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Competition is usually bad for a business


In perfect competition, no company makes economic profit. Capitalism and competition are opposites: capitalism believes in the accumulation of capital and competition balances pricing such that profits are competed away.

Taking monopoly and perfect competition as two ends of the spectrum, we tend to think that most companies are somewhere in the middle. This is because both monopolies and competitive businesses have incentive to make it look like that: Monopolies exaggerate their competition, competitive businesses exaggerate themselves.

In reality, most businesses are much closer to either perfect competition or monopoly.

Monopolies can afford to think about things other than money because their profit margins are big. Competitions struggle to survive, so long-term planning is harder.

Everyday business language uses war metaphors: headcount, sales force, captive market. Competition is like war, but a great business shouldn’t be.

In competition you can lose sight of what matters and focus on what your rivals are doing instead. Microsoft and Google were waging war on each other: Google Search - Bing, Chrome - Edge, Surface - Chromebook. Winning is better than losing, but everyone loses in a war: Apple did its own thing and overtook both of them.

Creative monopoly: give customers more choices by adding new categories of abundance, rather than competing on existing ones.

Monopoly is a condition for a successful business: it succeeds when it can do something others cannot.

All successful companies are different, since they earn a monopoly by solving a unique problem. All failed companies are the same: they fail to escape competition.

The trend for “disruptive startups” is counterproductive since such startups see themselves through the eyes of the eyes of the old players in a market. They define themselves as competition. If your business can be summarized as a competition to existing markets, you’re probably not creating something new, and therefore it’s unlikely to become a monopoly. Also, disruptive companies gather attention, sometimes picking fights they can’t win. When expanding to adjacent markets, don’t disrupt. Frame your market in a way that avoids competition as long as possible.


  • Zero to One, Peter Thiel

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