just Eat) or offering communication platforms (Facebook, X) – operate at large, national and often global levels. This can lead to the economies of scale that actually lower transaction/price costs for both the monopoly and its users.  

For consumers, it can be more convenient, potentially saving time, cost and effort, to go to one platform or a one-stop-shop for almost everything. The rest of the world also benefits from the innovation and insight that comes from ongoing research and development (R&D) by these large digital providers, who have the financial resources and recognise the need maintain their pole position and customer/supplier loyalty. 

Meta, for example, boasts that its “diverse team of scientists and engineers are tackling the world's most complex technology challenges”. Current projects include one to measure privacy concerns – one of the greatest risks – across a range of popular apps and topics. Meanwhile, Amazon was reported to have spent $42 billion on R&D in 2021. One its biggest research drives is the core global challenge of sustainability, supporting the goal to reach net zero carbon emissions by 2040. 

Want to critically assess the digital landscape? 

On the King's online MSc in Digital Economies, you’ll examine the dominance of tech companies and the pervasive influence of digital technologies. Exploring the impact of digital products, processes, and services on companies, communities, and society, you'll develop the knowledge to both develop and critically assess novel approaches to digital innovation. Find out more about the Digital Economies MSc: