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I was told that the advertising market as a whole shrank after Google became part of the marketing industry. Apparently, the decrease occurred in offline markets as well as online markets.

Is this a valid historical example (outside of theory) where a large increase in competition in a particular market has decreased the size of that market or was the marketing industry affected differently by Google?

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    $\begingroup$ It's worth noting that Google advertising is different from the advertising that it displaced. It's on the search results or index rather than on the content. Also, since it is targeted rather than broadcast, it may be more efficient than the advertising that it replaced. That could explain there being less afterwards. Finally, Craig's list is the real problem for many newspapers. It takes their most profitable advertising segment and delivers it more cheaply. $\endgroup$ – Brythan Dec 8 '14 at 4:05
  • $\begingroup$ How is competition to be measured? It is possible for a new firm to enter and yet competition (as measured, e.g., by HHI) to decrease (because the new firm takes a huge share of the market). If competitiveness of the market decreases then it is quite natural for prices to be higher and the number of consumers served to shrink. $\endgroup$ – Ubiquitous Jan 18 '18 at 7:41
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According to The Economist, 2015-09-26, pornography (the "adult" industry) may be one such industry. Due to the entrance of YouTube-like porn aggregators, industry revenues have shrunk dramatically in recent years:

In America the number of porn studios is now down from over 200 to 20 ... Performers who used to make \$1,500 an hour now get \$500 ... Revenues are well below their peak; how far below is hard to say, as most porn producers are private. Just before the tubes took off, plausible estimates put worldwide industry revenues at $40 billion-50 billion. Mr Thylmann thinks they have fallen by at least three-quarters since then.

Here though we must perhaps be careful about defining "market size". If we define it by such measures as industry revenue and profits, then "market size" has indeed shrunk. But if we define it by say quantity traded (e.g. "number of hours of porn watched"), then probably "market size" is no smaller than before.

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  • $\begingroup$ wow, this is a question asked 4 years ago. Thanks for the interesting answer. $\endgroup$ – AGamePlayer Jan 18 '18 at 4:37

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