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The 8th Information
Procedia Computer Science 00 (2021) 000–000
Technology and Quantitative Management
Procedia Computer Science 00 (2021) 000–000
Procedia Computer Science 199 (2022) 495–502
The 8th
Information Technology
(ITQM 2020and
th Quantitative Management
& 2021)
th
The 8 Information Technology and Quantitative Management
(ITQM 2020and
The 8th Information Technology & 2021)
Quantitative Management
Review of monopoly (ITQM models and
2020 implications for antitrust
& 2021)
(ITQM 2020 & 2021)
Review of monopoly models andbimplications for antitrust
Review of monopoly models and implications for antitrust
Mengyu Shang a,c,d
, Yuan Li , Zhiquan Qi *a,c,d

Review of monopoly
Mengyu
models
a
University of Chinese
ShangAcademy
and implications
a,c,d of Sciences,
, Yuan LibBeijing, 100190, PR China
, Zhiquan Qi*a,c,d
for antitrust
Mengyuof Lyon,
b University Shang , Yuan av
Coactis, MSH-14/16
a,c,d
LiBerthelot,
b
, Zhiquan Qi*a,c,d
69363 Lyon, France
c Research Center onMengyu
Fictitious
aa University
Shang
Economy & Data , Yuan
Science, Li
Chinese, Zhiquan
Academy of Qi
Sciences, Beijing 100190, China
d Key Laboratory of Big Data Miningof
University Chinese
ofand
Chinese Academy
Academy
Knowledge of
of Sciences,
Sciences,
a,c,d Management,
Beijing, 100190,
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bBeijing,Academy
Chinese PR China
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*a,c,d Beijing 100190, China
bbMengyu
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av , Zhiquan
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Lyon, France
France
Chinese Academy of Sciences, Beijing, 100190, PR China
cc Research Center on Fictitious Economy & Data Science, Chinese Academy of Sciences, Beijing 100190, China
Research Center on FictitiousofEconomy
b University & DataMSH-14/16
Lyon, Coactis, Science, Chinese Academy
av Berthelot, of Sciences,
69363 Beijing 100190, China
Lyon, France
dd Key
KeycLaboratory of
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a University
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MiningEconomy
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Chinese Academy
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Academy
Academy of Sciences,
ofPR China
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of Sciences, Beijing
Beijing
Beijing 100190,
100190,
100190, ChinaChina
China
d University of Lyon, Coactis, MSH-14/16 av Berthelot, 69363 Lyon, France
KeycLaboratory of Big Data Mining and Knowledge Management, Chinese Academy of Sciences, Beijing 100190, China
Research Center on Fictitious Economy & Data Science, Chinese Academy of Sciences, Beijing 100190, China
d Key
Abstract Laboratory of Big Data Mining and Knowledge Management, Chinese Academy of Sciences, Beijing 100190, China
In February 2021, the Ministry of Commerce Anti-monopoly Bureau of the People’s Republic of China released the Antitrust
Abstract
Guidelines for the Platform Economy Industry. This announcement signaled more governmental supervision and governance
Abstract
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Keywords:
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1. Information
Introduction:
Keywords: technology
Increased
Monopoly; (IT)
oligopoly boostsantitrust;
Attention
models; the
on prosperity
platformofeconomy
Internet-relatedthe Internet
Monopolyeconomy. The evolvement of digital technol-
ogy clusters the IT industry into giant platform economies, whose business ecosystems range various activities,
1. Introduction: Increased Attention on Internet-related Monopoly
Information technology (IT) boosts the prosperity of the Internet economy. The evolvement of digital technol-
1.
ogyIntroduction:
Information ITIncreased
clusters the technology Attention
industry(IT)
into boosts on prosperity
the Internet-related
giant platform economies, Monopoly
whose
of the Internetbusiness
economy.ecosystems range of
The evolvement various
digitalactivities,
technol-
∗ Corresponding author.Zhiquan Qi.
ogyE-mail
clusters the
Information IT industry
address:technology
into giant platform economies, whose business ecosystems range various activities,
(IT) boosts the prosperity of the Internet economy. The evolvement of digital technol-
qizhiquan@foxmail.com.
ogy∗∗ clusters the IT industry into giant platform economies, whose business ecosystems range various activities,
Corresponding author.Zhiquan Qi.
Corresponding author.Zhiquan Qi.
∗E-mail
E-mail address: qizhiquan@foxmail.com.
address: author.Zhiquan
Corresponding qizhiquan@foxmail.com.
Qi.
E-mail address: qizhiquan@foxmail.com.
∗ Corresponding author.Zhiquan Qi.
1877-0509 © 2021 The Authors. Published by Elsevier B.V.
ThisE-mail address:
is an open qizhiquan@foxmail.com.
access article under the CC BY-NC-ND license (https://creativecommons.org/licenses/by-nc-nd/4.0)
Peer-review under responsibility of the scientific committee of the The 8th International Conference on Information Technology and
Quantitative Management (ITQM 2020 & 2021)
10.1016/j.procs.2022.01.060
496 Mengyu Shang et al. / Procedia Computer Science 199 (2022) 495–502
Mengyu Shang, Yuan Li et al. / Procedia Computer Science 00 (2021) 000–000

including artificial intelligence, cloud computing, social media, e-commerce, sharing economy, entertainment, su-
permarkets, logistics, financial and payment service. The platform economy is the new ecological relationship of
IT production. The rising integration and power centralization of the platform economy support the platform own-
ers in a monopoly or oligopoly position, which is also referred to as the “winner-take-all market”[1]. In February
2021, the Ministry of Commerce Anti-monopoly Bureau of the People’s Republic of China released the Antitrust
Guidelines for the Platform Economy Industry[2]. This announcement signaled more governmental supervision
and governance with Internet-related business. Baidu, Alibaba and Tencent, as well as their subsidiaries, have
been punished enormous administrative penalties for the concentration of undertakings. With the scale synergy,
the two tech giants take up more than ninety percent of Chinese digital payment market [3]. The government
carried out the antitrust competition governance to maintain a sustainable IT market.
Most scholars claimed the basic facts that monopoly damages efficiency, fairness, social welfare and economic
growth [4–6]. Marshall proposed a dilemma of economies of scale and monopoly markets that expansion of
production scale forms economies of scale, increases the market share of products, and inevitably results in market
monopoly [7]. That’s why governments constituted clear anti-monopoly legal principles against concentration,
enforced strict control on abuse of market dominance and prohibition of monopoly agreements. However, the
existence of monopoly is not necessarily a bad thing [8]. The higher efficiency and cost advantage of scale could
also benefit consumer welfare. Some scholars argue that technical innovation carried out by a monopolist could
significantly increase social welfare [9]. Technological upgrades require the synchronous update of economics
and management [10]. The Internet economy presents a new economic phenomenon and overturns the classic
foundation of monopoly theory. Legal principles of anti-monopoly led by Harvard and Chicago School are out of
date to regulate the latest platform economy [11].
Inspired by the inconsistent classic monopoly theory with platform economy, we try to review the monopoly
models and conclude the antitrust implications for IT-related economy. This paper first overviews three main
research topics relating to the monopoly models within the literature: the oligopoly, monopolistic competition,
and Internet platform monopoly. The Cournot model, Bertrand model, Stackelberg model, and Innovational model
represent the oligopoly studies when a small group of large sellers dominates the market. We then discuss the
monopolistic competition models as the Krugman model, D-S Model, and Lancaster Model. We review the
platform economy to reflect the new era of monopoly with renovation. After the summary of the literature research
trajectory, our analysis culminates in implications for antitrust. Through the research, we attempt to find out why
Internet corporations and government meet this monopoly predicament, who are involved by monopoly policy,
how consumers and market got impacted, and what countermeasures could be taken to improve the antitrust. This
study contributes to overview the development of monopoly models and critically analyze based on the current
antitrust situation and trend of platform economy integration.

2. Research Methodology

In order to understand the importance of antitrust renovation, a comprehensive literature review was conducted
by the main scientific literature databases, Web of Science, Elsevier, Scopus, Emerald Insight and Springer. We
proceed with a structured literature review of journal articles, conference papers, books and other documentation
according to [12–15]. We first search “monopoly model” in “Topic” and respectively scan the articles’ titles with
“Oligopoly model” or “Monopolistic competition Model” or “Platform monopoly” to identify initial samples of
highly cited literature. We subsequently identify and add relevant cross-references to initial samples. Finally, we
integrate and compile the literature review as following. The objectives of this review are: (1) the identification
of the leading models and studies about monopoly and the comparison between the different models and points
of view; (2) the statement of the main evolution and technological developments regarding monopoly; (3) the
analysis about the obsolete antitrust mechanism with new Internet-related industrial paradigm.

3. Oligopoly Models

Oligopoly is a market state where a few firms dominate the market, and none of the participants can keep the
others from having a crucial impact. Though there is no exact limit to how many firms in an oligopoly, the number
 Mengyu Shang et al. / Procedia Computer Science 199 (2022) 495–502 497
Mengyu Shang, Yuan Li et al. / Procedia Computer Science 00 (2021) 000–000

Fig. 1. Nash equilibrium in the Cournot model

must be low enough that the influence of one firm will have a significant effect on the others. Generally, the theory
of oligopoly[16] refers to the partial equilibrium analysis of markets where the demand side is competitive, while
the supply side is not competitive, not to mention monopolized. Some classic oligopoly models are summarized
as follows.

3.1. Cournot model: Quantity setters

Cournot model[17], also called Cournot Duopoly Model, is an oligopoly model in 1838 and is proved appli-
cable till now. In Cournot’s model, it is assumed that the products of the firms are identical substitutes and each
firm simultaneously decides the output decisions with price in the market. To simplify the issue, we assume a
situation where two companies (company A and company B) produce the same goods in a certain region, which
are the only two providers of the market. The goods produced by them are identical and the two companies de-
cide independently without knowing the other’s choice, like the quantity of goods to produce for the month at the
beginning of each month. The output choices of them are noted as qA and qB , here q represents the quantity of the
products. The monthly demand for the products is P = α − βQ, where Q is the total quantity of products supplied
by the two companies, that is Q = qA + qB . Assuming that c is the marginal cost of producing per unit of goods
for both companies without fixed costs.
According to these assumptions, the profit function of company A can be presented as:

πA = P × qA − c × qA
= qA (P − c)
(1)
= qA (α − βQ − c)
= qA (α − β(qA + qB ) − c)
By symmetry, the profit function of company B is expressed as following:

πB = qB (α − β(qA + qB ) − c) (2)

Now the target is to search for a Nash equilibrium of the situation, as shown in Figure 1. The stationary point
can be found by taking the partial derivative of equation (1) and (2) with respect to qA and qB respectively, which
is (q∗A , q∗B ) or ( α−c α−c
3β , 3β ).

3.2. Bertrand model: Price setters

Bertrand model[18] is a price-oriented competitive model, differing from the Cournot model which is a
produce-oriented competitive model. Concretely, as stated previously, the situation in the Cournot model is that
oligopolists make identical goods and compete in quantities. Thus the market, in the case of the Cournot model,
498 Mengyu Shang et al. / Procedia Computer Science 199 (2022) 495–502
Mengyu Shang, Yuan Li et al. / Procedia Computer Science 00 (2021) 000–000

sets a price mainly depending on supply and demand. While in the Bertrand model, there is a different situation
where the oligopolists compete in terms of price. They still produce identical goods, for consumers the demand is
all the same. As before, we assume a simple situation in which there are two companies (company A and company
B) producing the same goods in a certain region. Both companies have large signs displaying the prices of the
products offering for the day. Consumers are assumed to have no preference for the goods or the companies, so
they will choose the goods with lower prices. Therefore, in this case, the demand of each company is conditional
on the relative price with the other one.
The equivalent demand curves can be presented with the following demand functions for company A and
company B:



 α − βPA i f PA < PB
 α−βP
QA 
 2 i f PA = P B
(3)

 0 i f PA > P B



 α − βPB i f PB < PA
 α−βP
QB 
 2 i f P B = PA
(4)

 0 if P > PB A

Where PA and PB denote the price offered by company A and company B, and when PA = PB , the price is
noted as P.
To put it simply, if a company offers a lower price than the other, they will obtain all of the demand and the other
one will obtain no demand. If they offer the exact same price, then each company will evenly get the demand at
that price. Assumed that both companies have the same constant marginal cost of c with no fixed costs to simplify
the analysis. It can be safely concluded that if a company could set their price one cent below the other’s and get
all of the customers at a price just one cent below the price when they get half of the demand. It will be the option
that yields the most profit. Now consider more with the case where PA = c. Under this circumstance, reducing the
price by one cent might not be optimal because the best response function for company A is the same for company
B, and both of them tend to give a slightly lower price than the other. That leads to a result that a company gets
all the demand but loses money with negative profits. As long as the prices higher than the marginal cost c, there
is always an incentive for undercutting the price for all the demand. Only when PA = PB = c, both players can
reach their best response to each other simultaneously. The Nash equilibrium in this case is PA = PB = c, and it is
interesting to find that the same situation occurs in a perfectly competitive market.

3.3. Stackelberg model: First mover advantage

Stackelberg model[19] is another duopoly model among oligopoly models. In this case, each of the two firms
is making the strategic decision sequentially. One company makes the decision first and the other choosing second,
not making decisions simultaneously with knowing about the strategy choice of the other firm in advance.
Still using company A and company B as examples, for this time, the goods they produce are identical but
they decide their output levels sequentially. Company A is assumed to set the output first and then, after observing
the choice of company A, company B makes decisions on the quantity of goods to produce for the month. The
choices of company A and company B are still denoted as qA and qB , where q represents the quantity of goods.
The monthly demand for the goods is still P = α − βQ, where Q is the total quantity of supplies by the two
companies, that is Q = qA + qB .
The profit function for company A is the same as equation (1) in the Cournot model. Differently, here q∗A =
α−c 1
2β − 2 q B , and under this circumstance, the profit function for company B will be formulated as following instead
of equation (2).
1
πB = qB (α − βqB − β( α−c
2β − 2 q B ) − c)
α−c β (5)
= qB (− qB )
2 2
Similarly to the case of Cournot model, the optimal output level can be found by solving for the stationary
point, that is (q∗A , q∗B ) or ( α−c α−c
2β , 4β ).
 Mengyu Shang et al. / Procedia Computer Science 199 (2022) 495–502 499
Mengyu Shang, Yuan Li et al. / Procedia Computer Science 00 (2021) 000–000

3.4. Innovational model

On the basis of previous yet efficient model, an innovational model proposed by [20] will be briefly intro-
duced. By fitting the correlation of economic outcomes to market concentration, the strong relationship between
productivity and market concentration is proved and can be presented as following:

△5 log(Yit ) = α1 [△5 log(Concentrationit )] + α2 [△5 log(LaborProductivityit )] + γ st + ϵit (6)

Observations are indexed by industry i and year t. Concentrationit and LaborProductivityit denote the market
concentration and productivity of industry i in year t. The operator △5 takes a five-year difference and standardizes
the variables. The fixed effect γ st controls for the 2-digit NAICS top-level sector and year. The residual ϵit
reflects any residual unexplained variation and measurement error. Outcome variables Y come from the interlinked
outcomes of economic interest.
The data analyzed by Sharat Ganapati suggests that increases in market concentration are strongly correlated
with innovations in productivity and concentration increases do not correlate to price hikes and correspond to
increased output. Productive industries (with growing oligopolists) expand real output and hold down prices,
raising consumer welfare, while maintaining or reducing their workforces, lowering labor’s share of output.

4. Monopolistic Competition Models

Up to now, there are three main modeling methods for describing monopolistic competition: (1) The method
originally proposed by [21] and introduced into international trade theory by Krugman[22]. (2)The method pro-
posed by Lancaster [23], and developed by Helpman[24] and Krugman[25]. (3) The method initally proposed by
Ethier[26].

4.1. Krugman model

Krugman model[22] is the first relatively mature model of the currency crisis in the West. This model takes
the open economy of small countries as the analytical framework, takes the pegged exchange rate system or other
forms of fixed exchange rate systems as the analysis object, and analyzes how currency crises occur with a specific
feature of abandoning fixed exchange rates. From Krugman’s point of view, when a country’s currency demand
is in a stable state, the expansion of domestic credit will bring about the loss of foreign exchange reserves, which
will lead to the impact on the fixed exchange rate and create a crisis. However, it is difficult to determine the time
when the fixed exchange rate collapsed due to the non-linear form of his analysis.

4.2. D-S model

D-S Model[21], also called Dixit-Stiglitz Model, provides a simple and basic method for solving internal
economies of scale. Before the D-S model, the analysis of economies of scale was limited by externalities,
spillover effects and other blurry concepts. Because the solution of internal economies of scale model was ex-
tremely complicated, and the equilibrium solution was generally unable to be obtained. Fortunately, Dixit and
Stiglitz introduced D-S Model and used it to successively find the market equilibrium solutions under the condi-
tion that the utility function is invariant elasticity, variable elasticity, and asymmetry. Additionally, they compared
the market equilibrium solution and the social optimal solution with different situations.

4.3. Lancaster model

Lancaster Model[23, 24] is an intra-industry trade model based on simple level-difference products, which
explains the trade between the two countries on the basis of product characteristics and the only dominant choice
of consumer preferences. In Lancaster’s opinion, if there are no trade barriers and transportation costs between
economies with the same characteristics, under the influence of the maximization of returns to scale and differ-
ences in consumption preferences, the two economies can still carry out industrial development.
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Fig. 2. The Monopoly Equilibrium Model of the Internet Platform in a Perfectly Competitive Market Source from [11]. The challenge of
the Internet economy to the anti-monopoly law and the system’s restructuring: based on the law and economics model of Internet platform
monopoly.

5. Internet Platform Monopoly Model

Zhang Xiao proposed a monopoly model to analyze the economic effects of the platform economy. Because
the platform economy belongs to the information sharing industry, the platform becomes the supplier of the In-
ternet economy. Assuming that there are three Internet platforms, one manufacturer, and Q′3 users in a perfectly
competitive market in Figure 2. In the short-term equilibrium, the Internet platform is not restricted by the tradi-
tional profit maximization criterion MR = MC. It has independent pricing power, while the manufacturer freely
chooses the platform based on its quoted price. In the end, the top platform brought the manufacturer the most
net profit, which the manufacturer uniquely favored. In the second equilibrium, other platforms were forced to
quit the market, and the manufacturer’s total profit reached maximization. The total price paid by a single user
for the manufacturer’s products and platform services is always P′ , and the consumer’s surplus is constant. The
top platform gets the most funds to strengthen the existing advantages, unify the relevant markets and achieve
winner-take-all. At this point, the Internet economy is in equilibrium at the intersection point D of the d and AC
curve, which is in a Pareto optimum state when no economic changes can make one individual better off without
making at least one other individual worse off. In the long-term, as the information cost paid by a single user
falls, the total information service cost of the whole society will decrease. In a perfectly competitive market, not
only does the manufacturer’s product price fall spontaneously from Pa to Pb , but also makes the sales rise from
Qa · Pa to Qb · Pb in high demand and price elasticity (ed > 1) industries, which greatly improves the economic
efficiency and GDP of traditional manufacturers; it also expands consumer surplus from PPa Ea to PPb Eb and the
total social welfare rises accordingly. In a word, although platform monopoly in a perfectly competitive market
harms the interests of small and medium platforms and low-demand price elasticity industries, it brings efficiency,

By comparison, it is found that the Internet economy based on increasing marginal returns and the vertical law
of the demand curve is completely different from the industrial economic monopoly mechanism of diminishing
marginal returns and downward tilt of the demand curve. Winner-take-all realizes in the perfectly competitive
Internet economy market. There is no fault except for low-efficiency platforms and low-demand price elastic
industries that are detrimental to fair elimination, and it has even become the only way to maximize Internet
economic efficiency, fairness, social welfare and economic growth. Obviously, the structural advantage of the
Internet monopoly constitutes the “Marshall’s conflict”, which completely breaks the Harvard school’s “Monopoly
is illegal”. It is no longer appropriate for the government to crack down on it based on traditional theory inertially.

6. Implications for Anti-monopoly

6.1. Inappropriately apply the old framework to the new reality

The mechanism and framework of antitrust from Harvard and Chicago school are designed for the industrial
economy wave in last century. The technological economy shows quite different business characteristics with
production-supply-marketing. The cost depends more on research and development (R&D) rather than materials
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Mengyu Shang, Yuan Li et al. / Procedia Computer Science 00 (2021) 000–000

and labor; the intangible assets become significant with technical patents and intellectual property; the services
are free to attract attention and build soft power. The economic and political principles have been out of date
with old basis and applying it to new economic reality. The presupposition of antitrust is no more appropriate for
economies with large-scale and wide range of influence in globalization. How can we use the same restriction
when the shape keeps expanding? Therefore, we first ought to figure out what the industry is in reality, and then
execute the applicability test through comparative analysis for new industry.

6.2. Establish reasonable exclusive terms

Internet platforms develop into a huge economy that covers various social fields. The wave of consumption
upgrades in China has tremendous market potential, and it is necessary to reduce costs and increase efficiency
through Internet monopoly. It’s more harm than good to ensure low-demand price elasticity industries and suppress
the digital platforms as the object of sanctions through anti-monopoly laws. The Internet industry is similar
to the infrastructure construction industry such as railways, telecommunications, and electric power, they are
essential to civilian life on large-scale business to enhance the market efficiency. However, state-owned enterprises
are authorized to exclude from the monopoly to build national monopoly control. The Internet as an emerging
commercial industry also needs a reasonable permit for Internet giants to take all-win. The governments should
give priority to achieving an overall improvement in efficiency, equity, social welfare and economic growth.

6.3. Strengthen interoperability among platforms

It will lead to efficiency loss when platforms set up limits to competitors and shut down the access to each
other. The interoperability between platforms removes the obstruction of information exchange. This collabora-
tion would run the fair competition for SMEs and release the excessive resources to form a sustainable ecosystem.
The encouragement of cooperation would allow multiparty participation and foster industrial self-discipline. How-
ever, it’s also possible that platform collusion reaches a spontaneous tacit understanding of the Internet economy
monopoly. We should also keep alert to discern Internet algorithm protocols and suppress competition platform
cartels as important components of supporting measures.

7. Conclusion

The Anti-monopoly Law defines four kinds of monopolistic activities: monopoly agreements, abuse of market
dominance, the concentration of operators, and abuse of administrative power to exclude and restrict competition.
In the digital economy era, the Internet economy has constructed a nouveau monopoly mechanism which is ab-
solutely different from the industrial economic theories. The “Marshall’s conflict” becomes an effective prolusion
for platform monopoly’s advantage. The theoretical basis of traditional anti-monopoly law is not applicable for
new technological platform economy. Instead of the production-supply-marketing, R&D and patent technology
change the industrial structure that overturns the traditional assessment and evaluation system. There is a ren-
ovation waiting for the antitrust framework and procedure. It’s proper to sacrifice the early interests of small
and medium platforms and low-demand price elasticity industries, give inchoate permission for winner-take-all
monopoly to realize the improvement of efficiency, fairness, social welfare and maximum economic growth first.
And take the next step supporting measures to regulate and guide Internet industry self-discipline. Platform econ-
omy as the influential giant industry ought to share similar immunity with the infrastructure construction industry.
The exemption clauses should be identified according to specific features of industries other than one-size-fits-all
approach. In the meantime, platforms need to collaborate and open access to strengthen interoperability to build a
better fair competition and sustainable Internet platform industry.

Acknowledgements

This work was partly supported by Key Project of National Natural Science Foundation of China (#71932008).
And we’d like to express our sincere gratitude to all the editors and reviewers.
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