Why do people lie?

How much of the world is monopolistic? How much is truly competitive? It’s hard to say because our typical conversation about these matters is so confusing. All businesses can seem reasonably similar to the outside observer, so it’s easy to perceive only small differences between them.

PERCEPTION: FIRMS ARE SIMILAR

But the reality is much more binary than that. There’s an enormous difference between perfect competition and monopoly, and most businesses are much closer to one extreme than we commonly realize.

REALITY: DIFFERENCES ARE DEEP

The confusion comes from a universal bias for describing market conditions in self-serving ways: both monopolists and competitors are incentivized to bend the truth.

Monopoly Lies

Monopolists lie to protect themselves. They know that bragging about their great monopoly invites being audited, scrutinized, and attacked. Since they very much want their monopoly profits to continue unmolested, they tend to do whatever they can to conceal their monopoly—usually by exaggerating the power of their (nonexistent) competition.

Think about how Google talks about its business. It certainly doesn’t claim to be a monopoly. But is it one? Well, it depends: trust in what? Let’s say that Google is primarily a search engine. As of May 2014, it owns about 68% of the search market. (Its closest competitors, Microsoft and Yahoo!, have about 19% and 10%, respectively.) If that doesn’t seem dominant enough, consider the fact that the word “google” is now an official entry in the Oxford English Dictionary—as a verb. Don’t hold your breath waiting for that to happen to Bing.

Competitive Lies

Non-monopolists tell the opposite lie: “we’re in a league of our own.” Entrepreneurs are always biased to understate the scale of competition, but that is the biggest mistake a startup can make. The fatal temptation is to describe your market too narrowly so that you dominate it by definition.

Suppose you want to start a restaurant that serves British food in Palo Alto. “No one else is doing it,” you might reason. “We’ll own the entire market.” But that’s only true if the relevant market is the market for British food precisely. What if the actual market is the Palo Alto restaurant market in general? And what if all the restaurants in nearby towns are part of the relevant market as well?

These are hard questions, but the bigger problem is that you have an incentive not to ask them at all. When you hear that most new restaurants fail within one or two years, your instinct will be to develop a story about how yours is different. You’ll spend time trying to convince people that you are exceptional instead of seriously considering whether that’s true. It would be better to pause and consider whether there are people in Palo Alto who would rather eat British food above all else. It’s possible they don’t exist.

Lastly, remember that a business’s strength is derived from its unique human capital, which deserves the investment in your well-being just as much as anything else. Contact HyperEffects to chart out a tailor-made tool for your business processes to be swifter, organized, and easy.