Hello!

Welcome to the Insights, Innovation, and Economics blog. If you’re new here, feel free to read my general Introduction to the Blog to understand more about the blog. If you’re returning, thank you, and hope you have a great read!

Thesis: Monopolies are an economist’s dream as they exhibit characteristics to maximize profit, yet, there are many disadvantages to monopolies - exactly why governments have laws and protections in place to prevent and disband monopolies.

If you haven’t read my Economics Primer, I’d highly recommend it before reading this article as some of the terminology associated with this subject may be difficult to understand.

Credit Feedough

Monopolies

If you’re not in economics, it’s likely your only direct familiarity with the term “monopoly” would be through the classic board game. To be honest, the game Monopoly is a pretty accurate representation of what could happen in the normal market.

So, let’s start by explaining what a monopoly is (and, of course, I’ll relate it to the board game).

Monopolies are a special type of market in which there is only a single seller that sells a unique product in the market. Monopolist firms don’t experience competition, meaning they have the power to set the price and quantity in the market. A monopoly limits available substitutes for its products and creates barriers for competitors to enter the market.

Okay, but what does that mean in practicality?

Say that you live in a very small town, approximately 100 people, that’s in rural Alaska (yes, it’s a very niche example don’t worry we’ll get more practical). In this town, there’s only 1 person for each service and product. For example, there would be 1 barber, 1 store, 1 fireman, 1 policeman, 1 fisherman, etc.

In our fictional example, many of these industries would be considered a monopoly as there aren’t direct competitors in the area and the availability of substitutes is non-existent. Let’s say you were the only doctor in this town. Because the options for treatment are just you, you’re able to charge people really whatever you want and they will have to pay for it.

Similarly, you would also have the power to determine how many services you would offer and on what days of the week. Say you only wanted to work on Mondays. Since the quantity you’re providing is so small that the demand would be greater than the number of slots available, people would start bidding extra for your services (to incentivize you to treat them over someone else).

This is essentially what a monopoly is.

Monopolies are the economist’s dream. Why? In a monopoly setting, the monopolist can determine quantity and price, meaning that they have the power to perfectly maximize their profit. This is one of the ultimate goals in the field of economics. Leaving ethics aside, economists love monopolies for their ability to capture the maximum value from their products/services.

Credit Kiplinger

So, how does this relate to the board game?

In the board game, there are generally a couple of players that initially start in the market (not a monopoly at the beginning). Each player starts with a certain amount of seed capital and then goes around the board buying and selling properties, paying rent, paying taxes, receiving community benefits, going to jail for nefarious deeds, etc.

The goal of the game is for someone to ultimately become a “monopoly”. This comes in the form of bankrupting your competitors to control the entire market (the entire board in this case).

Connecting this back to reality, this is very similar to how monopolies are formed. But, let’s dive a little deeper into all of the different ways a monopoly could form:

Credit The Art Institute of Chicago

Forming a Monopoly

There are many different ways a monopoly could form, all depending on the type of company and the market it plays in. I’ll detail the most common here:

• Government granted monopolies
• Technical superiority monopolies
• Ownership or control of resources monopolies
• Intellectual property monopolies
• Scale monopolies
• Network monopolies
• M&A monopolies
• Geographic monopolies

Credit Sunrun

Government Granted Monopolies

Government-granted monopolies only exist in certain economies where the government deems certain industries or sectors to be of large enough public value that the government forms its own government-sponsored company to run that function. That’s a whole lot of gibberish, so here are a couple of examples.

In the United States, the government controls companies that provide public utility services. These could include road-building services, the US Postal Service, water supply companies, electric power utilities, some parts of education, etc.

These are sectors that are highly regulated, so much so that it may be illegal to enter the market. Why? What’s preventing these markets from being part of the capitalist system?

Firstly, these companies need government support and large public investment to be profitable, so it precludes many smaller companies from entering the market (but this can be overcome through subsidies, so this isn’t a true problem).

The real issue with these industries is how inelastic demand is. Woah! Complex economic term there, so let’s explain it.

Put simply, consumers are considered inelastic when they “really need” whatever product or service a company is producing. Maybe it would be better illustrated using what elastic goods are (opposite of inelastic goods).

Here’s a list of elastic goods:

• Gasoline
• Coffee
• Clothing
• Automobiles
• Airline tickets
• Soft drinks
• Restaurants

Here’s a list of inelastic goods:

• Cigarettes (due to addiction)
• Insulin and other life-saving medications
• Basic food items (bread, eggs, milk)
• Water and electricity utilities
• Funeral services

I’ll dive deeper into the concept of inelastic vs. elastic demand in a future blog post, but the whole point is that government-granted monopolies are generally in industries that are highly inelastic—people need water, people need electricity, etc. So, if a private company came into the market and controlled all of the market (similar to our doctor in rural Alaska example above), they could charge whatever they wanted and people would have to pay for it.

Essentially, government-granted monopolies are preventing companies from exploiting vulnerable consumers.

Technical Superiority Monopolies

Technical superiority monopolies comprise a couple of different segments: innovation-based or first-mover advantage. These are both better explained through examples.

Credit Statista

First-mover advantage: Consider the example of Blackberry (the cell phone company not the fruit). Blackberry could be considered one of the first producers of a modern cell phone. By moving first with far superior technology to what existed back then, they were able to gobble up a large portion of the market very quickly (at one point controlling around 50% of the United States market).

Credit TechSpot

Innovation-based: Consider the current example of Nvidia, a producer of high-end GPUs (graphics processing units). As of 2023, Nvidia controlled around 80% of the global market in GPU semiconductor chips. How did they achieve this? Well, they certainly weren’t the first producer of these GPUs, but they saw an ability to provide a superior product (technically superior in this case) to what currently existed. Product innovation enabled them to capture significant market share, enough to now become one of the largest companies in the world.

Technical superiority requires innovation, expertise, and a little bit of luck.

Resource Monopolies

Resource monopolies come from companies that own the rights to valuable natural resources that only exist in certain places across the globe. This access and control allows these companies to charge extremely large prices for their products because you can’t get them anywhere else on the planet.

Credit Medium

A great historical example of this would be the De Beers Diamond Consortium. Founded in 1888, De Beers specialized in diamond mining, diamond exploitation, diamond retail, diamond trading, and industrial diamond manufacturing. From 1888 to the early 2000s, De Beers controlled 80% - 85% of the rough diamond distribution across the world.

This enabled them to extract extremely high prices and essentially control global access to diamonds (which is one of the reasons why diamonds were so expensive for so long).

Intellectual Property Monopolies

To incentivize innovation, many countries offer intellectual property rights to companies and people for new inventions. This favors certain industries more than others–specifically, in the United States, it favors pharmaceuticals.

When a pharmaceutical company develops a new drug molecule, the company can apply for patent protection which gives the company a 20-year monopoly over manufacturing that specific drug formulation.

Here’s an example: in 2015 the drug company Turing Pharmaceuticals acquired the intellectual property rights to a drug called Daraprim from Impax Laboratories. Daraprim helps treat life-threatening parasite infections. Turing immediately raised the price of the tablet from $13.5 to $750. Because they had the intellectual property rights, other competitors couldn’t come in and produce generics of the drug, meaning consumers had to pay the $750 if they wanted treatment.

This scenario happens quite often in the pharmaceutical industry. For instance, Cycloserine, a drug used to treat multidrug-resistant tuberculosis, was acquired by Rodelis Therapeutics which subsequently increased the price from $500 to $10,800.

This is only possible because competitors legally can’t copy these products due to intellectual property rights.

Scale Monopolies

Some industries have extremely high upfront fixed costs associated with them, and this greatly prevents many companies from entering the market and contesting them.

Credit The Atlantic

For example, during the early 1800s, Westward expansion was extremely popular as thousands of prospectors and hopeful businessmen moved with the intent of making their fortunes. This expansion was exponentially furthered by the development of the railroad. The development of railroads had been incentivized by the United States government, which provided land grants (10+ million acres) to a handful of large railroad companies, like Union Pacific. By the late 1800s, about 75% of the nation’s railroads were controlled by just 6 major railroad companies that were divided up by geography.

This isn’t a perfect example, but it demonstrates how high fixed costs preclude smaller companies from entering the industry, essentially forming a “natural monopoly”.

Wikipedia explains a natural monopoly as the following:

A natural monopoly is a monopoly in an industry in which high infrastructural costs and other barriers to entry relative to the size of the market give the largest supplier in an industry, often the first supplier in a market, an overwhelming advantage over potential competitors.

To summarize, a scale monopoly exists in an industry where there are very high costs for a competitor to enter (and they probably won’t be profitable when they do because of price competition), so it creates an artificial monopoly for the businesses already in the industry.

Network Monopolies

The concept of network monopolies is more of a newer development within the monopoly space, mainly facilitated by the Internet. Network monopolies exist when a company controls an extremely large network of things (usually people) and therefore precludes competitors from entering the market as growing their network is simply too hard.

Consider Facebook, a large company that primarily offers a social media platform to connect with family and friends.

Credit ResearchGate

As the number of users on Facebook grew, it encouraged more users to adopt the platform as that was where their friends or family already were. So, by attracting one user, that user could organically attract many more users through this network effect. Now, Facebook has over 2 billion users, meaning that for any company to come in and try to replicate what they did (even if that company is 100x better than Facebook), it would be almost impossible as Facebook has captured most of the network for that market.

Essentially, you wouldn’t want to join a new social media platform if none of your friends were on it. So, new social media platforms constantly die because they can’t achieve the network required to generate large amounts of organic growth.

M&A Monopolies

Monopolies based on mergers and acquisitions (M&A) are very intriguing (and one of the most highly regulated parts of monopolies). The whole idea behind an M&A monopoly is that you just buy all of your competitors, eventually achieving the entire market.

Credit Bloomberg

Let’s give a controversial recent example. Back in 2010, Live Nation Entertainment was formed through the merger of Live Nation and Ticketmaster. Live Nation was an events promoter and venue operator and Ticketmaster was a ticket sales platform. Since the merger in 2010, both companies have grown to continue to dominate the live entertainment market. It’s estimated that Ticketmaster now controls around 65% of the United States ticket sales market.

But, how did Ticketmaster get there?

Ticketmaster was founded in 1976 by Albert Greco. It was purchased in 1982 by Paul Allen and Bill Gates’ Maltese Partners and subsequently began a national expansion. In 1991, Ticketmaster acquired its biggest competitor at the time, Ticketron, giving Ticketmaster control of over 80% of the ticketing market. This was followed by other mergers/acquisitions that eventually made Ticketmaster into the giant that it is today.

This was all achieved by buying/merging with their competition. However, this put them in the spotlight of antitrust regulation (which is still a topic of conversation today).

Geographic Monopolies

Geographic monopolies exist when a company is a first-mover in a certain geography which enables them to establish control over that geography. This control prevents other companies from entering the market.

For example, consider the example of our rural town in Alaska. The first company to provide internet infrastructure (Comcast, Verizon, Spectrum, CenturyLink, etc.), to the area will experience a geographical monopoly. Granted, a large portion of this is because internet infrastructure is very expensive, so these companies experience some scale monopoly factors as well.

In addition, in many markets, especially less densely populated areas, there is little incentive for building duplicated internet infrastructure, especially when it is going to be in direct competition with a firm that already exists (this is extremely hard to make money).

____

Alright, so we’ve explored some types of monopolies, but many of these types have been predatory, or not in the best interests of consumers. Competition in many markets is extremely important for consumers as it allows them to have products for a lower cost and have many more of them.

So, what prevents monopolies from forming more often?

Monopoly Prevention

As stated above, the best way to prevent a monopoly is through competition – firms coming in with better products, lower prices, etc.

The best example from above would be Blackberry. They controlled a large portion of the United States market in the early 2000s, but now in 2024, you’d be laughed out of a room if you said you had a Blackberry phone. Why?

Many large competitors emerged. The biggest were Apple (iPhone) and Samsung (Samsung Galaxy).

Credit iDownloadBlog

Through the emergence of competitors offering a technologically superior product, Blackberry’s market share in the mobile phone market dwindled. This is a good example of a natural dispersion of monopoly power through increased competition.

Yet, that’s not how all industries work.

In 1890, the United States was dealing with monopolies (Standard Oil Company, American Tobacco Company – both of which I’ll discuss below) and needed a way to prevent their creation and power. So, the Sherman Antitrust Act was passed to limit “trusts” (the precursor to the monopoly), dismantling these aggressively large companies acting as monopolies (I’ll explain more in a section below).

The Clayton Antitrust Act of 1914 built on this, creating rules for mergers, corporate directors, and listed practices that would violate the Sherman Antitrust Act. Following this, the Federal Trade Commission Act created the United States Federal Trade Commission (known on the street as the FTC), which, along with the Antitrust Division of the Department of Justice, sets the standards for business practices and enforces antitrust legislation.

The earliest monopoly regulation measures were focused on protecting the consumer. It wasn’t until the beginning of the 20th century that regulation made the turn toward preserving competition.

Credit Quora

Why don’t we have more monopoly laws now in the United States? Don’t we have monopolies that are exerting potentially undue influence on markets and consumers?

A trend recently has been the unfortunate tendency of any further antitrust action (legislation/regulation) to have little effect. Most attempts at federal regulation have been adapted or amended until they lose much of their original bite.

Traditionally, there have been three remedies for monopolies: break the company into numerous smaller companies (see the AT&T example below), closely regulate the company (similar to a government-granted monopoly), or do nothing.

Regulation of a monopoly means the government controls the prices as well as other key operational policies. Unfortunately, for most monopolies, this isn’t extremely practical due to the size and scope of these businesses and the industries they are in.

The last option, or simply doing nothing, is a newer approach. Instead of regulation, the government relies on the development of new technology, new products, or new services to erode the power of monopolies. This is what I mentioned earlier about competition.

Ultimately, there isn’t a great way we’ve figured out to regulate monopolies effectively.

Credit TSP Smart

Historical Monopolies and Regulation

Monopoly/antitrust regulation generally comes after the fact, in response to someone doing something people think they shouldn’t be doing. There are a couple of large historical examples of monopolies and regulation coming head to head.

Standard Oil

The Standard Oil Company was founded in 1863 by John D. Rockefeller (yes that Rockefeller) and Henry Flagler. Standard Oil was an American oil production, transportation, refining, and marketing company that began its national expansion in 1870. The company grew by increasing sales and acquiring competitors. After purchasing competing firms, Rockefeller kept beneficial ones and shut down others.

Competitors didn’t like Standard Oil’s business strategy, but consumers liked the lower prices. In addition, Standard Oil had been receiving rebates and lower prices from railroads for some time, which representatives, initially in New York, started investigating as this behavior was seen as predatory and prevented competition. In response to new state laws limiting the scale of companies, in 1882, the 37 major stockholders in various Standard Oil companies and affiliates combined their stock into a trust overseen by 9 trustees.

In 1890 the Sherman Antitrust Law was passed, and the Standard Oil group quickly attracted attention from antitrust authorities. At this time, Standard Oil controlled 88% of refined oil flows in the United States. Fast forward to 1904, and Standard Oil controlled 91% of oil refinement and 85% of oil final sales in the United States.

Wikipedia cites the following:

The federal Commissioner of Corporations studied Standard's operations from the period of 1904 to 1906 and concluded that "beyond question ... the dominant position of the Standard Oil Co. in the refining industry was due to unfair practices—to abuse of the control of pipe-lines, to railroad discriminations, and to unfair methods of competition in the sale of the refined petroleum products".

Because of competition from other firms, their market share gradually eroded to 70 percent by 1906. In addition, in 1906 an antitrust case was filed against Standard. The lawsuit lasted 5 years and upon conclusion, Standard Oil was ordered to break up their company into 6 smaller companies (see chart below).

Credit Visual Capitalist

Some people speculate that if Standard Oil was able to continue its practices as a monopoly, the company could have been worth more than $1 trillion in the 2000s.

It was estimated that Rockefeller had accumulated up close to $1.5 billion through Standard Oil’s earnings, equivalent to around 1.5% of the U.S. GDP at the time.

American Tobacco Company

Cigarettes appeared in America in the early 1850s but were unpopular due to special government taxation. Traditionally, cigarette companies employed cheap immigrant labor to hand roll cigarettes. The raw material was relatively expensive and hand rolling was inefficient and costly. Overall, the industry was small and niche, mainly reserved for the super-rich.

In 1874, Washington Duke and his sons built a factory and in 1878 formed W. Duke, Sons & Co., one of the first tobacco companies to introduce cigarette manufacturing machines. Labor costs were reduced from $0.85 per thousand to $0.02 per thousand with machines. While an expert hand roller could make approximately 2,000 cigarettes a day, a machine could make 100,000.

This initial company formed by Duke quickly gained industry leadership through the adoption of machine manufacturing and the employment of huge advertising schemes to increase demand. Duke placed redeemable coupons inside his cigarette boxes which bolstered the company to reach around 30% of the United States market share.

Then in 1890, the top five cigarette firms at the time came together to form the American Tobacco Company. This consolidation allowed more efficient production and larger economies of scale in advertising. What followed was a series of mergers and acquisitions that eventually established the American Tobacco Company as the dominant player in the tobacco industry, controlling virtually the entire market. It’s estimated that the American Tobacco Company may have bought as many as 250 firms between 1980 and 1907.

Credit Dividend.com

The victory was short-lived, however, because in 1911 the United States Court of Appeals judged this tobacco trust in violation of the Sherman Antitrust Act and ordered it to be dissolved (see chart above).

AT&T

In 1876, the United States Patent Office granted the first patent for the telephone to Alexander Gram Bell. A couple of sub-corporations later, the American Telephone & Telegraph Company (AT&T) was founded in 1885 to provide long-distance telephone services across the United States.

AT&T soon became the parent company for Bell Labs (research and development), Western Union (local and long-distance telecommunications), and Western Electric (manufacturing). Throughout the 1900s, AT&T worked to consolidate its control over the nationwide telephone system. This made it become the target of several monopoly and antitrust lawsuits, forcing AT&T to sell its stake in Western Union.

AT&T eventually struck a deal with the government to make its monopolization legal in exchange for universal service – known as the Kingsbury Commitment. As a monopolist, AT&T’s decisions dictated the way people communicated. This allowed them to exert extraordinary influence over public debate and convince people that their monopoly was in the public’s interest.

Credit Adtran

Fast forward to the 1970s. AT&T’s services reached around 90% of United States households. Then, in 1982, after 8 years of a lawsuit the Justice Department made AT&T break up its business into 7 smaller regional operating companies (see chart above).

___

All of these firms weren’t able to keep their monopoly power but tried hard to (as they received large benefits from being a monopoly). What could they potentially have done differently to try to keep their monopoly power?

Keeping Monopoly Power

Once you have monopoly power, how do you keep it?

From an economic perspective, monopolies are only as good as long as you can keep them going. There are different strategies that companies employ to protect their monopolies once they are in place: leveraging economies of scale, continued innovation, acquiring competitors, government lobbying, supplier or distributor exclusivity, reliance on brand power, and/or locking in customers.

Most companies that hold monopolies are very large, and as such can experience great economies of scale. Take Amazon for instance. Because of its size, Amazon has been able to implement a package distribution system that’s significantly lowered its costs, essentially preventing competitors from shipping products at a lower cost than them.

In addition, because of their size, these companies can continue to innovate on a large scale, patenting more products and services to stay a step ahead of their competitors. This has been the case for large pharmaceutical companies like Johnson and Johnson.

Many times monopolies are gained, and then furthered by acquiring competitors. Large companies or companies with huge capital reserves can acquire competitors and subdue their market share before they become too large. Taking our previous example of Facebook, they acquired other prominent social media platforms (Instagram & WhatsApp) to A) maintain their monopoly; and B) increase their network of people on their social media platforms.

Credit RepresentUs

In countries that allow it, many monopolies lobby the local and national governments to either build regulatory barriers, block competition, gain favorable tax treatment, or prevent anti-trust lawsuits. An example of this has been Disney, consistently lobbying the government for increased copyright and intellectual property protection for its characters, all so competitors can’t replicate what they’re doing.

Large monopolies have considerable power in supplier and distributor situations. This allows monopolies to negotiate exclusive or restrictive agreements, which, in turn, squeezes competitor channels. Take Intel, for example. Intel long locked computer manufacturing companies (Dell, HP, Lenovo, etc.) into deals that made Intel the exclusive provider of CPU chips, keeping rivals (like AMD) largely shut out of these key markets.

Companies, especially popular monopolies, experience more brand power the larger they get. This established branding helps engrain customer loyalty and increase competitors’ switching costs significantly. For instance, Coca-Cola has built up a brand so popular that it’s obtained 94% global brand recognition. This makes replicating its brand value nearly impossible for competitors.

The final strategy businesses can take is to lock in consumers. This comes in many forms, usually by using proprietary technology, high switching costs, or subscriptions to create a dependent user base. The best example of this would be Microsoft. Microsoft’s Windows operating systems have long locked users into compatible software and accessories, making switching to other operating systems extremely difficult and extremely expensive.

Pros of Monopolies

Pro #1: Lower costs

As monopolies are generally very large firms, they will experience economies of scale (as they grow, they can buy in bulk, etc.). Economies of scale means monopolies can produce large quantities for lower costs. This provides significant value to the owners of the monopolies as their costs are lower.

Pro #2: Secure R&D

Monopolies, as they are without competition, can invest in the research and development of things that they maybe wouldn’t have invested in. As they don’t have to worry about competition, they’re free to explore different types of innovation, even if they know they won’t exactly make them superior returns.

Pro #3: Intellectual property rewards

Intellectual property rewards (copyrights, trademarks, patents) stimulate innovation and investment. Intellectual property protections allow the holders to essentially control a monopoly on the product/service. This reward (or temptation of a reward) encourages investment and can bolster economies.

Pro #4: Stability

Monopolist firms are generally more stable than competitive markets because the monopolist firm doesn’t experience the threat of competition or price wars. Besides government intervention to prevent the monopoly, these firms have the potential to go on forever.

Cons of Monopolies

Ultimately, monopolies are a perfect economic vehicle. However, this doesn’t come without a cost.

Con #1: Higher pricing

The optimal monopoly price is higher than the normal competitive market price, which isn’t good for consumers. This scenario is especially bad when the monopoly market consumers are inelastic, meaning the monopoly can extract extremely high prices and exploit consumers. This is one of the main reasons people don’t like monopolies as they tend to exploit consumers (especially in industries like pharmaceuticals).

Con #2: Lower quantities

Similarly, the monopoly optimal quantity of goods/services produced is lower than the competitive market optimal quantity. This means that some people who would normally get the goods in a competitive market wouldn’t get it in a monopoly market as the price would be too high given the supply and demand.

Con #3: Lower-quality products

Since monopolists don’t experience competition, there is no incentive for them to produce high-quality products as consumers will have to buy their products anyway. There are a limited (if any) amount of substitute products in a monopoly market meaning that consumers are stuck with the monopoly product - however bad it may be.

Monopolists already have the full market, so there’s little incentive to innovate. If they made their product better, would more people buy it? Probably not because they already have the entire market.

Con #4: Less incentive to cut costs

As there isn’t competition driving down prices and cutting into profits, monopolies don’t have much incentive to cut their costs. This isn’t a large disadvantage, but it does mean that consumers are again harmed because prices need to be higher than costs to make any money, so if costs remain high, prices don’t have the opportunity to come down (however, in a monopoly setting the prices probably wouldn’t come down with reduced costs anyway).

Con #5: Decline in consumer surplus

Because of higher prices and lower quantity, consumer surplus isn’t maximized. In addition, as the market becomes more and more inelastic, consumer surplus continues to decrease as the price increases closer to consumer willingness to pay.

Con #6: Potential monopsony power

A monopsony is a market in which there is only one buyer, the monopolist. An example of this is a monopolist supplying an entire industry’s jobs. In this example, the monopolist has the power to negotiate for lower wages for workers (where else can they go?).

Con #7: Less choice for consumers

A monopolist is the only supplier of a market’s goods. This means consumers have very little choice of where to get their product, which isn’t beneficial. This phenomenon gets exacerbated when consumers are very inelastic, meaning they “need” the good. In other scenarios, with more elastic consumers, they can simply choose not to purchase the good–to go without. Either scenario isn’t beneficial for consumers.

Con #8: Price discrimination

Price discrimination is another well-known feature of monopolies. Price discrimination refers to when the monopoly charges different prices to different customers for the same product. For example, in a monopoly, the exact product sold in a high-income neighborhood is likely to be more expensive than when sold in a low-income neighborhood. This takes advantage of consumers as it significantly decreases consumer surplus.

Con #9: Inflation

Monopolies create artificial inflation. Since they can set any prices they want, prices can continue to be raised to increase profit. This creates artificial inflation where the prices are rising but not because of rising underlying costs such as wages and raw materials.

Monopolies: The Perfect Investment

For better or worse, most of the business world wants to become the next monopoly. This is why many people start companies - to make as much money as possible. Making buckets of money is especially possible once you’ve achieved a monopoly (or a close resemblance to one).

Similarly, this is why the entire industry of venture capital exists. A venture capital firm’s goal is to invest in the next big monopoly. Why?

A company that can lock in a monopoly usually experiences enormous profit levels and company valuations, which translate into huge returns for investors (especially early investors like venture capitalists).

In addition, a monopoly can leverage market power benefits through things like network effects, economies of scale, branding power, or other strategies to achieve market dominance. This allows them to fend off competitors threatening their position and overall provides more stability from an investment perspective.

By having a monopoly, the company can control pricing, wield influence over strategic partnerships, acquire competitive threats, and exert substantial sway, all of which greatly appeal to a venture capital investor.

To summarize, the allure of extreme financial upside, market structural advantages, and industry dominance makes pursuing monopolies very enticing for venture capital investors–despite the ethical and regulatory concerns that arise.

To conclude:

“Monopolists always defend their monopolies by arguing that competition is wasteful. When the railroad barons completed their monopoly, they argued it would be wasteful to have competing rail lines, AT&T said the same thing. But today, the size and scope of these monopolies is different.”

- Franklin Foer

Are monopolies good or bad? Should they be regulated? That’s for you to decide.

Anywho, that’s all for today.

-Drew Jackson