"If your industry is in a competitive equilibrium, the death of your business won't matter to the world; some other undifferentiated one will always be ready to take your place."
- Peter Thiel, Zero to One.
While we were talking about sizing our respective markets in class, I was reminded by one of Peter Thiel's main point in Zero to One: aim to own a market, i.e. be a monopolist. While our Economics 101 seems to sell the idea that "free" market and competition work to the advantage of society and monopoly is a bad word per se, reality is a bit more subtle. One of the greatest moments of economic expansion in history came from a few intrepid individuals who seized new markets and technologies after the end of the American Civil War. The expansion of the American Frontier together with dominance of the North's liberal mindset set the stage for an unprecedented improvement in wealth and human standards of living. The railway, oil, steel and the telegraph powered the transition from an agrarian to an industrial age. In each case, every one of these markets was dominated by a single player: Vanderbilt in railway transportation, Carnegie in steel, Rockefeller in oil, followed later by J.P. Morgan plus Edison in electricity, Bell in telephone and Ford in automobiles. Each one of these entrepreneurs invented their markets by introducing new technologies, increasing efficiency and ruthlessly buying out their adversaries. These men built America (History Channel: The Men Who Built America For Complete Series See Here).
In comparison, take the aviation industry today: an overcrowded market earning pennies for each flight and innovating very little since the introduction of the jet engine in the early 1950's. Arguably, it is similar to the later stage of railways in late 19th century, where unnecessary competition caused inefficiencies that led to takeovers by J.P. Morgan. We see a similar dynamic today with the new "alliances" seeking way to lower such unnecessary competition. It is a static market, where low revenues leave no place for investments in new technologies. On the other hand, take Google: an informational monopoly that crushed it's competition through better technology and network effects. Thanks to this added profit it can afford moonshots and invest heavily in R&D. It seems that new technologies, as long as they are in flux, tend to be monopolies while more mature markets that are in a stagnant technology phase fall towards overcrowded competitive markets (*). Obviously, this is just a speculative idea; nonetheless, to blindly praise competitive markets without taking into account such nuances is a narrow perspective that misses half the story.
As we transition from an Industrial to an Information Age (or whatever you like calling the era starting in the late 20th early 21st century) it seems we are entering an age more similar to the late 19th century than that of the mid 20th century. There are massive changes in energy sources, communication and new technologies offer unprecedented opportunities. In this new era carbon nano tubes might be the steel of the 19th century, the internet is the equivalent to the telegraph, photovoltaics and battery storage are the equivalent of oil and spaceflight or hyperloop might be the equivalent of the railway industry. Who knows? By mid/late 21st century pioneers to the Moon and Mars might be the equivalent of the great move West of the late 19th century. Whatever the future might be, lets put our monopolist hats on and welcome this new age!
(*) Take that back. After a second thought one could argue that initially there is an explosion in diversity, followed by a few winners. Eventually, if innovation stagnates, new players will emerge. This happened in oil, steel, railways, automobile. The best analogy is evolution itself, where the cambrian explosion was followed by mass extinctions and a few winner "models".
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