“Competition is for Losers” The Wall Street Journal, Sept. 12, 2014. Why is it better to build a monopolist rather than a competitive...

There are several reasons why a company can profit from being a monopoly. The most obvious is that a monopoly has the ability to charge prices only limited by what the market will bear, rather than being driven by competition. In a competitive market, sellers try to undercut one another in order to generate sales. This reduces profitability, but one needs to match competitors' price reductions to maintain sales volume. Next, sales are naturally higher...

There are several reasons why a company can profit from being a monopoly. The most obvious is that a monopoly has the ability to charge prices only limited by what the market will bear, rather than being driven by competition. In a competitive market, sellers try to undercut one another in order to generate sales. This reduces profitability, but one needs to match competitors' price reductions to maintain sales volume. Next, sales are naturally higher if you monopolize a market (as opposed to splitting the market with competitors). Also, as a monopolist, you have lower costs. You can offer lower bids to suppliers, you can invest less in consumer loyalty (especially in a captive market such as a utility), and you can invest less in improving your product because you do not need to compete for market share based on features. Essentially, monopolies can charge high prices for goods it costs little to produce. Additionally, monopolies can take advantage of economies of scale. 

One important part of monopolistic practices in a digital or platform economy has to do with network effects. As more people shop on Amazon, more sellers gravitate to Amazon, attracting even more buyers. The same is true of social media sites; the more people there are on a given site, the more participants are attracted to it. 

There are, though, several arguments against monopolies. The first is obviously that they can be bad for consumers and that they can lead to corruption and rent seeking. The next is that they are vulnerable to disruptive innovation. Even worse, monopolies can become lazy and complacent, meaning that they gradually lose the ability to deal with competition when it inevitably occurs. Consumers may rebel against monopolies and may try to find ways to circumvent them, such as by going off the grid to avoid paying high utility prices, abandoning cable television and landlines for mobile phones, VOIP, and streaming services, and so on.