In 2009 Google controlled less than 21 percent of the China search market. Overall, the number of searching within China rose 42 percent between the first quarter of 2008 and the first quarter of 2009. As a result, even with only 21 percent of the market share, there is still a lot of businesses to be done and money to be earned. Nonetheless, Google is hardly the cultural and political icon in China as it is in North America and Europe.
There are many reasons for the dominance of Baidu. First, simply having an early lead in market share gives Baidu more data with which to customize search results and services. Secondly,Google.cn offered fewer searching services and features than Baidu did. Baidu also has the advantage of building its code fundamentally and originally to serve local searches in simplified Mandarin, while Google had to translate many of its services into Mandarin and many of its translation are incorrect. Baidu also appeals to the growing patriotic spirit in China, as many young people are wary of the influence of multinational corporations and proud that a Chinese firm can do better than one of the most powerful and popular foreign firm in the world.
Imagine that if Google leave the Chinese market, China's market leader, Baidu.com which controls more than 74 percent of the search market currently would erode the share of Google with others firms like Yahoo China. In the long term, this situation will reduce the competition of online searching engine companies within China, lower the speed of Internet development and loss of consumer surplus.
As the figure shown above, the competitive market would produce an output of Qpcm at a price of Ppcm. A monopoly, on the other hand, would be prone to increase the price and lower output in order to find ‘greatest distance between price and costs', i.e. maximize profit. When the monopolist raises the price to Pmon, the quantity on the market will fall to Qmon. The monopoly has created a market failure since the market-clearing price has not been obtained.
Imperfect competition is one of the most common form of market failure, since whenever the market is in long run disequilibrium, i.e. when S=D, resource allocation is suboptimal. Imperfectly competitive firms - primarily monopolies- can use an assortment of practices which result in market failure. The monopoly can enter new markets by setting low “predatory prices which could force other firms out of the market, which would lower competition and give the monopolist more power. In this case, Baidu has the advantage to make a cheaper contract with other firms and to attract larger numbers of investment and advertisements.
Monopolies can restrict market access and competitive markets in many other ways, for example by buying up rivals; owning or controlling vital raw resources; refusing to sell retail outlets which do not observe a minimum price set by the monopoly; setting different prices on different markets (price discrimination) and finally by simply being able to disregard market demand to a certain degree, since few substitutes are available. For baidu, it possesses a
Anyway, I doubt that Google will shut up its company in Beijing and wavier the right to earn billion dollars per year. In the 21st century, China is the world biggest gold mine for every gold-digger, as long as you are here, money is not a problem.
Source: Essay UK - http://doghouse.net/free-essays/economics/china-search-market.php
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