Monopoly and Competition: What Works?

While the post title certainly has few "ready made" answers, the issue is nonetheless thought provoking. Shane Parrish in this post, takes a look at Peter Thiel's views about monopoly and competition in Thiel's latest book. My post also serves as a response to the summary which Shane Parrish provides, where he stresses that progress comes from monopoly, not competition. I don't completely agree.

Even though growth results from new perimeters which monopolies can make possible, monopolies are not always capable of providing full marketplace representation, no matter how viable they become as companies. Whereas competition attempts to generate growth through more inclusive - if marginal - means. Hence, competition at the margins needs greater overall support, in order for long term growth to reach full economic potential. Seeking means for more diversified competition would benefit cities, but doing so would particularly bring smaller communities back to life.

For instance: monopolies tend to define particular sets of infrastructure, which is why it's easy to see them as representative of progress or disruption - take your pick.  When do new monopolistic formations apply to regions as a whole? Are new monopolies capable of generating perimeters which extend well beyond that of the old boundaries? Consider the new taxi companies of the present, and the degree to which they are being limited in some major cities.

New taxi companies could vastly improve the marketplace in places which already face limitations in taxi services. However as far as I can tell, these services are primarily challenging preexisting structures in already diverse economies. In these instances, new monopolies might reduce costs without substantially increasing the size of the marketplace. That is a limited definition of progress. Done right, competitive environments sometimes have equal or greater capacity to generate growth and continued progress than monopolies.

Competition needs to be structured so that it is once again capable of flourishing at local levels. Anyone who has spent any amount of time in small towns, knows how limited their job markets really have become in recent decades. One way to think about this is to consider the means by which monopolies and competition might work better, than they presently do.

If a local economy could be likened to a tree, local monopolies might serve as "trunks", whereas local competition would become "branches" which carry economic activity beyond the certainty of infrastructure. Whereas trunks provide means by which to live one's life, the branches are the components which give life greater meaning, which is why they (competition) deserve our support in spite of their economically marginal nature.

The more basic functions of local monopolies (particularly land and building components) could be broken into more diverse components and widely held. The more trunks at the outset, the more branches will also become possible. Also, the more that local investment is dispersed through the trunks, the less problematic that local branches will be. In a sense, their primary purpose is to preserve economic diversity, social viability and identity.

Trunk "shares" in this instance are more practical than today's traditional building options for home or work, because holding shares in building components would provide economic autonomy for individuals as a whole. This in turn allows individuals to generate more meaningful contracts with their own communities over the course of a lifetime, whatever the personal circumstance of families might be.

Consider the restaurant model, which has faltered in many places which do not have enough local citizens to keep restaurants open. Part of the problem in this regard is the way the overhead is automatically structured for those who want to take part. Not enough locals want to eat out on an ongoing basis to keep a restaurant with a specific menu up and running. As a result, those who reach out to the public are forced to invest and work overtime for small odds of success.

How so? In order to pay the overhead, restaurants often need to stay open seven days a week. However, the response on the part of locals may simply be to stay home and cook their own meals (yes I've heard these discussions). They like the restaurant but it gets boring eating from the same menu that often. While eating at home is an understandable response, it means less economic choice and flexibility, and fewer occasions when neighbors are likely to even see one another in public. It can also mean a town remains or becomes a sleepy backwater - often unnecessarily!

In order to recreate Main Street, the marketplace needs to overcome these competition shortcomings at local levels. That means creating viable community spaces for shared competition, which can provide meaning for all local citizens. These forms of flexible investment could be coordinated by local entrepreneurs and citizens alike.  Even in small population densities, the economic variety which people naturally crave would continue to be possible.