Creating a Red Ocean Strategy
Announcements of large mergers are always big news throughout the eco-systems in which they traverse. The AT&T/T-Mobile coming-out-party was no less significant in its pageantry and luster. Once the initial “shock and awe” have subsided to some degree, the obvious effects become more clear and succinct. Entities from competitors, regulators, news organizations, and pundits rush to put their unique spin on the situation, either reveling in how such a partnership is a “natural” or decrying the partnership as the coming of Armageddon. But all get on board with the hype and momentum, riding its effects until the last drop of merging nectar is gone. Thus, we may be promoting a Red Ocean Strategy.
At this point economic realities begin to settle in. A tipping-point has been created within the industry where equilibrium is breached to the point of no return.
The point at which a dominant technology or player defines the standard for an industry-resulting in “winner-take-all” economies of scale and scope. See (Tipping Point)
An economic “Red Ocean” has been put into motion. As competitors huddle within their think-tanks, contemplating the next move in counter-balancing the competitive landscape, peripheral mergers and buy-outs begin take hold, all trying to counter-balance the market power created by the first merger. Without equal or comparable economies of scale these competitors feel squeezed to improve their market positions. This comes with inadvertent buy-outs by attrition, increased merger talks with market rivals, all resulting in a continuum of market consolidations surely follow. See (Red Ocean or Competition Based Strategies)
Here, grabbing a bigger share of the market is seen as a zero-sum game in which one company’s gain is achieved at another company’s loss. They focus on dividing up the red ocean, where growth is increasingly limited.
Duopoly becomes a thinkable progression of things to come within this industry, as competitors scramble to share limited market economics. Competition decreases and prices begin to rise. Jobs that were once secure and increasing are now being eliminated at an alarming rate, rippling throughout related industries and continuing the original domino-effect cycle. So where does this end? Competitors continue to be eliminated through market attrition, and companies continue to grow through consolidations, smaller companies either become extinct or are gobbled up in the frenzy. Eventually, we end up with a few companies controlling a majority of this market. Prices are higher, innovation decreases, and jobs are lost due to a lack of competition.
The opposite is true as well. Too much competition within markets tends to reduce prices to a degree where competitors no longer are able to produce a reasonable economic return on investment to sustain operations. Companies begin to fail, markets begin to decline, and the competitive pendulum swings in a less competitive direction. Demand and Supply becomes interrupted unable to right themselves to a stable and viable model, begetting less competition, market concentration, and higher prices.
Markets move to right themselves, one way or another, in an attempt to equalize the tipping-point. Basic economics indicate this belies more jobs, competition, and innovation. True competition is the driver that has created healthy economic qualities in this market from the beginning, which are more jobs, more innovation, and lower prices. How can anyone believe that less competition will sustain any of the free market system drivers that all of us have come to depend on for economic growth and stability?
This is not an attack on the capitalist system, on the contrary, it is a warning of possible instability, and consolidation within a market rich in competitiveness. There is an equilibrium that must be reached in markets where the fundamental economic model should not be pushed into a tipping-point, flowing through markets unchecked and wreaking havoc on dynamics needed sustained positive economic drivers. It is not a call for the FCC to intervene, though it will have some role in the matter. It is not a championing for increased regulation, but a concerted effort to involve the DOJ in making sure this does not tip the competitive scales one way or the other.