How dumb is too dumb?
You want your competitors to be slower than you -- but not so far behind that they ruin the market
As a general rule, people enjoy the benefits of competition as consumers far more than as producers. As a producer, it would seem like the ideal circumstance is one of no competition at all -- a monopoly. Monopolies (and monopoly profits) are enticing, particularly if it appears that they can be put on cruise control and ridden indefinitely.
■ The allure of monopoly-like profits undoubtedly drives some of our most well-known technology companies -- Facebook, Amazon, and Google, in particular. Amazon, for instance, for years plowed almost all of its profits back into developing a permanent competitive advantage over any prospective rivals.
■ But being unrivaled comes with consequences, too. Google's share of desktop search traffic is upwards of 85%. That much dominance brings with it heightened scrutiny -- including from those who can make plausible arguments that utility-like regulation is necessary.
■ It's quite likely that at least a few of the technology giants really would prefer to be treated like public utilities, if that would mean they could have a say in their own regulation and benefit from the sort of institutional protection that would come from being the incumbent protected monopolist.
■ Most of the time, though, it's better to have competitors -- as long as those competitors behave honorably and aren't stupid. There is such a thing as a competitor that is too dumb for the good of its rivals. That may seem counterintuitive, but it usually takes a while for a company to flop. It's not uncommon for a company to have a period of five or even ten years of decline as it burns through goodwill (and cash), and in that time, a dumb competitor can do a lot of damage to its rivals.
■ That damage happens when promises are made (and believed by customers) but not fulfilled. Expectations can be ratcheted up quickly -- but disappointment takes a while to settle in. That's the origin of the phrase "The bitterness of poor quality remains long after the sweetness of low price is forgotten." The problem for the good producer is that it's easy to get customers hooked on the sweet.
■ If you're a producer, you want your competitors to be about 25% slower than you, but you definitely don't want them to be completely stupid. Healthy competition forces a producer to be responsive, to innovate, and to look out for the customer -- something that doesn't always happen when an incumbent isn't forced to try harder (see, for instance, Facebook's embarrassing failure to do anything useful about fraudulent accounts). "Completely stupid" competitors wreck the market and that always comes back to haunt the survivors.