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