A little over a week ago an article appeared in the Wall Street Journal Saturday Review section by Peter Thiel about business being based on success with monopoly conditions and failure with competition.
I just wanted to put in my particular observations because I have a slightly different take than the traditional economist or business commentator. I’m still very different from Peter Thiel. I don't know if Thiel is ignorant. He's definitely uneducated but I admire his anti-academic attitudes.
Disclaimer: When I was starting a new micro-payment business, twelve years ago, I ran into trouble with PayPal and found it to be a disgusting, inhuman, merciless organization. The only way I could deal with the organization, to get any attention to get any response was to sue the bastards. Then I could at least talk to their lawyers.
Thiel is looking at PayPal and Google as his examples of a monopoly being successful.
PayPal is no monopoly. Banks have just been very slow to accommodate online financial transactions. Most banks have far more assets and liabilities than PayPal. The top ten banks have net revenues in the tens of billions of dollars compared to PayPal’s half a billion dollars. They also didn't pay attention to PayPal because PayPal doesn't make loans, which is the banking raison d'être. PayPal is not a monopoly. It was a weird offspring of the money transfer business. It was of no interest to the real banking business and still isn’t.
Google is a different story. I described the future Google (before it existed) in several 1980's books I wrote. I described that type of business as a ‘service monopoly’. Google didn't exist until they had a chance to copy most of my ideas. When Google began there were many search engines but Google became so good, so reliable and so comprehensive that no one else had a chance. That is what I call a service monopoly.'
A service monopoly is a business that has so much of the marketshare and does such a good job that the customers have no reason to go anywhere else.
Newspapers lost their classified ads because Craigslist was more comprehensive, more accurate, more reliable, cheaper and more precise in meeting the consumer's needs. Craigslist still has no comparable competitors. It is a service monopoly and will be one as long as it provides what the customers want.
Google could be wiped out any time if a better search engine came along and provided better services that consumers want.
Back to Peter Thiel and his nonsense. He ignores the most common and economically understandable phenomenon for corporations to grow and be successful. Economies of scale.
Economies of scale occur in production, distribution, marketing and management. That explains why we have so many global corporations that are so large and so extensive. They have no monopoly. They have merely grown by effectively using some economy of scale or multiple economies of scale.
There are only a few automobile companies in the world and none of them are monopolies. But they are gigantic and they are responsive to their markets. In the current world there is a hell of a lot of money and consequently no barriers to entry in anything.
Ask Elon Musk, he entered the auto market. He had no trouble getting startup capital.
Economies of scale are what matter most of the time.
Service monopolies occur at other times.
Can't you see that Mr. Thiel?