{"id":10402,"date":"2020-07-03T19:50:00","date_gmt":"2020-07-03T23:50:00","guid":{"rendered":"https:\/\/www.shortform.com\/blog\/?p=10402"},"modified":"2020-07-10T22:09:16","modified_gmt":"2020-07-11T02:09:16","slug":"what-is-a-monopoly","status":"publish","type":"post","link":"https:\/\/www.shortform.com\/blog\/what-is-a-monopoly\/","title":{"rendered":"What Is a Monopoly? What They Are, Why They Work (Peter Thiel)"},"content":{"rendered":"\n

What is a monopoly? Can a monopoly help a business succeed, and why should you consider becoming one?<\/p>\n\n\n\n

When you consider the question, “What is a monopoly?”, you probably think of famous monopoly breakups. But in Zero to One<\/a><\/em>, Peter Thiel argues that monopolies are helpful, since they allow a company to innovate. He makes a case for why we should rethink the questions, “What is a monopoly? And can they be positive for consumers?”<\/p>\n\n\n\n\n\n\n\n

What Is a Monopoly?<\/h2>\n\n\n\n

What is a monopoly in economics<\/a>? Monopoly is the opposite of perfect competition. While competing companies must sell their product<\/a> at the market price, a monopoly owns the market and sets the price. <\/p>\n\n\n\n

However, monopolies aren\u2019t all the same. What is a monopoly in economics versus what is a monopoly market? Market domination can be achieved in different ways, some more defensible than others\u2014for instance, bullying, acting illegally, by government sanction, or by innovating. In this book, monopoly refers to a company that\u2019s so good at doing something that no other company can duplicate it. For example, no other company has competed with Google in search since the 2000s, when it outdistanced Microsoft and Yahoo!<\/p>\n\n\n\n

Americans equate competition with capitalism<\/a>, which is seen as the opposite of socialism. But competition and capitalism are really opposites\u2014capitalism is the accumulation of profits, but in perfect competition, profits disappear.<\/strong><\/p>\n\n\n\n

To succeed as an entrepreneur, you need to create something new with long-term value, rather than competing with everyone else to sell the same thing.<\/p>\n\n\n\n

Characteristics<\/strong><\/h3>\n\n\n\n

So what is a monopoly, exactly? Monopoly businesses with strong future cash flows share several characteristics<\/strong>: proprietary technology, network effects, economies of scale<\/a>, and branding. Comparing your business against these characteristics may point up opportunities for improving its long-term viability. A monopoly in economics will have those characteristics. Explore them further: <\/p>\n\n\n\n

1) Proprietary Technology<\/strong><\/h4>\n\n\n\n

This may be your greatest possible asset because it makes your product difficult to copy. For example, proprietary technologies used in Google\u2019s search algorithms for aspects such as query autocompletion make the search engine hard to replicate. This helps you define what is a monopoly market in your industry. <\/p>\n\n\n\n

For proprietary technology to give you a monopolistic edge, it needs to be at least 10 times better in some major way than anything like it.<\/strong> Anything short of a dramatic difference will seem insignificant to users, which means they\u2019ll be unlikely to switch from what they\u2019re used to.  <\/p>\n\n\n\n

You can differentiate a product<\/a> as 10 times better in several ways:<\/p>\n\n\n\n