What makes a good monopoly and what makes a bad monopoly?
I recently read an article about how Google Maps was better than their competition. They’re winning, it explained, because of the vast amount of data they’ve collected.
Somebody commented on the article that it’s a shame there’s so much duplication of effort between mapping companies. Why can’t companies share the data? Most people wrote off this comment saying that capitialism and competition is the best way to reach a optimum outcome.
Competition is the undeniable innovator. It works in business just as effectively as it does in the olympics, driving individuals and corporations to greater achievements.
But of course free markets aren’t always good, for example when a company has a monopoly advantage. Monopolies manifest when it is too expensive for small players to start competing, or if big players have a network effect.
The funny thing is the competition itself incents monopoly. The best way to beat your competition is to eliminate them completely. We shouldn’t blame corporations for wanting a monopoly, they are following a formula that they believe will give them the best chance of winning.
A strange observation is that monopolies aren’t always a bad thing either. There are monopolies that consumers are (mostly) happy about, and some that they despise. Amazon is an example of a good monopoly; Comcast is an example of bad monopoly.
What is the difference between these two?
Amazon is highly competitive on their outputs. Their products are always improving. Their scale allows them do things that are unimaginable for a small company and we overlook their dominance because we reap the benefits of their innovation.
Comcast, on the other hand, is competing on inputs. They want exclusive access to the underlying infrastructure and are willing to go the extra mile to make sure others don’t have access. They have barely any innovation on their products and offerings.
Innovation happens most rapidly when there is competition on outputs and collaboration on inputs. Amazon is making use of one the the best shared inputs the world has ever produced - the internet. Comcast is doing it’s best turn that shared resource into their own competitive product, to the detriment of innovation itself.