You asserted that a highly concentrated industry is evidence of optimal resource allocation.
It isn't.
It isn't.
Me> If you consider markets to be an optimization strategy for resource allocation ...
Optimization strategy as mathematicians use it means something similar to "optimal resource allocation" as economists use it, but the tools and thought processes are very different. For instance, economists are often not aware of the concept of "local maximums" vs "global maximums"--that in large state spaces, like an economy, there probably is no globally optimal allocation. They're mostly not aware of what "state spaces" are or what logistic regression is. But yes, I think of markets as an optimization algorithm for resource allocation, not dissimilar to gradient descent.
Me> ... an industry being owned by a small number of successful companies represents a signal that a local maximum has been reached. That's assuming there aren't artificial barriers put up to prevent competition
For my specific point of "concentration points to an industry local maximum", "law of diminishing returns" is probably the most applicable concept taught in econ 101, but I'm saying more than that. "Law of diminishing returns in mathematical optimization" is a real thing, I didn't make it up. It applies to many complex systems, an economy being one.
So yeah, I stand behind what I said; I think I understand econ just fine; maybe in the future you can just open with your point instead of being a dick, it saves time.
Companies with monopoly power do not allocate resources optimally (for society) because they choose to optimise resources optimally for themselves.
Because they have pricing power, profit maximising behaviour does not allocate resources optimally.
Briefly, with (textbook) perfect competition, profit maximising firms will price their goods at marginal cost and produce a socially optimum amount.
A company with a monopoly will sell at a higher price and sell less than the socially optimum amount.
There are also dynamic effects:competition acts as a spur for innovation.
This is the text book argument against monopolies.
But if everyone is essentially running the same strategy, the biggest player will win by force of momentum. (See also the reasoning behind dozens of copycat food delivery startups trying to "growth hack".)
Either way, you end up with a few players dominating the market with their locally optimal resource allocation.
This model is called "dominant firm with competitive fringe."
Like in many technology fields, you have high fixed costs that are distributed over all of your customers, and economies of scale. It is much cheaper for Google to add 10 000 new servers to their datacentres, compared to starting up a new hosting company, building small datacentres on five continents, and rewriting all the software that Google Cloud offers on top of servers.
So seems plausible that a highly concentrated industry with a few big companies each having >10% market share is more efficient (and can offer lower prices) than a market with thousands of small artisanal hosting companies with <0.1% market share.
2 There are lots of businesses with high fixed costs and low marginal costs - tech is not that different from others in that regard.
3 Tech, does have one key difference - the network effect. In other words, a company's history in building up a large network of customers may matter more than how efficiently it operates today
4 The dynamic effects of concentrated industries (as I mentioned earlier) are complicated. There is no guarantee at all that the result will be optimal.
5 We have nice examples of this in collusive behaviour by the major tech companies in their hiring policies.
6 There are other alternatives to the status quo than, as in your example, of reducing companies to one hundredth of their former size.
> That's assuming there aren't artificial barriers put up to prevent competition