Surpluses (and deadweight loss) created by a monopoly. (Photo credit: Wikipedia)
I did my Masters in Economics and was very much on the way to completing my Phd. I really liked Microeconomics and Econometrics. The prescribed book for Microeconomics was “Intermediate Microeconomics” by Hal R. Varian. I enjoyed the math, the optimization problems and elegantly defined theories around how individuals and companies maximize profit and how markets function and how equilibrium is reached in a market through demand and supply interactions etc It was fun. I am actually staring at the book by Hal R. Varian right now thinking how the professor of economics, who incessantly preach the benefits and value of competition and free market economies ended up working for Google which according to Peter Thiel is one of the obvious monopolies that we have. Of course Google is a monopoly not in a traditional sense, because according to my book, a definition of monopoly is as follows:
A situation where a market is dominated by a single seller of a product is known as a monopoly
Obviously, Google is not the only Search Engine, there are several. However Google is so much more superior than the others that they have 66% of the market so technically they have become the single provider of search service as their customers vote with their feet or their fingers. Technological innovation tends to naturally favor companies to become monopolies more specifically because of Power Laws. This is a bad thing only in a static world or in the board game, in an ever changing world we move from one dominant service provider to another, that is the nature of the world. So if you are a startup, try to become a monopoly in niche market by making something that is dramatically superior than anything out there. That is the only way you can capture all the value that you are creating.
Here is the 5th lecture in the How to Start a Startup class, the talk is by Peter Thiel… and his provocative title is Competition is for losers. Watch the video, it is fascinating to see how Peter articulates and positions how a startup founder should think about building the market. Peter Thiel is someone I would really like to meet, he comes across as someone who see the truth and is not afraid to say it. The classic is when a student asks for career advice and Peter responds by saying that he is not great at the psychotherapy stuff. Just brilliant. Really interesting lecture on how to look at markets, strategy and philosophy.
I am reading Zero to One and the monopoly idea is something that i find very fascinating, I had never thought about it that way before. Looking forward to reading and listening to more from Peter Thiel.
You are reading the right book at the right time 🙂