Notes On Startup – A Perfect Competition and Monopoly

“Perfect Competition” Is considered both ideal and default state in economics. Perfectly competitive market achieve equilibrium when producer supply consumer demands.

Every firm in competitive market sells the same homogenous product, no firm has any market power. They must all sell at whatever price market determines.

If money to be made, new firms enters, Increase supply, drive prices down, eliminates the profit that attracted them in the first place. If too many firms enter, they will suffer losses, some will fold and prices will rise back.

Under perfect competition in long run, no company will make profit

“Monopoly” The opposite of perfect competition, where as competitive firms must sell at market price, monopoly owns the market so it can set its own price. Since it has no competition.

Google is good example of a company that went from 0 to 1, it hasn’t competed in search since the early 2000s where it definitively distanced itself from microsoft and yahoo.

The lesson for entrepreneur is clear, if you want to create and capture lasting value, don’t build an undifferentiated commodity business

To the outside observer, all businesses look alike, so its easy to perceive only small differences between them but reality is much more binary than that

Image credit : Zero to One Book

however there is enormous difference between perfect competition and monopoly. Most businesses are much closure to one extreme that we commonly realise. In reality differences are deep

Image credit : Zero to One Book

Reference: Book Zero To One By Peter Thiel

Continue Reading – Startup Thinking – Ideology of Competition

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