Market Monopoly - When Competition Isn't Competition

I ended up creeping myself out writing this. Hopefully you'll see why.

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If you have ever been on a sports team, you've likely experienced what it's like to be in a competitive environment. Sports teams not your thing? All good, maybe you were part of a debate team or a math club in school. Maybe art was more your thing, and maybe that passion for your art took you to places where you were made to compete. Competition is part of how we all grew up and it remains part of who we are. People are naturally driven to be better, do better, improve, and grow. Competition is often the fuel of that fire.

Competition is a good thing. It creates a circumstance which allows for an individual or a group to strive to be their best. Does this need to be the case all the time? No, but without that competitive element, what may we have missed out on?

Would we have seen the moon landing without an element of competition?

Would Usain Bolt have run his 100 meters as fast as he did without an element of competition?

Would we watch any number of reality TV shows without that same competition?

There really is something special about watching a competition. You get to see people at their best and performing at the peak of what they're capable of. It's the drive to be the best that inspires us all.

For businesses, competition is still present (though much less exciting). They are pushed by the others in their industry to be the best and offer the best. Who can top who when if comes to price? What company has the best value for your dollar? How can a business innovate or create something new to set them apart? How do they stay ahead once they get there?

Competition in this sense represents a good thing for the customer. It means that companies are working hard to earn their business. Here's the thing though...

Working hard is... well... hard work.

Seems like a silly statement to make, but companies don't want to spend extra resources to make minimal and sometimes temporary returns on investment. They want a set-it-and-forget-it style approach where they have to do as little maintenance as possible on a working model in order to sit back and print money. Competition doesn't allow them to do this though, as taking the foot off the gas opens the door for the rest of their industry to barrel ahead and eat into the profits. Seems things would be easier if they didn't have to compete.

That's called a Market Monopoly. And that's exactly the direction we are headed.

So what are Monopolies and how do they work? Why are we headed towards seeing them and what happens when we get there? And how can consumers fight back against a Market Monopoly?

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There can be only one

You may have learned about monopolies in grade school. It was probably for the best; They're a pretty important thing to keep an eye out for when it comes to industry and economics. Basically monopolies are formed when a single person, business, or entity sells something and no one else sells that thing in direct competition. This can be tricky to identify at first, but it looks something like this:

If Apple were the only one allowed to sell iPhones (which they are), this is still not considered a monopoly. Why? Because other companies can still sell a phone in direct competition for that business. They just can't call it "iPhone".

BUT

If Apple were the only one allowed to sell mobile phones (which they are not), that is considered a monopoly.

You can brand something with whatever logo or name you want. If you play the copyright or patent game well enough, you could even secure the rights to certain design choices. However, you cannot secure the market so completely that no one can come around and compete against you.

So why can't you just lock people out of the market? Because monopolies are (for the most part) actually illegal. But why? Rendering monopolies illegal is done as a consumer protection. The controls are in place to ensure that the average person doesn't get taken for every penny they have. In case you're wondering how that could happen, consider this...

There are 10 car companies. You buy a car for $20,000 from one of the companies and receive poor service. The car breaks down after a couple years. What are the chances you're going back to pay them $24,000 for a new car? Probably zero.

Now imagine there is one car company. You buy their car for $20,000 and it breaks after a couple years. They now want to charge you $40,000 for a new one. What are the chanced you pay for it? 100%, because they're the only game in town.

Under a monopoly, a company can do whatever it wants and mostly get away with it because there is no alternative. Prices... send them sky high. Solution Selling... weaponize it. Minimum Viable Products... absolutely. At the end of the day, when you don't have to compete, you don't have to care.

Funny enough, if you've ever played the monopoly board game, you've experienced what it's like to see a monopoly take effect...

A bunch of people start out fairly even

Things start out slow but eventually a couple of players emerge out in front

Things accelerate quickly with all the money and power ending up with one or two people

We all get frustrated and agree to never play again

The game ends with one person bullying everyone else or the table gets flipped

And if that's not a perfect description of how a monopoly situation plays out, I don't know what is.

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Good thing those don't happen anymore... right?

It's easy to look at all the different products out there and conclude that you have plenty of options. Walk down a grocery aisle and look at all the different brands on the shelf. Go for a drive and see how many different car manufacturers are out there. There's a diverse array of tech companies and entertainment groups and fast food chains... surely you are the one who can choose who you go to! With enough effort, you can choose to "shop local" in most cases. However, branding and product naming is a tricky beast, and you may find more industries are closer to a monopoly than you think.

Before we start, let's get you a quick drink. A coffee never hurt! What would you like? I've got Nespresso, Blue Bottle Coffee, and Starbucks-At-Home. If you would prefer water, I can offer you Perrier. Pretty good set of options eh?

They're all owned by Nestle.

All good though, because I have chocolate! That'll take your mind off it! I've got Smarties, Aero bars, and Kitkats. Truly I'm the king of variety!

They're all owned by Nestle.

So I've got 7 products all with distinct names feeding the same company. Well, lets take a look at the Nestle website and see how many brands they have to their name. Let's see, they have...

*checks notes

Oh... they have Over 2000 Brands...

We claim there is variety in industry, but over 2000 of those names are feeding one group. They are competing against themselves. You can't lose when competition isn't competition.

But surely this is a one-off. This isn't normal... right?

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The part where I had to do some due diligence

I never did get you that drink. Here, let's pivot from Nestle. Do you want a Pepsi, a 7-UP, or a Gatorade? Well, doesn't really matter what you pick... they're all owned by Pepsico. In fact, Pepsico also has thousands of products to it's name!

The food and drink industry is a lot smaller than you may have realized. Parent companies control a lot of stock. Want to go hunting for more? Here's a good starting point. But let's move out of that space. Maybe other industries still give you the choice to take your money elsewhere...

Entertainment

I'm going out on a limb here and saying you've probably heard about Disney. They're a modestly large company that just so happens to own over 200 other companies each with their own IP and market. You don't grow to be worth hundreds of billions of dollars without a substantial market share after all.

There's another relatively well known company called Microsoft (they're also kind of a big deal). They too have gone and made a number of purchases and acquisitions to blanket their control of the market share. Here's the list if you're curious. And just to confirm... yes, all the companies on this list are owned by one entity.

Internet and Communication

The USA has been known for a while to have an issue with companies crushing any competition outside the main players and carving out areas of control. AT&T, Comcast, Time Warner, and Verizon make up the lions share of business in the states.

Canada is in a similar situation with three companies controlling over 80% of the market. That may seem... excessive... but clearly it's not enough if they're looking to merge with other companies and extend that market share.

Automobile

I saved this one for last for a reason. Yes, there are several auto companies out there, but we can see the early stages of a turn towards the dark side brewing here. There are 16 major car companies that control over 50 brands (but some of those companies have already engaged in "Partnerships"). How quickly could a couple mergers (or "Partnerships") condense everything down to what we've seen above? Is it out of the question to say that this could happen in the near future?

The rabbit hole goes deeper, but I'll stop here and ask you to think for a moment. We spend a considerable amount of resources to try to avoid massive market share control and monopoly situations. Are we not already headed there? Truly, there are more than a couple of industries that are a good merger or two away from having near total control under a single roof.

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Alright, someone somewhere is getting rich. Why do I care?

Lack of competition can lead to laziness. If you have the ability to set yourself up as the only company producing something, why do you need to go above and beyond to make it better? If a disruptive company comes in and tries to one-up you, is it not just easier to buy them and merge them into the empire? Plus, now you control the price. Set it to whatever you want... who's going to out-compete you if you own all the competitors?

Monopoly situations lead to poor quality for you the buyer. Minimum Viable Products become normalized and the cost for those products can be blasted through the ceiling. People have a massive interest and investment in ensuring that competition remains alive and well in every industry. It's only though freedom of choice... ACTUAL freedom of choice... that you can get the best return on your dollar.

So how can you make a difference?

Buying local is one of the best ways to go about it. Supporting small business is one of the fastest ways to cultivate a healthy market. This is more achievable in certain industries than in others, but can have a big impact if done correctly.

Be aware of what you are buying and who you are buying from. As above, it's easy to get trapped into the illusion of choice, but dive in and see who's behind the curtain. If you don't want to support a company, you may need to take an extra step to effectively vote with your wallet.

If you can, push for a deal. The whole reason that companies merge and grow this way is to attempt to have as big of a market share as possible. If you can find one of the gaps in that net, you can more effectively communicate yourself into a good position and potentially save yourself some money.

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What MonopoLIES ahead

Are we headed towards a situation where we enter into a monopoly? It's hard to say as law sometimes has a hard time keeping up with business and technology, but there are some protections in place that make it hard to achieve. With all the names flying around in these spaces though, who's to say what that would eventually look like.

Overall, we as consumers need to be aware of the actions of companies when it comes to large mergers. Competition keeps price down and quality up, so it should be in our interest to preserve that competition. The benefits of these deals often outweigh the downsides in the long run unless you directly profit from them, yet so many often sneak under the radar.

I don't expect everyone will become hyper fixated on who they buy things from. That's unrealistic and, quite frankly, I don't have the time of day to do that either. What we can do is call it out if we see it and make each other aware of what's going on in the industries that affect us. Support your neighbor or your local businesses if you can, and be aware that your choices affect more than just you. Here's to hoping for some good competition!

~IR

Have you noticed any industries that seem to be suffering from too few players in the market? Do you shop local? Or maybe you just have a comment to add? Check out the Facebook, Twitter, Instagram, or LinkedIn page and let everyone know. Don't forget to follow or like the page for updates! And share this article if you feel others should give it a read!

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