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> whether or not having markets be owned by a small number of companies prevents new entrants from competing successfully If you consider markets to be an opti

> whether or not having markets be owned by a small number of companies prevents new entrants from competing successfully If you consider markets to be an optimization strategy for resource allocation, I think an industry being owned by a small number of successful companies represents a signal that a local maximum has been reached. That's assuming there aren't artificial barriers put up to prevent competition--there often are and I consider a patent an artificial barrier. If your mission is to generate billions of dollars of value where there was none before, a mature industry is not where you should be looking. "The next google" is not a search engine company as we understand the concept today. It's not that consolidation makes it hard to compete, it's that the value has fundamentally been wrung out already. In fact, that "value being wrung out"/profit-growth-at-the-top-of-the-sigmoid-curve is what drives consolidation in the first place.

james1071 10y ago
Someone needs to learn some economics.
- dave_sullivan 10y ago
  I think you're going to need to be more specific... If you see errors, please enlighten me.
  - james1071 10y ago
    You asserted that a highly concentrated industry is evidence of optimal resource allocation. It isn't.
    - majewsky 10y ago
      Why? (Honest question.)
      - deleted 10y ago
        [deleted]
      - james1071 10y ago
        You need to check out perfect competition, monpoly and oligoply. Briefly, with (textbook) perfect competition, profit maximising firms will price their goods at marginal cost and produce a socially optimum amount. A company with a monopoly will sell at a higher price and sell less than the socially optimum amount. There are also dynamic effects:competition acts as a spur for innovation. This is the text book argument against monopolies.
        yorwba 10y ago
        Why can't there be both perfect competition and one company that serves most of the market? If one company is better at resource allocation than all others, their market share will probably outgrow the competition, until someone else figures out how to do it better. But if everyone is essentially running the same strategy, the biggest player will win by force of momentum. (See also the reasoning behind dozens of copycat food delivery startups trying to "growth hack".) Either way, you end up with a few players dominating the market with their locally optimal resource allocation.
        frgtpsswrdlame 10y ago
        >Why can't there be both perfect competition and one company that serves most of the market? This model is called "dominant firm with competitive fringe."
        ProblemFactory 10y ago
        But we're not talking about a monopoly here. For example for cloud hosting, it's competition between Amazon, Google, Microsoft, OVH, and perhaps a few more "big" players. Like in many technology fields, you have high fixed costs that are distributed over all of your customers, and economies of scale. It is much cheaper for Google to add 10 000 new servers to their datacentres, compared to starting up a new hosting company, building small datacentres on five continents, and rewriting all the software that Google Cloud offers on top of servers. So seems plausible that a highly concentrated industry with a few big companies each having >10% market share is more efficient (and can offer lower prices) than a market with thousands of small artisanal hosting companies with <0.1% market share.
    - dave_sullivan 10y ago
      You> You asserted that a highly concentrated industry is evidence of optimal resource allocation. Me> If you consider markets to be an optimization strategy for resource allocation ... Optimization strategy as mathematicians use it means something similar to "optimal resource allocation" as economists use it, but the tools and thought processes are very different. For instance, economists are often not aware of the concept of "local maximums" vs "global maximums"--that in large state spaces, like an economy, there probably is no globally optimal allocation. They're mostly not aware of what "state spaces" are or what logistic regression is. But yes, I think of markets as an optimization algorithm for resource allocation, not dissimilar to gradient descent. Me> ... an industry being owned by a small number of successful companies represents a signal that a local maximum has been reached. That's assuming there aren't artificial barriers put up to prevent competition For my specific point of "concentration points to an industry local maximum", "law of diminishing returns" is probably the most applicable concept taught in econ 101, but I'm saying more than that. "Law of diminishing returns in mathematical optimization" is a real thing, I didn't make it up. It applies to many complex systems, an economy being one. So yeah, I stand behind what I said; I think I understand econ just fine; maybe in the future you can just open with your point instead of being a dick, it saves time.
      - james1071 10y ago
        You have not got a clue. Companies with monopoly power do not allocate resources optimally (for society) because they choose to optimise resources optimally for themselves. Because they have pricing power, profit maximising behaviour does not allocate resources optimally.
frgtpsswrdlame 10y ago
>I think an industry being owned by a small number of successful companies represents a signal that a local maximum has been reached. Why do you think that?
- dave_sullivan 10y ago
  Because it happens over and over. Can you point to an example where it doesn't apply? I mean, easiest example is probably cars. Sure, Elon started Tesla, but they're tiiiiiny compared to other auto manufacturers. They're also doing some things very differently, so it's not quite the "same industry" now. In 1908 there were 253 auto makers, in 1929 only 44, and now there are ~10? So what happened? There was an initial boom (lower half of the sigmoid curve/hockey stick), followed by lots of competition from startups (because they can compete on method there's some nice profit margins there), followed by brutal competition and diminished profit margins (as best method is adopted and firms sell against each other, things get cheaper), followed by consolidation (because when profit margins are shrinking, next step is consolidation and "belt tightening"), followed by an industry no one wants to touch anymore (because it's run by a bunch of idiot middle managers). If you wait long enough, those idiots eventually miss some major developments and this creates a new opportunity to do things very different (eg Tesla). Or nothing really changes, as in the case of air travel. Also, history of all kinds of consumer electronics. Also, how many companies on the fortune 100 50 years ago are still on it? Nothing lasts. If you're lucky and successful, you eventually hit the top of the sigmoid curve. Also, software (yes, it's true) What industry does this trend not apply to? What's the argument for "I think an industry being owned by a small number of successful companies represents a signal that a local maximum has NOT been reached (there's tons of opportunity there, just have to unlock it!)"?

james1071 10y ago

Someone needs to learn some economics.

dave_sullivan 10y ago
I think you're going to need to be more specific... If you see errors, please enlighten me.
- james1071 10y ago
  You asserted that a highly concentrated industry is evidence of optimal resource allocation. It isn't.
  - majewsky 10y ago
    Why? (Honest question.)
    - deleted 10y ago
      [deleted]
    - james1071 10y ago
      You need to check out perfect competition, monpoly and oligoply. Briefly, with (textbook) perfect competition, profit maximising firms will price their goods at marginal cost and produce a socially optimum amount. A company with a monopoly will sell at a higher price and sell less than the socially optimum amount. There are also dynamic effects:competition acts as a spur for innovation. This is the text book argument against monopolies.
      - yorwba 10y ago
        Why can't there be both perfect competition and one company that serves most of the market? If one company is better at resource allocation than all others, their market share will probably outgrow the competition, until someone else figures out how to do it better. But if everyone is essentially running the same strategy, the biggest player will win by force of momentum. (See also the reasoning behind dozens of copycat food delivery startups trying to "growth hack".) Either way, you end up with a few players dominating the market with their locally optimal resource allocation.
        frgtpsswrdlame 10y ago
        >Why can't there be both perfect competition and one company that serves most of the market? This model is called "dominant firm with competitive fringe."
      - ProblemFactory 10y ago
        But we're not talking about a monopoly here. For example for cloud hosting, it's competition between Amazon, Google, Microsoft, OVH, and perhaps a few more "big" players. Like in many technology fields, you have high fixed costs that are distributed over all of your customers, and economies of scale. It is much cheaper for Google to add 10 000 new servers to their datacentres, compared to starting up a new hosting company, building small datacentres on five continents, and rewriting all the software that Google Cloud offers on top of servers. So seems plausible that a highly concentrated industry with a few big companies each having >10% market share is more efficient (and can offer lower prices) than a market with thousands of small artisanal hosting companies with <0.1% market share.
  - dave_sullivan 10y ago
    You> You asserted that a highly concentrated industry is evidence of optimal resource allocation. Me> If you consider markets to be an optimization strategy for resource allocation ... Optimization strategy as mathematicians use it means something similar to "optimal resource allocation" as economists use it, but the tools and thought processes are very different. For instance, economists are often not aware of the concept of "local maximums" vs "global maximums"--that in large state spaces, like an economy, there probably is no globally optimal allocation. They're mostly not aware of what "state spaces" are or what logistic regression is. But yes, I think of markets as an optimization algorithm for resource allocation, not dissimilar to gradient descent. Me> ... an industry being owned by a small number of successful companies represents a signal that a local maximum has been reached. That's assuming there aren't artificial barriers put up to prevent competition For my specific point of "concentration points to an industry local maximum", "law of diminishing returns" is probably the most applicable concept taught in econ 101, but I'm saying more than that. "Law of diminishing returns in mathematical optimization" is a real thing, I didn't make it up. It applies to many complex systems, an economy being one. So yeah, I stand behind what I said; I think I understand econ just fine; maybe in the future you can just open with your point instead of being a dick, it saves time.
    - james1071 10y ago
      You have not got a clue. Companies with monopoly power do not allocate resources optimally (for society) because they choose to optimise resources optimally for themselves. Because they have pricing power, profit maximising behaviour does not allocate resources optimally.

frgtpsswrdlame 10y ago

>I think an industry being owned by a small number of successful companies represents a signal that a local maximum has been reached. Why do you think that?

dave_sullivan 10y ago
Because it happens over and over. Can you point to an example where it doesn't apply? I mean, easiest example is probably cars. Sure, Elon started Tesla, but they're tiiiiiny compared to other auto manufacturers. They're also doing some things very differently, so it's not quite the "same industry" now. In 1908 there were 253 auto makers, in 1929 only 44, and now there are ~10? So what happened? There was an initial boom (lower half of the sigmoid curve/hockey stick), followed by lots of competition from startups (because they can compete on method there's some nice profit margins there), followed by brutal competition and diminished profit margins (as best method is adopted and firms sell against each other, things get cheaper), followed by consolidation (because when profit margins are shrinking, next step is consolidation and "belt tightening"), followed by an industry no one wants to touch anymore (because it's run by a bunch of idiot middle managers). If you wait long enough, those idiots eventually miss some major developments and this creates a new opportunity to do things very different (eg Tesla). Or nothing really changes, as in the case of air travel. Also, history of all kinds of consumer electronics. Also, how many companies on the fortune 100 50 years ago are still on it? Nothing lasts. If you're lucky and successful, you eventually hit the top of the sigmoid curve. Also, software (yes, it's true) What industry does this trend not apply to? What's the argument for "I think an industry being owned by a small number of successful companies represents a signal that a local maximum has NOT been reached (there's tons of opportunity there, just have to unlock it!)"?