What is a winner-take-all market?
A winner-take-all market refers to an economy in which the best performers can capture a large share of the available rewards, while the remaining competitors are left with very little. The prevalence of win-win markets widens wealth disparities because a few are able to capture increasing amounts of income that would otherwise be more widely distributed throughout the population.
- A winner-take-all market refers to an economic system in which competition allows the best performers to rise to the top at the expense of the losers.
- The end result of a winner-takes-all market is an oligopoly, in which only a small handful of large and powerful companies control the majority of the market share.
- Stock markets and other potential zero-sum systems also lead to a win-win-all situation, where the rich get richer and widen wealth inequality.
Definition of a winner-takes-all market
Many commentators believe that the prevalence of winner-take-all markets is expanding as technology lowers barriers to competition in many fields of commerce. A good example of a winner-takes-all market can be seen in the rise of large multinational companies, such as Wal-Mart. In the past, there was a wide variety of local stores within different geographic regions. Today, however, better transportation, telecommunications, and information technology systems have removed the constraints on competition. Large companies like Wal-Mart can effectively manage vast resources to gain an advantage over local competitors and capture large market share in almost every segment they enter.
The logical outcome of a winner-take-all market system is oligopoly. The oligopoly is a market structure with only a small number of large and powerful companies. In the most extreme case, a monopoly is when there is a single company that controls an entire market. These large firms buy smaller firms or put them out of business competing in the market.
The winner takes it all in the stock market
The meteoric rise of the US equity markets between 2009 and 2019 has led to what some believe is a winner-take-all market. Rich people who have a large percentage of their total wealth invested in the US equity markets have taken advantage of the large market gains during this period, leading to gargantuan increases in income and wealth compared to the growth experienced by the rest of the US population. The wealth and income disparity has increased significantly during this period with a large portion of the earnings going to those already residing within the top 1% of earners.
This is an example of the “Matthew effect,” first described by sociologists in the 1960s. The effect is that in a winner-take-all situation, the rich get richer, leaving the wealthier behind. rest. This is because stock markets and other winner-take-all systems can be examples of zero-sum games, in which winners must get ahead at the expense of losers. There are alternative systems in which an increase in wealth “lifts all boats” in which the gains are mutually beneficial rather than zero sum. Examples include countries with strong social welfare systems such as the Scandinavian countries. The potential downside is that those systems provide a lower overall potential benefit to the winners, as wealth is more evenly redistributed across everyone.