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If the economies of scale additionally have high sensitivity at larger scales, you can be low-cost leader AND have higher margins. This reinforces the A vs B+C equilibrium because remember A only has to not-lose.
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Can’t share the actual examples I’m thinking through, and can’t think of perfectly clean examples, so would welcome examples for my case files. One good approximate example I have no stake in is Apple vs Google Android+Samsung in phones. Maybe Boeing vs Airbus+Bombardier?
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I avoided quoting this because it’s closer to winner-take-all than I’m thinking of 😄 A vs B+C is more like first prize BMW, second prize Toyota Corolla, third prize, used Kia. If you just want a functional car third prize us actually fine.
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Replying to @vgr
First prize: Cadillac Second prize: steak knives Third prize: you’re fired
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I should name this whole thing. Something like the Wise Incumbency effect. Be decisively powerful but avoid winning 100%. Conversely, advice to startups: attack A vs B+C markets — they are less contested than they seem, and poor at innovation. It’s a lazy dominated oligopoly.
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This pattern is very general btw, not limited to business competition or war. Any kind of resource contention among agents will do. For eg. projects fighting for attention share even within a single person’s head. Case to be made that happiness = A vs B+C contest in your head.
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For eg for years I think I was in a writing vs consulting + community-curating equilibrium. Then I ditched community around 2019 and replaced it with paid newslettering, which is an unstable situation, and now makering is disrupting the attention equilibrium significantly.
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I bet there’s a clean game theory model here. Iterated game with probabilistic payoffs for A, B, and C based on strengths, burn rate and extinction limits.
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Kinda hard to communicate the fundamental elegance I see in this pattern because it seems to have a lot of moving parts. But it’s simpler than it looks, just not as simple as spherical-cow textbook asymptotes of perfect competition commodities or perfect monopolies.
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Player A can be on a low-cost trim trajectory of “steady growth,” pace-setting the race with 2 variables — benchmark cost and tempo of incremental innovation. And do so with minimal maneuvering or strategizing. But B and C have to actively maneuver to follow, at high cost.
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If A decides to lower prices, everybody’s unit economics shifts and there’s a cost pressure others can handle less. If A decides to introduce a feature it’s basically in, with near zero adoption risk, but for B, C, it only works if it’s a radical leap OR if A follows suit.
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A can maintain lead with a series of minor innovations that others MUST emulate, Disruptors can swing for the fences with low chance of success. But B and C have a really tight zone: radical enough to be a must-have, but not so radical that it blows up unit economics.
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Otoh pure cost improvements are easiest for the player with already biggest scale. B and C face a second-tier dilemma — less able to compete on cost, tightly constrained in competing on features/differentiation. Most will tend to either be too costly or force them into a niche.
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For B and C the most effective strategy is not actually allyship but just giving up position and differentiating to the point they niche-down to the margins and can launch a properly disruptive attack. Leave the core to attack it. It benefits A to keep them allied in false hope.
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For A the biggest risk is unforced execution errors in making the pace-setting innovations (sustaining and only as radical as necessary). This creates an opening for B or C to steal the lead (though they will almost certainly fumble it in the next round).
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To retain leadership dividends, keep your enemies close and friendly with each other and don’t make unforced errors. And don’t get greedy. Strong defensive positions are nearly always fumbled by greed.
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So many of the heroic stories we tell are of unlikely winners (disruptors) or morally superior second tiers (Bs and Cs) we forget that most of the world, most of the time, is controlled by players cast as villains… and they have interesting stories too, just not heroic ones.
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And no, villains are not the heroes of their own stories most of the time. It happens, but the Incumbent’s Journey is generally not isomorphic to the Hero’s Journey. It’s repeated repelling of attacks from a non-adventure journey.
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