Dominating a market is a highly effective strategy for accumulating wealth. It has produced multi-billionaires like John D. Rockefeller, the founder of Standard Oil Company and Bill Gates, the founder of Microsoft, among many others.
Strictly speaking, market dominance is not the same as market monopoly. Monopolists limit production and raise prices above the level most customers can afford to pay---that is, they often use predatory means and extract artificially high prices from their customers. On the other hand, dominating a particular market does not confer unlimited economic power, given the interdependence of producers, suppliers, and customers. Market dominance is measured by the strength of a brand, a product, or a service a firm can control in a given geographical area, relative to competitive offerings. The most common strategy to gain market dominance is through market leadership. As a strategy, it generally focuses on: (1) expanding the market by finding new users or new uses of the product, and (2) protecting market share by developing new product ideas, improving customer service, or improving distribution effectiveness.
Market leaders enjoy many advantages that non-leaders can only dream of. These advantages are: lower product costs due to ‘economies of scale’ (benefits of size), more public awareness of the product due to the company’s leadership status, and better prices due to less competition. These are just a few of the advantages to prove why winning market leadership must be a company’s goal.
Even when market dominance is achievable, it is also important to remember that competition and innovations from other firms can suddenly appear and chip away the market share of a dominant company. The high-price approach may produce high profits for a dominant producer for a short time, but it can also attract new companies to get into the market to compete. As such, the new entrants will, sooner or later, cut their prices in an attempt to gain market share. For such a likely possibility, it is best that a company sells its products at a reasonable price from the get-go. That way new entrants will not be able to match your production costs, because you enjoy a huge advantage through economies of scale. In other words, by producing a larger number of units, you can achieve a lower cost per unit and gain a higher profit per unit.
As long as a business company can find a way to assert market dominance, it can make a lot of money. Let’s look at this point more closely from the example of John D. Rockefeller who came to control most of the petroleum refining industries in the United States in the last half of the 1800s. It did not take him long to recognize the benefits of size and exploit the power of market share. His company, Standard Oil, gradually gained almost complete control of oil refining and marketing in the United States through horizontal integration. That is, he lured in many new players, replaced competition with coordination, and forged alliances with other similar companies in the industry. Among his tactics was granting his potential rival companies a peek at how he conducted business. Once they realized his operations were so efficient that he could sell below their costs and still make profits, they lost their inhibitions about joining him.
In the kerosene industry, Rockefeller replaced the old distribution system, which was plagued with too many layers. He supplied kerosene by trains that brought the fuel to local markets and then delivered it to retail customers by tank trucks, thus bypassing the existing networks of middlemen. In addition to improving the quality and availability of kerosene products, he was also able to greatly reduce the cost to the public as the price of kerosene dropped by nearly 80% over the life of the company. But because of his strategy of market dominance, he was really the one who gained the most.
As for building a business organization, Rockefeller consistently sought alliances that benefited both parties. Unlike those who would always look for bargained prices, he would often acquire assets at prices reasonable to sellers. On the other hand, sometimes he was known to have played to win at any cost. For example, he once wanted to increase the seclusion of his Pocantico Hills estate in New York by acquiring a small adjacent property. So, Rockefeller made a generous offer to the owner of that property. But having been turned down, Rockefeller instructed one of his workers to enclose the neighbor’s property by planting gigantic cedar trees. Seeing he would be condemned to perpetual darkness, the owner finally yielded.
But lest anyone thinks of Rockefeller as merely a cut-throat, self-centered businessman, we must also point out some of his contributions to society: he gave away vast sums to charity. His generosity was responsible for the establishment of the University of Chicago, Rockefeller University, Spelman College, the Peking Medical College, the Rockefeller Foundation, as well as the development of a yellow fever vaccine and the eradication of hookworm disease. He also helped to propel no fewer than five other men onto the list of the wealthiest Americans of all time. No wonder, Rockefeller is well-known for having said: “I believe it is my duty to make money and still more money and to use the money I make for the good of my fellow men according to the dictates of my conscience.
