Re:Goodreads was the future of book reviews. Then Amazon bou...
by somenits on Monday July 03, 2023 @02:33PM
(#36577076)
I'm not confused. But you are introducing unnecessary concepts here. A firm needs to make some profit in the long run, whatever you want to call it, to be able to sustain investment. If there's too many firms in the market, that can be undermined. That's why you don't see five dry cleaners right next to each other in the same strip mall.
And your second paragraph fails to address my point too. I acknowledged that in the long run, the health of the industry could be restored by some of the firms failing. But that can take way too long, and in the meantime, all of them are capital-starved and unable to invest in improving their businesses.
don't confuse economic profit with accounting profit: the promise/goal/benefit of competitive markets is that economic profit goes to zero. (quickest way to describe the difference is, there are dry cleaners dotting the landscape in competition with each other, they make income which pays the owner's living including saving for retirement, kids college fund, etc. That's accounting profit. That's not economic profit, which is why you don't see VCs and investment banks investing in dry cleaning startups.)
Another important aspect of competitive markets is that weak companies die, and new companies enter, what Schumpeter called creative destruction. The 10 firms "losing money" is 10 firms competing, some of whom will fail. The 8 firms making healthy profits with fat (and lazy) R&D departments is attractive for disruption.