PEXA as a Natural Monopoly in the Current Environment Essay (Critical Writing)

The Main Points of the Article

Initially, each new wave of information technology increased productivity and access to knowledge, each new platform was easier and more convenient to use; technology worked for globalisation anda economic growth. Over the years, companies such as Google, Facebook, Amazon, and others have introduced many business and technological innovations affecting the world. However, today such companies are accused of being large, undermining competition, causing addiction and destructive consequences for democracy, in other words – BAADD (big, anti-competitive, addictive and destructive to democracy) (Schrager, 2018). These enormous tech platforms really make wonder about the future prospects of fair competition. In his article “Sleep-Walking into a Monopoly: Competition Fears Spark Home-Buyer Warning”, published last year in The Sydney Morning Herald, Josh Dye raises this important question for regional level and a specific segment – the service of registering the transfer of property ownership in Australia.

The author in a brief but comprehensible manner describes the problem which arose after the regulator’s decision on obligatory electronic conveyancing. Taking into account that “online property exchange network is an effective monopoly,” controlled by one company – PEXA – there is a risk of the occurrence of monopoly giant (Dye, 2019, para. 3). As the author rightly claims, due to the obligatory nature of the service of e-conveyancing for customers, PEXA company has no real competitors, and concern arises about its unfair market advantage. Although, for now, the company declares the absence of plans to raise prices, in fact, there are no guarantees that in the future it will not behave like all other monopolists. The author makes a conclusion that digital transition implies some risks, and the case of PEXA represents this kind of risk – namely, occurrence of monopoly under the aegis of state.

Significance of the Issues/Questions. Author’s Biases

This issue is of crucial importance since any new competitors will face significant barriers, as in any monopoly market. The author, on unbiased basis, analyses consequences of PEXA monopoly position for customers and interoperability of similar platforms. No biases are observed in author’s approach and operating facts. He stresses that PEXA company already has network advantage, as “each party to a transaction must use the same network” (Dye, 2019, para. 13). This issue directly refers to the above-mentioned problem of information monopoly in modern economy.

The titans of the information industry are not just competing in the marketplace – they are increasingly the marketplace themselves, providing the infrastructure (or “platforms”) for much of the digital economy. Despite the enormous influence these companies have, the off-scale estimates of their value on the stock exchange show that investors expect it to double or even triple in the next decade (Moazed and Johnson, 2016). It should also be noted that network goods increase their value as the number of buyers grows, while the cost of the goods decreases as its value to consumers grows, since marginal costs tend to reach zero over long intervals. At first glance, information monopolies are incapable of doing significant harm. However, upon closer inspection, a number of serious threats can be detected (Ducci, 2020):

1. Low quality of products, as well as the level of information security. In the absence of competition, information monopolists do not feel the necessary pressure, so they are less worried about the protection of personal data and can take more personal information from users than in a healthy competition.
2. Low level of privacy protection is observed; since there are several companies in the online marketplace, consumers are limited in their ability to obtain better privacy protections. This increases such risks as cooperation with the state, secret control by the state.
3. With the development of technology and the growth of the volume of personal data provided by users, information monopolies are increasingly using it to their advantage.
4. Elimination of competitors. An information monopoly that controls a key platform can easily eliminate competitors, – for example, by limiting the functionality of independent applications.
5. Impact on the public. Information monopolies have a powerful tool: the ability to influence public opinion and perceptions of right and wrong.
6. Reduced innovation in markets. It becomes profitable for information monopolists to slow down the development of innovations so as not to lose their monopoly position.

Main Arguments and Findings Convincing

Despite such impressive list of possible consequences of information monopoly activity, the author did not mention any theoretical or fundamental background of the issue. The arguments given in the article are convincing for the reader but they say nothing about medium- and long-term consequences for ownership rights registration services, other governmental services for population, and all the more so on overall macroeconomic and national social level. The worst scenario is described in the article as increasing fees and charges.

Meanwhile, the value of article would significantly increase if the author considered the potential challenge of PEXA monopoly position from the standpoint of economic theory. In particular, it is evident that, although the considered company works in the information services sphere, in its essence, it represents almost classical example of state-private monopoly. Its lobbyist efforts brought it unfair advantages in comparison with other platforms for registrations. Moreover, this is the example of how public-private partnerships, spawns of sustainable development, can reborn into monstrous forms of monopolies (Moszoro, 2018). Officials need to understand that there is a huge difference between the calls for a competitive tender to select private companies for projects, rather than actual partnerships with the government.

The general public has little understanding of how public-private partnerships are actually used to increase the power of government. In truth, many of such partnerships are nothing more than government-sanctioned monopolies. These privileged businesses are provided with special perks such as tax breaks, free use of an outstanding domain, non-competitive clauses in government contracts.

In this regard, there is a need to take a closer look at such a phenomenon as natural monopoly, to clarify its place and role in the modern infocommunication economy. The concept of natural monopoly is interpreted ambiguously. On the one hand, natural monopoly is the one in which the creation of a competitive environment in the commodity market, regardless of the level of demand, is impossible or economically ineffective at the existing level of technological progress (Tepper, 2018). On the other hand, it is defined as an industry in which long-term average costs reach a minimum if one firm serves the entire market as a whole (Hubbard et al., 2019). It is interesting to note that both definitions are valid for PEXA.

The author’s arguments are convincing for general public, regulators, and stakeholders. He describes the issue in detailed and comprehensive manner. However, no fundamental scientific background is provided; the author does not make any attempts to link the problem with other macroeconomic or regulatory processes in the country. In this regard, the arguments cannot be called convincing, as they are of informative nature with some forecasts from the author.

The Accuracy of the Author’s Use of Economic Concepts

The situation is characterized by another important sign indicating that PEXA is a natural monopoly in the current environment – it is about low elasticity of demand. This happens because the demand for products or services produced by natural monopoly entities is less dependent on price changes than demand for other types of services, since they cannot be replaced by other goods. Registration of property rights is mandatory by law, so the demand for these services will practically not depend on the price. All these important points were not covered in the article. The author claims to present a serious analysis of the consequences of the actions of the regulator, but does not use the tools and concepts of economic theory for the analysis. He does not consider fundamental concepts of monopolies, and all the more so he does not apply concepts of monopolies in the information/postindustrial economy. The article is well written and the arguments are convincing but the overall style of writing resembles a review, without using any scientific concepts for justification of conclusions. Moreover, current and potential impact on all stakeholders is not analysed. It could be better if the author pays attention to the very foundations of the issue arose due to specified regulator’s decision.

Reference List

Ducci, F. (2020) Natural monopolies in digital platform markets. Cambridge University Press.

Dye, J. (2019) ‘Sleep-walking into a monopoly’: competition fears spark home-buyer warning’, The Sydney Morning Herald, Web.

Hubbard, G. et al. (2019) Essentials of economics. 4th edn. Pearson.

Moazed, A. and Johnson, N. (2016) Modern monopolies: what it takes to dominate the 21st century economy. St. Martin’s Press.

Moszoro, M. W. (2018) ‘Public-private monopoly’, B.E. Journal of Economic Analysis & Policy, 18(2), pp. 1-15.

Schrager, A. (2018)In the age of Amazon, it’s time to forget what we know about monopolies. Web.

Tepper, J. (2018) The myth of capitalism: monopolies and the death of competition. Wiley.