When you come down from the cloud-land of capitalist heaven you will find this is not even remotely what happens.

Capitalism is inherently anti-competitive. Larger established companies have more power than the idealized "entrepreneur" that libertarians like to posit. If a competitor appears they can simply force them to shutdown, via dumping, via legal harassment, or simply by virtue of being much larger and being able to do everything more efficiently and with larger margins. Government regulation is needed to prevent monopolies. This is self-evident.