How I Learned to Stop Worrying and Love the Crash

1.

So "no competition" is bad becasue products and processes lack diversity neccesary for "natural" selection. There is also no pressure to innovate. Left unchecked this situation does not rectify itself as monopolies tend to self-perpetuate until there is a diruptive technological innovation.

2.

"A lot of competition" is bad: it drives margins to zero thus no one can invest into more innovation. Further yet, the collective of buyers ends up paying for a 100 small development teams instead of, say, 5 moderately large ones. At this point wastefulness of effort duplication overweights the diversity value that it brings to the table.

This situation is not stable - nearest credit crunch will purge out the weak players and lead to consolidation. Consolidated players will have less fixed overhead to spread over the same user base, thus margins will improve and some more research can be done to further improve the product.

It figures then that there are differetn types of markets: some which require more diversity and some which require less or none at all. Barring government intervention the former will be able to sustain more smaller businesses and the latter only a handful of big players. At the extreme it turns into natural monopoly (e.g. utility) where value of diversity is diminishingly small compared to fixed overhead of one more business (e.g. second water pipeline).

Now let's discuss which markets need diversity and which ones do not!