Understanding the Zero Profit Condition

Austan Goolsbee writes in Slate about something called The Zero Profit Condition.

If you’re in any business where the cost to enter as a competitor is very low, you’ve got this problem. The minute there are big profits being made, competitors will flood in and steal them. This is why there are five times as many real estate brokers in San Francisco as in Steubenville, Ohio. Because the houses cost five times as much, the commissions are five times as great, so brokers show up in enough volume that everyone goes back to making exactly the same amount of money.

The only way to win is to break the rules. To play by your own rules, creating a market in which the cost of entry is very high, or even impossible. If you’re the only one, then you win, by default.

Seth Godin

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