Lecture 5 – Competition is for Losers (Peter Thiel)

Always aim for a monopoly 

  1. Capturing Value
  2. Lies people tell
  3. how to build a monopoly
  4. last mover advantage
  5. history of innovation
  6. psychology of competition

 

Capturing Value – A business creates X dollars of value and captures Y% of X. X and Y are independent variables.

Perfect Competition vs Monopoly

Perfect Competition
pros
– easy to model
– efficient in a static world
– politically stable
cons
– psychologically unhealthy
– irrelevant in a dynamic world
– preempts question of value

Monopoly

pros
– incentive to innovate
– stable, long-term planning
– deeper project financing
– symptomatic of creation
cons
– lower output, higher prices
– price discrimination
– stifle innovation
– tying

 

Lies People Tell
Monopolies say that they are not monopolies and the actual market size is much bigger so the government doesn’t come after them.
Non-monopolies say that they are the only one doing this to stand out, and differentiate from the competition.

 

How to build a monopoly?
Start small (from a small market) and monopolize
It’s easier to dominate a small market than a large one. If you think your initial market might be too big, it almost certainly is.
If you started with a big market, you are going to face a lot of competition.

 

Last Mover Advantage 

Characteristics of monopoly:
– proprietary technology
– network effects
– economies of scale
– branding

You can be the last mover but you have to be multiple order of magnitude better than the current state of the art.

 

History of Innovation 

If you operate in a small market and your adoption rate is slow, somebody else can enter the market and take your share so your adoption rate needs to be fast.

Psychology of Competition

We think people who can’t compete are losers. We see competition as validation.