Competition and Monoply

Why do competitors try to become monopolists?

Most business people enjoy competing. They know the thrill that comes from fighting for critical new business. They also know that competing keeps them sharp and helps them improve what they do, because if they don’t serve their customers someone else will. So competition leads to happy customers and vigorous companies. So why do they want to become monopolists?

If they can eliminate their competition, they secure a larger market and higher revenues. With no pricing pressures, they can set prices in line with their costs. And a monopolist can cut some significant expenses: marketing, recruiting, even some production costs.

But once the competition is gone, there is less external focus on the customer and more internal focus on the bureaucracy. Monopolists talk; competitors act.

It’s human nature to want to sleep late and quit early. And monopolistic rents help a company’s short-term bottom line. But that’s not good for customers and it’s not good for business. Competition keeps us honest by keeping us accountable. Monopolistic businesses may seem safe, but in the long run, it’s competitive companies and industries that offer the best growth.

Douglas R. Tengdin, CFA
Chief Investment Officer
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