Skip to main content

Limitation of Competition

Limitation of Competition

warning

This is an early draft and isn't yet up to our standard. You can contribute improvements.

Through regulatory or other means including erecting barriers to prevent or limit competitors.

-- Simon Wardley

note

Limitation of Competition is often the overarching goal. Strategies like Defensive Regulation, Raising Barriers to Entry, acquiring patents (IPR), engaging in Threat Acquisition, or driving adoption of a proprietary or influenced standard (Standards Game) are specific methods or tactics employed to achieve this outcome. It represents the desired state of reduced competitive pressure.

Definition & Summary: Erecting barriers (regulatory or otherwise) to prevent or limit competitors from entering or expanding. This is a broad strategy often achieved through non-market means -- essentially, make it hard or impossible for others to compete with you by changing the environment.

Detailed Explanation: This overlaps with lobbying and defensive regulation: it's the outcome of those -- your market gets rules that favor you or burden others . It can also be done through industry standards or consortia that exclude some players. The purpose is straightforward: preserve your position by structurally locking out competition. Key principle: use whatever influence you have (be it with governments, standard bodies, big customers, etc.) to set conditions (licensing requirements, certifications, massive upfront costs) that you can meet and new entrants cannot. It's a decelerator because it slows down the influx of new ideas/players in your space.

Real-World Examples:

  • Historical: AT&T (Bell System) for decades had regulated monopoly status in US telecom. It lobbied to maintain that and did things like ensure stringent FCC regulations on who can attach devices to the network (e.g., early on, you couldn't even use non-AT&T phones on lines). These regulations effectively limited competition -- small innovators were kept out. Only after antitrust action did this change. AT&T's prior strategy to limit competition allowed it to control telecom evolution at a slower, proprietary pace for a long time.

  • Historical: In many countries, banking is heavily regulated -- incumbent banks often help shape regulations (capital requirements, compliance, licensing) that are extremely costly for new fintech startups to fulfill. This limits competition because small entrants can't afford compliance departments or high capital reserves, thus slowing the disruption in banking. Only large, well-funded startups can play, and even they move cautiously or partner with incumbents.

  • Contemporary: European car emissions standards -- major automakers are involved in consultations. Sometimes regulations have loopholes or testing procedures that incumbents know how to pass (or even cheat, as Dieselgate showed) while making it tough for new companies without massive R&D to comply. This can be seen as incumbents ensuring any competitor must meet costly standards, effectively raising the bar to entry.

When to Use / When to Avoid:

  • Use when: You have strong industry/government influence and see a threat from new entrants or substitution. If you can codify requirements that you already fulfill, you freeze the playing field in your favor. It's particularly used in mature industries (utilities, finance, healthcare) where safety/quality can be cited to justify barriers.

  • Avoid when: You lack the influence -- attempting and failing could backfire (the regulator might impose something else harmful). Also avoid if it severely hurts customer perception (if customers see you as using regulation to block choice, they may support alternatives out of principle). In fast-moving tech, regulatory moats are hard to maintain, so focusing on them can distract from actual innovation.

Common Pitfalls:

  • Regulatory risk: Political winds can shift. A new administration might strip away protective rules, leaving you exposed with possibly under-invested competitiveness (relying on regulation made you complacent).

  • Innovation stifling: By limiting competition, you might slow innovation in your own company due to lack of pressure. This can bite you long-term if an unexpected competitor or tech appears that bypasses the barriers entirely.

  • Public blowback: If it becomes evident you're preventing better/cheaper solutions via lobbying (e.g., taxi medallion systems vs. rideshare), public opinion may turn against you and erode any goodwill, potentially leading to deregulation.

Related Strategies: Defensive Regulation (synonymous in many cases -- using policy to defend), Lobbying/Counterplay (the means to achieve limitation of competition) , Threat Acquisition (another way to limit competition: buy them out rather than block them).

Further Reading & References:

  • Wardley, S. -- Limitation of competition: erecting barriers via regulation or other means . Summarizes how preventing others from entering is a strategic play.

  • Case: Taxi Medallion System vs Uber -- research how city-enforced medallion limits kept competition out for decades, and how Uber circumvented it leading to medallion value collapse. A vivid example of regulated limitation of competition and its eventual consequences.

  • Business History: Airline Regulation (1930s-70s) -- U.S. Civil Aeronautics Board tightly controlled routes and fares (incumbents secure, no new airlines). Post-deregulation, competition soared (some incumbents struggled). This shows how long limitation of competition can hold an industry in stasis and what happens after.