Before Therefore, the degree of innovation in these markets

Before I continue to explain
how the specific market characteristics have raised the complexity in order to
identify the relevant market. It might be worthwhile to elaborate on the
dimension of competition in internet markets. Competition in internet markets
does not rely on factors such as price, but rather on factors such as
innovation and quality. The price for the products and services is zero and
therefore consumers based their preferences on other aspects. This has been
concluded in the merging case between Microsoft and Yahoo1 (Graef, 2015). Most online markets
are considered to be very dynamic. This has to do with the high innovation in
these markets. As explained in the theoretical section, these markets are
characterized by network effects which eventually may lead to the
Winner-takes-all effect. As result, companies are able to generate high
profits. However, the high profits in these markets create the incentive for
competitors to strongly invest in innovation in order to enter or take over the
market (Gorp van & Batura, 2015). Therefore, the
degree of innovation in these markets is particularly high and it is not
unlikely that a competitor or new entrant will turn the market with a
disruptive innovation.  Eventually, most of the market share will be obtained
by the disruptor. A well-known example of a company that lost its dominant
position due to a disruptive innovation was IBM. For years, IBM had a leading
position in mainframe computers. However, with the introduction of the personal
computer, the leading position of IBM was tipped by the operating system
company Microsoft and hardware company Intel. Although the technic of the
personal computers did not reach the same level of the technic of IBM, the
personal computer better met the needs of the consumer (Christensen, 1997) (Graef, 2015). It should be taken
into account by the authorities that these innovations take place before the
development of the market, as a result, this leads to a rapid creation of new
markets. Hence, holding a strong market position is therefore often temporary
instead of sustainable. 

1 Case COMP/M.5727
– Microsoft/Yahoo, Par.119. 

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