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Competition doesn't work correctly in modern economies because companies are allowed to buy their competitors. If you start competing with another company, they

Competition doesn't work correctly in modern economies because companies are allowed to buy their competitors. If you start competing with another company, they can essentially raise money to buy you and stop what would be the "normal" process. As a result, all theories that people have about how competition works don't apply as they think it should.

dantheman 3y ago
That can only go on for so long; if people see companies buying out competitors people will jump to create more and more competitors for the easy exit.
- coliveira 3y ago
  Will they? Only if they can. Tech industries are example #1 for this behavior. At some point very few people can create a competitor for Amazon, Google, or Apple.
  - revelio 3y ago
    Apple has lots of competitors and doesn't even have dominant market share. Google is hard to compete with due to network effects, because they don't often miss tricks, and because they've invested so heavily in core R&D for so many years. The classical story about competition is that a big rich company becomes complacent and stops improving their products, opening a gap for new companies to enter, but Google hasn't really done that, they continue to tweak and try new things (arguments about search quality specifically for precise programmer queries aside). Amazon retail is hard to compete with because it's not a very good business. They keep margins extremely low for not entirely rational reasons, which is why most of their profit now comes from AWS. AWS meanwhile does have competitors.
- ultrarunner 3y ago
  That would be true if not for regulatory burdens that larger companies can afford to shoulder. We just watched a progression from "OpenAI has no moat" to OpenAI begging Congress for regulations to stop them from killing grandma. If you can't get a foothold in the market there's no point in acquiring you.
- specialist 3y ago
  What are some examples of this occurring?
BetaDeltaAlpha 3y ago
How many times can they keep raising money to do that? There's not endless liquidity in the system (until rates go to zero again).
- stefan_ 3y ago
  These acquisitions end up paying for themselves. Just look at semiconductors, where some of the only "value creation" is in ever bigger companies buying each other. You have Analog Devices buying Linear Technology for $14B in 2017, then buying Maxim for $20B in 2021, both of them massive competitors and themselves the result of countless acquisitions over the years. And it repeats all over, Intel buying Altera, AMD buying Xilinx, NXP merging with Freescale..
- mrguyorama 3y ago
  You don't need to raise money to do that, because your profits being high from lack of competition allows you to build up a nice war chest, then spend it on protecting that lack of competition. It's not difficult at all, it's literally how every single area of commerce right now is owned by like two giant conglomerates. From tools to bathroom cleaners to crackers.
nine_k 3y ago
This works when the competitor goes public and thus can be bought in a hostile way. Buying out and closing a completely private company is harder (though not impossible, given a right price).
- coliveira 3y ago
  This is rarely difficult when the buying company is large enough. You just need to offer a good multiplier for the current price of the private company. Very few private companies will turn down a generous offer, especially when the option is to compete directly with the larger company.
- mrguyorama 3y ago
  Except the leaders of a competitor will almost always take a big exit and let the private company be bought, because fuck you, got mine. You only need to convince a few people to take a payday, and most people are not running businesses out of some strongly held ideology of public market competition, but rather because they want to be rich.

dantheman 3y ago

That can only go on for so long; if people see companies buying out competitors people will jump to create more and more competitors for the easy exit.

coliveira 3y ago
Will they? Only if they can. Tech industries are example #1 for this behavior. At some point very few people can create a competitor for Amazon, Google, or Apple.
- revelio 3y ago
  Apple has lots of competitors and doesn't even have dominant market share. Google is hard to compete with due to network effects, because they don't often miss tricks, and because they've invested so heavily in core R&D for so many years. The classical story about competition is that a big rich company becomes complacent and stops improving their products, opening a gap for new companies to enter, but Google hasn't really done that, they continue to tweak and try new things (arguments about search quality specifically for precise programmer queries aside). Amazon retail is hard to compete with because it's not a very good business. They keep margins extremely low for not entirely rational reasons, which is why most of their profit now comes from AWS. AWS meanwhile does have competitors.
ultrarunner 3y ago
That would be true if not for regulatory burdens that larger companies can afford to shoulder. We just watched a progression from "OpenAI has no moat" to OpenAI begging Congress for regulations to stop them from killing grandma. If you can't get a foothold in the market there's no point in acquiring you.
specialist 3y ago
What are some examples of this occurring?

BetaDeltaAlpha 3y ago

How many times can they keep raising money to do that? There's not endless liquidity in the system (until rates go to zero again).

stefan_ 3y ago
These acquisitions end up paying for themselves. Just look at semiconductors, where some of the only "value creation" is in ever bigger companies buying each other. You have Analog Devices buying Linear Technology for $14B in 2017, then buying Maxim for $20B in 2021, both of them massive competitors and themselves the result of countless acquisitions over the years. And it repeats all over, Intel buying Altera, AMD buying Xilinx, NXP merging with Freescale..
mrguyorama 3y ago
You don't need to raise money to do that, because your profits being high from lack of competition allows you to build up a nice war chest, then spend it on protecting that lack of competition. It's not difficult at all, it's literally how every single area of commerce right now is owned by like two giant conglomerates. From tools to bathroom cleaners to crackers.

nine_k 3y ago

This works when the competitor goes public and thus can be bought in a hostile way. Buying out and closing a completely private company is harder (though not impossible, given a right price).

coliveira 3y ago
This is rarely difficult when the buying company is large enough. You just need to offer a good multiplier for the current price of the private company. Very few private companies will turn down a generous offer, especially when the option is to compete directly with the larger company.
mrguyorama 3y ago
Except the leaders of a competitor will almost always take a big exit and let the private company be bought, because fuck you, got mine. You only need to convince a few people to take a payday, and most people are not running businesses out of some strongly held ideology of public market competition, but rather because they want to be rich.