By Margo Jackson
Streaming services like Netflix, Hulu, Disney+, Max (formerly known as HBO Max), and more, all pretty much provide the same service. They all allow their subscribers to watch a variety of movies and series from their mobile devices or TVs. The thing that separates them all is that they all have the right to a different set of movies and series, so they provide the consumer with a slightly different selection of entertainment. This leads to many consumers purchasing a subscription to multiple streaming services because they want the option to watch any movie or series they want without having to worry about their chosen streaming service not having it. This market is considered an oligopoly.
An oligopoly is a market with a small number of firms where each firm has a large market share and they are interdependent. The firms in an oligopoly are interdependent because each firm’s decisions significantly impact the other firm's outcomes. All of these factors apply to the streaming service market. Because the firms are interdependent when one of the streaming services decides to drop the price of a subscription, all the other firms will need to drop their prices too in order to stay competitive and not lose too many subscribers. Like a monopoly, Oligopolies also have barriers to entry. The main barrier to entry into the market of streaming services is the process of obtaining licenses for movies and series.
Producing in an oligopoly creates an inefficient market. This is because they produce at the quantity where marginal cost equals marginal revenue, in an attempt to maximize profit. This creates a deadweight loss. Firms producing in an oligopoly also make zero economic profit in the long-run equilibrium.
The firms in the streaming services market would benefit from becoming a monopoly. If there was only one firm providing a streaming service, then every movie and series would be located on one service, which is a benefit to the consumer. The problem for the consumer is that the producer could raise the price to the highest price willing to be paid for the service, causing the streaming services to be way more costly for the consumer. This would benefit the producers by allowing them to have a positive economic profit. This factor has to be weighed against the convenience of having every movie and series on one service. It’s up to the consumer to decide if the higher price is worth the convenience.
References:
https://medium.com/agileinsider/netflix-the-rise-the-stumble-and-the-future-13ed 5661b17a#:~:text=Netflix%20operates%20in%20the%20streaming,companies%20with
Chapters 12 and 13 in MyEconLab E-Textbook