Monopolies

Imagine a town with one well. At first there are three wells and they compete on price. But one well owner realises that if he buys the other two, he controls the entire water supply. He does not raise prices immediately. He lowers them, because now he has no competition and he can afford to wait. The townspeople love the cheap water. New well diggers look at the low prices and decide it is not worth the trouble. After a few years, the well owner quietly raises prices. Nobody can do anything about it. There is only one well, and everyone is thirsty. This is the playbook for every monopoly in history, and the modern version is even more elegant. Today's most powerful monopolies are built on network effects. A social media platform becomes more valuable as more people join. A search engine becomes more accurate as more people use it. The first company to reach critical mass in a networked market often becomes the only company. Google processes over ninety percent of global searches. It generates over three hundred billion dollars in annual revenue, mostly from advertising.