Introduction
Economic rents, which are a common occurrence in well-structured economies, are considered as being different when compared to the conventional use of the word 'rent,’ which is a common occurrence in real estate. By definition, economic rents are considered as “unearned income” or, in some cases, “above market return” (Goswami, Noe, & Wang, 2016). However, it is essential to take into account that companies can only earn economic rent by making the difference between marginal product and opportunity cost. The marginal product is considered from resources that may include land, labor, and capital, which are likely to play a critical role in ensuring that the production quantity is optimized. The expectation is that this will help give the company optimal value; thus, allowing it to earn economic rents from its resources while ensuring that the company can generate maximum economic profit.
Company Earning Economic Rents
An example of a company that is earning significantly from economic rent is Google LLC, which is a multinational company operating within the technological industry. An analysis of Google’s financial statement indicates that the company earns economic rent associated with "natural monopolies" attributed to its technical approach in smartphone technology (Abdulahi, Shu, & Khan, 2019). Additionally, the company has also earned a high amount of economic rent from advertisements, as it seeks to create an avenue through which other companies would engage in effective advertising of their products and services. Expressly, it can be noted that the company has been a pivotal contributor to the advancement of smartphone technology attributed to its massive investment in the development of the Android operating system. More than half of the smartphones being used within the United States today run on android; thus, highlighting Google's approach towards ensuring that it can increase its earnings through economic rent.
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Source of Competitive Advantage
Google has three primary sources of competitive advantage, which have been of great value towards building on its capacity to earn economic rent. These are technology infrastructure, innovative service, and market share. The following is an analysis of each of these sources of competitive advantage:
Technology Infrastructure
A review of Google's financial report indicates that is capital expenditure on its technology infrastructure has increased significantly with the company focusing much of its attention towards creating data centers. Google spends somewhat between $300 and $600 million to create a single data center, which highlights the value that the company places on its infrastructure (Sölvell, 2015). Although the total number of data centers owned by the company has not been disclosed, what is clear is that the company’s technology infrastructure seeks to build its overall capacity to remain competitive within the technological industry. The company has been working closely with a wide array of companies that include Microsoft, Amazon.com, IBM, and McAfee among others in a bid to ensuring that it establishes a transparent approach through which to capitalize on infrastructure development.
Innovative Services
Another critical source of competitive advantage that Google has been able to maximize on its bid to maintaining high levels of success is its innovative services. Google offers more than 40 different services to technological consumers around the world, which serves as a clear indication of the fact that indeed, the company is investing significantly in innovation. Some of the critical services offered by the company include Gmail, Google Finance, Google Apps, AdSense, and Google Chrome, among others. The fact that the company is seeking to diversify its service delivery means that it aims to build on a rather strategic position through which to improve on the possibility of success. The company has been at the forefront in acquisitions as a way of enhancing its capacity to maintain high levels of success. An example of a company acquired by Google is YouTube.
Market Share
The definitive source of competitive advantage that Google holds is market share. Google remains one of the most successful brands not only in the United States but also around the world with a significant margin of its success being attributed to its market share. Google's main product, which is the Google search engine, has a market share of 66.4% in internet searching compared to other search engines such as Bing and Yahoo with a market share of 15.3% and 28.9% respectively (Davcik & Sharma, 2016). Google’s market share in other industries is equally high attributed to the fact that the company has sought to advance its capacity to invest with the focus being towards ensuring that it maintains its competitive nature. The impact that this has had is that it has helped position Google as a leading technology company in the world today.
Conclusion
Economic rents, which are different when compared to the conventional 'rent' in real estate, are considered as "unearned income" or, in some cases, "above-market return." An example of a company that is earning significantly from economic rent is Google LLC. Google had earned a high amount of economic rent from “natural monopolies” attributed to its technological approach in smartphone technology and from advertisements. The three primary sources of competitive advantage for Google are technology infrastructure, innovative service, and market share.
References
Abdulahi, M. E., Shu, Y., & Khan, M. A. (2019). Resource rents, economic growth, and the role of institutional quality: A panel threshold analysis. Resources Policy , 61 , 293-303.
Davcik, N. S., & Sharma, P. (2016). Marketing resources, performance, and competitive advantage: A review and future research directions. Journal of Business Research , 69 (12), 5547-5552.
Goswami, G., Noe, T., & Wang, J. (2016). Buying up the block: An experimental investigation of capturing economic rents through subsequent negotiations. The Journal of Law, Economics, and Organization , 33 (1), 139-172.
Sölvell, Ö. (2015). The Competitive Advantage of Nations 25 years–opening up new perspectives on competitiveness. Competitiveness Review , 25 (5), 471-481.
