Peter Thiel explains why monopolies are not always bad

September 17, 2023

Peter Thiel is famous for telling founders to aim for monopoly if they want to build a world-changing company.

In the clip below, he makes his argument for why monopolies aren’t always bad:

“I think they become bad in a static world, where a monopoly is just a tax or toll collector… I think in a dynamic world, you’re not creating artificial scarcity. So when Apple invents a smartphone that works, that’s not restricting supply—it’s creating new supply where none existed.”

Current laws seem to reflect this: there are anti-trust laws to stop bad monopolies and copyright/intellectual property laws to encourage good monopolies.

He continues:

“If you told me there was a monopoly that was going to stop all innovation and squash everybody for the next 100 years, that’s probably a pretty unhealthy dynamic. But I think in practice, that has not been the case. People were worried about that with IBM in the 70s. Microsoft in the 90s. With the benefit of hindsight, these were probably the points at which the monopolies were eroding as a result of changing markets. For IBM it was the shift from hardware to software. For Microsoft it was desktop to internet.”

He goes on to argue that monopolies actually encourage innovation:

“I would be disturbed if you had a permanent monopoly, but most of the time they last for one or two decades. And I do think the existence of these monopolies encourages innovation. Why is so much capital being put into the software industry? And I think it is a policy problem that we don’t have enough capital flowing into other industries. It would be good if we had more innovation in clean tech, it’s just that the business models don’t work, and as a result, we’re going to have very slow innovation in that area.”