In his WSJ essay "Competition is for Losers," entrepreneur and investor Peter Thiel argues that monopolies are the key to long-term success in business. According to Thiel, a monopoly is a company that is so good at what it does that no other firm can offer a close substitute. He cites Google as an example of a successful monopoly that has differentiated itself from Microsoft and Yahoo! (and associated competitors) by just being a better search engine.
Thiel asserts that under perfect competition, all profits get competed away, meaning entrepreneurs who want to create and capture lasting value should not build an undifferentiated commodity business. He argues that monopolies try to hide their monopoly by exaggerating the power of their nonexistent competition. In contrast, non-monopolists tell the opposite lie by claiming to be in a league of their own. He says that competition hurts businesses, as it requires them to differentiate themselves and offer good things, which may result in paying employees less. In contrast, Google doesn't worry about competing with anyone, so it can afford to pay people more, invest in risky ventures, and make decisions most companies cannot.
Thiel argues that monopolies are only bad in static worlds where nothing changes. Still, in dynamic worlds where new and better things can be invented, creative monopolies provide ways of adding abundance to the world. He cites Apple as an example of a creative monopoly that produces high-quality products at high prices, noting that the rise of mobile computing has dramatically reduced Microsoft's decades-long operating system dominance.
Innovation isn’t always the answer.
His assumption that innovation is the most important net good is not always true. Still, he maintains that monopolies drive progress because the promise of years or even decades of monopoly profits provides a powerful incentive to innovate. He argues that monopolies can keep innovating because profits enable them to make long-term plans and finance ambitious research projects that firms locked in competition can't dream of. In a piece titled “Hail the Maintainers,” Professor Russell argues that innovation may not actually be the ultimate goal. First, regions of intense innovation have historically had systemic issues with inequality—a good example is the dramatic dichotomy between the wealthy tech elite of SF and the pervasive homeless crisis in the exact same area. In addition, the rote creation of new technology is not necessarily innovation. Instead, it is how consumers use and modify technology to genuinely improve the world or quality of life in some way that implies real innovation.
User modification is also very important in the theory of technology appropriation—after all, technology is useless if it isn’t adopted and prevalently used (generally) (Costanza-Chock). A good example would be the innovation of Google Glass and how it was not very widely used, even if it was a novel product. As scholars Bar, Weber, and Pisani wrote, “Appropriation is the process through which technology users go beyond mere adoption to make technology their own and to embed it within their social, economic, and political practices” (Bar et al.). When competition does not incentivize companies to optimize for both new technology and good business practices, there ends up either being subpar development of technology that is both effective, easy to use, and affordable or an inadequately appropriated product by users (Russell).
As Russell writes:
“Crack cocaine, for example, was a highly innovative product in the 1980s, which involved a great deal of entrepreneurship (called ‘dealing’) and generated lots of revenue. Innovation! Entrepreneurship! Perhaps this point is cynical, but it draws our attention to a perverse reality: contemporary discourse treats innovation as a positive value in itself, when it is not.”
Thiel suggests that believing in the equilibrium state of perfect competition is a relic of history, and the best companies solve unique problems. He claims that failed companies are ones that fail to escape competition.
Thiel's logical arguments have several flaws. First, his assumption that innovation is the net good is debatable since innovation may not solve all the world's problems. Second, his argument that monopolies give companies the freedom to be innovative and creative assumes that companies are moral actors and care about this, which may not always be the case. Third, Thiel's examples of competition are not entirely convincing since companies like IBM, Microsoft, and AT&T were overtaken by new competitors that provided better products or services at lower prices. Competitive markets, even if imperfect, are especially important for tech industries because they motivate reduced costs, better job opportunities, and give consumers more choices in general (FTC 1).
Because technology markets have a unique aspect of combining cutting-edge R&D with general business practices, rivalries take on a new turn. Beyond just good business practices, companies must be leading in innovation to have a place in the industry. A good example would be NVIDIAs drastic rise to leading the computing industry and being one of the leading stocks of the S&P 500 (WSJ Staff). They have accomplished this by developing an alternate method of increasing the efficiency and clock speeds of chips by altering the number of transistors rather than the number of semiconductors, which is what Intel has been doing (Enderle).
In conclusion, while Thiel's argument for monopolies may seem to have some merits, it also has significant flaws that greatly outweigh some of the benefits he proposes. While monopolies can incentivize novelty, it only results in higher consumer prices and less innovation. Ultimately, innovation's definition and role in improving people's quality of life should be more thoroughly examined before accepting the idea that monopolies are the key to long-term success in business.
Works Cited
Bar, François, et al. “Mobile Technology Appropriation in a Distant Mirror: Baroquization, Creolization, and Cannibalism.” New Media & Society, vol. 18, no. 4, Feb. 2016, pp. 617–36, https://doi.org/10.1177/1461444816629474.
Costanza-Chock, Sasha. “Design Narratives: From TXTMob to Twitter.” Design Justice, Mar. 2020, designjustice.mitpress.mit.edu/pub/0v6035ye/release/1. Accessed 2 Mar. 2023.
Enderle, Rob. “Why NVIDIA Has Become a Leader in the AI Market.” Datamation, 18 Jan. 2022, www.datamation.com/artificial-intelligence/why-nvidia-leader-ai-market/.
FTC. “Competition in the Technology Marketplace.” Federal Trade Commission, 12 Sept. 2013, www.ftc.gov/advice-guidance/competition-guidance/industry-guidance/competition-technology-marketplace.
Russell, Andrew. “Hail the Maintainers.” Aeon, Aeon, 7 Apr. 2016, aeon.co/essays/innovation-is-overvalued-maintenance-often-matters-more.
Staff, WSJ. “Nvidia’s Stock Is the S&P 500’S Best Performer; Chip Stocks Rise.” WSJ, 23 Feb. 2023, www.wsj.com/livecoverage/stock-market-news-today-02-23-2023/card/nvidia-s-stock-is-the-s-p-500-s-best-performer-chip-stocks-rise-oJJ9hqYPk6IINVNe3Qdy.
Thiel, Peter. “Competition Is for Losers.” Wall Street Journal, 12 Sept. 2014, www.wsj.com/articles/peter-thiel-competition-is-for-losers-1410535536.
It seems to me that thiel is arguing it’s easier to make money or create impact by finding a new niche and occupying it instead of competing for a spot at existing niches. This perspective is probably only valid in the tech industry? Only the tech industry is booming all the time with new niches emerging every so often. Other industries are quite fixed. And we are only seeing the quick emergence of new economic niches because we are going through a tech revolution. It’s possible that such rate of progress subsides eventually and thiel’s model wouldn’t work anymore. But so far his idea seems valid from an individual perspective (as in I know I am moral and will use my company for good impacts)