@zingales_it & @grolnik: A Way to Own Your Social-Media Data

The European Union imposed a 2.4 billion euro ($2.7 billion) fine on Google last Tuesday for manipulating its search engine results to favor its own comparison shopping service. It is just the latest institution to recognize the increasing monopolization of the technology industry.

Google has about a 90 percent market share in searches, while Facebook has a penetration of about 89 percent of internet users. Economists have a fancy name for this phenomenon: “network externalities.” In traditional product markets, one customer’s choice (for example, a particular car tire) does not directly affect other individuals’ preferences for that product, and competition generally ensures that consumers enjoy the best products at the lowest possible price.

In the market for social media, by contrast, when one customer uses Facebook over Myspace, it has a direct (and positive) impact on other customers’ preferences for the same social network: I want to be in the social network where my friends are. These markets naturally tend toward a monopoly.

Read the post on the NY Times

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