The Competitive Edge

Why do good competitors try to become monopolies?


Public Domain. Source: Wikipedia

Most people enjoy competing. They know the thrill that comes from sprinting for the finish line, or fighting for critical new business. They also know that competing keeps them sharp and helps them improve what they do. If a business doesn’t serve their customers well, someone else will. Competition leads to happy customers and vigorous companies. So why would anyone want to become monopolies

If businesses can eliminate the competition, they’ll secure a larger market share and higher revenues. With no pricing pressures, they can set prices to generate the maximum profit. And a monopolist can cut some significant expenses: marketing, recruiting, even some production costs. The old Ma Bell didn’t have to offer signing bonuses to new employees.

But once the competition is gone, there’s less external focus on the customer and more internal focus on their bureaucracy. Monopolies become obsessed with image and politics. In short, monopolists like to talk, while competitors act.

It’s human nature to want to sleep late and quit early. And monopolistic rents can 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

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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