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Comment by _mhr_ | Hacker News Reader

A natural monopoly is where a company operates in an industry in which either network effects or vertical integration make a big difference for the competitiveness of the company, so it's naturally incentivised within the market for one player to gradually become dominant. I don't buy that Google is a natural monopoly for search, but it makes sense for Amazon and Facebook, since network effects are huge. That's how I interpret it.

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Assuming that's true for Facebook, how could they be so threatened by Instagram? Snapchat? And how could Facebook even make a dent in MySpace, who fit the natural monopoly definition above just as well?

If social networking were a natural monopoly, could a startup really stand a chance?

I feel the fast pace of innovation and customer behavior shifts makes these products very different from oil and railroads.

Facebook isn't really threatened by either of those companies. They own Instagram. They also own WhatsApp, which is overtaking Snapchat in users[1].

[1] https://www.theverge.com/2017/5/3/15537000/whatsapp-stories-...

They were threatened enough to buy them at large valuations is gp's point.

The fact that they were easily able to buy them up and still have piles of cash is exactly the sort of thing that a natural monopolist is able to do.

But anyone can buy a company in its infancy, and neuter it before it becomes a threat. This is possible even if the market is not one that would naturally give rise to monopoly, but rather one where monopoly is ensured by governmental acts or anti-competitive behavior by the most dominant company.

I prefer the more standard definition where a market that naturally tends to monopoly is one where a multi-company state is less efficient than a single company state.

In social networking, despite the power of network effects, having multiple companies is still efficient simply because people want to compartmentalize their networks of friends and interests. People want to use WhatsApp to talk to group A, and Skype to group B.

There's a tendency to assume that since phones were a monopoly, and mail is a monopoly, then all communication and social interaction aides must be naturally monopolies too, but that's not the case. Phones and mail were monopolies due to physical efficiency, not due to the desires of consumers.

Are they all that threatening if they can simply buy them?

>> I don't buy that Google is a

>> natural monopoly for search

Google has most of the search users, creating better data for improving its product (ad targeting and search), so it gets all of the ad budget for search. Data+ad revenue suffocates the competition of users and revenue creating a natural monopoly.

How do you distinguish between a "natural monopoly" and just a "monopoly"?

One clear-cut example of an "unnatural monopoly" would be the state outlawing all but one company in an industry.

A natural monopoly in an area arises from the dynamics of the business itself, other monopolies require external forces to prop them up.

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