David R. Henderson  

Competition is a Hardy Weed

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Pillar #10 of my "Ten Pillars of Economic Wisdom" is:

Competition is a hardy weed, not a delicate flower.

I thought of that when I read Steven Denning's recent article on the recent bankruptcy of Monitor. It's titled, "What Killed Michael Porter's Monitor Group? The One Force That Really Matters." The most-relevant paragraph:
There was just one snag. What was the intellectual basis of this now vast enterprise of locating sustainable competitive advantage? As Stewart notes, it was "lacking any foundation in fact or logic." Except where generated by government regulation, sustainable competitive advantage simply doesn't exist.

I have a close-to-personal interest in Monitor, by the way. When Monitor went bankrupt last month, one of my closest friends, a retired Monitor employee, lost one third of his net worth. I'm amazed at, and proud of, how clearly my friend is thinking and acting and how little he is playing "ain't it awful?"

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CATEGORIES: Business Economics

COMMENTS (4 to date)
Tom West writes:

Except where generated by government regulation, sustainable competitive advantage simply doesn't exist.

I'm not certain about that. Many monopolies or near monopolies are sustainable by virtue of the incumbent being able to bankrupt any new competitors by having deep pocket books. Obviously this isn't sustainable against infinite competition, but once it's occurred once or twice, nobody wants to throw away their money to try again.

Usually the monopoly only dies when the market segment dies.

Likewise, sustainable advantages can be found by locking constrained supply into long-term contracts.

However, even government regulation isn't necessarily sustainable, as changing governments often change the favorites. (Are patents considered government regulation?)

john hare writes:

I'm not fully understanding the points here. If government regulation creates the sustainable competitive advantage, isn't that a government protected semi-monopoly that kills competition? It seems to me that competition doesn't sustain any one advantage as the next level product negates that advantage.

How am I missing the point this time?

Ken B writes:

Competition as "weed"? That explains why the feds want to ban it!

I'm not convinced by Tom West's claim. I hear this about a lot of things. I was taught it about the Big 3 car makers when I was in grade 9. Craft beer has taken off. Any see what Amazon did to the Sears mail order empire, or Borders Books?

Tom West writes:

Well, if you're talking 50 year time-scales, then *nothing* is sustainable. Even government policy rarely lasts 20 years unchanged.

I'd consider a 10-20 year run to be pretty much "sustained". And yes, government is probably the easiest way to do so, but by no means the only.

IBM owned (and would have completely owned without government intervention) the mainframe, and Microsoft will continue to own the desktop. These markets may become irrelevant over time, but that doesn't mean they'll ever lose their competitive advantage in those markets.

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